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Para Page
Particulars
no. No.
1. INTRODUCTION 5
2. ECONOMIC INDICATORS 7
a) Corporate Tax 10
b) Personal Tax 18
c) Non-Resident Tax 24
d) Withholding Tax 27
a) Service Tax 45
c) Customs Duty 60
India is facing the challenge to lead the economy to grow at the rate of 9% at the earliest. Growth
rate of Gross Domestic Product (GDP) dipped from an average of over 9% in the previous three
fiscal years to 6.7% during 2008-09. Per capita GDP grew at 4.6%.
Wholesale price index (WPI) rose to nearly 13% in August, 2008 and had an equally sharp fall to
zero% in March, 2009. When WPI was zero, Consumer Price Index (CPI) was hovering at more
than 10%.
To counter the negative fallout of the global slowdown on the Indian economy, Government
responded by providing three focused fiscal stimulus packages in the form of tax relief and
increased expenditure on public projects along with RBI taking a number of monetary easing
and liquidity enhancing measures.
A major issue that drew attention of Government was a staggering fiscal deficit of 6.2% and
revenue deficit of 4.2%. These figures were way out of the Fiscal Responsibility and Budget
Management (FRBM) target.
Budget has taken various initiatives in infrastructure and agricultural development and schemes
directed towards developing export markets, education, healthcare, irrigation, employment,
empowerment of weaker sections, welfare of minorities and food security have been started.
New project for modernisation of Employment Exchange in public private partnership is to be
launched so that a job seeker can register on line from anywhere and approach any employment
exchange.
With almost three quarters of our oil consumption met through imports, it is important to
recognise that domestic prices of petrol and diesel are broadly in sync with global prices.
Government will set up an expert group to advise on a viable and sustainable system of pricing
petroleum products.
While retaining at least 51% Government equity in Public Sector Undertakings, people’s
participation in disinvestment programmes is to be encouraged.
Public Sector Enterprises such as banks and insurance companies to remain in public sector
and will be given full support including capital infusion to grow and remain competitive.
The threshold for non-promoter public shareholding for all listed companies to be raised in a
phased manner.
Structural changes in direct taxes to be pursued by releasing the New Tax Code within the next
45 days and in Indirect Taxes by accelerating the process for smooth introduction of the Goods
and Service Tax (GST) with effect from 1st April, 2010.
Despite suggestions about Indian economy being decoupled from the West, India was not
insulated from the global financial crisis. For the first time in four years, the growth in GDP was
substantially lower than the 9% mark. The overall growth of GDP (factor cost at constant prices)
was 6.7% which is lower than 7% projection estimated in the mid year review:
The impact of the global crisis is clearly visible by comparing the quarterly growth trends with
the previous year.
Quarterly growth
2007-08 2008-09
trends
Q1 9.2 7.8
Q2 9.0 7.7
Q3 9.3 5.8
Q4 8.6 5.8
As highlighted in the table above, the Indian economy was growing at a healthy pace for the
first two quarters. However there was sharp deceleration in third and fourth quarters which was
spread across all sectors except mining and community & social services.
Agriculture
The large share of service sector notwithstanding, the Indian economy still depends heavily
on the agriculture sector. The sector generates 52% employment and yet its share in overall
economy has been on a steady decline. The growth in agriculture has not been able to keep
pace with the other sectors thereby reducing its share from 21.7% in 2003-04 to 17.8% of the
GDP in 2007-08. Agricultural growth is still characterised by sharp swings and continues to
remain vulnerable to the vagaries of nature.
Manufacturing
Construction
The construction sector which consists of various segments such as industrial construction,
housing, and commercial real estate was hit hard by the liquidity crunch. An excessive price build
up was witnessed in certain segments of the industry which drove up land prices to speculative
levels. The rise in interest rates and higher input costs (steel and cement) had a negative effect
on housing demand.
Power
There is a large gap between India’s demand and supply for power. For India to achieve high
levels of growth on a sustainable basis it is imperative that this gap is bridged. Keeping this in
mind the Government had targeted 9.1% growth in electricity generation. However the actual
growth missed this target by a substantial margin. In 2008-09 the electricity sector grew by mere
2.7%. The unavailability of coal which fuels 66% of India’s power plants was the main restrictive
factor for the power sector.
Capital Markets
The secondary markets began the year on a bullish note but lost steam on account of weak
global cues. After continuous rise for over three years, the secondary markets witnessed a fall in
the year 2008. Bearish market sentiments and uncertainties about the US sub-prime mortgage
FDI, considered to be the most attractive mode of capital flow in an emerging market, remained
buoyant at USD 27.4 bn during the period April-December 2008. This reflected the relatively
better investment climate in India and efficacy of liberalisation measures to attract FDIs. The
FIIs however witnessed large net outflows of USD 12.4 bn in April-December 2008 as compared
to net inflows of USD 24.5 bn during the same period in 2007. The total foreign investments (FDI
+ Net Portfolio investments) as a proportion of total capital flows thus showed a decline from
41.6% in 2007-08 to 26.4% in 2008-09 (April-December 2008).
30
15
12
9
7 8 7
4 3
Forex Reserves
FDI/FII (Net Inflows) USD
Over the last five years India has witnessed 309
large foreign inflows both in terms of portfolio 251
as well as foreign direct investment. However, 199
with recession looming large, there was massive 141 151
pullback of funds especially from the developing
economies. India’s foreign exchange reserves
pegged at USD251 bn in 2008-09 acted as cushion
during these turbulent times and insulated our
2005 2006 2007 2008 2009
country from balance of payment crisis.
Year
Corporate Tax
With a view to creating rural infrastructure and environment friendly alternate means of
transportation for bulk goods, it is proposed to provide investment-linked tax incentive by
inserting a new section 35AD in the Income-tax Act for the following specified businesses:
(a) setting up and operating cold chain facilities for specified products;
(b) setting up and operating warehousing facilities for storage of agricultural produce;
(c) 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.
The deduction will be allowed subject to fulfillment of certain conditions.
The proposed amendment provides for allowing any expenditure of capital nature incurred,
wholly and exclusively, during the year for the above specified businesses. The proposed section
would, inter-alia, allow one hundred percent deduction 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 provisions contained in
that section.
(a) in a case where the business relates to laying and operating a cross country natural
gas pipeline network for distribution including storage facilities being an integral part
of such network, if such business commences its operations on or after the 1st day of
April, 2007, and
(b) in any other case, if such business commences its operation on or after the 1st day of
April, 2009.
The assessee shall not be allowed any deduction in respect of the specified business under the
provisions of Chapter VIA.
Any sum received or receivable on account of any capital asset, in respect of which deduction
has been allowed u/s. 35AD, being demolished, destroyed, discarded or transferred shall be
treated as income of the assessee and chargeable to income-tax under the head “Profits and
gains of business or profession”.
Further, profit-linked deduction provided u/s. 80-IA will be discontinued. All capital expenditure
(other than on land, goodwill and financial instrument), to the extent capitalised in the books
as on 1st April, 2009 will be fully allowed as a deduction in the computation of total income of
the said business for the Assessment Year 2010-2011.
This will be available in addition to any other capital expenditure (excluding land, goodwill and
financial instrument) incurred during such previous year.
There is a consequent amendment in section 43(6) and section 50B that seeks to provide that
the actual cost of any capital asset on which deduction has been allowed or is allowable to the
assessee u/s. 35AD shall be treated as ‘nil’ in the case of such assessee. It is also proposed
that in cases where capital asset is acquired or received by way of gift or will or irrevocable
trust, on any distribution on liquidation of the company, transfer of asset from holding to
subsidiary and vice-versa, transfer in a scheme of amalgamation or demerger, succession
of a proprietary concern or firm by a company; the actual cost shall be taken to be ‘nil’
u/s. 43(6).
These amendments are proposed to be made effective from the 1st day of April, 2010 and will
accordingly apply in relation to assessment year 2010-2011 and subsequent years.
Part B of the Thirteenth Schedule to the Income-tax Act, 1961 provides for a list of
activities or articles or things, the production or manufacture of which is not permissible
if an undertaking wishes to avail a deduction u/s. 80IC in respect of undertaking located
in the states of Himachal Pradesh and Uttaranchal.
As per existing provisions, undertaking owned by an Indian company and set-up for
reconstruction or revival of a power generating plant, which begins to generate or transmit or
distribute power before 31st March, 2008 is eligible for deduction.
This amendment will take effect retrospectively from 1st April, 2008.
Further, as per the existing provisions, deduction is allowed to an undertaking, which: (a) is
set-up in any part of India for the generation or generation and distribution of power; (b) which
starts transmission or distribution by laying a network of new transmission or distribution
lines; (c) undertakes substantial renovation and modernisation of the existing network of
transmission or distribution lines. For claiming deduction, the above referred activities need
to be commenced on or before 31st March, 2010.
It is proposed to extend the deadline from 31st March, 2010 to 31st March, 2011 for claiming
the deduction.
The amendment will be applicable with retrospective effect from 1st April, 2009.
Under the existing provisions, the deduction u/s 80IA is not allowed to a person who executes
a works contract entered into with the undertaking or enterprise.
It is proposed to substitute the said provision to provide that deduction u/s. 80IA shall not
be allowed to a business referred to in 80 IA (4) which is in the nature of the works contract
awarded (including Central or State Government) and executed by the undertaking or enterprise
referred to in sub-section (1) of said section.
This amendment will take effect retrospectively from 1st April, 2000 and will accordingly, apply
in relation to assessment year 2000-01 and subsequent years.
Under the existing provision a company is liable to pay minimum tax u/s. 115JB on its book profit
@ 10% if the tax payable by such company on the total income under the other provisions of
the Act is less than the tax payable under MAT. The credit of taxes such paid can be carried
forward u/s. 115 JAA for 7 years to be set off against the tax liability arising under the other
provisions of the Act.
As per the proposed amendment the tax rate u/s. 115JB is proposed to be increased from 10%
to 15% on the book profit. It is also proposed to amend section 115 JAA to allow the credit of
taxes paid u/s. 115JB for 10 years from the existing time limit of 7 years.
Under the existing provisions of sections 115JA and 115JB provision for diminution in value
of asset was allowed as expense while computing the book profit. The Supreme Court in case
of Commissioner of Income-tax-IV vs. HCL Comnet Systems & Services Ltd. (reported in 305
ITR 409) has also held that provision for bad and doubtful debt cannot be added to the “book
profit” for the purpose of section 115JA because it merely represent the diminution in the value
of an assets and not a provision for an unascertained liability as per clause (c) of that section.
The Finance Bill 2009 propose to overrule the Supreme Court ruling by inserting clause (i) in
Explanation 1 to sub-section (2) to provide that any provision in the value of investment will
also be included in computing the book profit.
The proposed amendment will have a great impact on the assessee who is in appeal over the
allowability of the said expenses. The above clause also overrules the ruling in case of Apollo
Tyres vs CIT wherein it was held that accounts are being prepared as per the Companies Act, the
Assessing Officer (AO) has no power to alter or temper the books of accounts. This proposed
amendment will have a negative impact on foreign investor coming to India.
This proposed amendment will take effect retrospectively from 1st April, 2001 and will accordingly,
apply in relation to the assessment year 2001-02 and subsequent assessment years.
Extension of sunset clause for Free Trade Zone (FTZ) and Export
Oriented Unit (EOU)
Under the existing provision of sections 10A and 10B, profits and gains derived by a newly
established undertaking in any Free Trade Zone or Export Processing Zone or Electronic Hardware
Technology Park or Software Technology Park or 100% Export Oriented Undertaking, is exempt
from tax till assessment year 2010-11.
It is now proposed to extend this sunset clause for further period of one assessment year,
thereby extending the exemption upto assessment year 2011-12.
As per the existing provision of section 10AA, the exempted profit of the newly established unit
in SEZ is computed as under:
Profits of the business of the undertaking x Export Turnover
Total turnover of the business carried on by the assessee
However, to eliminate the hardship of the assessee having business in both SEZ and domestic
tariff area vis-à-vis assessee having unit only in SEZ, it has been proposed that the exemption
to profits of the newly established unit in SEZ is to be computed with reference to the total
turnover of the undertaking.
The above amendment will be applicable from 1st April, 2010 and will accordingly, apply in
relation to assessment year 2010-11 and subsequent years.
In order to lessen the litigation under transfer pricing regulation, it is proposed to insert section
92CB, whereby, Central Board of Direct Tax (Board) would formulate the safe harbour rule. The rule
provide the circumstances in which the tax authorities would automatically accept the transfer
price declared by the assessee. The said rule would be formulated by Board and the rule could,
for example, require taxpayers to establish transfer price or result as per a specific information-
reporting and record-maintenance provision with regard to controlled transactions.
The above amendment will take effect retrospectively from 1st April, 2009.
Weighted deduction u/s 35(2AB) of 150% is allowed on in-house scientific research and
development expenditure to a companies engaged in the business of biotechnology,
manufacturing or production of drugs etc. It is proposed to extend the benefit of weighted
deduction to company engaged in the business of manufacture or production of an article or
thing excluding those specified in the Eleventh Schedule e.g. tobacco, wine, cosmetics, aerated
water, toothpaste, confectionary etc.
The proposed amendment will take effect from 1st April, 2010 and will accordingly, apply in
relation to assessment year 2010-11 and subsequent years.
Earlier it was not possible to claim tax benefit for private sector, on refining of mineral oil. It is
proposed to amend the provisions of sub-section (9) w.e.f. from 1st April, 2009, to allow private
sector a further period of three years i.e. upto the 31st March, 2012 to begin refining of mineral
oil.
For the purposes of claiming deduction under this sub-section, all blocks licensed under a
single contract which is awarded under the New Exploration Licensing Policy (NELP-VIII) shall be
treated as a single “undertaking”. It may be mentioned that the taxpayer have been holding the
view that every well in block licensed constitutes a single undertaking and accordingly, the tax
holiday is available separately for each such well.
It is also proposed that the benefit of deduction under the said sub-section shall also be available
if the undertaking is engaged in commercial production of natural gas and begins commercial
production of natural gas on or after the 1st day of April, 2009.
According to the existing provisions of sub section 10 of section 80IB the amount of deduction
to an undertaking engaged in developing and building housing projects approved by a local
authority before 31st March, 2007, shall be 100% of the profits on fulfillment of certain specified
conditions therein.
A new clause (e) and (f) is proposed to be inserted with effect from 1st April, 2010 and will
apply in relation to the assessment year 2010-2011 and subsequent years. Accordingly,
not more than one residential unit in a housing project is allotted to any person, other than
individuals, and in case of an individual no other residential unit in the same housing project
shall be allotted to any of the following persons:-
(i) the spouse or minor children of such individual,
(ii) the Hindu Undivided Family in which such individual is the karta,
(iii) any person representing such individual, the spouse or the minor children of such individual
or the Hindu undivided family in which such individual is the karta.
The existing provision contained in section 80A provides that in computing total income the
deductions specified in sections 80C to 80U shall be allowed from gross total income. The
section further provides that the aggregate amount of deduction shall not exceed gross total
income.
Since the scope of the deductions under various provisions of Chapter VI-A overlaps, the
taxpayers at times claim multiple deductions for the same profit. With a view to preventing such
misuse, provisions of Section 80A has been amended to include sub-sections (4), (5) and (6).
The proposed amendment states that no deduction will be allowed under any provision of
chapter VI-A in respect of the amount of profits and gains of an undertaking or unit or enterprises
or eligible business which is claimed and allowed as a deduction u/s 10A, 10AA, 10B and 10BA.
Further, the deduction shall in no case exceed the profits and gains of such undertakings.
It is further proposed to provide that where the assessee fails to make a claim in his return of
income for any deduction u/s. 10A, 10AA, 10B or 10BA or under any provisions of Chapter VIA,
no deduction shall be allowed thereunder. The amendment is proposed to reverse the effect of
Supreme Court ruling in the case of Goetze (India) Ltd. vs. CIT (284 ITR 323), wherein it was held
that the deduction can be claimed subsequent to original return or revised return. Now, claiming
of deduction in the return of income is inevitable to get the deduction.
The amendments are proposed to take effect retrospectively from 1st April, 2003 and will
accordingly, apply in relation to assessment year 2003-04 and subsequent years.
It is further proposed to provide that where goods or services are transferred between the eligible
undertaking (referred to in u/s.10A, 10AA, 10B or 10BA) and other business of the assessee,
such transfer should be done at the market value. The “market value” in relation to any goods
or services sold / acquired means the price that such goods or services would fetch if these were
Definition of “Manufacture”
Under the Income-tax Act, various deductions/exemptions are given to assessee to stimulate
some Industrial sectors/ geographical area.
For the purpose of claiming exemption/deduction under particular sections, it is required
that assessee should have manufacturing operations. Some assessee’s have started claiming
exemptions/deductions on activities which are actually not manufacturing activities.
In the Income-tax Act, no definition of the term “manufacture” has been provided. In the absence
of any definition of the term manufacture, the matter has gone to litigation for deciding whether
particular business activity constitutes manufacture. It has invoked various litigations in the
past and on which no unanimous resolution is achieved. The assesses have relied on various
judicial pronouncement like M/s. India Cine Agencies vs. Commissioner of Income-tax (Supreme
Court), Commissioner of Income-tax vs. Vijay Ship Breaking Corporation (Gujarat High Court) to
arrive at a definition of term ‘manufacture’
It is proposed to define the term “manufacture” which means a change in a non-living physical
object or article or thing –
(a) resulting in transformation of the object or article or thing into a new and distinct object
or article or thing having a different name, character and use; or
(b) bringing into existence of a new and distinct object or article or thing with a different
chemical composition or integral structure.
The above definition is being proposed to be inserted to narrow the meaning of term ‘manufacture’
and whether the above case law still holds good needs to be studied.
The above amendment is proposed to take effect retrospectively from 1st April 2009 and will
accordingly, apply in relation to assessment year 2009-10 and subsequent years.
At present, the income upto Rs. 1,50,000/- is exempt in respect of individuals (other than
women below the age of sixty five years and senior citizens), Hindu Undivided Families (HUF),
Association of Persons (AOP), Body of Individuals (BOI) etc. In respect of women below the
age of sixty-five years and senior citizens resident in India, the income upto Rs. 1,80,000/- and
Rs. 2,25,000/- respectively is exempt.
It is proposed to increase the basic exemption limits for all the above categories of assessees.
The basic rates of income-tax for various income slabs will, however, remain unchanged. The
proposed changes have been tabulated as under:
Individual Assessee (other than women & senior citizen) (Assumed Income –
Rs. 5,00,000/-)
However, the rates of income-tax for all other assessees will remain the same.
The surcharge on income-tax is proposed to be abolished in case of individual, HUF, AOP and
BOI, cooperative society, local authority and firms with effect from assessment year 2010-
11. In other words, the surcharge on income-tax is continued to be levied only on corporate
assessees.
Under the existing provisions, the deduction is available only for pursuing full time studies
for any graduate or post-graduate course in engineering, medicine, management or for post-
graduate course in applied sciences including mathematics and statistics.
It is proposed to extend its scope to cover all fields (including vocational studies) pursued after
passing the Senior Secondary Examination or its equivalent examination from any recognized
IThe Finance Act, 2005 introduced the levy of fringe benefit tax on the value of certain fringe
benefits. FBT was levied on various expenses like travelling, hotel, conference, telephone etc.
There was no distinction being made for employees and genuine business expenses. As it was
burdensome, both for the revenue as well as assessee to comply and implement FBT provisions,
it is proposed to abolish Fringe Benefit Tax from assessment year 2010-11 onwards (i.e. from
Financial Year 2009-10). Thus, the assessee who have paid first installment of advance tax on
account of fringe benefit will have to claim refund of such tax.
IBy virtue of the above, the employer will be relieved from payment of FBT. However, the suitable
amendment is proposed to be made in the definition of ‘perquisites’ to burden the employees
with tax on certain fringe benefits as a taxable salary.
IThe existing provisions contained in Section 17(2)(vi) provide that perquisite include the value
of any other fringe benefit or amenity which may be prescribed, excluding those fringe benefits
which are chargeable to tax under Chapter XII-H.
IIt is proposed to substitute the said sub-clause so as to provide that perquisite include the value
of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by
the employer, or former employer, free of cost or at concessional rate to the assessee.
IIn view of the above amendment, the taxability of ESOPs is re-stored back as ‘perquisite’ as per
its earlier provisions. It is also proposed to provide that perquisite include the amount of any
contribution to an approved superannuation fund by the employer in respect of the assessee,
to the extent it exceeds Rs. 1,00,000.
IThe existing provisions contained in Section 49(2AA) relating to capital gain on transfer of a
share, debenture or warrant are proposed to be substituted to provide that where the capital
gain arises from the transfer of specified security or sweat equity shares referred to in Section
17(2)(vi), the cost of acquisition of such security or shares shall be the fair market value, which
has been taken into account for the purposes of that Section.
IThe above amendment is proposed to take effect from 1st April, 2010 and will accordingly
apply in relation to Assessment Year 2010-11 and subsequent years.
IIt is proposed to provide that the income-tax authority, who has been conferred upon the
power under any provision of this Act, to grant any approval to any assessee, may withdraw
such approval at any time, although such provision to withdraw such approval has not been
specifically provided for in such provision.
IHowever, the income-tax authority shall, after giving a reasonable opportunity of showing cause
against the proposed withdrawal to the concerned assessee, at any time, withdraw the approval
and record the reasons for doing so.
IThe above amendment is proposed to take effect from 1st October, 2009.
IUnder the existing provision of Section 2(48), only infrastructure capital company or infrastructure
capital fund or public sector company are empowered to issue zero coupon bonds when they
are authorised to do so.
IIt is proposed to amend the section so as to include the scheduled banks as, an eligible person
to issue zero coupon bonds.
IThe above amendment is proposed to take effect from 1st April, 2009.
As per the existing provision of section 44AE, in the case of an assessee who carried on the
business of plying, hiring or leasing goods carriages and who owns not more than 10 goods
carriage in the previous year, the income is calculated on a presumptive basis. Under this
scheme, a fixed amount of income per month per vehicle is taken as under:
This amendment will take effect from 1st April, 2010 and will apply accordingly in relation to
assessment year 2010-11 and subsequent years.
As per the existing provision of section 44AF, in the case of an assessee engaged in retail trade
in any goods or merchandise, a sum of 5% of the total turnover or such higher income as may
be returned by the assessee, shall be deemed to be the profits of such business.
In view of the expansion of scope of section 44AD to all businesses it is proposed to make the
section 44AF inoperative for the assessment year beginning on or after 1st day April, 2011.
Sections 44AD and 44AF, deal with taxation of income of certain assessees, under a presumptive
basis of 8% or 5% respectively, incase where gross receipts or total turnover does not exceed
Rs. 40 lakhs. The assessees covered under the said scheme were restricted to only those who
were either engaged in the business of civil construction business or supply of labour for civil
construction or in retail trade in any goods or merchandise.
However, in view of the substantial increase in general growth of the economy and small
business sectors including the growth of transport and communication, it has been proposed
to substitute section 44AD.
In view of the proposed substitution the scope of the presumptive taxation shall be extended
to all businesses. The salient features of the proposed presumptive taxation scheme are as
under:
(a) The presumptive rate of income is prescribed of a sum equal to 8% of total turnover / gross
turnover or a sum higher than the aforesaid sum.
(b) The scheme shall be applicable to individuals, HUFs and partnership firms excluding
Limited liability partnership firms.
(c) It shall also not be applicable to an assessee who is availing deductions u/s.s 10A, 10AA, 10B,
10BA or deduction under any provisions of Chapter VIA under the heading ”C-Deduction
in respect of certain incomes.
(d) The scheme is applicable for any business (excluding a business already covered
u/s. 44AE) which has a maximum gross turnover/gross receipts of 40 lakhs.
(e) An assessee opting for the above scheme shall be exempted from payment of advance tax
in relation to such business.
(f) An assessee opting for such scheme would be exempted from maintenance of books of
accounts related to such business.
This amendment will take effect from 1st April, 2011 and will apply accordingly in relation to
assessment year 2011-12 and subsequent years.
The existing provision of section 92C(2) provides that where more than one price is determined
by the most appropriate method, the arm’s length price shall be the arithmetical mean of such
prices, or, at the option of the assessee, a price which may vary from the arithmetical mean by
an amount not exceeding five percent of such arithmetical mean.
However, the said provision relating to adjustment of +/- five percent has been interpreted
differently by the revenue and the taxpayer, which has resulted into oodles of litigations. The
contention of the revenue and taxpayer are tabulated as under:
Arithmetic Contention of
Transaction +/- 5% Contention of
Particulars Mean of the revenue
Actual Price variable the taxpayer
comparable
Sales 94 100 95 & 105 6 (100-94) 1 (95-94)
To resolve the said controversy, the provision is now proposed to be amended to provide that
where more than one price is determined by the most appropriate method, the arm’s length
price shall be taken to be the arithmetical mean of such prices. However, if the arithmetical
mean, so determined, is within five percent of the transfer price, then the transfer price shall be
treated as the arm’s length price and no further adjustment is required to be made.
In view of the proposed amendment, the interpretation of the revenue in respect of adjustment
of +/- five percent is justified.
As a result of the above, the following judicial pronouncements now stand overruled:
Development Consultant [(2008) 23 SOT 455 (Kol)]
This amendment will be effective from 1st October, 2009 and shall accordingly apply in
relation to all proceedings pending before the Transfer Pricing Officer on or after such date.
The current dispute resolution mechanism in income-tax is time consuming and further major
litigations are resolved at the court levels. In order to reduce this time frame for resolution of the
disputes, an alternate Dispute Resolution Panel (DSP) is proposed to be set-up vide amendment
u/s.s 131, 246A and 253 of the Act. Further, a new section 144C is also proposed to be inserted
in the Act. The key highlight of the set-up of proposed dispute resolution mechanism is provided
hereunder:
The scheme is applicable only incase of a person in whose case the variation in the income
or loss arises as a consequence of the order of the Transfer Pricing Officer u/s 92CA(3) and
any foreign company.
Draft order of assessment would be forwarded to the assessee by the assessing officer
before passing on the assessment order.
Assessee has discretion of accepting or raise an objection to DSP and assessing officer
against the draft order within thirty days of the receipt of such order.
Incase of no objection being filed by the assessee within the period specified or on
acceptance by the assessee, the assessing officer shall complete the assessment on the
basis of draft order.
Every direction issued by the DSP shall be binding on the assessing officer.
An opportunity of being heard is to be given to the assessee and the assessing officer
before providing the direction by the DSP.
Every direction of the DSP needs to be issued within 9 months from the month in which
the draft order is forwarded to the assessee.
The assessment in case of direction issued by DSP needs to be completed within one
month from the end of the month in which the direction is issued.
The order passed u/s 143(3) in pursuance of directions of DSP can be appealed before the
Income-tax Appellate Tribunal. Such order cannot be appealed before the Commissioner
of Income-tax (Appeals).
The proposed amendments will take effect from 1st October, 2009.
Under the existing provision, power has been conferred upon the Central Government to enter
into agreement with the Government of any country outside India for granting of relief in respect
of income on which income-tax has been paid both under the said Act and income-tax in that
foreign country.
It is proposed to confer power upon the Central Government to enter into agreement with the
Government of any specified territory outside India also. The “specified territories” will mean any
area outside India which may be notified as such by the Central Government for the purposes of
said section.
The above amendment would enable the government to expand the scope by entering into
an agreement with non-sovereign jurisdictions also. E.g. India can now enter into a treaty with
Hong Kong.
The above amendment is proposed to take effect from 1st October, 2009.
a. Payment to 2% 2% 1% 2%
contractor
b. Payment to 1% 1% 1% 2%
subcontractor
c. Payment to 1% 1% 1% 2%
contactor/
subcontractor for
Advertising
(ii) at the rate in force i.e., the rate mentioned in the Finance Act; or
The same provisions would also apply in cases where the taxpayer files a declaration in
form 15G or 15H (u/s. 197A) but fails to provide his PAN.
Also it is mandatory to furnish PAN for obtaining certificate(s) u/s. 197 from the assessing
officer.
These proposed amendments would be made effective from 1st April, 2010.
Hence, the appropriate liability would be ascertained and communicated to the deductor.
These proposed amendments would be made effective from 1st April, 2010.
Hence this Finance Bill aims at provision of express time limits to streamline the
Assessment process. In case of resident assessee having filed the TDS statement, the
order u/s. 201(1) for failure to deduct the whole or any part of tax can be passed within
2 years from the end of the Financial year in which the statement of tax deduction at
source is filed. In case of resident assessee not having filed the TDS statement, the
order u/s. 201(1) can be passed within 4 years from the end of the financial year in which
payment is made or credit is given.
However, no time-limits have been prescribed for order u/s. 201(1) where—
This proposed amendment upholds the views of the Mumbai ITAT-Special Bench in case
of Mahindra & Mahindra vs. DCIT and the view of the Delhi High Court in CIT vs. NHK
(305 ITR 137).
These proposed amendments would be made effective from 1st April, 2010.
This Finance Bill proposes to modify the existing provisions so as to allow the Government
to prescribe periodicity of such TDS statements besides prescribing their form and
manner.
The definition of “written down value” in section 43 (6) is proposed to be amended in view of
Supreme Court decision in case of CIT vs. Doom Dooma India Ltd. reported in 222 CTR 105.
The Hon’ble Supreme Court has held that in view of the language employed in sub-clause (b) of
clause (6) of section 43 regarding depreciation “actually allowed”, where any income is partially
agricultural and partially chargeable to tax under the head “Profits & Gains of Business”, the
depreciation deducted in arriving at the taxable income alone can be taken into account for
computing the WDV in the subsequent year.
The above interpretation is not in accordance with the legislative intent. WDV is required to be
computed by deducting the full depreciation attributable to composite income. The ambiguity
in this case has arisen on account of the interpretation of the meaning of the phrase “actually
allowed” in sub-clause (b) of clause (6) of section 43.
It is, therefore, proposed to provide that in the cases of ‘composite income’, depreciation
shall be computed as if the total composite income of the assessee is chargeable under the
head “Profits and Gains of Business” and depreciation so computed shall be deemed to be the
depreciation “actually allowed” to the assessee.
This amendment will take effect from the 1st April, 2010 and will accordingly, apply in relation
to assessment year 2010-2011 and subsequent years.
With a view to ensure that tax treatment of savings under this system is in synchronised with
the “exempt-exempt-taxed” (EET) method and that there is no incidence of taxation at the
accumulation stage, it is proposed to make the New Pension Scheme (NPS) Trust a complete
pass-through in so far as taxation is concerned. Therefore, it is proposed to–
(i) exempt any income received by any person on behalf of the New Pension System Trust
established on 27th day of February, 2008 under the provisions of the Indian Trust Act
of 1882.
(ii) exempt any dividend paid to the NPS Trust shall be exempt from Dividend Distribution
Tax;
(iii) exempt all purchases and sales of equity and derivatives by the NPS Trust from the
Securities Transaction Tax; and
The tax benefit u/s. 80CCD was available to “employees” only. However, the NPS now has been
extended also to “self-employed”. Therefore, it is proposed to extend the tax benefit u/s. 80
CCD thereunder also to “self-employed” individuals.
It is also proposed to provide that the assessee shall not be deemed to have received any
amount in the previous year if such amount is used for purchasing an annuity plan in the same
previous year.
These amendments will take effect retrospectively from 1st April, 2009 and will accordingly,
apply in relation to assessment year 2009-2010 and subsequent years.
The profits and gains of non-life insurance business are computed u/s. 44 read with Rule 5 of
the First Schedule. As per Rule 5, profits and gains of non-life insurance business is taken to
be profits disclosed in the annual account, copies of which are required under the Insurance
Act, 1938 (4 of 1938), to be furnished to the Controller of Insurance, subject to adjustments
for unexpired risk and disallowances u/s. 30 to Section 43B.
The proposed amendment seeks to amend rule 5 of First Schedule which provides that
adjustment shall also be made by way of deduction in respect of any amount either written
off or provided in the accounts to meet diminution in or loss on realisation of investments or
increase in respect of any amount taken credit for in the accounts on account of appreciation
of or gains on realisation of investments in accordance with the regulations prescribed by
Insurance Regulatory and Development Authority. This is also consistent with international
best practice on taxation of investment income of non-life insurance companies.
These amendments will take effect from 1st April, 2011 and will accordingly apply in relation
to Assessment Year 2011-12 and subsequent years.
As per the existing provisions of Section 145, the income chargeable under the head “Profits
and Gains of Business or Profession” or “Income from other sources” shall be computed in
accordance with either cash or mercantile system of accounting regularly employed by the
assessee. The Hon’ble Supreme Court in the case of Rama Bai vs. CIT (181 ITR 400) has held
that the arrears of interest computed on delayed or enhanced compensation shall be taxable
on accrual basis.
This amendment will take effect from the 1st day of April 2010 and shall accordingly apply in
relation to assessment year 2010-11 and subsequent assessment years.
The term “block of assets” has been defined in Section 2 clause (11) and Explanation 3 to
section 32(1).However, these definitions are not identical and therefore they are subject to
misuse.
“Block of assets” means a group of assets falling within a class of assets comprising–
(b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises
or any other business or commercial rights of similar nature;
It is proposed to make the amendments effective from the April 1, 2010 and will be applicable
to AY 2010-11 and subsequent years.
As per rule 3 of Part A of the Fourth Schedule, a Provident fund has to file an application with
the Chief Commissioner or Commissioner for its recognition fulfilling the conditions specified
under the said rule. The funds to whom recognition is already granted on or before 31st March,
The said date for obtaining the exemption has been extended from 31st March 2009 to 31st
December 2010 to provide further time to Employees Provident Fund Organisation for deciding
on the pending application before it for getting exemption u/s. 17 of the Employee Provident
Funds & Miscellaneous Provisions Acts 1952.
While proposing the Finance Bill, 2008, the erstwhile Minister of Finance, P. Chidambaram,
introduced the Commodities Transaction Tax (CTT) with the view that transactions in
commodities futures had finally come of age, and were required to be brought under the tax
net.
However, the levy of the same had not been implemented till date since the idea of CTT
was highly opposed by the regulators, exchanges and the industry owing to the complexity it
would create in commodity transactions. The Prime Minister’s Economic Advisory Council has
recommended abolition of the same.
Therefore, it is proposed to abolish the provision relating to Commodity Transaction tax with
effect from 1st April, 2009.
As per the existing provisions of section 40(b)(v), a partnership firm is allowed a deduction of
an amount paid by way of remuneration (including salary, bonus, etc.) to a working partner of a
firm, which is authorized by a partnership deed subject to the prescribed limits. The prescribed
limits are as follows:
On the first Rs. 1 lakh or On the first Rs. 75,000 or in Rs. 50,000 or 90% whichever is
in case of a loss case of a loss higher
On the next Rs. 1 lakh On the next Rs. 75,000 60%
On the balance On the balance 40%
This amendment will take effect from 1st April, 2010 and will apply accordingly in relation to
assessment year 2010-11 and subsequent years.
Under the existing provisions of section 10(23D), any income of a Mutual Fund registered
under SEBI Act or regulations and income of any other mutual fund set up by a public sector
bank or a public financial institution authorized by the RBI and subject to such conditions
notified by the Central Government, was exempt from tax.
It is proposed to extend the benefit of exemption of income of a Mutual Fund set up by any
“other public sector bank” as notified by the Reserve Bank of India.
This amendment will take effect from 1st April, 2010 and will apply accordindly in relation to
assessment year 2010-11 and subsequent years.
Under the existing provision of section 147, if the assessing officer has reason to believe
that any income chargeable to tax has escaped assessment for any assessment year he may
assess or reassess such income or recompute the loss or depreciation allowance or any other
allowance for that assessment year.
In the case of CIT vs. Gardhara Singh (2008) 173 TAXMAN 46 (P & H)and in certain other cases, it
was held that the reassessment proceedings have to be restricted only to the issues in respect
of which the reasons have been recorded for reopening the assessment. Any other issues
apart from the issue on which the re-opening is made cannot be touched by the assessing
officer.
This amendment will take effect retrospectively from 1st April, 1989 and will apply necessarily
in relation to assessment year 1989 -90 and subsequent years.
Presently for availing exemption u/s 10(23C), an application has to be made at any time during
the financial year for which the exemption is sought. It is proposed to extend the time limit for
application up to 30th September of relevant assessment year. This relaxation will be applicable
for the financial year 2008-09 and subsequent years.
Section 36(1)(viii) provides special deduction to financial corporations and banking companies
of an amount not exceeding 20% of the profits subject to creation of a reserve. The proposed
amendment seek to provide that corporations like National Housing Bank engaged in providing
long-term finance for industrial, agricultural, infrastructure and housing will be eligible for the
benefit.
This amendment will take effect from the 1st April 2010 and will accordingly apply in relation
to Assessment Year 2010-11 and subsequent years.
The Limited Liability Partnership Act and rules have come into effect in 2009. It is proposed
that the taxation of LLP would be on the same footings as the taxation scheme for partnership
firms i.e. tax in the hands of the entity and share of profit from the same is exempted in the
hands of its partners.
It is proposed that in case of liquidation of an LLP, every partner will be jointly and severally
liable for payment of tax unless he proves that non-recovery cannot be attributed to any gross
neglect, misfeasance or breach of duty on his part.
The proposed amendment will take effect from 1st April, 2010 and will accordingly, apply in
relation to assessment year 2010-11 and subsequent years.
There is no provision in the budget addressing conversion of private limited company or public
limited company into LLP or vice versa.
Presently, the threshold limit under wealth tax is Rs. 15 lacs and wealth in excess of Rs. 15 lacs
is chargeable to tax @ 1%. It is proposed to increase the threshold limit from Rs. 15 lacs to 30
lacs.
Presently cash payment in excess of Rs. 20,000/- has to be made by an account payee cheque
or draft as per section 40A(3). It is proposed to increase the limit to Rs. 35,000/- in case of
payment is made to transport operators. The existing limit for other categories of payments
will remain at Rs. 20,000/-.
The proposed amendment will apply to transactions effected on or after the 1st October,
2009.
Section 80GGB and section 80GGC provide for deduction in respect of contributions given to
political parties by companies and any person respectively. The said sections are proposed to
be amended to provide 100% deduction in respect of contributions made to electoral trusts.
It will be a trust approved by the Board in accordance with the scheme made in this regard by
the Central Government. (section 2(22AAA))
According to the proposed new section 13B, any contributions received by an electoral trust
though being an income of the trust, would be exempt from tax if the following conditions are
satisfied:
95% of the aggregate donations received by such trust during the previous year along
with the surplus, if any, brought forward from any earlier previous year, is distributed by
such trust to any political party and
These amendments will take effect from 1st day of April, 2010 and shall accordingly, apply in
relation to assessment year 2010-11 and subsequent years.
Accordingly, a new Section 282B provides that every Income-tax Authority shall allot a computer
generated DIN in respect of every notice, order, letter or any correspondence issued by him
to any other Income-tax Authority or assessee or any other person and such number shall be
quoted thereon. Also any document, letter or any correspondence received by the Income-tax
Authority shall be accepted only after allotting and quoting of a computer generated DIN
Failure to quote the DIN as aforesaid, on every such document, letter or any correspondence,
the same shall be treated as invalid and shall be deemed never to have been issued.
Under the existing provisions, where the consideration received or accruing as a result of the
transfer of a capital asset, being land or building or both, is less than the value adopted or
assessed by the stamp valuation authorities, the value so adopted or assessed will be deemed
to be the full value of the consideration received or accruing as a result of such transfer for the
purpose of computing capital gain.
It is proposed to amend the said section so as to substitute the words “or assessed” wherever
they occur in the said section by the words “or assessed or assessable”.
The expression “assessable” means the price which the stamp valuation authority would have
adopted or assessed, if it were referred to such authority for the payment of stamp duty.
This amendment will take effect from the 1st October, 2009.
Section 2(15) of the Income Tax Act define “charitable purpose” as relief of the poor, education,
medical relief and the advancement of any other object of general public utility.
It is proposed in the Finance Bill to include the activities of the preservation of environment
(including watersheds, forests and wildlife) and preservation of monuments or places or objects
of artistic or historic interest along with relief of the poor, education and medical relief in the
definition of “charitable purpose” under section 2(15). It is further provided that restriction on
carrying on business activities will not be applicable on newly added activities.
Anonymous donations are donation in which the identity of donor is unknown. Under the
existing provisions of Section 115BBC, anonymous donations received by charitable and
religious entities are taxable at the rate of 30% in the hands of entities. The following entities
are out side the preview of anonymous donations:
Partly religious and partly charitable entities have also been exempted from the taxation
of anonymous donations, except where the anonymous donation is made to an
educational or medical institution run by such entity in which case such donations are
taxed at the rate of 30 per cent. In the case of wholly charitable entities, all anonymous
donations are taxed at the
In order to mitigate the compliance burden, it is proposed to provide relief to such organisations
by exempting a part of the anonymous donations from being taxed. The proposed amendment
will result in the following:
Anonymous donations received by wholly religious entities shall remain exempt from
tax.
One time approval for recognition of the Scheme u/s. 80G (5)
Section 80G of the Income-tax Act, 1961 provides for a deduction in respect of donations
to certain funds, charitable institutions, etc. subject to, inter alia, the condition that such
institutions and trusts are established for ‘charitable purpose’.
Consequent to the amendment of sub-section (15) of section 2 by the Finance Act 2008 a
number of organizations have ceased to be charitable for the purposes of the Income-tax Act.
However, such institutions and trusts continued to collect donation during the financial year
2008-2009 for funding relief work for floods in Bihar and other public purposes.
The donors made these donations under a bonafide belief that they would be entitled to benefit
under section 80-G. With a view to mitigate hardship to the donors, it is proposed to give a
onetime relaxation and amend sub-section (5) of section 80G of the Income-tax Act so as to
provide that where an institution or fund has been approved under clause (vi) of sub-section 5
of section 80G for the previous year beginning on the 1st day of April 2007 and ending on the
31st day of March, 2008, such institution or fund shall, notwithstanding anything contained in
the proviso to clause (15) of section 2, be deemed to have been,-
Established for charitable purposes for the previous year beginning on the 1st day of April,
2008 and ending on the 31st day of March, 2009;
Approved under the said clause (vi) for the previous year beginning on the 1st day of April,
2008 and ending on the 31st day of March, 2009.
This amendment will take effect from 1st day of April, 2009 and shall accordingly, apply in
relation to assessment year 2009-10 only.
Under the existing provisions of clause (vi) of sub-section (5) of Section 80G of the Income-tax
Act, 1961, the institutions or funds to which the donations are made under Section 80G have
to be approved by the Commissioner of Income-tax in accordance with the rules prescribed in
rule 11AA of the Income-tax Rule, 1962. The proviso to this clause provides that any approval
granted under this clause shall have effect for such assessment year or years, not exceeding
five assessment years, as may be specified in the approval.
To remove the burdensome for the bonafide institutions or funds from the administration
process in renewing such approvals in a routine manner, it is proposed in the Finance Bill to
omit the proviso to clause (vi) of sub-section (5) of Section 80G to provide that the approval
This amendment will take effect from 1st day of October, 2009. Accordingly, existing approvals
expiring on or after 1st October, 2009 shall be deemed to have been extended in perpetuity
unless specifically withdrawn. However, in case of approvals expiring before 1st October, 2009,
these will have to be renewed and once renewed these shall continue to be valid in perpetuity,
unless specifically withdrawn.
Under the existing provisions of Section 56(2)(vi), any gift received in cash exceeding Rs.
50,000 is taxable in the hands of the recipient as Income from other sources subject to certain
exceptions.
The revenue has tried to plug the loopholes of not taxing the gifts received in kind by proposing
to bring the gift in kind within the ambit of taxation.
The proposed amendment has brought the immovable as well as movable property within the
ambit of taxable gift.
(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees,
the stamp duty value of such property;
(ii) for a consideration which is less than the stamp duty value of the property by an
amount exceeding fifty thousand rupees, the stamp duty value of such property as
exceeds such consideration;
(B) any property, other than immovable property,—
(i) without consideration, the aggregate fair market value of which exceeds fifty thousand
rupees, the whole of the aggregate fair market value of such property;
(i) for a consideration which is less than the aggregate fair market value of the property
by an amount exceeding fifty thousand rupees, the aggregate fair market value of such
property as exceeds such consideration.
The Finance Bill has not proposed any consequent amendment in Section 49(1)(ii) of the Income
Tax Act, which states that cost of acquisition in hands of the person receiving the gift will be
deemed to be of previous owner.
In the absence of consequent amendment, the assessee will be liable for double taxation in the
case of gift of immovable property. He will not be able to claim the deemed stamp duty value on
which tax has been levied as the cost of acquisition at the time of subsequent sale.
Double relief under Section 10(10C) as well as Section 89(1) can not be concurrently claimed
Under existing provision of Section 10(10C), any amount received under any Voluntary Retirement
Scheme is exempt to the extent of 5 lakhs rupees.
Section 89, provides relief from taxation in the case of receipt of salary, being paid in arrears or
in advance or receipt in any financial year of salary for more than 12 months and due to which
resulting tax liability is higher than what it would other have been.
The Madras High Court in the case of CIT vs. GV Venugopal (273 ITR 307) had held that mere fact
that the relief under Section 89 had been spread over several years, did not mean that the relief
was not in respect of a particular assessment year. There was no prohibition to the twin benefits
in respect of the amount received under the Voluntary Retirement Scheme.
In order to nullify the effect of above decision, it is proposed to insert a proviso to section 89
to provide that no relief shall be granted in respect of amount received under the Voluntary
Retirement Scheme, in accordance with any scheme or schemes of voluntary retirement, if an
exemption has been claimed by the assessee under clause (10C) of Section 10 in respect of
such, or any other assessment year. Correspondingly, it is also proposed to insert a third proviso
to clause (10C) of Section 10 to provide that where any relief has been allowed to any assessee
under section 89 for any assessment year in respect of any amount received under Voluntary
Retirement Scheme, no exemption under clause (10C) of section 10 shall be allowed.
These amendments will take effect from 1st day of April, 2010 and will, accordingly, apply in
relation to assessment year 2010-11 and subsequent years.
Explanation 5A of Section 271(1)(c) provides for the penalty in the case of Search and Seizure
conducted under section 132. Under the existing provisions, penalty is levied on unreported
money, bullion, jewellery or other valuable article and unreported income found credited in the
books of account for any previous year which has ended before the date of the search and due
date for filing the return of income for such year has expired and the assessee has not filed return
of income.
The law was silent about the return of income filed by the assessee in which such income has
not been disclosed.
This amendment will take effect retrospectively from 1st June, 2007.
The provisions of Section 281B empower the Assessing Officer to make provisional attachment
of the assets of the assessee during the pendency of any proceedings for assessment or
reassessment. Such provisional attachment shall be effective for a period of six months from
the date of order made for the attachment.
As per the First Proviso of the said section, the aforesaid period can be extended by the higher
authority after recording the reasons in writing for further period or periods, however, that the
total period of extension can not exceed two years.
In many cases, the assessees have filed writ petitions in High Court and Supreme Court and
have obtained stay of the assessment proceedings. Often, such stay remains in force for many
years during which the validity of provisional attachment order expires. Therefore, it is proposed
to provide that the period, during which the proceedings for assessment or reassessment are
stayed by an order or injunction from any court, shall be excluded from the period specified in
the First Proviso.
This amendment will take effect retrospectively from 1st April, 1988.
Service Tax
Taxable Service means any service provided or to be provided to any person, by any other
person,
but does not include any surgery undertaken to restore or reconstruct anatomy or
functions of body affected due to congenital defects, developmental abnormalities,
degenerative diseases, injury or trauma.
Comments
The taxable service of “Beauty Treatment Services” is already covered under the ambit of Service
Tax levy. The Department through Circular No. B11/1/2002 – TRU dated 1-8-2002 clarified
that beauty treatment does not include plastic surgery/cosmetic surgery done to improve the
appearance, as they are not kind of service provided by the beauty parlors. These, are most
appropriately classifiable as medical services.
The new proposed service intends to bring into the ambit of Service Tax, services in relation
to cosmetic or plastic surgery under a new taxable service of “Cosmetic or Plastic Surgery
services”.
Taxable Service means any service provided or to be provided to any person, by any other
person, in relation to transport of –
“Coastal Goods” has the meaning assigned to it in clause (7) of section 2 of the Customs Act, 1962;
“National Waterway” has the meaning assigned to it in clause (h) of section 2 of the Inland Waterways
Authority of India Act, 1985;
“Inland Water” has the meaning assigned to it in clause (b) of section 2 of the Inland Vessels Act,
1917.
Taxable Service means any service provided or to be provided to any business entity, by any
business entity:
Further, any service provided by way of appearance before any court, tribunal or authority
shall not amount to taxable service.
The term “business entity” includes an association of persons, body of individuals, company
or firm, but does not include an individual.
It is proposed to levy Service Tax on advice, consultancy or technical assistance in any discipline
of law. However, the levy is restricted to services provided by a business entity to another
business entity.
The Department has also clarified that services provided by individual advocate either to an
individual or even to a business entity would be outside the scope of taxable service. Further,
services provided by a corporate legal firm to an individual would be also be outside the
purview of taxable service.
Section 65(19)
The definition of “Business Auxiliary Services” has been proposed to amended to provide
that only those processes which will result in the “manufacture” of “excisable goods”
will be excluded from the ambit of “Business Auxiliary Services”.
Presently, the definition provides for exclusion of activity which amounts to “manufacture”
within the meaning of Section 2(f) of the Central Excise Act, 1944. The amendment in
definition providing exclusion is being proposed to be modified to state that it would
apply only if the activity results in “manufacture” of “excisable goods”.
The term “manufacture” and “excisable goods” have been inserted under Explanation
(b) and (c) respectively under the definition.
Comments
The Department had issued a Circular No. 249/1/2006 – CX.4 dated 27-10-2008 in respect of
leviability of Service Tax on job-work charges for production of alcoholic beverages such as
Indian Made Foreign Liquor. The Department vide the said Circular clarified that “manufacture”
and “excisable goods” are two independent concepts and that it is not necessary that a process
amounting to “manufacture” within meaning of Section 2(f) of the Central Excise Act, 1944
should always result in emergence of excisable goods. There may be a case, when a process may
amount to manufacture u/s. 2(f) but it may not result in emergence of an excisable product. If
that be so, then the exclusion clause under Business Auxiliary Service, which refers only to the
activity amounting to manufacture within the meaning of Section 2(f), would still apply to such
processes, whether or not the resultant product are excisable goods. Accordingly, in case of
production of alcoholic beverages qualifies to be a process amounting to manufacture within
the meaning of Section 2(f), when read with the relevant judicial pronouncements, because a
new product, with a distinct name, character or use; and capable of being marketable, emerges
and would be excluded from levy of Service Tax.
Section 65(101)
Comments
The suitable amendment in the definition to exclude sub-broker from the Service Tax net
would reduce the burden on compliance amongst large numbers of small sub-brokers. Further,
alongwith the proposed amendment, the Department has clarified that such sub-brokers
should not be charged to Service Tax as commission agents under “Business Auxiliary Services”
as defined u/s. 65(105)(zzb) of the Chapter V of the Finance Act, 1994. A specific exemption
Notification to this effect would be issued by the Government.
Section 65(105)(zzzp)
Comments
The Finance Minister through its Budget Speech stated that “In order to provide a level playing
field in the goods transport sector, I propose to extend the levy of Service Tax to these modes
of goods transport. I propose to extend the levy of Service Tax to these modes of goods
Thus, the Government has proposed to remove exemptions provided to Government Railway
to bring it into the purview of Service Tax net.
Section 65(105)(zzzze)
The sub-clause (v) and sub-clause (vi) has been amended to substitute the word
“acquiring” with the word “providing”.
The amendment is sought to bring correction in the definition of taxable service as the
word “acquiring” rendered distortion in the definition be fixing the liability on the service
receiver. Accordingly, to align the definition where the liability is on “provider” and not
“acquirer” of information technology services, the definition is suitably amended.
Since, the amendment is clarificatory in nature; it will have retrospective effect from 16th
May, 2008, the date on which the taxable service of “Information Technology Service”
was introduced under sub-clause (zzzze) of Section 65(105) of the Chapter V of the
Finance Act, 1994.
Presently, the Commissioner of Central Excise has been granted an authority to suo
moto call for any record or a proceeding in which an adjudicating authority subordinate
to him has passed any decision or order. Such an order is termed as Order-in-Original
(“OIO”). The Commissioner may pass such order thereon as he thinks fit and this
procedure is termed as “revision” of order.
The Section 35E of the Central Excise Act, 1944 stipulates that a departmental appeal
being filed against such order before the Commissioner (Appeals) whereas Section 84
of the Finance Act, 1994 prescribes revision of orders.
The amendment is proposed to provide a procedure for referring the orders passed
by any authority subordinate to Commissioner of Central Excise (Appeals), within a
The definition of “Advance Ruling” as defined under sub-clause (d) has been amended.
Amendments by Notifications
(Effective from date of Notification)
However, the exporter will have to first pay Service Tax and then apply
for refund of such tax paid by him.
18/2009 – ST dated The Notification also provides for exemption from Service Tax for use
7th July, 2009 by exporter of goods. The following two services where the liability on
exporter of goods is established through reverse charge mechanism are
exempted:
However, the exporter need not pay Service Tax and then file for refund
claim.
The scheduled bank under the said Notification means the banks which
are included in the Second Schedule of Reserve Bank of India Act,
1934.
(a) including –
(b) excluding, -
the value added tax or sales tax as the case may be paid on
transfer of property in goods involved; and
Further, sub-rule (4) has been added to Rule 3 of the said Rules which
provided that option under sub-rule (3) shall be permissible only where
the declared value of the works contract is not less than the gross
amount charged for such works contract.
The Rule 3(5B) of the CENVAT Credit Rules, 2004 is extended to provider
of taxable service in case where any value of input or input services or
capital goods on which CENVAT Credit has been taken, is written off
fully or where provision to write-off has been made in books of accounts
before being out to use, then the provider of such taxable service shall
pay an amount equivalent to the CENVAT Credit taken on such item.
Compounding of offences
Comments:
The Sections 9A & 37(2)(d) are amended to provide for manner of compounding of offences.
The compounding of offences will not be permitted for the following cases:
Those allowed compounding earlier (either for value of goods exceeding Rs. One Crore
or for those offences under specified sub-sections of Section 9(1) of the Central Excise
Act, 1944.
Persons accused under Narcotics Drugs and Psychotropic Substances Act, 1995 or
convicted under Central Excise Act, 1944 on or after December 30, 2005.
Special audit
Comments:
Comments:
The Authority for Advance Ruling constituted under Customs Act, 1962 shall also deal
with Central Excise cases.
The High Court with effect from July 1, 2003 is empowered to condone (for sufficient cause) delay for
filing of appeals. Further, the High Court with effect from July 1, 1999 is now empowered to condone
(for sufficient cause) delay for filing of appeal/memorandum of cross objections.
Comments:
The fixation of rate of Central Excise duty for “Compounded Levy Scheme” (covering steel induction
furnaces/re-rolling mills) under erstwhile Rule 96ZO/96ZP is deemed to be valid with effect from
August 1, 1997.
Comments:
The Rule 24A is introduced to provide that if the Central Excise Officer has not relied upon records
seized or otherwise provided to him, for issue of notice, he shall return the records within 30 days of
issue of notice or expiry of period for issue of notice.
Comments:
An Explanation to Rule 2(k) is amended to clarify that “input” shall not include:
Cement,
Angles,
Channels,
CTD/TMT bars etc.
used for construction of shed, building or structure for support of capital goods.
The Rule 6(3)(i) is amended to provide that whereby a manufacturer of excisable does
not maintain separate accounts for goods for “inputs” or “input services” used in
manufacture of excisable goods.
Comments:
The rate for abatement has been increased by 500 basis points (5 per cent) for some
items to compensate for Central Excise duty hike from 4% to 8%. The rates for abatement
are as under:
45% for Vitrified/Glazed tiles. Effective duty rate now 4.4% (earlier 2.4%)
35% for LPG gas stove & MP3/MPEG players. Effective duty rate now 5.2% (earlier
2.8%)
30% for toothbrush. Effective duty rate now 5.6% (earlier 3%)
Branded jewellery
Packaged/Canned software (to the extent of value -”transfer of right to use software”)
Duty paid high speed diesel (blended with upto 20% duty paid bio diesel)
EVA compound manufactured on job work for further use in manufacture of footwear
Two medical devices (Patent Ductus Arteriosus/Atrial Septal defect occlusion device)
Duty reduced by Rs. 5,000 per unit on large cars and utility vehicles having engine
capacity exceeding 1999 cc.
Duty on chassis of petrol driven trucks/lorries reduced by 1200 basis points (12 per
cent)
Duty on branded petrol/diesel reduced to Rs. 14.5/litre (earlier 6% + Rs. 13/litre) and Rs.
4.75 (6%+ Rs 3.25/litre) respectively.
Other reductions/exemptions
Suitable adjustments to be made for DTA clearances (made by EOU) using indigenous
raw materials/inputs
SSI exemption extended to packaging material & printed laminated rolls bearing others
brand name
From 0% to 4%
From 0% to 8%
Mandatory
From 4% to 8%
Non textiles: (Slide fasteners & parts, brushes under 9603 (except specified brooms),
playing cards, parts of drawing/mathematical instruments, contact lenses, MP3/MPEG,
electronic milk fat/non solid tester, LPG gas stoves, ceramic tiles(made in non-electric
kiln factory), solid/hollow building blocks, articles of mica, goods where weight of flash/
phosphor gypsum atleast 25%, paper & paperboard labels, stationery articles(except
notebooks/exercise books), non-densified wood articles, flush doors, plywood etc. fibre
board, fur skins, heat resistant rubber tape/thread, polyester chips, writing ink.
Deemed manufacture
Note 5 to Chapter 21 clarifies that in relation to tariff item 21069030, the process of
mixing or adding ingredients such as cardamom, copra, menthol, spices, sweetening
agents (other than lime, katha & tobacco) to betel nut shall amount to manufacture.
Legislative proposal
The Finance Bill, 2009 was introduced in Lok Sabha on July 6, 2009. The following changes are
proposed by the Finance Bill in respect of Customs Act, 1962 and Customs Tariff Act, 1975.
Comments:
Import duty on goods cleared for home consumption shall be refunded, if goods are found to be
defective or commercially not viable. However, the grant of refund will be subject to the following
conditions as prescribed:
Importer should not have availed any benefits of duty drawbacks; and
The subject goods are exported or the Importer has relinquished title to the said goods
or the said goods are destroyed or rendered commercially valueless.
Comments:
The Authority for Advance Ruling (“AAR”) constituted u/s. 245-O of the Income-tax Act, 1961 will act
as an Authority for advance rulings for the purpose of Customs, Central Excise and Service Tax.
Comments:
The High Court has been empowered to admit an appeal beyond the specified period of 180 days
provided the aggrieved party shows sufficient cause thereto. This law is effective retrospectively from
1st July, 2003.
The High Court may permit the filing of applications/memorandum of cross-objections after expiry
of 180 days [as given in sub-section (1)] or within 45 days [as given in sub-section (3)]. This law is
effective retrospectively from 1st July, 1999.
Comments:
The Central Government is empowered to make rules determining the manner of compounding of
offences and provides for exclusion of compounding of certain serious offences from compounding
offences.
Comments:
The Central Government is empowered to make rules regarding the manner of compounding of
offences.
Comments:
To give effect to new Section 26A, the Board is empowered to make Regulations to determine:
export of goods,
relinquishment of title,
The Notification published vide G.S.R No. 173(E) dated 17th March, 2009 was brought into effect
retrospectively from 9th May, 2000. Accordingly, the jurisdiction and actions of officers of DGCEI
taken during period on and from 9th May, 2000 to 16th March, 2009 will be validated.
Section 25(1)
Comments:
The Notification published vide G.S.R No. 260(E) dated 1st May, 2006 is given effect from the date of
Notification.
It is provided to allow the facility under Rule 18 which provides rebate of duty paid on
materials used in the manufacture of resultant product or under sub-rule (2) of Rule 19
of the Central Excise Rules, 2002 or CENVAT Credit under CENVAT Credit Rules, 2004,
in respect of materials which have been locally procured and have been used in the
manufacture of goods exported under the Duty Free Import Authorization Scheme.
It is provided that where the duty free replenishment in respect of facilities stated in (a)
above have been availed, the same shall be used for the manufacture of dutiable goods
in the factory of the exporter or in the factory of his supporting manufacture even after
the discharge of the exporter obligation.
The above facilities are subject to payment of an amount equal to the additional duty of
Customs together with interest at the rate of 15% per annum from the date of clearance
of the said materials.
It is provided that such amount shall not be payable in respect of authorisations issued from
1st May 2006 till 31st March, 2007.
Section 3
Comments:
The “Tariff Value” as fixed for an article produced or manufactured in India by the Central Government
under Central Excise Act, 1944 shall be deemed to be tariff value for such article if imported.
Comments:
The specified machinery provision of the Customs Act, 1962 will extend to specific Safeguard duty
and regulations made therein are applied retrospectively.
Section 9A
Comments:
Exemption of 4% CVD on parts for manufacture of mobile phones and accessories for 1
year up to 6th July, 2010.
Full exemption on Inflatable rafts, snow-skis, water skis, surf-boards, sail-boards and
other water sports equipment.
Removal of Exemption
The basic Customs Duty of 5% is imposed on Set-Top Box for television broadcasting.
The basic Customs Duty of 7.5% is imposed on concrete batching plants of capacity 50
cum per hour or more.
Concessional Customs Duty of 5% on specified machinery for tea, coffee and rubber
plantations is restored for 1 more year up to 6th July, 2010.
Gold Bars, other than tola bars bearing manufacturer’s or refiner’s engraved serial
number and weight expressed in metric units, and gold coins including ornaments.
Gold in any form other than those specified above including ornaments.
Specified life-saving drugs/vaccines and their bulk drugs viz. Abatacept, Daptomycin,
Entacevir, Fondaparinux Sodium, Influenza Vaccine, Ixabepilone, Lapatinib, Pegaptanib
Sodium injection, Suntinib Malate, Tocilizumab [Also, CVD shall be Nil]
Specified heart devices namely artificial heart and PDA/ASD occlusion device [Also, CVD
shall be Nil]
Bio-diesel
Reduced from 5% to 2%
Reduced from 5% to 0%
The empowered committee of state finance Ministers has made progress in preparing Road Map and
design of GST. The Finance Minister has given a clear idea about GST Model that it will be a “Dual
GST” comprising of a “Central GST” and “State GST”. The centre and the states will each legislate,
levy and administer the central GST and State GST and again reinforce the Central Government’s
catalytic role to facilitate the introduction of GST by 1st April, 2010 after due consultations with all
stakeholders.
FINANCE - HOUSING No major direct impact on account of direct tax No major direct impact on account of No major direct impact on ac- Neutral
changes except abolition of FBT and increase in indirect tax changes count of major policy changes
MAT by 5%
GAS No major direct impact on account of direct tax No major direct impact on account of Initiative to set up national gas Positive
changes except abolition of FBT and increase in indirect tax changes grid would positively impact the
MAT by 5% gas distribution business
METALS No major direct impact on account of direct tax Increase in duties on inputs such as Thrust on infrastructure devel- Positive
changes except abolition of FBT and increase in fuel will impact the output cost opment would have an impact
MAT by 5% on demand for its output
OIL EXPLORATION/PRODUC- Increase in MAT rates is negative however exten- No major direct impact on account of Initiative to set up national gas Marginally negative
TION tion of setoff period minimizes the overall impact indirect tax changes grid would positively impact the
gas distribution business
PHARMACEUTICALS No major direct impact on account of direct tax Decrease in Custom duties on specified No major direct impact on ac- Marginally negative
changes except abolition of FBT and increase in drugs would impact margins of Cipla count of major policy changes
MAT by 5%
POWER No major direct impact on account of direct tax No major direct impact on account of Thrust on APDRP* would result Positive
changes except abolition of FBT and increase in indirect tax changes in higher demand
MAT by 5%
REFINERIES Increase in MAT rates is negative however exten- impact of changes in duties will result in Initiative to set up national gas Marginally negative
tion of setoff period minimizes the overall impact marginal decrease in fuel prices grid would positively impact the
gas distribution business
STEEL AND STEEL PROD- No major direct impact on account of direct tax No major direct impact on account of Thrust on infrastructure devel- Positive
UCTS changes except abolition of FBT and increase in indirect tax changes opment would have an impact
MAT by 5% on demand for its output
TELECOMMUNICATION - No major direct impact on account of direct tax ‘- Introduction of GST next year ‘- Focus on Inclusive develop- Positive
SERVICES changes except abolition of FBT and increase in expected to streamline the double taxa- ment and rural reforms might
MAT by 5% tion of sim cards include a specific allocation for
telecommunication and access
in rural sectors i.e. improved
penetration but will indirectly
lead to higher telecom spend
* APDRP : Accelerated Power Development and Reform Programme
The requirement of all-in-cost ceilings on ECB has been dispensed with under the approval
route until December 31, 2009.
Integrated Township
Corporates engaged in the development of integrated township have been allowed to avail ECB
under the approval route. The minimum area to be developed should be 100 acres for which
norms and standards are to be followed as per local bye-laws / rules. In the absence of such
bye-laws/rules, a minimum of two thousand dwelling units for about ten thousand population
will need to be developed.
NBFC’s exclusively involved in financing infrastructure sector have been allowed to avail ECBs
from multilateral / regional financial institutions and Government owned development financial
institutions for on-lending to the borrowers in the infrastructure sector.
The definition of Infrastructure sector for the purpose of availing of ECB has been expanded to
include the following: (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges,
(v) seaport and airport (vi) industrial parks (vii) urban infrastructure (water supply, sanitation and
sewage projects) and (viii) mining, exploration and refining.
The existing limit of USD 100 million has been raised to USD 500 million per financial year for
the borrowers in the infrastructure sector for Rupee expenditure under the Approval Route.
Other liberalisations
ECB up to USD 500 million per borrower per financial year would be permitted for Rupee
expenditure and / or foreign currency expenditure for permissible end - uses under the Automatic
Route. It has been liberalised in a way that the requirement of minimum average maturity period
Service sector
Companies operating in the services sector viz. Hotels, Hospitals and Software can avail of ECB
upto USD 100 mn per financial year under the automatic route for foreign currency and / or
Rupee capital expenditure for permissible end-use. The proceeds of the ECBs cannot be used
for acquisition of land.
Telecom
Payment for obtaining license/permit for 3G Spectrum has been considered an eligible end-use
for the purpose of ECB.
The borrowers of ECBs now have the added flexibility of parking the funds raised with the overseas
branches / subsidiaries of Indian banks abroad or remitting these funds to India for credit to
their Rupee accounts with AD Category I banks in India as pending utilisation for permissible
end-uses. This is in addition to park them in the specified liquid assets allowed earlier. However,
the abovementioned rupee funds will not be permitted to be used for investment in capital
markets, real estate or for inter-corporate lending.
The existing policy on the premature buy-back of FCCBs has been liberalised to allow buy-back
of FCCBs by Indian companies, both under the automatic and approval routes, as given below.
Press Note No 2 (2009 series) Guidelines for calculation of total foreign investment i.e.
direct and indirect foreign investment in Indian companies
Co B Co B Co B
Co A Co A Co A
Case B:
Indirect Foreign Investment in Co A = NIL, since Co B is considered to be owned and controlled
by resident Indian citizens and Indian companies, which are owned and controlled by resident
Indian citizens.
Case C:
Indirect Foreign Investment in Co A = x% since it will be considered that either the beneficial
equity interest or the control i.e. the right to appoint/composition of majority of the Board of
Directors will be with non-resident entity.
Press Note No. 3 (2009 Series) Guidelines for Transfer of Ownership or Control from
Resident Indian Citizens to Non-Resident Entities in Sectors with Caps
This press note is only applicable to sectors / activities where 100% foreign investment is not
permitted under the Automatic Route.
In case of transfer of ownership or control from resident Indian citizens to non-resident entities
in sectors with caps, Government approval/FIPB approval would be required in all cases where:
The Indian company being established with foreign investment and is owned or controlled by a
non-resident entity, or
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