UNION BUDGET 2011 AN OVERVIEW

With inputs from:

BUDGET 2011-2012

S.NO.
1

CONTENTS
INTRODUCTION

PAGE NOS.
2

EXECUTIVE SUMMARY

DIRECT TAX PROPOSALS

3.1

TAX RATES

3.2

NEW TAX INCENTIVES AND RELIEFS

3.3

ADDITIONAL TAX BURDEN

3.4

PROCEDURAL CHANGES

11

INDIRECT TAX PROPOSALS

13

4.1

CUSTOM

13

4.2

EXCISE DUTY

15

4.3

SERVICE TAX

17

OTHER MAJOR POLICY INITIATIVES

20

INTRODUCTION
The Honble Finance Minister Pranab Mukherjee presented his 6 Union Budget, on the 28th of February, 2011 in the Parliament. This Budget was presented in the back drop of pressure on the Government on account of food-price inflation, slowing growth, elections in key states, various scams which have come to light in the past few months besides the demand by not only the opposition but also by the judiciary, to act for bringing back funds deposited in foreign banks by Indian individuals and other entities. The Economic Advisory Council to the Prime Minister (PMEAC) has projected that the economy would grow at 8.6 per cent in 2010-11 and 9 per cent in 2011-12. It opined that monetary and fiscal policies need to be tightened to some extent to protect the economy from inflation. To get back to the fiscal consolidation it called for withdrawing some stimulus measures that were given to industry to tide over the global financial crisis. It has projected the Centre's fiscal deficit in 2010-11 at 5.2 per cent of the GDP, down from 5.5 per cent estimated earlier and inflation rate at 7 per cent by March 2011. Besides, the PMEAC said there is considerable urgency in the implementation of GST. In the Economic Survey of 2010-11 presented to Parliament on 25 February 2011 it is stated that 9 percent economic growth of the Indian economy in 2011-12 is on track despite inflation worries. The perceived weakness arising from inflation, deficits on Fiscal, Revenue and Current Accounts seem to be off-set by the opportunities on account of a young population and a lesser dependency. The survey indicated a need to invest in the areas of health care, higher education and development of skills. It is predicted that India is going to achieve a growth which is likely to put the Country as the fastest growing economy. In his budget speech the Finance Minister has indicated the intention of the Government to give focus to Infrastructure development, Agricultural credit and Education by increasing the allocation by 23%, 26% and 24% respectively over the current year. A marginal relief given by way of small raise in personal tax slab rate changes appears to be to increase purchasing power in the hand of the consumer to overcome the impact of increased food price inflation. The Finance Minister promised to lay the Companies Bill 2009 and Food Security Act in the current session of the Parliament. In a major push to Foreign Direct Investment, it is proposed to allow Foreign Investors in the Mutual Fund Sector and also reduced the tax burden on Indian Companies receiving dividends from Overseas Investment. The budget estimates for 2011-12 project a revenue deficit of 1.8% of GDP and a fiscal deficit of 4.6% of GDP as against 2.3% & 5.1% respectively, based on the provisional accounts for 2010-11. The Ministry of Company Affairs has finally decided to postpone the implementation of IFRS allowing Corporates to breath a sigh of relief. No major changes was expected in direct and indirect tax as the Direct Tax Code (DTC) and the Goods and Services Tax (GST) are expected to be finalized.
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Introduction

Contrary to expectation, the Budget did little for the Real Estate Sector in term of declaring industry status and, there is fear of missing the bus on GST. There are likely to be implementation hurdles with the direct cash transfer system to beneficiaries even though it is well-intended, considering that there are 40 crore (400 million) people eligible as Below Poverty Line (BPL) beneficiaries. The budget is well conceived and strikes an appropriate balance between the requirement of growth and fiscal consolidation. The changes proposed in the Finance Bill, 2011 on direct taxes become effective from the Assessment year 2012-13 relating to financial year 2011-12, unless otherwise stated.

This booklet is meant to apprise our esteemed clients of the important budget proposals and offers a broad outline of the major proposals.

Introduction

EXECUTIVE SUMMARY
DIRECT TAXES
Minor change in personal tax slabs as under: Rs. 1,80,000 to Rs. 5,00,000 taxable @ 10% Rs. 5,00,000 to Rs. 8,00,000 taxable @ 20% Rs. 8,00,000 and above taxable @ 30% Small relief of Rs.2,000 for an individual due to increase in the minimum taxable slab from Rs.1,60,000/- to Rs.1,80,000/-. No change in tax slab for other assesses. The age for benefit to a senior citizen is reduced from 65 Years to 60 Years. Surcharge in case of domestic companies reduced to 5% from 7.5%. The effective rate of tax for domestic companies (total income over Rupees one crore) reduced from 33.2175 % to 32.445%. Surcharge in the case of non-domestic companies reduced to 2% from 2.5%. Tax for non-domestic companies (total income exceeding Rupees one crore) reduced from 41% to 40.8%. Under Section 35, expenditure on research, weighted deduction proposed to be enhanced from 175% to 200% of the sum paid. Time limit for getting exemption by the recognized provident funds is extended from 31st December 2010 to 31st March 2012. Dividend received by an Indian Company from its foreign subsidiary will be taxed at a reduced rate of 15%. Terminal date of the deduction allowed to an undertaking for the generation and distribution of power extended by one year, i.e. up to 31st March 2012. Variation of 5% of ALP (Arms Length Price) is proposed to be made redundant and the variation notified by the Central Government shall be taken as the allowable variation. TPO (Transfer Pricing Officer) to exercise jurisdiction over issues which come to his attention subsequently in relation to the proceedings. Levy of alternate minimum tax on limited liability partnerships Exemption given to a unit located in a SEZ from payment of dividend distribution tax is withdrawn. SEZ Developers and Units will be liable to pay MAT. MAT rate has been increased from 18 to 18.5%. Income of infrastructure Debt Funds exempt.

INDIRECT TAXES
Custom Duty No Change in the Peak Custom Rate Introduction of the Self Assessment Procedure in Custom Act Rationalization of Tax Rates of between 2% to 3 % Tariff Changes and Consolidation in Major Sectors Agricultural and Related Sector Textile Capital Goods/ Infrastructure: Manufacturing Sector:

Executive Summary

Special Economic Zones: Infrastructure Excise Duty Standard rate of Central Excise Duty rate unchanged Introduction of 1% Central Excise duty on 130 exempted items Lower rate of Central Excise Duty enhanced from 4% to 5% Amendment to Central Excise Act, 1944 and CENVAT Rules, 2004 for clarity of definitions and certain provisions Service Tax Rates remain unchanged at 10%. Point of Taxation specified to be on Accrual Basis and Point of Taxation Rules introduced st w.e.f. 1 April 2011 Liability to pay service tax advanced to Point of Taxation Hospitality sector brought under the service tax Substantial changes in legal, health care and work contract services Increasing monetary limits for adjustment of excess service tax paid Rationalisation in penal provisions.

Executive Summary

DIRECT TAX PROPOSALS

3.1 TAX RATES
The Finance Bill 2011 proposes minor change in personal taxation slab while not affecting any change in rates. There will be a small relief of Rs.2,000 for an individual due to increase in the minimum taxable slab from Rs.1,60,000/- to Rs.1,80,000/- . There is no change in tax slab for women assesses. The qualifying age for senior citizen is reduced from 65 Years to 60 Years. A new slab rate for very senior citizen of 80 years and above has been proposed with a minimum exemption limit of Rs.5,00,000/A. Income Tax: For Individuals, HUF, AOP, BOI:
EXISTING RATES For FY 2010 11 (AY 2011-12) PROPOSED RATES For FY 2011 12 (AY 2012-12)

Up to Rs.1,60,000 Rs.1,60,001 Rs.5,00,000 Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,000

NIL 10% 20 % 30 %

Up to Rs.1,80,000 Rs.1,80,001 Rs.5,00,000 Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,000

NIL 10% 20% 30%

For Women Assessee (below 60 years of age):

EXISTING RATES For FY 2010 11 (AY 2011-12) PROPOSED RATES For FY 2011 12 (AY 2012-12)

Up to Rs.1,90,000 Rs.1,90,001 Rs.5,00,000 Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,000

NIL 10% 20 % 30 %

Up to Rs.1,90,000 Rs.1,90,001 Rs.5,00,000 Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,000

NIL 10% 20% 30%

Direct Tax Proposals

For Individuals who are of age of 60 years and above (Senior Citizens):
EXISTING RATES For FY 2010 11 (AY 2011-12) PROPOSED RATES For FY 2011 12 (AY 2012-13)

Up to Rs.2,40,000 Rs.2,40,001 Rs.5,00,000 Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,000

NIL 10% 20 % 30 %

Up to Rs.2,50,000 Rs.2,50,001 Rs. 5,00,000 Rs.5,00,001 Rs. 8,00,000 Above Rs.8,00,000

NIL 10% 20% 30%

For Individuals who are of age of 80 years and above (Very Senior Citizens):
EXISTING RATES For FY 2010 11 (AY 2011-12) PROPOSED RATES For FY 2011 12 (AY 2012-13)

Up to Rs.2,40,000 Rs.2,40,001 Rs.5,00,000 Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,000

NIL 10% 20 % 30 %

Up to Rs.5,00,000 Rs.5,00,001 Rs. 8,00,000 Above Rs.8,00,000

NIL 20% 30%

B.

Surcharge: The Surcharge in the case of domestic companies has been reduced to 5 % as against the existing rate of 7.5%. The effective rate of tax for domestic companies having a total income exceeding Rupees one crore is reduced from 33.2175 % to 32.445%. The Surcharge in the case of non-domestic companies has been reduced to 2 % as against the existing rate of 2.5%. The effective rate of tax for non-domestic companies having a total income exceeding Rupees one crore is reduced from 51.25 % to 51% for income from royalty & fees for technical services and from 41% to 40.8% for all other incomes.

3.2
A.

NEW TAX INCENTIVES AND RELIEFS

Charitable Institutions Advance of any other object of general public utility The current limit of Rs.10.00 Lac is raised to Rs.25.00 Lacs in respect of receipts from advance of any other object of general public utility to be considered as non-charitable.

Direct Tax Proposals

B.

Weighted deduction in respect of expenditure on research It is proposed to amend deduction under Section 35 for expenditure on research by research association
The existing weighted deduction specified under clause (a) of subsection (2AA) has been proposed to be enhanced from 175 % to 200 % of the sum paid.

C.

Exemption Of Recognised Provident Funds The time limit for getting exemption by the recognized provident funds is extended from 31 st December 2010 to 31 March 2012. This amendment is proposed to take effect from 1 January, 2011.
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D.

Taxation Of Foreign Dividends It is proposed to introduce section 115 BBD whereby dividend received by an Indian Company from its foreign subsidiary will be taxed at a reduced rate of 15% and no deduction shall be allowed towards any expenditure on this account.

E.

Investment Linked Deduction in respect of Specified Businesses: Two new businesses are to be included under the head specified businesses. They are 1. Developing and building a housing project under a scheme of affordable housing framed by the Central Government or State Government. 2. Production of fertilizer in India. The date of commencement of these two new businesses should be on or before 1.4.2011. The definition of specified business in the case of hotels and hospitals has been changed by removing the word new from the definition. The effect is that the assessee may set off loss, under section 73A, of one specified business against the profits and gains of another specified business whether such other specified business is eligible for deduction under section 35AD or no. Therefore, an assessee operating a hotel or a hospital will be able to set off the profits of such business against the losses of a new hospital or new hotel which begins its operation after 1.4.2010 and which is eligible for deduction of expenditure under section 35AD. This amendment is effective from assessment year 2011-12.

F.

Tax Benefits for New Pension System The contribution made by the Central Government or any other employer to a pension scheme under Section 80CCD shall not be included in the limit of one lakh rupees provided under section 80CCE. Accordingly Section 36 is also proposed to be amended to give the employer a deduction for the amount of the contribution made to such pension fund and shall be allowed as deduction in computing the income under the head of Profits and Gains from Business or Profession which shall not exceed 10% of the salary of the employee in such previous year.

G.

Deduction for investment in long-term infrastructure bonds Deduction under Section 80CCF which was allowed for financial year 2010-11 is extended to apply to financial year 2011-12 also.

Direct Tax Proposals

H.

Extension of tax holiday for power sector: It is proposed to extend the terminal date of the deduction allowed, under clause iv of sub section 4 of Section 80-IA, to an undertaking for the generation and distribution of power for a st further period of one year, i.e. up to 31 March 2012.

I.

Rationalization of provisions relating to Transfer Pricing: It is proposed to amend proviso to Section 92 C whereby the existing variation of 5% of ALP which was in effect for all these years since its introduction is proposed to be made redundant and in its place the variation as notified by the Central Government shall be taken as the acceptable variation. It is proposed to insert sub-section 2A in Section 92 CA empowering the TPO to exercise jurisdiction over those issues which come to his attention subsequently in relation to any of the proceedings before him. These international transactions would be in addition to the international transactions referred to the TPO by the Assessing Officer. It is also proposed to amend section 92CA(7) conferring powers available under section 133A upon the TPO also. This amendment is proposed to take effect from 1 June, 2011.
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J.

Exemption of specified income of notified body or authority or trust or board or commission It is proposed, by inserting new clause 46 in section 10 of the Income-tax Act, to provide exemption from Income Tax to any specified income of a body, authority, board, trust or commission set up or constituted by a Central, State or Provincial Act or constituted by the Central or a State Government to regulate or administer an activity for the benefit of the general public. It has been accordingly proposed to amend Section 139 to provide for filing of return of income by such notified entity. These amendments are proposed to take effect from 1 June, 2011.
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3.3
A.

ADDITIONAL TAX BURDEN

Minimum Alternate Tax (MAT) It is proposed to amend Section 115 JB by increasing the rate for MAT to 18.5% of book profits from existing 18%.

B.

Taxation of Special Economic Zone (SEZ) Units & Developers Developers of SEZ as well as Units under SEZ, will now come under MAT.

C.

Dividend Distribution Tax It is proposed to amend section 115 O whereby the exemption given to a developer of a SEZ st from payment of dividend distribution tax is withdrawn with effect from 1 June 2011.

Direct Tax Proposals

D.

Alternate Minimum Tax for Limited Liability Partnership: A new chapter XII-BA is proposed to be introduced with sections 115JC to 115 JF for levy of alternate minimum tax on certain limited liability partnerships on the lines of minimum alternate tax presently levied on certain companies. The proposals are identical to those applicable to a company.

E.

Tax On Distributed Income To Unit Holders It is proposed to amend section 115 R to change the rate of tax applicable for payment of additional income tax as under: By a market mutual fund or a liquid fund; 25% for income distributed to an individuals or a Hindu undivided family 30% for income distributed to other persons By a debt fund other than a market mutual fund or a liquid fund; 12.5% for income distributed to an individuals or a Hindu undivided family 30% for income distributed to other persons This amendment is proposed to take effect from 1 June, 2011.
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F.

Document Identification Number The proposal made in earlier year for implementation of requirement of allotting or quoting document identification number has been withdrawn by omission of section 282B with effect from 1st April 2011.

G.

Infrastructure Debt Fund: It is proposed to set up Infrastructure Debt funds in order to promote for long-term, low cost funds from abroad for the infrastructure sector. Accordingly, sub-section 47of Section 10 has been inserted for exempting the income of these funds. However such funds will have to file a return of income under Section 139. The interest received by a non-resident from such notified infrastructure debt funds shall be taxable under clause (a) of sub-section 1 of Section115 A at the rate of 5% of such interest income. Section 194LB is inserted to provide for the deduction of tax at source at the rate of 5% from such interest income which is paid by the fund to a non-resident. These amendments shall take place from 1 June, 2011.
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H.

Sunset of tax holiday for certain undertakings engaged in commercial production of mineral oil: Under Section 80 IB (9) it is now proposed that the deduction will not be available for blocks licensed under a contract awarded after 31.3.2011 under the New Exploration Licensing Policy announced by the Government of India or in pursuance of any law for the time being in force or by Central or a State Government in any other manner.

Direct Tax Proposals

10

3.4
A.

PROCEDURAL CHANGES
Centralised Processing of Returns It is proposed to amend subsection 1B of Section 143 to extend the time limit for implementation of central processing of returns from 31st March, 2011 to 31st March 2012.

B.

Information On Request Received From Tax Authorities Outside India It is proposed to insert sub-section 2 to section 131 whereby the notified income-tax authority will be empowered to exercise powers available under sub-section 1 of the said section. Similar empowerment will be made available under section 133 by inserting a new proviso after second proviso to call for information.

C.

Time Limit For Completion Of Assessment Altered In Certain Cases It is proposed to insert clause (viii) to Explanation 1 to Sections 153 & 153 B whereby the time commencing from date when reference for information is requested for and ending with date of such information is received or six month, which ever is earlier will be excluded. This amendment is proposed to take effect from 1 June, 2011.
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D.

Reporting By Liaison Offices Of Foreign Entities It is proposed to insert Section 285 whereby a non-resident having a Liaison office in India will be required to file requisite information with respect to activities carried on by them during a financial year with in sixty days from the end of the financial year in prescribed form. This amendment is proposed to take effect from 1 June, 2011.
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E.

Witholding Tax: It is proposed to introduce a new section 194 LB for deduction of tax at source in case if interest is payable to a non-resident, other than a company or a foreign company by an infrastructure debt fund @ 5% of such income at the time of credit of such income or payment of the same, which ever is earlier. This amendments is proposed to take effect from 1 June , 2011.
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F.

Anti Avoidance Measures For Transactions With Persons Located In Notified Jurisdictional Areas It is proposed to introduce a new section 94A whereby in respect of transactions by a resident assessee with any person located in a country or a jurisdiction will be subject to scrutiny on lines of an international transactions with an associated party and all procedures as applicable to a transfer pricing transaction will be applicable in respect of such transactions.

G.

Settlement Commission It is proposed to insert clause (ia) in the proviso to sub-section1 of Section 245 C to extend the provision to an applicant who is related to the person in respect of whom the proceedings are initiated under clause (i) or is a person in whose case proceedings are initiated as a result of search if additional amount of income tax payable on the income disclosed in the application exceeds Rs. Ten lakhs for such cases.

Direct Tax Proposals

11

It is proposed to insert sub-section 6B to Section 245D whereby Settlement Commission can rectify any order passed by it after giving notice to and providing an opportunity to the concerned parties before doing so. These amendments are proposed to take effect from 1 June, 2011. There are similar amendments proposed under section 22 B of the Wealth Tax Act. H. Filing Date Section 139 is amended to extend the date of filing of return of income to 30 November for those corporate assessees who have to file a transfer pricing report in Form 3 CEB under section 92E. This amendment is proposed to take effect from 1 April, 2011.
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Direct Tax Proposals

12

INDIRECT TAX PROPOSALS

4.1 A.

CUSTOM DUTY
Peak Rate of Custom Duty constant: The peak rate of custom duty on the non agricultural products stays at 10%.

B.

Self Assessment Under the Custom Act It is proposed to amend section 2 include self assessment within the definition of assessments. Consequently section 17 has been amendment empowers to custom officials to verify the self assessment and the reassessed the duty on imported or exported goods. Section 18 & 19 are also amended to make provisional assessment incase the importer or exporter is unable to make self assessment. This amendment will come into effect on enactment of the Finance Bill.

C.

Unification of Rates The basic custom duty rates of 2%, 2.5% and 3% are unified at the median rate of 2.5%

D.

Industry Wise Major Tariff Changes Agricultural and Related Sector: Basic Custom Duty reduced for specified agricultural machinery and its components like paddy transplanter, laser land leveler, cotton picker, sugarcane harvester etc. to 2.5%. Basic Custom Duty reduced on micro irrigation equipment to 5% De-oiled rice bran cake to be fully exempted from basic Custom Duty. Export duty of 10% to be levied on its export. Special Economic Zones (SEZ): All clearness from SEZ into Domestic Tariff Area (DTA) are being exempted from Special Additional Duty (SAD) provided they are not exempt from the levy of VAT/Sales Tax. The CVD exemption currently available to plastic materials reprocessed in India out of the scrap or the waste of goods falling under specified chapters is being extended to domestic tariff area clearances of such plastic materials manufactured in SEZ units also. Textiles: Basic Custom Duty is being reduced on raw silk (not thrown) of all grades from 30% to 50% Cotton waste is being fully exempted from basic custom duty. Basic custom duty is being reduced from 10% to 7.5% on Nylon chips, fibre & yarn. Basic custom duty is being reduced from 5% to 2.5% on rayon grade wood pulp.

Indirect Tax Proposals

13

Capital Goods/ Infrastructure: The scope of full custom duty exemption to water supply projects for agricultural and industrial use is being expanded to the water pumping station and water reservoir of such projects. Basic custom duty is being reduced from 7.5% to 5% for specified gems and jewellery machinery. Full exemption from basic custom is being provided to cash dispensers. Parts required for the manufacturer of cash dispenser are also being exempted from basic custom duty on accrual user basis. The concessional rate of 5% basic custom duty, 5% CVD & Nil SAD currently applicable to high speed printing machinery is being extended to mailroom equipment compatible with such printing machinery imported by registered newspaper establishments. The concessional rate of 5% basic custom duty, 5% CVD & NIL SAD is being extended to parts and components for manufacture of 23 specified high voltage transmission equipments. Health Sector: A concessional import duty regime of 5% basic custom duty, 5% CVD & NIL SAD is being prescribed on specified raw material for the manufacture of syringes, needless catheters, cannulae on actual user basis. Custom duty on four specified life saving drugs and their bulk drugs is being reduced from 10% to 5% with Nil CVD (by way of excise duty exemption) Electronics Hardware: A concessional import duty structure of 5% CVD and Nil SAD is being prescribed of inject and laser-jet printers imported for manufacture of such printers. Full exemption from basic custom duty is being extended to parts/components required for the manufacture of PC connectivity cable and sub-parts of parts & components of battery charger, hands free head phones and PC connectivity cable of mobile handsets including cellular phones. Full exemption from custom duty is being extended to additional specified capital goods and raw materials for manufacture of electronic hardware. Export Promotion: The list of specified goods, allowed to be imported duty free for use in the manufacture of lather goods, for export is being expanded. Precious Metals: An import duty of Nil basic custom duty, CVD of Rs. 140 per 10 gram and Nil SAD is being prescribed for gold dore bars of upto 80% gold purity imported for refining and manufacturing serially numbered gold bars in India.

Indirect Tax Proposals

14

Manufacturing Sector: Basic Custom Duty reduced for various items to encourage domestic value addition vis--vis imports, to remove duty evasion and anomalies and to provide a level playing field to the domestic industry. Basic Custom Duty on two critical raw materials of cement industry viz petcoke and gypsum is proposed to be reduced to 2.5% Environment: Full exemption from Basic Custom Duty extended to batteries imported by manufacturers of electrical vehicles. Exemption granted from Basic Custom Duty and special CVD to critical parts / assemblies needed for Hybrid vehicles. Infrastructure: Full exemption from Basic Custom Duty to bio-asphalt and specified machinery for application in the construction of national highways. Other Proposal: Jumbo rolls of cinematographic film fully exempted from CVD by providing full exemption from Excise Duty.

4.2

EXCISE DUTY
Rate Structure: The concessional rate of duty is being increased to 5% from 4%. Items such as prepared food stuffs like sugar confectionary, pastry and cakes, starches, paper and articles of paper, textile intermediates and textile goods, drugs, medical equipments would now be subject tot eh enhanced rate of 5%. 130 specified items to suffer the levy of 1% excise duty without CENVAT credit. The general SSI exemption to continue to all products covered under this new levy. Readymade garments and textiles to suffer a compulsory excise duty of 10% which bear a brand name or are sold under a brand name. 5% excise duty on automatic looms and projectile looms. Exemption from excise duty up to 3500 metric tones of paper manufactured from nonconventional material is being withdrawn. Full exemption withdrawn on microprocessors for computer, other than mother boards and other computer related devices / accessories. These will suffer a concessional rate of excise duty at 5%.

Indirect Tax Proposals

15

Food / Agro Processing: Full exemption extended to the following products: o Air-conditioning equipment, panels and refrigeration panels for installation of cold chain infrastructure for preservation, storage, transport or processing of agricultural, horticultural, dairy, poultry, apiaries, aquatic and marine produce Conveyor belt systems for use in cold storage for the preservation, storage, transport or processing of agricultural, horticultural, dairy, poultry, apiary, aquatic and marine produce and in mandis and warehouses for storage of food grains and sugar.

Capital goods: Extension of exemption to goods required for expansion of an existing mega/ultra mega power project under specified conditions. Full exemption extended to specified part of sewing machines. Excise duty reduced from 10% to 5% on specified textile machinery. Environment Friendly and Energy Saving Goods Hydrogen vehicles to benefit from a concessional rate of duty at 10% Duty reduced from 10% to 5% on hybrid kits for conversion of fossil fuel vehicles to hybrid vehicles. Some parts to attract 5% duty. Cement The rates of duty on cement and cement clinker are proposed to be changed as under Mini cement plant Cement 1. Cleared in packaged form a. retail price not exceeding Rs. 190 per 50kg bag or of per tonne equivalent retail sale price not exceeding Rs. 3,800 - from the present rate of Rs. 185 per tonne to advolrum rate of 10% b. Retail price exceeding Rs. 190 per 50 kg bag or per tonne equivalent retail sale price exceeding Rs. 3800 - from Rs 315 per tonne to 10% ad valorem + Rs. 30 2. For cleared other than packaged form- From 215 per tonne to 10% ad valorem. Other than mini cement plant: Cement 1. Cleared in Packed forma. of retail sale price not exceeding Rs. 190 per 50 kg bag or of per tonne equivalent retail sale price not exceeding Rs. 3800 From present rate of Rs. 290 per tonne to 10% ad valorem + Rs. 80 per tonne.

Indirect Tax Proposals

16

b. Of retail sale price exceeding Rs. 190 per 50 kg bag per tonne equivalent retail sale price exceeding Rs. 3800 From present rate of 10% of retail sale price to 10% ad valorem + Rs. 160 per tonne. 2. Cleared other than in packaged form From 10% or Rs. 290 per tonne, whichever is higher to 10% ad valorem Cement Clinker From present rate of Rs. 375 per tonne to 105 ad valorem + Rs. 200 per tonne. Water Supply 1. full exemption from excise duty currently available to pipes required for delivery of drinking water from its source to the plant and from there to the first storage point is being extended to pipe fittings such as joints, elbows, couplings etc. 2. Concessional rate of excise duty of 1% is being extended to water filters using pressurized tap water but without use of electricity and their replaceable kits. Textiles A tariff rate of excise duty of 10% is being prescribed for jute yarn while it is being simultaneously exempted from excise duty Miscellaneous Full exemption from excise duty (and hence from CVD on imports) is being provided to colour, unexposed cineatographic film in jumbo rolls of 400 feet and 1000 feet. Amendment In This Schedules To Central Excise Tariff Act, 1984 A tariff rate of 5% is being prescribed for specified items, which are being subjected to an effective rate of 1% excise duty without cenvat credit facility. Amendment In Central Excise Act, 1944 And Cenvat Credit Rules 2004 Provisions of Section 11A, 11AA and 11AC are being redrafted so as to make them more lucid and coherent and new category of cases have been carved out in respect of which the period of limitation would be 5 years. Rule 3 and 4 of Cenvat Credit Rules 2004, are being amended to disallow utilization of credit for paying duty on concessional rate goods.

4.3 A.

SERVICE TAX
Rate of Tax The effective rate of service tax remains unchanged at 10% (10.3% including cess), in order to enable for easy fit to proposed GST.

B.

Additional coverage of services under Service Tax The following additional service brought under service tax net on the dates to be notified later after the enactment of the finance bill 2011.

Indirect Tax Proposals

17

Hospitality Service: Proposed to charge Service tax on Short term accommodation of less than 3 months charging in excess of Rs. 1000/- per day with an abatement of 50%. Air conditioned Restaurant, Bars and hotels having license to serve alcoholic beverages in relation to serving of food and /or beverages with an abatement of 70%.

C.

Proposed Changes I the existing scope of services: Sr. No. 1. Services Life Insurance Services Proposed Change All services provided to the policy holder including premium that is not allocated for investment. If unable to give The composition rate is revised to 1.5% from 1% Services provided to non members. Operational and administrative services in any manner. i. Business entity to individuals ii. Individuals to Business entity iii. Service of arbitration Tribunals to any business entity The condition of payments made by the business entity and insurance companies have been withdrawn and all services are subject to service tax with an abatement of 50% by any clinical establishment (air conditioned) with more than 25 beds. Services by Doctors other than an employee in such clinical establishment Diagnostic services Exemption on services rendered outside India. Abatement of 25% from the taxable value Rate of service tax revised i. Domestic Travel (Economy Class) : From Rs. 100 To Rs. 150. ii. International Travel: From Rs. 500 to Rs. 750 iii. Domestic Travel (Other than economy class) : 10% (Standard Rate) Changes will come into effect from 1 April 2011 The input credit for Erection, commissioning or installation, commercial or industrial construction and construction of complex service is restricted to 40% of the service tax paid. Changes will come into effect from 1 March 2011
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2. 3. 4.

Club or association services Business Support Services Legal consultancy services

5.

Health Care Services

6 7. 8.

Exhibition services Transport of Goods through costal and inland shipping Air Travel Services

Work Contract Services

Indirect Tax Proposals

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Sr. Services Proposed Change No. Note: The above changes other than specified will come into effect from the date notified, after the enactment of Finance Bill 2011. D. Amendments in Rules and Notification: Proposed to change the point of taxation from cash to accrual system from 1 of April 2011. The Point of Taxation is Invoices raised or payment received whichever is earlier.( Point of Taxation Rules 2011) Proposed to change the Service Tax Rules, 1994 from 1 of April 2011 by advancing the liability to pay service tax at Point of Taxation (when services are deemed to be provided) Proposed to change the monetary limit for adjustment of excess payment of service tax from Rs. 1,00,000/- to Rs. 2,00,000/- from 1.04.2011 [Rule 6(4B)(iii)] If any amount of service tax has been self assessed and not paid, the same shall be recovered with interest under section 87 as amount due to Central Government which was previously recovered under section 73 as not levied or paid or short levied or short paid etc. E. Amendments to Chapter V Proposed to Remove section 73 (1A) which deals with reduction of penalty in case of fraud, collusion etc. and introduction of new sub section 4A in section 73 for reduced penalty for discrepancies found during the course of service tax audit. The penalty reduced to 1% per month of the tax amount subjected upto maximum of 25%. Proposed to reduce the penalty under section 76 from 2% to 1% per month or Rs. 100 per day whichever is higher. Maximum penalty reduced to 50% of the tax amount. Proposed to Increase the maximum penalty under section 77 from Rs.5,000 to Rs. 10,000. Proposed to amend Section 78 that penalty will be hereafter mandatory and equal to tax evaded. For situation covered under section 4A the penalty shall be 50% of the tax amount. Penalty can be reduced to 25% if tax dues are paid within one month with interest and reduced penalty. The period of one month shall be revised to 90 days for an assessee having turnover of upto Rs.60 lakh in any of the years covered in the show cause notice or in the preceding year. Proposed to reduce the Interest by 3 % under section 73B and 75 for as assessee having turnover upto Rs.60 lakh. Proposed to increase the maximum penalty for delay in filling of return under section 70 from Rs. 2,000 to Rs.20,000. Proposed to amend the power to waive penalty under section 80. While penalties under section 76 ad 77 are being retained, penalty under section 78 is being waived only in case where the transaction is captured in the specified records. The above changes will come into effect from a date to be notified after the enactment of the finance bill 2011.
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5.

OTHER MAJOR POLICY INITIATIVE:

The Budget proposes to:

Create infrastructure debt funds. Issue tax free infrastructure bond of Rs.300 billion. Move towards direct transfer cash subsidy for people in BPL category for better delivery of kerosene, LPG, and fertilizers subsidies. Allow SEBI registered Mutual Fund to access subscription from foreign investors Increase Foreign Institutional investors limit on 5 year corporate bonds for investment in infrastructure by USD 20 billion. Curb the black money menace by a 5 point strategy. Introduce National Food Security bill in the current year.

Other Major Changes

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