Union Budget Rustagi

2011
RUSTAGI & CO
Chartered Accountants
FOREWORD
The Budget has not brought in any surprises in the area of
taxation. A few procedural changes in Income Tax laws
streamlining income tax procedures and a few sops for
individuals. Companies bear the brunt of the Finance
Minister’s Bill again in the form of increase in MAT and
levy of MAT on SEZ with a small respite of decrease in
surcharge. On the similar lines as MAT on companies
LLP’s will have to now pay ‘AMT’, a tax on book profit
even if there is no taxable profit. This might be a deterrent
in formation of LLPs and puts them on a different footing
compared to partnership firms.
Number of legislative changes have been brought

about in the arena of service tax. Therefore, this time our
compilation deals with proposed service tax changes in a
very detailed manner. Not many new services have been
brought within the ambit of service tax but scope of
number of services have been expanded. The most
important change proposed is the shifting of taxability of
service tax from cash basis to accrual system through a
Point of Taxation Rules. The Finance Bill along with the
notifications has made an attempt to streamline the
CENVAT Credit provisions and the Import/ Export Rules.
We are in midst of changing times. GST, Direct Tax

Code and Companies Bill are in the pipeline and are
expected to be implemented soon. Another important
change required is in respect of a separate code for Service
Tax which in spite of being the most volatile and
complicated taxation law in India is yet to be granted the
honour of an Act of its own…..
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Rustagi & Co, Chartered Accountants
www.rustagi.co.in
I N C OM E T A X
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TAX STRUCTURE
Assessment Year 2011-12
Individuals/ HUF
Income Slab Rate of Tax
Total Income < 1,80,000 Nil

Total Income > 1,80,000 and < 5,00,000 10%
Total Income > 5,00,000 and < 8,00,000 Rs. 32,000 + 20%
Total Income > 8,00,000 Rs. 92,000 + 30%
Women
(below 60 years)

Total Income > 1,90,000 and < 5,00,000 10%
Total Income > 8,00,000 Rs. 91,000 + 30%
Senior Citizens
(above 60 years)

Total Income > 2,50,000 and < 5,00,000 10%
Total Income > 8,00,000 Rs. 85,000 + 30%
Very Senior Citizens

(above 80 years)

Total Income > 5,00,000 and < 8,00,000 20%
Total Income > 8,00,000 30,000 + 30%
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 Threshold Income Tax exemption
o For Individual and HUF assesses raised to Rs. 1.80 lakhs from Rs. 1.60 lakhs
o For Senior citizens raised to 2.50 lakhs from 2.40 lakhs
o For Very Senior citizens aged above 80 no tax upto Rs. upto 5 lakhs
 Qualifying age reduced for Senior Citizens from 65 years to 60 years.
 Surcharge: Marginal Relief shall continue as before. No surcharge shall be levied on
Individuals, HUF, Firms, Co-operative Societies and Local Authorities.
Companies
 Tax Rate will continue to be the same i.e., 30% in

case of domestic companies and 40% in case of
Foreign Companies.
 Surcharge has been reduced from 7.5% to 5% in case

of domestic companies and from 2.5% to 2% in case
of Foreign Companies.
 Surcharge to be levied in case where total income

exceeds Rs. 1 crore.
 MAT Liability on Company is increased from 18%

to 18.5%.
Education Cess: Education Cess and Secondary and Higher Education Cess shall continue to be levied @ 2%
and 1% respectively on all entities including individuals.
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SPECIAL ECONOMIC ZONES
MAT MAT has been made applicable for income of Assessment Year
SEZ Developers and income of SEZ units also. 2012-13
DDT SEZ units are liable to pay DDT as per 1st June, 2011
provisions of section 115O with regard to the
dividends declared by them
Service Tax Special provisions under Service Tax Law - No 1st March, 2011
service tax to be charged in case of services
rendered to SEZ. Thus, services shall be
received free of tax by SEZ.
DIVIDEND RECEIVED FROM FOREIGN

SUBSIDIARY
 Dividend received by Domestic Company from its Foreign Subsidiary Company to be

taxed at 15% on gross basis
 Effective Date: Financial Year 2011 – 12.
 No expenses will be allowed for earning such income.
 Such Dividend to be allowed as deduction from income of domestic company for purpose
of paying normal tax
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CHARITABLE TRUST
Turnover Limit Increased from Rs. 10 lakhs to Rs. 25 Financial Year 2011-12
lakhs
Advancement of any other object of general public utility will not be charitable purpose if the activity
involves carrying of trade, commerce or business or rendering any service in relation thereto, for
consideration irrespective of nature of use or application, or retention of income from such activity.
However, such business activities would be considered to charitable in nature as long as the turnover
was less than Rs.10 Lakhs up to financial year 2010 – 11. This Turnover Limit has been proposed to be
enhanced from Rs. 10 Lakhs to Rs.25 Lakhs from Financial Year 2011-12.
LIMITED LIABILITY PARTNERSHIP
AMT - LLP to pay the Alternate Minimum Tax at the rate

of 18.5% under section 115JC.
Computation - AMT to be computed on the adjusted total income.
Effective From - Assessment Year 2012-13
Adjusted Total - Adjusted total income is income computed as per the

Income provisions of the Income tax Act, as increased by:
 Deduction under chapter VIA &
 Deduction under section 10AA
AMT Credit - AMT credit can be carried forward and availed for a
period of 10 subsequent assessment years.
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TRANSFER PRICING
Limit for Variance
Under section 92C, Hitherto, where the prices of the
international transactions are within the range of 5% of the
arms’ length price, such international transactions were
said to be at arm’s length. However, with the current
amendment, the Central Government now has powers to
notify such percentage periodically as they may deem fit.
Effective Date – 1st April 2012
Due Date
The due date for filing of Form 3CEB under section 92E of
the Act and the filing of tax returns for such companies,
has been extended up to 30th November of the assessment
year as against the erstwhile due date of 30th September
Notified Jurisdictional Area

 New section 94A has been inserted
 With Effect from 1st June, 2011
 International transactions under the purview of the

Transfer pricing regulations, where such transactions
are entered with parties located in those notified
jurisdictional area with which India lacks effective
exchange of information.
 The amounts received by the assessee from any person

located in such area shall be treated as income in the
hands of the assessee, unless sufficient explanation is
offered to the satisfaction of the assessing officer.
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 Further, in case the tax deductible at source in case of
payments to be made to persons located in such area,
shall be made at the rate higher of the following:
 at the rate or rates in force;

 at the rate specified in the relevant provisions
of this Act;
 at the rate of thirty percent.
RESEARCH & DEVELOPMENT
Weighted deduction of any contribution made to any national

laboratory or university or IIT u/s 35(2AA) from 175% to 200%
w.e.f 1st April, 2012.
PROCEDURES
 Simplified tax returns called “Sugam” for 'small
taxpayers', paying tax under presumptive taxation,
having business turnover of less than Rs.60 lakhs.
 Assessees having only Salary as the source of income

exempt from filing returns. The assessees must not have
even interest from Savings Bank Account also to
become eligible for this benefit.
 Filing of Information for Liaison Office of every Non

Resident proposed and such Returns as may be
prescribed have to be submitted within 60 days from
the end of every Financial Year.
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SER V IC E TA X
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RESTAURANTS
Existing Coverage - Nil

Expanded Coverage - Restaurants having AC and license to serve Liquor
Taxable Amount - 30% of Entire Bill Amount
Date of Levy - Enactment of Finance Bill
 Even if facility of air conditioning is available at any time during the financial year and not
throughout the year, service tax will be applicable
 Eating Houses, sale of food by pickup or home delivery, goods sold at MRP to be excluded from
service tax levy
SHORT TERM ACCOMODATION
Existing Coverage - Nil

Expanded Coverage - a) Hotels, inns, guest houses, clubs, camp sites etc
b) Continous period of stay less than 3 months
c) Tariff of Rs. 1000 per day or higher
Taxable Amount - 50% of Gross Amount paid
 Where tariff is Rs.1000 or more Service Tax will be chargeable even if actual amount charged from
particular customer is less than Rs.1000.
 It is important to note that continous period of stay is to be calculated. Thus, where stay is more than 3
months but not continous service tax will still be chargeable.
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AUTHORISED SERVICE STATION
Existing Coverage - a) Repair/Reconditioning/Restoration

b) Provided by Authorised Service Station
Expanded Coverage - a) Services provided by any person whether
Authorized Service Station or not
b) Decoration and any other related services
c) All motor vehicles other than goods transport
and 3 wheeler auto rickshaws
Taxable Amount - Entire bill amount
 Garages providing repairing services for motor vehicles were subject to Service Tax only when they were in the
nature of an authorized Service Station authorized by any motor vehicle manufacturer. Now all garages to be
covered under Service Tax whether authorized or not
 Decoration services also to be taxed in addition to repair services
LIFE INSURANCE BUSINESS
Existing Coverage - Premium for risk cover

Expanded Coverage - Premium used towards investments
Taxable Amount - a) Premium amount after deduction towards
mortality, expenses, interest, etc (where break up is
available)
b) 15% of the gross premium amount (where break
up is not available)
In addition to providing services relating to risk cover the Life Insurance companies also manage investment for
the policy holders. The premium paid for such investment is now being brought into the tax liability
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COMMERCIAL TRAINING & COACHING
Existing Coverage - Unrecognized courses provided by only by institutes

not providing any other recognized course
Expanded Coverage - All courses not recognized by law irrespective of the
institute providing the same
Taxable Amount - Gross amount of fees collected
 Unrecognized education imparted by an institute that provides any other course recognized by law was
outside the purview of Service tax. This anomaly is now proposed to corrected by subjecting all
unrecognized education to tax even if provided by an institute providing other courses which are
recognized by law
 Suitable exemption is proposed to be granted to pre school coaching and other coaching & training for
educational qualification recognized by law
CLUB OR ASSOCIATION
Existing Coverage - Services provided to members

Expanded Coverage - Services provided to non-members/members of
other affiliated clubs
Taxable Amount - Gross amount of bill
When a member avails facilities for its guests he is already covered by existing definition, but where non members
are allowed to use the facilities in their own capacity for a separate charge, the same will also be now subject to
Service Tax
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BUSINESS SUPPORT
Existing Coverage - Service provided relating to business in commerce

including “operational assistance for marketing” -
amongst others
Expanded Coverage - Scope of service expanded to include operational or
administrative assistance of any kind
Taxable Amount - Gross amount of bill
Scope of Business Support Service has been further expanded to include all kinds of support activities which are
outsourced to others
LEGAL CONSULTANCY
Existing Coverage - a) Provided by business entity to any other business

entity - appearance before court tribunal excluded
Expanded Coverage - a) Advice consultancy provided by business entity to

individual as well
b) Representational services by any person to a
business entity
C) Services provided by arbitrators to business
Entities
Taxable Amount - Gross amount

 Service provided by individual to other individual remain outside the levy

 Representational and arbitrational services to be included within ambit of service tax
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CLINICAL ESTABLISHMENT &
DIAGNOSTIC CENTRES
Existing Coverage - a) Hospital, Nursing home, Multi specialty clinic

b) Services provided to employees of business entity
and payment made directly by business entity to the
hospital
c) Service provided to person covered by medical
insurance and payment made by insurance company
directly to the hospitals
Expanded Coverage - a) Any clinical establishments having centralized AC

and more than 25 beds
b) Any clinical establishments providing diagnostic
tests with help of laboratory/medical treatment
c) Doctors providing services from the premises of
the clinical establishments
d)Hospitals owned by government and local
authority to be excluded
Taxable Amount - 50% of the value of service

 Government hospitals, primary health centres, ESI hospitals, and autonomous medical institute set up by the
government are outside the levy
 Doctors providing services from their own chambers/residence or as employee of clinical establishment not
covered
 Doctors acting as consultants in Out Patient Department(OPD) of clinical establishment subject to Service Tax
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WORKS CONTRACT
Tax paid under Composition Scheme
Existing Position - CENVAT Credit allowed to the extent of 100% of

tax paid on all input services
Amended Position - CENVAT Credit restricted to 40% on following input

services
 erection, commissioning & installation
 commercial or industrial construction and
 construction of residential complex
Effective Date - 1st March, 2011
The restriction of 40% is applicable only where the service tax has been paid on input services on full value of
service without availing exemption.
EXPORT/ IMPORT OF SERVICES

Amendments have been made in respect of treatment
Export/ Import of services w.e.f. 1st April, 2011. One
significant change is in respect of the import of followings
services
 Credit Rating Agencies
 Market Research Agencies
 Technical Testing Analysis
 Transport of goods by air
 Transport of goods by rail
 Goods Transport Agencies
 Opinion Poll
 Above services would be considered as import of services and would be taxable in India if the recipient of
services is located in India even if the services are performed outside India.
 Thus recipient of these services would have to bear the liability of Service Tax. Earlier these services were
taxable in India only if they were performed in India. Now even if the service received by the recipient located in
India the same shall be taxable in India.
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SERVICE TAX SHIFTED TO ACCRUAL
BASIS FROM CASH BASIS
Governed By - Point of Taxation Rule, 2011
Effective date - 1st April 2011
Point of Taxation of Service
General Rule - Provision of service, issue of invoice,

receipt of payment whichever is earlier
Advance received - Date of receipt of advance
Import of services - Receipt of invoice or date of payment

whichever is earlier
Continuous supply of services - - Date on which payment is liable to be

date of payment specified in made by service receivable
contract
Continuous supply of services - - Issue of invoice or date of payment

date not specified in contract whichever is earlier
Associated enterprises - Date of payment, issue of invoice, date of

debit or credit in books of accounts of
service provider, whichever is earlier
Specific provisions have been included for determining the point of taxation in case of (i) Change in Rate of Tax and (ii)
New Services being taxed for the first time
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EXEMPTIONS
Nature of Service Exemption Effective
Date
Business Exhibition Business Exhibition held outside India 1st March, 2011
Works Contract Construction/ completion of residential 1st March, 2011

complex under JL Nehru Urban
Renewal Mission and Rajiv Awaas
Yojna
Provided wholly within an airport 1st March, 2011
Provided wholly within the port or other 1st March, 2011

port for construction, repair, alteration
and renovation of wharves, quays,
docks, stages, jetties, piers and railways
General Insurance Insurance provided under Rashtriya 1st March, 2011

Swasthya Bima Yojana
Transport of Goods by Goods transported from place outside 1st April, 2011
Aircraft India to final destination outside India
Amount of Air Freight included in 1st April, 2011

taxable value determined under Customs
Act for payment of customs duty
Road India to final destination outside India
Rail India to final destination outside India
Membership Fees paid Service tax on membership fees collected 16th June, 2005
to Chamber of by club association representing to 31st March,
Commerce industry/ commerce 2008
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CENVAT CREDIT
Definition of ‘Input’ - Changed to include all goods used in the

factory/ providing output service except
a) Specified in negative list
b) Having no relation with
manufacture
Negative List for ‘Input’ - a) Goods used for construction of building

civil structure etc
b) Goods used for personal use of
employees like food articles
c) Petroleum products
d) Motor Vehicles
Specific Inclusion within ‘Input’ - a) Accessories cleared with Final product

b) Goods used for providing Free
Warranty
c) Goods used for Generation of Electricity
for Captive Consumption
Definition of ‘Input Service’ - Basic Definition is same as before. Service

in relation to Goods which do not
constitute ‘Input’ will not qualify as
‘Input Service’.
Exclusion from “Input Service” - a) Services in relation to construction of

building, civil structure etc. like
construction service.
b) Services in relation to Motor Vehicle
like rent-a-cab, repair of vehicle etc.
c) Services used for personal use of
employees
 Effective Date: 1st April, 2011

 Definition of exempted services shall include taxable services which are partially exempted with the
condition that no credit of input and input service shall be availed.
 Exempted service will include trading service.
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PENALTY
Particulars Limit Effective Date
Maximum Penalty Limit on Increased from Rs. 2,000/- to Rs. Date of

delayed filing of Service Tax 20,000/- Enactment of Bill
Return
Interest rate on delayed Increased to 18% p.a. from 13% p.a. 1st April, 2011
payment of service tax
Concession of 3% proposed in the Bill Date of

for tax payers whose turnover is below Enactment of Bill
Rs 60 lakh
Penalty for Failure to pay Penalty reduced by 50% Date of

Service Tax Enactment of Bill
Penalty for contravention of Maximum Limit raised from Rs. Date of

rules and provisions of the Act 5,000/- to Rs. 10,000/-. (Daily limit Enactment of Bill
retained)
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PENALTY
Situation Position in Penalty & Mitigation Complete

records Provision Waiver
No fraud, Captured true 1% of tax or Rs Totally mitigated if tax On showing
suppression & complete 100 per day upto and interest paid before reasonable
etc. position in 50% of tax issue of notice: Section cause under
records amount: Sec 76 73(3) section 80
Cases of Captured true 50% of tax (a) 1% per month; max of On showing
fraud, & complete amount: Proviso 25% if all dues paid before reasonable
suppression position in to Section 78 notice: Sec 73(4A); cause under
etc. records section 80
(b) 25% of tax if all dues
paid within 30 days (90
days for small assesses):
Provisos to Section 78
Not so captured Equal amount: No mitigation at all Not

Sec 78 possible
Effective Date: Date of Enactment of Bill
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Partners
R. N. Rustagi : + 91 98300 30845
rnr@rustagi.co.in
Ashish Rustagi : +91 93397 68131

ashish@rustagi.co.in
Meenakshi Gupta : +91 93200 34560

meenakshi@guptarustagi.com
Anshuma Rustagi : +91 98303 91245

anshuma@rustagi.co.in
Our Offices
Head Office.: 19, R.N.Mukherjee Road, Eastern Building, 1st Floor,
Kolkata - 700 001
Branch Office: C/0. Krishna & Co., 2nd Floor, Kalpatru Chambers, Narik
Motwani Marg. Fort, Mumbai – 400023.
Contact:
www.rustagi.co.in
+91 33 2248 0823, 0856, 2243 0746.
admin@rustagi.co.in
rustagico@rediffmail.com
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Union Budget Rustagi

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Union Budget Rustagi

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2011

Number of legislative changes have been brought

We are in midst of changing times. GST, Direct Tax

Income Slab Rate of Tax

Total Income < 1,80,000 Nil

Total Income < 1,90,000 Nil

Total Income < 2,50,000 Nil

Very Senior Citizens

Total Income < 5,00,000 Nil

 Tax Rate will continue to be the same i.e., 30% in

 Surcharge has been reduced from 7.5% to 5% in case

 Surcharge to be levied in case where total income

 MAT Liability on Company is increased from 18%

DIVIDEND RECEIVED FROM FOREIGN

 Dividend received by Domestic Company from its Foreign Subsidiary Company to be

 Effective Date: Financial Year 2011 – 12.

 No expenses will be allowed for earning such income.

LIMITED LIABILITY PARTNERSHIP

AMT - LLP to pay the Alternate Minimum Tax at the rate

Computation - AMT to be computed on the adjusted total income.

Effective From - Assessment Year 2012-13

Adjusted Total - Adjusted total income is income computed as per the

Effective Date – 1st April 2012

Notified Jurisdictional Area

 With Effect from 1st June, 2011

 International transactions under the purview of the

 The amounts received by the assessee from any person

 at the rate or rates in force;

RESEARCH & DEVELOPMENT

Weighted deduction of any contribution made to any national

 Assessees having only Salary as the source of income

 Filing of Information for Liaison Office of every Non

Existing Coverage - Nil

SHORT TERM ACCOMODATION

Existing Coverage - Nil

Existing Coverage - a) Repair/Reconditioning/Restoration

LIFE INSURANCE BUSINESS

Existing Coverage - Premium for risk cover

Existing Coverage - Unrecognized courses provided by only by institutes

Existing Coverage - Services provided to members

Existing Coverage - Service provided relating to business in commerce

Existing Coverage - a) Provided by business entity to any other business

Expanded Coverage - a) Advice consultancy provided by business entity to

Taxable Amount - Gross amount

 Service provided by individual to other individual remain outside the levy

Existing Coverage - a) Hospital, Nursing home, Multi specialty clinic

Expanded Coverage - a) Any clinical establishments having centralized AC

Taxable Amount - 50% of the value of service

Existing Position - CENVAT Credit allowed to the extent of 100% of

Amended Position - CENVAT Credit restricted to 40% on following input

Effective Date - 1st March, 2011

EXPORT/ IMPORT OF SERVICES

Effective date - 1st April 2011

Point of Taxation of Service

General Rule - Provision of service, issue of invoice,

Advance received - Date of receipt of advance

Import of services - Receipt of invoice or date of payment

Continuous supply of services - - Date on which payment is liable to be

Continuous supply of services - - Issue of invoice or date of payment

Associated enterprises - Date of payment, issue of invoice, date of

Works Contract Construction/ completion of residential 1st March, 2011

Provided wholly within an airport 1st March, 2011

Provided wholly within the port or other 1st March, 2011