The Finance Minister Pranab Mukherjee, presented the Union Budget for the year 2012 on March 16, 2012, amid ambitious expectations of achieving fiscal consolidation and providing growth impetus. The finance minister had a difficult task to arrest the widening fiscal deficit and maintain it. The budget, however, seems to have treated a middle path. At the very beginning of his speech, Mukherjee said that a “year of recovery interrupted.”
The notion was that widening fiscal deficit needed to be controlled and by widening the tax base and cut subsidies, however, certain incentives and relief has been given to specified sectors. Here take a look of the key proposal of the budget with the main emphasis to direct tax law. GDP Growth in 2011-12 estimated at 6.9 per cent and current account deficit of 3.6 per cent. Growth in the fiscal year estimated by the budget 2012-13 is estimated at 7.6 per cent. Inflation is expected to come down this year. Service tax and general excise duty rates raised from 10 per cent to 12 per cent.
Budget and tax rates
Budget, tax details: For Individual (other than Senior Citizen) — Basic exemption limit increased from `1.8 lakh to `2 lakh. Tax slab of general tax payers and woman category assessee is now same. Tax bracket of 20 per cent for income between `5 lakh to `8 lakh has been increased for all category of individuals including senior citizens (above 60 years) to `5 lakh to `10 lakh. The new slab rates proposed are as under:-
Income Tax Rate
Upto `2,00,000 Nil
`2,00,001 to `5,00,000 10%
`5,00,001 to `10,00,000 20%
Above `10,00,000 30%
No change in existing corporate tax rate but measures proposed to enable them better access funds. Security transaction tax (STT) in cash delivery segment reduced from existing 0.125 per cent to 0.1 per cent in the budget. Resident senior citizens not having any income from business or profession shall not be liable to pay advance tax.
Alternative Minimum Tax (AMT) on all other persons other than companies
Now AMT is also proposed to be levied on sole proprietor, partnership firms, AOP etc in addition to existing LLPs by the budget. Any persons who have claimed deduction in chapter VI-A under heading C — “Deductions in respect of certain incomes” (other than section 80P) or deduction under section 10AA shall be liable to pay AMT on adjusted total Income @ 18.5 per cent. However, no AMT shall be levied in case adjusted total income does not exceed `20 lakh.
TAX INCENTIVES & RELIEFS
New Rajiv Gandhi Equity scheme to provide for income tax deduction of 50 per cent for retail investors who invest in equity and whose annual income is less than `10 lakh, a three-year lock in period is also proposed to avail deduction. Withholding tax on external commercial borrowings (ECB) reduced from 20 per cent to five per cent for power, airlines, roads, bridges, affordable houses and fertiliser sectors.
Scope of Section 80D has been widened to include payments made on account of preventive health check-up up to `5,000. It is proposed to extend the sunset date for tax holiday for the power sector for a further period of one year up to March 31, 2013. Relief from long term capital gains on transfer of residential property for assessee being individual and HUF if assessee utilises the net consideration received from the transfer of such asset for subscribing equity shares of new startup SME Company which is in turn used by the company to purchase new plant and machinery. Deduction of up to `10,000 from interest from all saving accounts to be allowed to an assessee, being an individual and Hindu Undivided Family.
Threshold limit for tax audit being increased from 60 lakh to 1 crore in case persons is carrying on a business. In case of profession threshold limit has been increased from 15 lakh to 25 lakh. The benefit of initial depreciation on new plant and machineries is extended to the power sector.
The benefit of weighted deduction of 200 per cent for expenditure incurred on house research and development has been extended for a further period of 5 years up to March 31, 2017. Weighted deduction of 150 per cent is proposed on expenditure incurred for agricultural extension project and for skill development project.
Scope of investment linked deduction being broadened by adding new businesses viz
- Setting and operating and Inland container depot/freight station
- Bee-keeping and production of honey and beeswax
- Setting up and operating a warehousing facility for storage of sugar.
- Wealth tax-threshold of gross salary increased from `5 lakh to `10 lakh for the purpose of levying wealth tax on residential house allotted by the company to an employee or officer or whole time director.
Deduction of life insurance premium in respect to policies issued on or after April 1, 2012, shall be allowed for only so much of premium as does not exceed 10 per cent of capital sum assured, said the budget. In order to overcome the judgment of Supreme Court in case of Vodafone, it is proposed to make various amendments with retrospective effects including in the definition of a capital asset and transfer. It has been clarified in the budget that property includes and shall be deemed to have always included any rights in or in relation to Indian company including rights of management or control or any other rights whatsoever.
Consideration received in respect of the issue of shares by a closely held company from a resident exceeding the fair market value of the share, states the budget, shall be chargeable as income from other sources in the hands of the company. Nature and source of any sum credited as share capital, share application, share premium or any such amount by whatever name called in the books of closely held companies shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder.
It has been clarified in the budget that property includes and shall be deemed to have always included any rights in or in relation to Indian company including rights of management or control or any other rights whatsoever.
Compulsory filing of Income-tax return in case of resident having assets located outside India. The budget also proposes to levy tax collection at source at the rate of 1 per cent on the sale of bullion and jewellery in cash if the sale consideration exceeds `2 lakh.
Rationalisation of transfer pricing provision-Introduction of Advance Pricing Agreement, application of transfer pricing regulations to certain domestic transactions. Finance Minister has adopted the concept of General Anti-Avoidance Rules (GAAR) as an anti-tax avoidance measure in the Income Tax Act, 1961. It is proposed to grant powers to the tax authorities not to allow tax benefits on transactions/arrangements which do not have commercial substance or consideration other than solely achieving the tax advantage.
Tax deduction at Source (TDS) on transfer of certain immovable properties (other than agricultural land) — Presently there is no requirement to deduct TDS on transfer of immovable property by a resident except in case of compulsory acquisition. Now it has been proposed that every transferee, at the time of making payment or crediting the sum in by way of consideration for transfer of immovable property (other than agricultural land) deduct tax @ 1 per cent of such sum, if consideration paid or payable for the transfer of such property exceeds
- `50 lakh in case such property is situated in a specified urban agglomeration (7 metro cities, 5 districts and one city) or
- `20 lakh in case such property is situated in any other area.
— The author is a renowned tax and investment consultant