Union Budget Analysis

By FCA Vimal Punamiya

UNFAVOURABLE POINTS OF BUDGET 2010

The Minimum Alternate Tax (MAT) for the companies has been increased from 15 per cent to 18 per cent.
The income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not,
(a) The non-resident has a residence or place of business or business connection in India; or

(b) The non-resident has rendered services in India.

This amendment is proposed to take effect retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the assessment year 1977-78 and subsequent years.

The provision of section 12AA has been amended to provide the Commissioner with the power to cancel registration obtained u/s 12A.
The rate of interest for non-payment of TDS has been increased from 1 per cent to 1.5 per cent for every month or part of the month w.e.f 1st July, 2010.
Maximum penalty leviable u/s 271 (B) for the failure to get accounts audited or furnish report within the prescribed time limit has been increased from 1 lakh to 1.5 lakhs.
Credit in respect of tax paid by a company u/s 115JB is allowed, only to such company u/s 115JAA, the same shall not be allowed to the successor limited liability partnership.
Section 56 has been amended to include within its ambit transactions undertaken in shares of a company either for inadequate consideration whether recipient is a firm or a company.

FAVOURABLE POINTS OF BUDGET 2010

The income tax department to notify SARAL-II form for individual salaried taxpayers for the coming assessment year.
Income tax slabs for individual taxpayers to be as follows:
Income upto Rs. 1.6 lakhs Nil

Income above Rs. 1.6 lakhs and upto Rs. 5 lakhs 10 per cent

Income above Rs. 5 lakhs and upto Rs. 8 lakhs 20 per cent

Income above Rs. 8 lakhs 30 per cent

Income tax slabs for Females is Rs. 1.9 lakhs and for Senior citizen is Rs. 2.4 lakhs.

In case of Domestic Companies, the rate of Surcharge is reduced from 10 per cent to 7.5 per cent.
“The advancement of any other object of general public utility” to be considered as “charitable purpose” even if it involves carrying on any activity in the nature of trade, commerce or business provided that the receipts from such activities do not exceed Rs. 10 lakhs in the year.
As per the provisions of section 35(2AB) of the Income Tax Act, a company was previously allowed weighted deduction of 150 per cent of the expenditure incurred on scientific research on an approved In-House Research and Development facility has now been increased to 200 per cent.
The provision of Section 35(1)(ii) of the Income Tax Act previously provided weighted deduction of 125 per cent of any sum paid to an approved scientific research association or to an approved university, college or other institution to be used for scientific research has now been amended to 175 per cent.
Section 35(1)(iii) of the Income Tax Act, has been amended to include an approved research association, which has as its object undertaking research in social science or statistical research.
The provision of section 35(AD) of the Income Tax Act, has been amended to include in the definition of “specified business”, any hotel sector irrespective of the location in India and has been allowed 100 per cent deduction in respect of the whole of any expenditure of capital nature provided it starts functioning after 01/04/2010.
In case of TDS, the provision of section 40(a)(ia) of the Income Tax Act, has been amended to provide that no disallowance will be made if after deduction of tax during the previous year, the same has been paid on or before the due date of filing of return of income.
Section 44(AB) of the Income Tax Act, has been amended to increase the threshold limit of Auditing from 40 lakhs to 60 lakhs in case of persons carrying on business and from 10 lakhs to 15 lakhs in case of persons carrying on professions.

In case, of income by way of fee for technical services, section 44BB and section 44DA has been amended to exclude applicability of section 44BB to the income, which is covered under section 44DA and vice versa.
Section 45 of the Limited Liability Partnership Act, 2008 has been amended to provide that the transfer of assets on conversion of company into Limited Liability Partnership in accordance to section 50 and section 57 shall not be regarded as a transfer for the purpose of capital gain tax, subject to certain conditions. These conditions are as follows:
The total sales, turnover or gross receipts in business of the company do not exceed sixty lakh rupees in any of the three preceding previous years;
(b) The shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company;

(d) The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;

(e) All assets and liabilities of the company become the assets and liabilities of the LLP; and

(f) No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion.

It further will allow carry forward and set-off of business loss and unabsorbed depreciation to the successor LLP that fulfills the above mentioned conditions.

Clause (vii) of section 56(2) has been amended so as to provide that, it would apply only if the immovable property is received without any consideration or to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property with retrospective effect from 1st October, 2009.
Any contribution made to Central Government Health Scheme has been included to the contribution under the provisions of section 80D; the deduction will be limited to the current aggregate.
Section 80IB (10) is amended with the retrospective effect from 01/04/2010:
The period allowed for completion of housing project in order to qualify for availing the tax benefit has been increased from 4 years to 5 years from the end of the financial year, in which the housing project was approved by the local authority on or after 01/04/2005.
The current norm for the built-up area of shops and other commercial establishments in housing projects has been amended to 3 per cent of aggregate built-up area of the housing project or 5,000 sq.ft, whichever is higher, for projects approved on or after 01/04/2005.
Under the scheme of TDS, as provided in the Income Tax Act, the threshold limit for payments has been changed as follows:
Sl. Section Nature of payment Existing threshold Proposed threshold

No. limit of payment limit of payment

(Rupees) (Rupees)

1. 194B Winnings from lottery or

crossword puzzle 5,000 10,000

2. 194BB Winnings from horse

Race 2,500 5,000

3. 194C Payment to contractors 20,000 30,000

(for a single (for a single

transaction) transaction)

` 50,000 75,000

(for aggregate of (for aggregate of

transactions during transactions during

financial year) financial year)

4. 194D Insurance commission 5,000 20,000

5. 94H Commission or Brokerage 2,500 5,000

6. 194-I Rent 1,20,000 1,80,000

7. 194J Fees for professional or

technical services 20,000 30,000

Section 245A(b) has been amended to include proceedings for the assessment or Re-assessment resulting from search or as result of reacquisition of Books of Accounts or other or any assets within the definition of case which can be admitted by the settlement commission where the addition amount of income tax payable on income disclosed exceeds Rs. 50 lakhs . in other cases, an application can be made before settlement commission, if the additional amount of income tax payable on the tax exceeds Rs. 10 lakhs. Also, clause (iii) has been inserted in section 245D(4A) to provide that the settlement Commissioner shall pass an order within 18 months from the end of the month in which the application is made, where the application is made on or after 1st June, 2010. Similar, amendments are made in section 22A of the Wealth Tax Act.

Deduction of an additional amount of Rs. 20,000 allowed, over and above the existing limit of Rs.1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government.

TAX PROPOSALS

The Centralized Processing Centre at Bengaluru is now fully functional and is processing around 20,000 returns daily. This initiative will be taken forward by setting up two more Centres during the year.

The Income Tax department has introduced “Sevottam”, a pilot project at Pune, Kochi and Chandigarh through Aayakar Seva Kendras, which provide a single window system for registration of all applications including those for redressal of grievances as well as paper returns. The scheme will be extended to four more cities in the year.

Automation of Central Excise & Service Tax, has already been rolled out throughout the country this year. Similarly, a Mission Mode Project for computerization of Commercial Taxes in States has been approved recently. With an outlay of Rs. 1133 crore of which the Centre’s share is Rs. 800 crore, the project will lay the foundation for the launch of GST.

The income tax department to notify SARAL-II form for individual salaried taxpayers for the coming assessment year.

Scope of cases which may be admitted by the Settlement Commission expanded to include proceedings related to search and seizure cases pending for assessment. Scope of Settlement Commission also expanded in respect of Central Excise and Customs to include certain categories of cases that hitherto fell outside its jurisdiction.

Bi-lateral discussions commenced to enhance the exchange of bank related and other information to effectively track tax evasion and identify undisclosed assets of resident Indians lying abroad.

Direct Taxes

Income tax slabs for individual taxpayers to be as follows:
Income upto Rs 1.6 lakh Nil

Income above Rs 1.6 lakh and upto Rs. 5 lakh 10 per cent

Income above Rs.5 lakh and upto Rs. 8 lakh 20 per cent

Income above Rs. 8 lakh 30 per cent

Besides contributions to health insurance schemes which is currently allowed as a deduction under the Income-tax Act, contributions to the Central Government Health Scheme also allowed as a deduction under the same provision.

Current surcharge of 10 per cent on domestic companies reduced to 7.5 per cent.

Rate of Minimum Alternate Tax (MAT) increased from the current rate of 15 percent to 18 per cent of book profits.

To further encourage R&D across all sectors of the economy, weighted deduction on expenditure incurred on in-house R&D enhanced from 150 per cent to 200 per cent. Weighted deduction on payments made to National Laboratories, research associations, colleges, universities and other institutions, for scientific research enhanced from 125 per cent to 175 per cent.

Payment made to an approved association engaged in research in social sciences or statistical research to be allowed as a weighted deduction of 125 per cent. The income of such approved research association shall be exempt from tax.

Benefit of investment linked deduction under the Act extended to new hotels of two-star category and above anywhere in India to boost investment in the tourism sector.

Allow pending projects to be completed within a period of five years instead of four years for claiming a deduction of their profits, as a one time interim relief to the housing and real estate sector. Norms for built-up area of shops and other commercial establishments in housing projects to be relaxed to enable basic facilities for their residents.

Limits for turnover over which accounts need to be audited enhanced to Rs. 60 lakh for businesses and to Rs. 15 lakh for professions.

Limit of turnover for the purpose of presumptive taxation of small businesses enhanced to Rs. 60 lakh.

If tax has been deducted on payment by way of any expense and is paid before the due date of filing the return, such expenditure to be allowed for deduction. Interest charged on tax deducted but not deposited by the specified date to be increased from 12 per cent to 18 per cent per annum.

To facilitate the conversion of small companies into Limited Liability Partnerships, transfer of assets as a result of such conversion not to be subject to capital gains tax.

“The advancement of any other object of general public utility” to be considered as “charitable purpose” even if it involves carrying on of any activity in the nature of trade, commerce or business provided that the receipts from such activities do not exceed Rs.10 lakh in the year .

Proposals on direct taxes estimated to result in a revenue loss of Rs. 26,000 crore for the year.