WHILE WALKING ON THE LINE OF FISCAL DEFICIT TRYING TO BALANCE THE RECESSION & REFORMS.

BUDGET

EXPECTATIONS FROM BUDGET After the UPA Govt. came into the power with almost majority everyone expecting a “Dream Budget”. The normal expectations are like that,  The limit of Tax Free income is increased.  Securities Transaction Tax should be removed.  The exemption of interest paid on Housing loan should be increased from 1.5 Lacs to 2.5 Lacs.  The deduction of U/S 80C should be increased from 1 Lac to 1.5 Lac.  Introduction of some lucrative schemes to increase the Foreign investments in India.  The excise duty on medicines should be abolished completely.  The subsidies given to various sectors should be clubbed.  The Companies Act, 1956 should be reformed.  The Wealth tax threshold limit should be expanded.

PROPOSED PERSONAL INCOME TAX INDIVIDUALTAX RATEWOMANTAX RATES. CITIZENTAX RATE 0-1,60,000 NIL 0-1,90,000 NIL 0-2,40,000 NIL 1,60,001- 3,00,000 10% 1,90,001- 3,00,000 10% 2,40,000- 3,00,000 10% 3,00,001 – 5,00,000 20% 3,00,001 – 5,00,000 20% 3,00,001 – 5,00,000 20% >5,00,000 30% >5,00,000 30% >5,00,000 30% Surcharge of 10% is proposed to be removed for all non-corporate assessee,

TAX TABLE * Inclusive of applicable Surcharge and Education cess of 30.90% where the total income is equal to or less than Rs 10 million # 41.20% where the total income is equal to or less than Rs 10 million No Surcharge is levied from Financial year (AY )

Taxation of LLP Introduction to LLP Taxation  The LLP Act came into effect in the year 2009,Act and the rules have been notified w.e.f. 1 st April,2009  All the provisions relating to the firm incorporated apply mutatis mutandis to LLP.  The income of the LLP shall be taxed as the income of the firm and accordingly, the share of the partners from LLP shall be exempt in the hands of the partner. Amendment  Section 2(23) : Definition of “firm”, “partner” and “partnership” extended to include LLP and LLP resp. within their scope.  Section 140(cd) : Return of Income of the LLP shall be signed and verified by the designated partner. The same can be signed by any other partner in case of his absence.  Section 167C : This section makes every partner of a LLP jointly and severally liable for the taxes to be paid by LLP for the period during which he was a partner.  LLP’s have been excluded from the provisions of presumptive taxation according to Section 44AD of the Act

Amendment effective from date:- The amendment will be effective from April 1,2011 and will, accordingly, apply to AY onwards. CONVERSION :- Whether Conversion Taxable under Section 45 of the IT Act ?? Explanatory memorandum to the budget clarifies that no tax liability would arise in case of a conversion of a general partnership so long as there is no change in the rights and obligations of the partners and no transfer of assets or liabilities post the conversion. Amendment effective from date:- The amendment will be effective from April 1,2011 and will, accordingly, apply to AY onwards. CONVERSION :- Whether Conversion Taxable under Section 45 of the IT Act ?? Explanatory memorandum to the budget clarifies that no tax liability would arise in case of a conversion of a general partnership so long as there is no change in the rights and obligations of the partners and no transfer of assets or liabilities post the conversion.

TDS AMENDMENTS Nature of Payment (194-I) –RentExisting RateProposed Rate (w.e.f 1 st October 2009) a. Rent of plant, machinery or equipment 10%2% b. Rent of Land, Building or Furniture to an Ind & HUF 15%10% c. Rent of Land, Building or Furniture other than an Ind or HUF 20%10% 194 I 194 C Existing provisions : 2 % on payment for a contract 1% in case of sub-contract 1% in case of payment for an Advertising contract. Proposed provisions (w.e.f 1 st October,2009) * On payment for a contract and even for sub-contract and Advertising contracts; 1% where payment for a contract are to individuals/HUFs 2% where payment for a contract are to any other entity.

EXISTING PROVISIONS: U/S 194C, TDS is required to be deducted on payments to transport contractors engaged in the business of plying, hiring or leasing goods carriages. However if they furnish a statement that they do not own more than two goods carriages tax is not to be deducted at source. PROPOSED PROVISIONS: It is proposed to exempt payments to transport contractors from the purview of TDS. Any person whose receipts are subjected to deduction of TDS, The deductee shall mandatorily furnish his PAN to the deductor failing which the deductor shall deduct TDS at higher of the following rates; A)The rate prescribed in the Act B)At the rate in force i.e. mentioned in the Finance Act. or C)At the rate of 20% A deduction in form 15G or 15H for non-deduction of TDS is not valid without PAN.

SEC 80DD: The limit of the expenditure incurred by the assessee increased from Rs. 75,000 to Rs. 1,00,000. SEC 80E: This section allows deduction for the interest paid on loan availed for ‘Higher education’. However, the scope of the term ‘Higher Education’ has been expanded to include courses that could be pursued after SSC or its equivalent exam. SEC 80A: No deduction under chapter VIA will be allowed if the tax deduction has already been allowed U/S 10A & 10B or under any provision of chapter VIA under the heading “C-Deductions in respect of certain income” No deduction will be allowed under various provisions mentioned above if the same is not claimed in the return of income.

EXTENSION OF SUNSET CLAUSE FOR TAX HOLIDAY [80-IA(4)(IV), (V)(B) & 80-IB(9) 80-IA(4)(iv): Tax holiday benefit would be extended for an undertaking, who commences business on or before 31 st March, 2011, in the following; Generation or Generation & Distribution of power; Transmission or Distribution by laying a network of new transmission or distribution lines; Substantial renovation & modernization of existing network of transmission or distribution lines. 80-IA(v)(b): Tax holiday benefit will also be extended to an undertaking owned by an Indian company set up for re-construction or a revival of power generation commencing the activity of generation, transmission or distribution of power on or before 31 st March IB(9): Benefit of deduction is available to the under taking which is engaged in refining of mineral oil & which begins such refining on or after 1 st October 1998, but not later than the 31 st day of March,2012. It is also proposed that the benefit of deduction under the said sub-section shall be available to the undertaking which is engaged in commercial production of natural gas.

TAXATION OF GIFTS (SEC-56)  With a view to avoid revenue seepage through GIFT transactions the scope of taxation is expanded which now includes gifts in kind. The present scope of tax was restricted to gift of any “sum of money” which was interpreted to include only gifts in cash and not in kind, the proposed amendment seeks to tax all kinds of gift including the transfers of movable & immovable properties. Transfer of AssetChargeable Amount Immovable property received without consideration. Stamp duty value of the property Immovable property received at value which is less then stamp duty value. Difference between stamp duty valuation and consideration paid. Movable property received without consideration. Fair market value of such property. Movable property received for a consideration which is less than FMV. Difference between the FMV of such property & consideration.

STAMP DUTY VALUATION (SEC-50C) PRE-BUDGET SCENARIO: In case of a disputed immovable property the AO may refer valuation of such property to a valuation officer. In such cases the provisions of Sec -50C shall be adopted which may be subsequently revised in an appeal of Income Tax. This section provides that stamp value of the property shall be considered full value consideration, if the stamp value exceeds the actual transaction value. PROPOSED SCENARIO: The scope of aforesaid section has been expanded to include transactions which are not registered with the stamp duty valuation officer. The valuation mechanism adopted by the officer has not been stated in this Bill. The amendment will be effective from October 01, 2009.

SECTIONELIGIBLE CLASS OF ASSESSEES ELIGIBLE CLASS OF BUSINESS APPLICABLE LIMIT PRESUMPTIVE INCOME 44ADAny personCivil construction or supply of labour for civil construction. Gross receipts of Rs. 40 Lacs or less 8% 0f Total Receipts 44AFAny personRetail trade in any goods or Merchandise. Turnover of Rs 40 Lacs or less 5% of Total Turnover 44AEAny personPlying, hiring or leasing of goods carriages Upto 10 goods vehicles Rs 3500 p.m. per heavy goods Vehicle & Rs 3150 p.m. per light goods vehicle. 44ADInd, HUF, Partnership Firm (But not LLP) who is resident & does not claim Deduction U/S 10A, 10AA, 10B, 10BA, 80HH-80RRB Any Business other than those specified U/S 44AE Turnover or Gross Receipts is Rs 40 Lacs or less 8% of Turnover or Gross Receipts. 44AEAny personPlying, hiring or leasing of goods carriages Upto 10 goods vehicles Rs 5000 p.m. per heavy goods Vehicle & Rs 4500 p.m. per light goods vehicle.

SEC- 44AD SEC- 44AE

GENERAL AMENDMENTS Exemption/Deduction For Amt Recd on Voluntary Retirement [Sec 10(10C)] This Sec provides for exemption with regards to amt recd by an assessee on Voluntary Retirement. A Proviso has been added to the aforesaid Sec, to restrict availability of deduction under this Sec for amt recd on Voluntary Retirement in case the assessee has claimed relief under Sec 89. Sec 2(15) The Definition of “Charitable purpose” will be extended retrospectively from AY to include activities of preservation environments or monuments or objects of artistic or historic interest. Sec 40(b)(5) Sec 40 A(3) No disallowance for aggregate payment in cash upto Rs. 35,000 for payment made for plying, hiring or leasing goods carriages. Book Profit of the FirmAmount Deductible Loss or profit upto Rs. 3 LacsRs. 1.5 Lac or 90% of the Book profit whichever is more. On the balance Book profit60% of such balance book profit.

FRINGE BENEFIT TAX & SURCHARGE The objective, as stated in the Finance Bill of 2005 is the difficulty in isolating the personal elements in respect of the benefits provided to the employees where there is a collective enjoyment of such benefits for purposes of business but includes partially the benefit of personal nature. It is applicable from AY Meaning: Objective: Fringe benefit means any consideration for employment provided by way of any privilege, service, facility or amenity directly or indirectly provided by the employer of his employees or their family members and also any contribution by the employer to an approved superannuation fund for his employees. Surcharge is a mode of collecting more tax to low down the fiscal deficit of our country. Abolition!!! Bad news for employees, now the all the FRINGE BENEFIT’S are taxed in the hands of employees. Not on the 20% of the value of benefits but on the total amount of the benefits. And on the other hand SURCHAGE is also removed only from PERSONAL INCOME TAX not from the part of the CORPORATE taxation. It is illogical because if it is not a common mode of collecting tax then why it is a part of DIRECT TAX. So, as a result the tax burden is directly increased in the EMPLOYEE class people’s portfolio. For instance keep your eyes unmoved,

BASIC CONCEPT: MAT, as the name implies, is the minimum amount of tax which a company has to pay, even if it is not liable to pay any tax on its regular assessment. Under the regular computation, the person is entitled to all the deductions, exemptions and incentives available under the provisions of the tax code, such as Accelerated depreciation, Investment allowance, Rebate for setting up industries in a backward area etc. The resultant computed income, therefore, normally would be much lower than the book profits. However, for the computation of income for the purposes of MAT, there are very few adjustments, if any, to be made to the book profits. Most importantly, the method of depreciation followed for the purpose of accounts is different from that considered for taxation purposes. As a result, MAT ensures that every profitable company would have to pay some tax every year. OBJECTIVE: With a view to compel highly profitable companies, paying little or no tax due to availment of tax incentives, the concept of MAT was introduced in 1983 by way of insertion of section 80 VVA of the Income Tax Act 1961 (the Act). But it is practically applicable from AY it is the process to collect tax in Advance. CURRENT SCENARIO: By virtue of the section 115J, in case of a company whose total income was less than 10 % of the book profits, the total income to be charged to income tax was deemed to be 10 % of the book profits. The effective income tax rate is 11.33% & credit available for 7 years.

The effective rate of Minimum Alternate Tax is proposed to be increased from 11.33% to %. And also It is proposed to extend the period for carry forward and set off of MAT credit to next ten years from the existing period of seven years. This amendment will apply with prospective effect from FY But the definition of “Book profits” changed with retrospective effect applicable from AY To override the SC’s verdict in the case of HCL comnet systems. By the virtue of this amendment, Many other tax holidays effect gets reduced. MAT introduced by the Govt. to cover the zero tax companies under the tax net, but increasing the rate by 50% of the previous rate in not a viable solution. In the one hand giving relief by abolishing FBT and in the other hand increasing the MAT rate by 5% is not really digestible for the companies. To understand the impact of the both on the company we can take the example as mentioned in the next,

BHARTI AIRTEL LTD.( ) For Better Understanding the Impact on Companies Profile take the example of BHARTI AIRTEL LTD.( ) PARTICULARS AS PER RESPECTIVE FINANCE ACT AS PROPOSED IN BUDGET Minimum Alternate Tax156,40,06,070234,60,09,106 Fringe Benefit Tax25,49,70, Net Total Liability181,89,76,070234,60,09,106 Net Increment Tax Liability 52,70,33,036

The Finance Act, 2008 introduced the Commodity Transaction Tax (CTT) to be levied on taxable commodities transactions entered in a recognized association. But the Prime Minister’s Economic Advisory Council is against of CTT. By saying these lines Finance Minister wants to abolish the CTT. This is the first time when two Finance Minister of same Alliance have different proposals in back to back years. But practically it does not have any impact on traders who deals in commodities. Because in the previous year the act is passed in the parliament but the chargeability is still “to be notified”. On the other side if Govt. applies tax on Commodities transaction it is not good for our economy also. The reason behind the thought that in our country farmers are not well equipped in terms of capital. On account of this they are not the part of Commodity Market & as a result they are not benefited by this speculation.