The document provides an overview and summary of key proposals from the Indian Union Budget for 2009. Some key points: - No changes were made to corporate or personal income tax rates. MAT was increased to 15% from 10% for companies. - Exemption limits for personal income tax and wealth tax were increased. Fringe benefits tax was abolished. - GST is planned for implementation in April 2010 to integrate goods and services taxes. - Key proposals focused on improving tax system efficiency and equity while continuing fiscal support for certain sectors.

1. T
A
X
A TAX UPDATE

2. Budget 2009
FOREWORD:
In the run-up to the budget proposals, the Finance The budget has been characterized with an
Minister had to address the Aam admi promises increased government expenditure of 36% over
made during the elections in addition to managing the budget estimates of 2008-09 and purports to
the challenging economic climate. stimulate the growth in the challenging times. The
FM has chosen to take the risk of
FM speaks - “the Government
moving away from the Fiscal
recognizes the challenges that
Responsibility and Budget
this task entails, particularly at a
Management Act (FRBM) targets
time when the world is still
with a fiscal deficit of 6.8% of the
struggling with an unprecedented
GDP with no clear indication on
financial crisis and an economic
the time-lines for coming back to
slowdown that has also affected
fiscal consolidation.
India. While we are determined
to convert our words into deeds,
On the tax proposals, while the
Members would appreciate that a
FM has not rolled back any of the earlier stimulus
single Budget Speech cannot solve all our
packages, he has indicated that no further stimulus
problems, nor is the Union Budget the only
packages are envisaged. His key thrust has been to
instrument to do so. Yet, it is an important means
move towards improving the efficiency and equity
to share the vision of the Government, particularly
of our tax system
as we begin a new term. I propose to do just that
for the next hour or so, as I dwell on the
In this Communique, we take a look at the key
challenges and outline the approach of the
proposals signaling the Government’s thrust on
government in the short term and medium term
tax reforms.
perspectives.”
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3. Budget 2009
CONTENTS:
Budget – At a glance: ____________________ 4
Direct Taxes: _________________________ 4
Indirect Taxes: ________________________ 6
Signaling the Tax Reforms ________________ 8
Direct Tax Proposals ____________________15
Corporate Tax ________________________15
Limited Liability Partnership _____________32
Personal Tax__________________________33
Wealth tax ___________________________36
Commodity Transaction Tax _____________36
Indirect Tax Proposals ___________________37
Goods and Services Tax _________________37
Service Tax___________________________38
Central Excise ________________________43
CENVAT____________________________47
Customs _____________________________48
Effective Dates _________________________51
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4. Budget 2009
BUDGET – AT A GLANCE:
Exemptions / Deductions / Relief
DIRECT TAXES: Tax holiday to STPs and EOUs extended for
Tax Rates for FY 2009-10 one more year (FY 2010-11).
No changes in corporate tax rates. Weighted average deduction of 150% of
Surcharge on tax is removed for individuals, expenditure on in-house scientific research
HUF , AOP, BOI and partnership firms. extended to all manufacturers.
MAT payable by the companies increased to Advance tax applicable only if the total tax
15% from 10% of book profits with an payable for the year is in excess of Rs. 10,000.
additional period for carry forward and set off Ceiling on remuneration paid to partners
of MAT Credit. The period for set off allowable as deduction increased.
increased to 10 years from 7 years. Presumptive taxation introduced for businesses
Basic exemption limit for personal tax with turnover / gross receipts up to Rs. 40 lacs
increased. Limit of Rs. 20,000 increased to Rs. 35,000 for
Fringe Benefit Tax abolished and specified transport contracts for disallowance of
fringe benefits are taxed as perquisite. expenditure if payment is not made by account
Sweat equity or ESOPs and contribution to payee cheque or bank draft.
super annuation funds to be taxable as Donations made to electrol trusts to be allowed
perquisites in the hands of the employees. as deduction.
The basic exemption limit under wealth tax Deduction under section 80DD hiked.
increased to Rs. 30 lacs from Rs. 15 lacs. Relief under Section 80E (Interest on loan for
Commodity transaction tax abolished. higher education) extended to vocational
studies.
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5. Budget 2009
Tax Deduction at Source Others
Rate of TDS on rent of land and building New Direct Tax code to be introduced in next
reduced to 10% and rent of machinery reduced 45 days for public comments and to be placed
to 2%. before the Parliament in the winter session.
Rate of TDS on contract payments CBDT empowered to make rules for safe
rationalized. harbour provisions under TP regulations.
Higher rate of TDS at 20% applicable if the Dispute Resolution Panel to be established to
deductee fails to furnish PAN w.e.f. improve tax administration and avoid
01.04.2010. prolonged uncertainty in tax matters involving
No TDS on payments to transport contractors foreign companies and transfer pricing.
on furnishing PAN details. Provisions introduced to mandate quoting of
Surcharge and Cess not applicable on TDS for Document Identification Number in all
non-salary payments. correspondence by the income tax authorities.
Time limit for completion of TDS assessments Provisions introduced to enable serving of
introduced. documents or orders to the assesses through
electronic mode.
Provisions relating to taxation LLP introduced
– provisions applicable to partnership firms to
mutatis mutandis apply to LLPs.
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6. Budget 2009
Services provided to installations, structures
INDIRECT TAXES: and vessels in the continental shelf and
exclusive economic zone of India exempt.
GST to be implemented in April 2010 Commission agency services and GTA services
Rates of tax / duty received by exporters of goods from exempt.
No change in basic rates of customs, central Stock broking services provided by sub-brokers
excise or service tax. excluded.
No change in the rate of CST. New simplified scheme introduced for refund
of service tax to exporters of goods.
Service Tax Powers of the Commissioner to revise the
Legal services brought into service tax net. orders dispensed with. Alternatively, the appeal
However, no service tax applicable in case of provisions made applicable subject to certain
individuals. modifications.
Medical services involving cosmetic and plastic Service providers opting for composite scheme
surgery brought into service tax net. for works contracts to pay composite tax on
Services involving transport of goods through the value of goods involved therein whether or
national water way subjected to service tax. not any consideration is received.
The rate of service tax payable by service
Production or processing of goods excluded
from the category of business auxiliary services providers opting not to maintain separate
records reduced to 6% on exempt services.
only if they are excisable goods.
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7. Budget 2009
Central Excise Others
The rate of excise duty payable by The Advance Ruling Authority established
manufacturers opting not to maintain separate under the provisions of Income Tax Act to
records reduced to 5% on exempt goods. administer the advance ruling procedures under
Duty payable by EOUs manufacturing goods the Customs, Central Excise and Service Tax
wholly out of indigenous raw materials matters.
increased to 4% in case of goods wholly made Provisions introduced to restrict compounding
of cotton and 8% if made of any other textile of offences in certain circumstances /
materials. situations under Central Excise and Customs
Transfer or right to use software for matters.
commercial exploitation exempted from duty
provided that the manufacturer is registered
under Service tax.
Customs
Provisions introduced to facilitate claim of
refund in respect of imported goods found to
be defective / non-compliant subject to
conditions.
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8. Budget 2009
2007-08. It should be noted that India has been
SIGNALING THE TAX REFORMS more resilient to the global crisis when compared
A LOOK BEYOND… to many other economies.
In this section, we have outlined the government’s The key economic growth trends indicate that
while there is a steep slowdown in growth in
tax policy, macro economic indicators on tax, and
industry, the growth slowdown in services sector
a perspective on the Indian tax trends and was moderate. Component wise analysis of the
proposals. services sector indicates that the decline in growth
in “trade, hotels, transport and communication,
A Macro Economic Backdrop financing, insurance, real estate and business
services” was cushioned by the significant increase
The year 2008-09 saw a moderate growth of the in growth in “community, social and personal
Indian economy as compared to the previous services.” This increased growth is attributed to
years. The steep increases in prices of international increase in government expenditure in line with
crude oil and commodity prices in the beginning the fiscal policy to mitigate the impact of the
of the year followed by the global recession global recession on economy.
stemming from the global financial crisis, in the
latter part of the year, resulted in the fall in the In the above backdrop, the focus in the second
growth rate of the Gross Domestic Product. The half of the financial year shifted to providing
impact of the global crisis was felt through the growth stimulus. The Government introduced
channels of capital flows, financial markets and three stimulus packages during this half year. The
trade. This resulted in growth of real Gross tax revenue receipts as per provisional accounts
Domestic Product (at factor cost) falling to 6.7 per for 2008-09 was short by 12.80% of the budgeted
cent in 2008-09 as against a growth rate averaging estimates.
9.4 per cent per annum over the period 2005-06 to
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9. Budget 2009
Tax Policy of the Government
The key policy directions are:
In recent years, tax policy has been guided by the
need to increase the tax-GDP ratio and achieve while continuing on the path of simplifying and
fiscal consolidation. In these years, the tax-GDP rationalizing the tax structure and improving
ratio improved significantly from 9.2 per cent in the tax-GDP ratio, it has been considered
2003-04 to 12.6 per cent in 2007-08. This has been necessary to continue (and also enhance in
achieved through rationalisation of the tax some cases) fiscal support to certain labour
structure (moderate levels and a fewer rates), intensive and employment oriented sectors,
widening of the tax base, and reduction in which continue to be beleaguered owing to
compliance costs through improvement in tax falling demand in domestic and export markets.
administration.
It is also proposed to integrate the tax on
Owing to the policy interventions for inflation
goods and the tax on services, and finally move
management and subsequently for providing a
stimulus to growth, Government had to forego to a common Goods and Service Tax (GST).
substantial revenues from excise and customs In as much as the policy so far has sought to
duties. Consequently, despite the buoyancy of achieve convergence of rates, this would
direct tax revenues and service tax collections, the facilitate the introduction of GST by 1st April,
fiscal consolidation process received a setback. It 2010, as already announced by the
is expected that a recovery in growth of tax Government. This shift to GST is expected to
receipts would happen in the later part of 2009-10 significantly improve buoyancy from indirect
and enable a return to the path of fiscal taxes, owing to the opportunity it provides for
consolidation by moving closer to Fiscal further convergence and moderation of rates
Responsibility and Budget Management Act, 2003
and a substantial expansion in the tax base
(FRBM) targets.
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10. Budget 2009
which would extend beyond manufacturing all Tax Revenue Summary
the way to retail. Rs. Crores
Revenue 2009-10 (BE) 2008-09 (RE)
During the FRBM period there has been a Corporate Tax 256,725 222,000
structural change in the composition of Income Tax -
Centre’s tax revenue. The share of direct taxes others 112,850 122,600
in Centre’s tax revenues has also increased to Customs 98,000 108,000
55.5 per cent in 2008-09 from 41.4 per cent in Central Excise 106,477 108,359
2003-04. The medium term strategy for direct Service Tax 65,000 65,000
taxes is to consolidate the achievements of the Other Taxes 2,027 1,990
past and accelerate this process of change. Total 641,079 627,949
Tax Performance & Targets The revenue foregone remains high in terms of
With an exception to Central Excise, the RE overall revenue collection. The stimulus
for the year 2008-09 have shown a positive packages announced by the Central
growth in the collection of taxes by 8.97% over Government to mitigate the global financial
the actuals for the year 2007-08. This growth crisis has reflected in the lower gross tax
appears to be curtailed for the year 2009-10 revenue receipts for the FY 2008-09. The gross
(BE). While the corporate income tax shows a tax receipts per provisional accounts for 2008-
growth by 15.64%, the overall growth in tax 09 are lower by Rs. 78,010 crores when
revenues is envisaged at a meager 2.09%. compared to the BE for 2008-09.
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11. Budget 2009
A Look Beyond: Our Perspectives
Tax Administration Reforms New generation industries
A good step forward Government’s small steps approach
The Government has proposed several While there is something to cheer about for the
encouraging steps for further improving the tax new-age industries, the lack of any reforms on the
administration. much awaited matters appears to have put them
one step back.
Introduction of the Dispute Resolution Panel The positives to be reckoned would be:
for fast-track resolutions of disputes faced by
foreign companies and companies with transfer Transfer of right to use packaged software for
pricing disputes. further exploitation exempted from central
Initiative to bring about increased transparency excise duty and countervailing duties is
in funding of political parties through indicative of an attempt to remove the
establishment of electoral trusts. anomalies over possible multiple taxes on
Simplification of compliances for small software.
businessmen by introduction of presumptive Weighted average deduction of 150% of the
taxation. actual amount incurred for inhouse scientific
Increased efficiencies in tax administration by research for all manufacturers signals the focus
re-engineering of key processes coupled with on innovation.
automation e.g. introduction of document Proposal to introduce safe harbour provision in
identification numbers and recognition of transfer pricing thereby reducing taxpayer
electronic correspondences. hardships on litigation would improve the tax
administration
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12. Budget 2009
The other positives include removal of FBT Much against the expectation, the corporate
and reduction in the withholding tax rates rates have not been reduced. To add to this,
the increase in MAT by 50 percentage points is
However, the impetus extended by the seen as a spoil sport by the exporting
Government appears inadequate vis-à-vis the community.
sector expectations.
With the increase in outbound operations of
The extension of tax holiday for STPs and Indian companies, there was an anticipation
EOUs by one year is much against the that the FM would provide for a foreign tax
expectation of the industry. It is understood credit regime. Clarity on the foreign tax credit
that the industry expected an extension by not positions and recognition of underlying tax
less than 3 years. credits for dividends earned would not only
improve the competitiveness of the Indian
Provisions have been made to enable STPs to companies in the global market but would also
claim refund of unutilized service tax credits. encourage companies to plough back into
While the Central Government has introduced India, the profits earned from overseas
provisions and issued various notes and operations.
circulars to facilitate speedy processing of such
claims, the on-field reality is contrary. Despite Given India's inherent strengths in information
repeated representations, the Central technology, there was anticipation that India
Government has chosen not to address the would clarify its position on certain tax issues
concerns of the trade and industry on these surrounding business models in e-commerce
matters. and information technology.
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13. Budget 2009
Missing the Big Bang Tax Reforms – the road ahead
Tax reforms to stimulate investments Key Structural Changes in Direct and Indirect
Tax from 01.04.2010
While, the FM articulated his belief in
introducing investment linked incentives, not As aptly stated by the Finance Minister: “Tax
much was proposed to encourage circulation of reform, like all reforms, is a process and not an
private wealth. event.” The FM has emphatically stated that a new
Direct tax code and the GST would be
In current economic conditions there appears introduced. In the words of the FM: “we need a
very little for the housing sector. The tax system which generates revenues on a
Government could have considered increased sustained basis without use of coercive tax
tax reliefs for individuals for payment of collection methods at the end of each year to meet
housing interest and timely repayment of loans. targets”. Both these legislations are expected to
provide some key structural changes to levy and
Given the lack of a tax pass-through status for administration of the taxes.
LLPs; this vehicle may not function to its
potential as a strong investment vehicle for New Direct Tax Code Expected Soon
high net worth individuals. The FM has committed to releasing the new
Direct Taxes Code within the next 45 days. The
The anomaly of classifying information Direct Taxes Code, along with a Discussion Paper,
technology software as goods or services has will be released to the public for debate. Based on
not been laid to rest. Despite various the inputs received, the Government will finalise
representations, the Government has the Direct Taxes Code Bill for introduction in this
apparently not made any mention or issued any House during the Winter Session. It is envisaged
clarifications in this regard. that the same would be promulgated by
01.04.2010.
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14. Budget 2009
Goods and Services Tax to be introduced from
01.04.2010
In indirect taxes the FM purports to accelerate the The FM has himself stated that it is his intention
process for the smooth introduction of the Goods to make a modest start in this direction in the
and Services Tax (GST) with effect from 1st April, current year and ensure that the process is
2010. As per the FM’s budget speech the completed in the next four years. The FM speaks -
Empowered Committee of State Finance “At the end of this process, I hope the
Ministers has made considerable progress in Finance Minister can credibly say that our tax
preparing the roadmap and the design of the GST. collectors are like honey bees collecting nectar
Officials from the Central Government have also from the flowers without disturbing them, but
been associated in this exercise and through their spreading their pollen so that all flowers can
collaborative efforts, they have reached an thrive and bear fruit.”
agreement on the basic structure, in keeping with
the principles of fiscal federalism enshrined in the
Constitution. The broad contour of the GST
Model is that it will be a dual GST comprising of a
Central GST and a State GST. The Centre and
the States will each legislate, levy and administer
the Central GST and State GST, respectively.
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15. Budget 2009
Minimum alternate tax rate increased
DIRECT TAX PROPOSALS
MAT payable by the companies under Section
CORPORATE TAX 115JB is increased from 10% to 15% of book
profits. However, as a relief to the taxpayer the
Tax Rates For FY 2009-10 time period for carry forward and set-off of the
tax credits is extended from 7 years to 10 years.
Business Profits
MAT Rate
There are no changes in the normal tax rates, Taxable Income Domestic Foreign
Company Company
surcharge or cess for the corporate sector.
- Upto 10,000,000 15.45% 15.45%
- Above 10,000,000 16.995% 15.84%
Taxable Income (Rs.) Domestic Foreign
Company Company
Upto 10,000,000 30.90% 41.20% Further amendments have been made to provide
Above 10,000,000 33.99% 42.23% that any amount set as provision for the
diminution in the value of assets is to be added
back if the same is debited to profit and loss
- Marginal relief shall be available in certain cases
account. This amendment is made retrospectively
- The above rates are inclusive of surcharge and from the financial year 2000-01. Similar
cess, as applicable amendment made in Section 115JA (erstwhile
- It excludes cases liable to special rates of tax MAT provisions) retrospectively from financial
(such as, non-residents earning interest income, royalty year 1997-98.
income or fee for technical services).
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16. Budget 2009
Fringe Benefit Tax Rationalization of Withholding Taxes
The provisions of fringe benefit tax have been Surcharge and Cess not applicable on TDS in
abolished with effect from FY 2009-10. respect of non-salary payments:
“The Finance Act, 2005 introduced the Fringe The surcharge at the rate of 10% of tax and
Benefit Tax on the value of certain fringe education cess at 3% of the tax shall not be
benefits provided by employers to their applicable on non salary payments to domestic
employees. This tax has been perceived as tax payers / deductees.
imposing considerable compliance burden.
Empathising with these sentiments, I propose to However, in respect of payments to companies
abolish the Fringe Benefit Tax” other than domestic companies, surcharge of
2.5% would continue to be applicable where
FM, Mr. Pranab Mukherjee such income exceeds one crore rupees in the
relevant year. Further, the education cess at 3%
continues to be applicable for payments to non
residents.
Advance Tax
Currently the liability for payment of advance tax
during a financial year arises when the total
amount of tax payable during that year is Rs. 5,000
or more. It is proposed to raise this threshold limit
to Rs. 10,000. The proposed amendment would be
effective financial year 2009-10.
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17. Budget 2009
The withholding tax rates in relation to rent In relation to contract payments on or after
payments have been rationalized and the 01.10.2009. the law has clarified that “work”
proposed rates are as follows: shall not include manufacturing or supplying a
product according to the requirement or
Nature of Payment Existing Proposed
base rate (01.10.2009) specification of a customer by using raw
Rent of plant, 10% 2% material purchased from a person other than
machinery or equipment such customer as such a contract is a contract
Rent of land, building 15% 10% for ‘sale’. This will however not apply to a
or furniture to an contract which does not entail manufacture or
individual and HUF supply of an article or thing (e.g. a construction
Rent of land, building 20% 10% contract). Further, if the raw material is
or furniture to a person purchased from such customer then the
other than individual contract would qualify as for work. It is further
and HUF proposed to provide that in such a case TDS
shall be deducted on the invoice value
excluding the value of material purchased from
The withholding tax provisions in relation to
such customer if such value is mentioned
contract payments have been rationalized and
separately in the invoice. Where the material
effective 01.10.2009 the rates are as follows:
component has not been separately mentioned
1% if the payee is Individual or HUF.
in the invoice, TDS shall be deducted on the
In the case of other entities, the rate
whole of the invoice value.
prescribed is 2%.
In the case of transport contracts, no TDS
is required if the transporter quotes his
PAN. Otherwise, TDS rates as prescribed
above are applicable.
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18. Budget 2009
No TDS in respect of payments to Transport vouchers and other documents sent to each
Contractors: No TDS shall be applicable or other. This amendment is applicable with effect
deducted in respect of payments to transport from FY 2010-11.
contractors if they furnish the PAN to the
deductor. However, the deductor would be The cap on the time limit for passing order for
required to intimate the PAN details to the failure to deduct tax at source introduced: In
Income Tax Department in the prescribed case of default or failure to deduct tax at
format. source, the time limit for passing the order to
holding a person to be an assessee in default is
Higher rate of TDS where the details of PAN capped at 2 years from the end of the financial
is not furnished to the deductor: The deductees year in which the statement of TDS is filed and
/ payees are required to furnish the details of where no statement is filed, such order can be
PAN to the deductors. In the event, the details passed within 4 years from the end of the
are not furnished, the rate of TDS applicable financial year in which the payment is made or
on such payments would be at higher of the credit is given.
following irrespective of the nature of payment: This cap of 2 years and 4 years would not be
applicable in respect of the following:
20% of the amount paid / payable Tax is deducted but not deposited.
Rates as per the other provisions of the Act Employer has failed to pay tax on non
Rate/s in force for the relevant payment monetary perquisite under section 192(1A).
The deductee is non resident.
The above would be equally applicable for In the above case, the order can be passed
payments made / to be made to non-residents. even after the four years.
Both the deductor and deductee are required to These provisions are applicable for the orders
quote the PAN in the correspondences, bills, passed on or after 01.04.2010.
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19. Budget 2009
Filing of quarterly statements dispensed with: Tax Reliefs
Currently, the withholding tax compliance and
administrative provisions require filing of The sun-set clauses for deduction in respect of
quarterly statements in respect of the tax export profits under sections 10A and 10B of
deducted / collected at source. These the Income-tax Act for units operating under
provisions are amended to provide that such software technology parks and export
statements of tax deducted / collected at oriented parks scheme respectively, is
source to be prepared for such period as may extended by one more year i.e. upto
be prescribed. This provision is applicable from 31.03.2011.
01.10.2009.
“Deduction in respect of export profits is
available under sections 10A and 10B of the
Income-tax Act. The deduction under these
sections would not be available beyond the
financial year 2009-2010. In order to tide
over the slowdown in exports, I propose to
extend the sun-set clauses for these tax
holidays by one more year i.e. for the
financial year 2010-11.”
FM, Mr. Pranab Mukherjee
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20. Budget 2009
In relation to units operating from special Section 35(2AB) provides for a weighted
economic zones, the existing provisions average deduction of 150% of the
provided that the relief be computed with expenditure incurred on in-house scientific
reference to the total turnover of the taxpayer. research and development for select
This would be discriminatory in so far as those businesses if approved by the prescribed
taxpayers who have multiple units in both the authority. The scope of businesses entitled to
SEZ and the domestic tariff area (DTA) vis-a- avail of this relief is widened to include all
vis those taxpayers who are having units in only businesses engaged in the manufacture of or
the SEZ. With a view to remove the anomaly, production of article or thing except those
it is proposed to amend the provisions so as to specified in the Eleventh Schedule (firms
provide that the deduction shall be computed producing alcohol, tobacco, cosmetics,
with reference to the total turnover of the toiletries, dental care products and aerated
undertaking. This amendment will take effect drinks). Hitherto, the benefit was available only
financial year 2009-10. to companies engaged in biotechnology or in
manufacture of drugs, pharmaceuticals,
electronic equipments, computers,
telecommunication equipments, chemicals or
any other article or thing notified by the Board.
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21. Budget 2009
Investment linked tax incentives introduced In case a taxpayer derives income partly in the
for the following businesses. nature of agricultural income and partly
business income, the depreciation is computed
Setting up and operating of ‘cold chain as if the entire income is derived from the
facility’ business. Hence, the depreciation to the extent
Warehousing facilities for storing it relates to agricultural income is deemed to be
agricultural produce allowed even though agricultural income is
Laying and operating cross country natural exempt.
gas or crude or petroleum oil pipeline
network for distribution on common carrier Tax holiday under section 80-IB(9) of the
principle. Income Tax Act, which was hitherto available
in respect of profits arising from the
Under this method, all capital expenditure, commercial production or refining of mineral
other than expenditure on land, goodwill and oil, to be extended to commercial production
financial instruments would be fully allowable or refining of natural gas. This tax benefit
as deduction subject to certain conditions. would be available if the production or refining
Further any consideration received when such is undertaken from oil and gas blocks which are
assets are discarded or transfered would be awarded under the NELP-VIII round of
liable to tax as business income. bidding. Further, a retrospective amendment is
made with effect from FY 1999-00, to expand
Further, the losses in relation to this business the meaning of the term “undertaking” for the
can be carried forward indefinitely to be set off purposes of relief under section 80-IB(9). It
against the profits and gains from such will mean all blocks awarded in any single
business in future. contract.
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22. Budget 2009
Extension of terminal dates for relief claim Distribution of Profits to Partners
under Section 80IA
The present ceiling of remuneration allowable
The terminal dates for units engaged in the as deduction for the computation of income of
generation or distribution or transmission of a Firm as per the provision of section 40(b)(v)
power has been extended to 31.03.2011 is increased. Further, the distinction between a
from 31.03.2008. Consequently, the units firm carrying on a profession or any other
may commence generation or transmission business is done away with.
or distribution at any time prior to
31.03.2011 to be eligible to claim this relief. The limits of remuneration are as follows:
This amendment would be applicable
retrospectively from 01.04.2008. Income (Rs.) Proposed Rates
(Book Profit)
The terminal date for units availing Less than Rs. 150,000 or @ 90% of the
deduction in respect of profits and gains 300,000 or Loss book profit
derived from commercial production or
refining of mineral oil has been extended by On the Balance 60% of the book profit
three years. Consequently, these units may
begin refining of mineral oil before
31.03.2012 to avail of the tax benefit. The
new terminal date will be the same for both
the public and the private sector.
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23. Budget 2009
Presumptive taxation
The presumptive taxation scheme was The presumptive rate of income is
erstwhile restricted to select small businesses prescribed at 8% of gross turnover /gross
such as retail, civil construction or supply of receipts.
labour for civil construction. It is proposed to An assessee opting for the above scheme
expand the scope of presumptive taxation to all shall be exempted from payment of advance
businesses with effect from FY 2010-11. The tax related to such business.
salient features of the proposed presumptive An assessee opting for the above scheme
taxation scheme for small business (other than shall be exempted from maintenance of
goods carriages business) are as under: books of accounts and tax audit.
The scheme shall be applicable to In relation to the business of transport
individuals, HUFs and partnership firms operators (i.e. plying, hiring or leasing of goods
excluding Limited liability Partnership Firms carriages), the presumptive income limits have
and companies. It shall also not be been increased. In the case of the heavy goods
applicable to an assessee who is availing any vehicle, the presumptive income is increased to
tax reliefs (such as deduction under Sections Rs. 5000 per month from Rs. 3500 and in the
10A, 10AA, 10B, 10BA or deduction under other cases to Rs. 4500 per month from Rs.
any provisions of Chapter VIA) 3,150 per month. This amendment is applicable
The scheme is applicable for any business from the FY 2010-11.
(excluding a goods carriages business) which
has a maximum gross turnover /gross
receipts of Rs. 40 lakhs.
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24. Budget 2009
Transfer pricing
Existing provisions in relation to the arm’s With a view to resolving this controversy, it is
length price range state that at the option of the proposed to amend the proviso to Section 92C
taxpayer, the arm’s length price may be to provide if the arithmetical mean, so
determined as a price which may vary from the determined, is within five per cent of the
arithmetical mean by an amount not exceeding transfer price, then the transfer price shall be
five per cent of such arithmetical mean. This treated as the arm's length price and no
provision has been subject to conflicting adjustment is required to be made. This
interpretation by the assessee and the Income amendment will take effect from 1st October,
Tax Department. The assessee’s view is that 2009 and shall accordingly apply in relation to
the arithmetical mean should be adjusted by 5 all cases in which proceedings are pending
per cent to arrive at the arm's length price. before the Transfer Pricing Officer (TPO) on
However, the department’s contention is that if or after such date.
the variation between the transfer price and the
arithmetical mean is more than 5 per cent of A new Section inserted to enable CBDT to
the arithmetical mean, no allowance in the make Rules with respect to safe harbour
arithmetical mean is required to be made. provisions. These rules would provide the
circumstances in which the income tax
authorities shall accept the transfer price
declared by the assessee as an arm’s length
transfer price.
Page | 24 of 52

25. Budget 2009
Dispute Resolution Panel Key aspects to note are:
In order to improve tax administration and The DRP has to provide a conclusive view
avoid prolonged uncertainty in tax related i.e. it may confirm, reduce or enhance the
matters for foreign companies or transfer variations proposed in the draft order. The
pricing matters, it is proposed to introduce an DRP is not authorized to merely set aside
alternate dispute resolution mechanism which any proposed variation or issue any
will facilitate expeditious resolution of disputes direction for further enquiry and passing of
in a fast track basis with effect from the assessment order by the AO.
01.10.2009. Every direction issued by the DRP shall be
binding on the Assessing Officer and the
Prior to finalization of an adverse order, the same is appellable only with the Appellate
assessing officer shall need to forward a draft Tribunal.
of the proposed order of assessment (draft No direction shall be issued unless an
order) to the above mentioned assessee, who opportunity of being heard is given to the
may file his objections to the draft order with assessee and the AO on such directions
the DRP. The DRP shall after due which are prejudicial to the interest of the
consideration issue such directions, as it thinks assessee or the revenue, respectively.
fit, for the guidance of the Assessing Officer to The DRP proceeding to be completed
enable him to complete the assessment. The within 9 months from the end of the month
law provides for the process, powers and time in which the draft order is forwarded to the
frames for the dispute resolution, besides eligible assessee.
enabling the CBDT to prescribe further rules The DRP shall have the same powers as are
for its efficient functioning. vested in a Court under the Code of Civil
Procedure, 1908 (5 of 1908);
Page | 25 of 52

26. Budget 2009
Curbing Revenue Leakage
Further from FY 2009-10, where deduction is
The profit linked deductions under various claimed under the aforesaid section or chapter
provisions and Chapter VIA overlap, and the and where there is transfer of goods and
taxpayers, at times, claim multiple deductions services between the undertaking and any other
for the same profits. With a view to preventing business of the assessee or vice versa, the
such misuse, it is proposed that: deduction under the aforesaid section is
computed as if the transfer had taken place at
where any deduction is claimed under market value of such goods and services.
section 10A or 10B or 10AA or 10BA or
under the Chapter VIA in respect of certain Section 90 of the Income-tax Act empowers
income, no deduction is allowed in respect the Central Government to enter into Double
of such profits in any other provision of the Taxation Avoidance Agreement (‘DTAA’) with
Act and in no case deduction shall exceed the Government of any other country outside
such profits and gains from such India for granting double-taxation relief and
undertaking or unit or enterprises or eligible facilitate exchange of information concerning
business as the case may be. avoidance or evasion of tax. The government
no deduction is allowed under section 10A now wishes to expand the scope of this
or 10AA or 10B or 10BA or under chapter cooperation by entering into a DTAA or TIEA
VIA-C in respect of such profits if the (Tax Information Exchange Agreement) with
assessee fails to make such claim in the specified territories within foreign countries.
return of income. The proposed amendment will be effective
from 01.10.2009.
The above amendments are applicable
retrospectively from FY 2002-03.
Page | 26 of 52

27. Budget 2009
In respect of profits earned from developing Other Tax Administration Measures
and building housing projects, Section 80-
IB(10) provides for 100 per cent deduction of It is proposed to introduce a computer based
the profits. It is now clarified that the objective system of allotment and quoting of Document
of this tax concession is to provide tax benefit Identification Number (DIN) in each
to the person undertaking the investment risk correspondence sent or received by the
i.e. the actual developer. Accordingly, the department so as to enable tracking of
provisions are amended with effect from FY documents. Consequently, if a notice, order,
2000-01 to provide that nothing contained in letter or any correspondence issued by any
this sub-section shall apply to any undertaking income-tax authority does not bear a DIN, the
which executes the housing project as a works same shall be treated as invalid and shall be
contract. Further, given that the objective of deemed never to have been issued. This
the tax benefit for housing projects is to build amendment will take effect from 01.10.2010.
housing stock for low and middle income
households, from FY 2009-10, conditions have
been introduced to ensure that the developer
does not sell multiple adjacent units to a single
buyer.
Page | 27 of 52

28. Budget 2009
Under the existing provisions a notice or Under the existing provisions of Income-tax
requisition under the Act may be served on the Act, an approval is required to be granted by
person named therein either by post or as if it income-tax authority for availing of various
were a summons issued by a court. It is incentives by the assessee. While some
proposed to amend the said provisions to provisions of Income-tax Act specifically
provide that the service of notice or summon contain provisions for withdrawal of
or requisition or order or any other approval, in many cases there are no such
communication may be made by delivering or specific provisions containing power of
transmitting a copy thereof by post or courier withdrawal. In order to provide explicit
service or in such manner as provided in the provisions for power to withdraw of approval,
Code of Civil Procedure, 1908 (5 of 1908) for it is proposed to insert a new Section 293C to
the purposes of service of summons; or in the provide that an approval granting authority
form of any electronic record; or by any other shall also have the powers to withdraw the
means of transmissions as may be provided by approval at any time. However, such
rules made by the Board in this behalf. This withdrawal can be made only after giving a
amendment will take effect from 01.10.2009. reasonable opportunity of showing cause
against the proposed withdrawal to the
concerned assessee. This amendment will take
effect from 01.10.2009.
Page | 28 of 52

29. Budget 2009
Others
An expenditure in respect of which payment is A number of tax concessions under the
made for a sum exceeding Rs 20,000 gets Income-tax Act are provided for encouraging
disallowed if the payment is made otherwise manufacture of articles or things. However, the
than by way of account payee cheque or term “manufacture” has not been defined in
account payee bank draft. This limit for the statute. To remove disputes and resultant
payments to transport operators (i.e. engaged in judicial review in a number of cases, it is
the business of plying, hiring, or leasing goods clarified with effect from FY 2008-09 that
carriages) is increased to Rs. 35,000. This ‘manufacture’, with all its grammatical
amendment is effective from 01.10.2009. variations, shall mean a change in a non-living
physical object or article or thing,—
As per the existing provisions of Section (a) resulting in transformation of the object or
115BBC anonymous donation received is article or thing into a new and distinct object or
taxable in the hands of any institution or article or thing having a different name,
charitable trust other than the institution or character and use; or
trust wholly for the religious purpose. It is (b) bringing into existence of a new object or
proposed that such anonymous donations article or thing with a different chemical
received by institutions / trusts not being composition or integral structure.
established wholly for religious purposes would
be exempt upto 5% of the total income of such
trusts / institutions or a sum of Rs.1 lakh,
whichever is higher.
Page | 29 of 52

30. Budget 2009
With a view to reforming the system of funding followed by the assessee. Further, it is
of political parties it is proposed to provide that proposed that the income shall be assessed as
donations to electoral trusts shall be allowed “income from other sources” in the year in
as a 100 percent deduction in the computation which it is received and a deduction for 50% of
of the income of the donor. Consequentially it such income would be provided.
is proposed to provide that donations to such
electoral trusts shall be treated as income of the New Pension System (NPS) : With a view to
trusts which will be specifically exempt subject ensure that tax treatment of savings under this
to satisfaction of prescribed conditions. system is synchronised with the “exempt-
exempt-taxed” (EET) method and that there is
The existing provisions of Income-tax Act no incidence of taxation at the accumulation
provide that income shall be computed in stage, it is proposed to make the NPS Trust a
accordance with either cash or mercantile complete pass-through in so far as taxation is
system of accounting regularly employed concerned.
by the assessee. Further, the Hon’ble
Supreme Court, has held that arrears of interest Income of the NPS Trust to be exempted from
computed on delayed or enhanced income tax and any dividend paid to this Trust
compensation shall be taxable on accrual basis. from Dividend Distribution Tax. All purchase
With a view to mitigating the hardship caused and sale of equity shares and derivatives by the
to the taxpayer, from the FY 2009-10 it is NPS Trust also to be exempt from the
proposed that the interest received by an Securities Transaction Tax.
assessee on compensation or enhanced
compensation shall be deemed to be his Self employed persons to be enabled to
income for the year in which it is received, participate in the NPS and to avail of the tax
irrespective of the method of accounting benefits available thereto.
Page | 30 of 52

31. Budget 2009
The definition of ‘Charitable Purpose’
defined in section 2(15) shall separately list the
preservation of environment (including
watersheds, forests and wildlife) and
preservation of monuments or places or
objects of artistic or historic interest so that
they would be excluded from the applicability
of the prescribed conditions which are
applicable to the “advancement of any other
object of general public utility”.
This space is left blank intentionally
Zero Coupon Bond scheme / provisions
extended to scheduled banks
Page | 31 of 52

32. Budget 2009
LIMITED LIABILITY PARTNERSHIP
The taxation of the LLP in the Income Tax Act The conversion from a general partnership to
is on the same line of taxation of partnership. an LLP will have no implication if the rights
The income of LLP will be taxed in the hands and obligations of the partners remain the same
of the LLP and will be exempt in the hands of after conversion and if there is no transfer of
its partners. any asset or liability after conversion. If there is
a violation of these conditions, the provisions
The LLP Act provides for nomination of of capital gains under Section 45 will apply.
“designated partners” who have been given
greater responsibility. It is proposed that the In case of liquidation of the LLP, every partner
designated partner shall sign the income tax will be jointly and severally liable for payment
return of an LLP, or, where, for any of tax unless he proves that non recovery
unavoidable reason such designated partner is cannot be attributed to any gross neglect,
not able to sign the return or where there is no misfeasance or breach of duty on his part.
designated partner as such, any partner shall
sign the return.
Page | 32 of 52

33. Budget 2009
PERSONAL TAX
Tax Rates Tax Reliefs
All (except resident women and senior citizens) Scope of relief (under section
Income (Rs.) Proposed Existing Rates 80E) for interest payments on
Rates
education loans extended to
0 – 150,000 Nil Nil
cover all fields of studies (including vocational
150,001 to 160,000 Nil 10% studies) pursued after passing the Senior
160,001 to 300,000 10% 10% Secondary Examination or its equivalent from
300,001 to 500,000 20% 20% a recognized school, board or university. Under
500,001 and above 30% 30% the existing provisions, the deduction is
available only for pursuing full time studies for
Notes: specified courses in engineering, medicine,
1. In case of resident women below the age of 65 management, applied sciences or pure sciences
years, the basic exemption limit has been including mathematics and statistics.
increased to Rs 190,000 from Rs 180,000
2. In case of all resident senior citizens (i.e. age of Present deduction limit under section 80DD
65 years or more) the basic exemption limit has for severe disability has been increased from
been increased to Rs 240,000 from Rs 225,000. Rs.75,000 to Rs. 100,000. The limit for ordinary
3. Surcharge hitherto applicable at 10% is no disability remains unchanged at Rs. 50,000.
longer applicable
4. Cess of 3% is leviable on the above rates
5. Marginal relief shall be available in certain cases
Page | 33 of 52

34. Budget 2009
Others
Consequent to the removal of fringe benefit Where any capital gain arises from the transfer
tax, there is a change in definition of perquisite. of specified securities or sweat equity shares as
Perquisites would now include: specified in Section 17(2)(vi), the cost of
value of any specified security or sweat acquisition of such securities shall be fair
equity shares allotted or transferred, directly market value which has been taken into
or indirectly, by the employer, or former account for the purpose of valuation of
employer, free of cost or at concessional perquisite. This amendment is applicable from
rate to the assessee. For this purpose, the FY 2009-10.
value of any specified security or sweat
equity shares shall be the fair market value Compensation received on voluntary
of the specified security or sweat equity retirement or termination of service under a
shares, as the case may be, on the date on scheme of voluntary separation: Hitherto,
which the option is exercised by the assessee select taxpayers have claimed relief for the
as reduced by the amount actually paid by, compensation received under both, Section
or recovered from, the assessee in respect of 10(10C) and Section 89. Section 10(10C)
such security or shares. The “fair market provides for exemption of a lump sum amount
value” will mean the value determined in of Rs. 500,000 from the sum received, while
accordance with the method as may be Section 89 provides for spreading of the salary
prescribed by the Board. for the period of unserved service to arrive at
The amount of contributions to super the relief from the tax amount. The new
annuation funds in excess of Rs 100,000 provision sets out that the taxpayer can choose
Any other fringe benefit or amenity as may to claim relief only under one of the provisions.
be prescribed.
Page | 34 of 52

35. Budget 2009
Consequent to the change in the definition of Hitherto, an individual or Hindu Undivided
‘charitable purpose’, donations made to certain Family (HUF) was liable to tax only on money
organization would not qualify for deduction received in excess of Rs 50,000, barring certain
under Section 80G. In this regard, it is circumstances. Effective 01.10.2009, it is
provided that donations made to organizations proposed to tax even transactions involving
which received such donations and applied the transfer of other specified properties without
same funding relief work for floods in Bihar or any consideration or for an inadequate
other public purposes would enjoy the consideration (i.e. transactions in kind or for
exemption for the FY 2008-09 provided the money’s worth) with an exception to gifts
organizations/trusts were approved for FY- received from relatives or under a will or under
2007-08. prescribed situations. The term property has
been defined for this purpose to include
Further, the approval granted by the immovable properties being land or building or
Commissioner for Institutions under both, shares and securities, jewellery,
80G(5)(iv) is applicable for five assessment archaeological collections, drawings, paintings,
years under the existing provisions. This time sculptures or any work of art. The provisions
period of five years is now removed. also prescribe the basis and method of
valuation of such ‘in kind’ transactions. The
This amendment is applicable from 01.10.2009. valuation principles are based on the stamp
duty valuations for immovable property and
the fair market values in other cases.
Page | 35 of 52

36. Budget 2009
The existing provisions for valuing WEALTH TAX
consideration while computing capital gains in
case of transfer of land or building or both, is The existing threshold limit for applicability of
based on the value adopted or assessed by the wealth tax has been increased to Rs.30 lakhs
prescribed stamp valuation authority and does from the previous limit of Rs.15 lakhs. This
not include transactions which are not amendment will apply for the valuation of net
registered with the authority and executed wealth as on 31.03.2010.
through an agreement to sell or power of
attorney. With a view to preventing the leakage
of revenue, it is proposed to include that the
valuation could also be based on the value COMMODITY TRANSACTION TAX
assessable (i.e. would have adopted) by the
prescribed authority. This amendment shall
The Commodity transaction tax has been
apply in relation to transactions undertaken on
abolished with effect from FY 2009-10.
or after 01.10.2009.
In concealment penalty proceedings income
pertaining to the period prior to search for
which the return of income has been filed by
the taxpayer but where such income has not
been disclosed in the said return, then such
income shall be deemed to be concealed
income. The amendment is effective
retrospectively from 01.06.2007.
Page | 36 of 52

37. Budget 2009
INDIRECT TAX PROPOSALS
GOODS AND SERVICES TAX
The Finance Minister reiterated the proclaimed
objective of the Central Government to
implement GST by April 2010. The dual structure
of GST formally announced.
“In the course of preparation of this budget, I
have had the opportunity to interact with large
number of stakeholders and receive valuable This space is left blank intentionally
inputs. Most suggestions were for structural
changes in the tax system. Tax reform, like all
reforms, is a process and not an event.
Therefore, I propose to pursue structural
changes …… in indirect taxes by accelerating
the process for the smooth introduction of the
Goods and Services Tax (GST) with effect from
1st April, 2010.”
FM, Mr. Pranab Mukherjee
Page | 37 of 52

38. Budget 2009
SERVICE TAX
Tax Rate New Services
Service tax rate remains unchanged at 10% The following services are proposed to be brought
(effective rate at 10.30%) under the service tax net:
In respect of service providers engaged in Services in relation to advice, consultancy or
providing taxable and exempt services and assistance in any branch of law provided by
opting not to maintain separate records with one business entity to another business entity.
respect of CENVAT credits, the rate of service However, services provided ‘by’ or ‘to’
tax payable on exempt services is reduced to individuals shall not be taxable.
6% from 8%. Services provided in relation to cosmetic
surgery and plastic surgery.
Reconstructive surgery undertaken to restore
anatomy or body functions affected due to
Legal services in the nature of congenital defects, developmental
appearance before any Court, abnormalities, degenerative diseases, injury and
Tribunal or Authority shall not trauma are not taxable.
be taxable. Services in relation to transport of costal goods
or goods through national water way or inland
water.
Page | 38 of 52

39. Budget 2009
Scope Expansions Exemptions
The scope of certain existing taxable services has The following would be exempt from service tax:
been enlarged to levy service tax on additional
services. Specified services provided to a goods
transport agency were exempt with effect from
Services provided in relation to transport of 05.01.2009. This exemption is now made
goods by rail in any manner. Hitherto, the applicable with retrospective effect from
taxability was limited to transportation 01.01.2005. The validation provisions to give
undertaken by non-Government railways in retrospective effect have been inserted.
containers by rail.
Any taxable services provided to all
Services in relation to production or processing installations, structures and vessels in the
of goods for or on behalf of a client is taxable continental shelf and exclusive economic zone
under the category of business auxiliary of India is wholly exempt from service tax.
services with a specific exclusion to activities Hitherto, this exemption was limited to
amounting to manufacture under Central designated areas therein as declared by the
Excise laws. This exclusion is now restricted Ministry of External Affairs.
only to such activities which amount to
manufacture of excisable goods under the Services provided by a tour operator having a
Central Excise Act, 1944. contract carriage permit for inter-state or
Consequently, such activities which result in intrastate transportation of passengers,
manufacture of non-excisable goods under the Central excluding tourism, conducted tours, charter or
Excise Act, 1944 would be liable to service tax. For hire service exempt from service tax.
instance, manufacture of liquor.
Page | 39 of 52

40. Budget 2009
Services involving purchase and sale of foreign Club or association
currency provided by one scheduled bank to services provided by
another scheduled bank is wholly exempt from export promotion
service tax. councils are exempt
from service tax. This
The following services provided to exporters of exemption would be
goods are exempt from payment of service tax applicable upto
subject to certain conditions. This exemption is 31.03.2010.
applicable to the exporters liable to discharge
service tax under reverse charge mechanism: Exclusions
Services relating to transportation of goods Stock broking services have been amended to
by road from the CFS or the ICD to the exclude the services provided by a sub-broker.
port of export Consequently no service tax would be
Services provided by a commission agent applicable.
location outside India. The present cap of
10% on the commission agency charges
continues to be applicable. Consequently,
service tax shall be payable on the amount
of commission in excess of 10%.
Only exporters having IEC and registered
with any EPCs and Service Tax provisions
as recipients are eligible for this exemption
Page | 40 of 52

41. Budget 2009
Refunds Procedural
The procedure and the documentation The provisions empowering the Commissioner
requirements in respect of refund claims by to revise the orders passed by any subordinate
exporters of goods has been simplified. authorities is done away with.
The time limit for making the application However, the Commissioner may now examine
for refund is increased to 1 year from 6 the orders passed by the subordinate
months authorities and if necessary, direct such
The condition requiring filing of one authorities to make an application to the
application for every quarter is dispensed Commissioner of Central Excise (Appeals).
with The application so made shall be deemed to be
In cases where the refund amount is less an appeal preferred before the Commissioner
than 0.25% of the FOB value of exports, of Central Excise (Appeals).
refunds to be processed based on self
certification of documents and a self- The timelimit within which the Commissioner
declaration stating the specified conditions shall issue the direction is capped at 3 months
are fulfilled. from the date of communication of the order
In other cases, refunds to be processed by the subordinate authorities. Further, the
based on certificates issued by the auditors subordinate authorities shall make the
of the exporter. application to the Commissioner of Central
Refunds to be sanctioned within 1 month Excise (Appeals) within 1 month from the date
Refunds to be processed without any pre- of such direction.
audit
The timelimit within which an assessee may prefer an appeal before the
Commissioner of Central Excise (Appeals) is 3 months. However, the timelimit for
the Service Tax officer to prefer an equivalent appeal is at 4 months.
Page | 41 of 52

42. Budget 2009
Others
In respect of composite scheme for payment of
service tax on works contracts, the gross
amount shall include:
Value of goods used, whether or not any
consideration is charged, and
Value of services required to be provided
The above would not be applicable in respect This space is left blank intentionally
of works contracts where the execution has
begun or where any amounts have been
received prior to 07.07.2009.
Enabling provisions have been inserted to
empower the Central Government to make
Rules to identify the date for determination of
rate of tax and the place of provision of taxable
services.
Page | 42 of 52

43. Budget 2009
CENTRAL EXCISE
Description WEF Upto
Rate of Duty 07.07.2009 06.07.2009
Manmade fibre/yarn 8% 4%
Ceramic tiles 8% 4%
The mean CENVAT rate of 8% has remained Branded jewellery 0% 2%
unchanged (effective rate at 8.24%). LPG gas stove 8% 4%
Milk fat tester 8% 4%
Description WEF Upto
07.07.2009 06.07.2009 MP3 or MP4 or MPE4 players 8% 4%
Ink for writing instruments 8% 4% Branded motor spirit (petrol) Rs. 6.50 6% + Rs. 5
Heat resistant latex rubber and 8% 4% (per litre)
rubber tension Branded high speed diesel Rs. 2.75 6% + Rs1.25
Plywood, veneered panels and 8% 4% (HSD) (per litre)
similar laminated Boiling point spirits (per litre) 14% 14% +
Flush doors 8% 4% Rs.15.00
Books other than note books 8% 4% Motor vehicles with engine 20%+ 20%+
and exercise books capacity over 1999 CC (per Rs.15,000 Rs.20,000
Paper and paperboard labels 8% 4% vehicle)
Textiles goods of cotton, not 4% 0% Motor vehicles for transport of 8% 20%
containing any other textiles goods
materials (*) Chassis of petrol driven 8%+ Rs. 20%+ Rs.
Textiles goods of materials 8% 4% vehicles (per chassis) 10,000 10,000
other than cotton (*) Contact lens 8% 4%
Drawing and Mathematical 8% 4%
* Provided that where the manufacturer does not instruments and parts thereof
avail CENVAT Credit, the same would be Playing cards 8% 4%
exempt. Paints and shaving brushes 8% 4%
Page | 43 of 52

44. Budget 2009
In respect of goods covered under the MRP
based valuation, consequential changes in the
rate of abatements have been made.
In respect of manufacturers engaged in
manufacture of dutiable and exempt goods and
opting not to maintain separate records with
respect of CENVAT credits, the rate of duty
payable on exempt goods is reduced to 5%
from 10%. This space is left blank intentionally
Duty on goods of cotton not containing any
other textile materials manufactured by an
EOU wholly out of indigenous raw materials
increased to 4% from Nil. In case of goods
other than cotton, the duty increased from 4%
to 8%.
Page | 44 of 52

45. Budget 2009
Exemptions SSI
Transfer of right to use packaged software or The benefit of SSI exemption is extended to
canned software exempt from payment of manufacturers of printed laminated rolls
central excise duty. This exemption would be bearing brand name of another person. For the
subject to the condition that: financial year 2009-10, this exemption would
be available for the value of clearances not
The manufacturer produces a declaration to exceeding Rs. 150 lacs during the remaining
the effect that such transfer of right to use is part of the financial year.
for commercial exploitation, and
The manufacturer is registered under the
provisions of Service Tax
Similar amendment has been made under the Customs
Act, 1962
Page | 45 of 52

46. Budget 2009
Others
Where any books of account or other In respect of the following offences or in
documents are seized by or produced to the following circumstances, the accused will be
Central Excise Officer and which are not relied restricted from opting for compounding of
upon for issue of show cause notice, it is offence:
provided that the same shall be returned within
30 days from the date of issue of show cause If the accused has already been allowed to
notice or within 30 days from the date of compound once in respect of specified
expiry of the period for issue of show cause offences
notice. If the offence is also an offence under the
Narcotic Drugs and Psychotropic
The timelimit for filing an appeal before the Substances Act, 1985
High Court is 180 days from the date on which If the accused has already compounded
the order is received. It is now provided that once in respect of an offence for the value
the High Court may admit appeals even after of goods exceeding Rs. 1 Crore
the lapse of 180 days if there was sufficient If the accused is convicted by any Court on
cause for not filing the appeal within the said / after 30.12.2005
period.
Similar amendment has been made under the Customs
Act, 1962
Page | 46 of 52

47. Budget 2009
CENVAT
Inputs Removal of Goods
Scope of the term ‘inputs’ reduced in respect of Where any inputs or capital goods in respect of
goods purchased for manufacture of capital which the CENVAT credit is availed by
goods which are further used in the factory of manufacturers is fully written off in the books
the manufacturer. Consequently, no input of account, it is provided that the manufacturer
credit of central excise paid will be allowed on shall pay the amount of credit taken at the time
cement, angles, channels, centrally twisted of write-off. This provision is now extended to
deform bars, thermo mechanically treated bars include service providers. Consequently, where
and such other items used for construction of any services providers have availed CENVAT
factory shed, building or laying of foundation credit on input or capital goods which are
or making of structures for support of capital subsequently fully written off in the books of
goods. account without having put such inputs to use,
an amount equal to the credit availed shall be
paid at the time of write-off.
However, it is also provided that where the
service provider subsequently uses such goods
in provision of taxable services, the amount of
credit paid may be re-availed.
Page | 47 of 52

48. Budget 2009
CUSTOMS
Rate of Duty
The mean rate of basic customs duty rates Countervailing duty equivalent of sales tax is
remain unchanged. exempted on import of parts, components and
accessories of mobile handsets including
However, certain changes in effective basic cellular phones.
customs duty rates have been made. The
following is an illustrative list. In respect of anti dumping duty, it is now
provided that the margin of dumping shall be
Description WEF Upto determined based on the records concerning
07.07.2009 06.07.2009
Gold bars (per 10 gms) Rs.200 Rs.100 normal value and export price maintained by
Gold in any other form Rs.500 Rs.250 the exporter or producer. However, in the
(other than bars) (per 10 gms) absence of such records, the margin shall be
Silver in any form (per kg) Rs.1000 Rs. 500 determined on the basis of the facts available.
PM synchronous generator 5% 7.5%
above 500 KW
Set top Boxes 5% 0%
LCD monitors 5% 10%
Specified bulk drugs 5% 10%
Cotton and wool waste 10% 15%
Bio-diesel 2.5% 7.5%
Artificial heart (left 5% 7.5%
ventricular assist device)
Page | 48 of 52

49. Budget 2009
Valuation Refund
In respect of goods which are liable to central The importer may claim refund of import duty
excise duty on a tariff value basis, for the purposes paid on imported goods if the goods are found to
of levy of CVD on like goods imported into India, be defective or otherwise not in conformity with
the value of the imported article shall be deemed the specifications agreed upon and if such goods
to be the tariff value. are re-exported or the importer relinquishes his
title to such goods or if such goods are destroyed
Classification in the presence of the customs officers.
In respect of goods falling in Chapters 50 to 55 or While the law provides for a period of 180 days
CTH 5809 or 5902, if the goods are mixture of for making the application for refund, it is
two or more articles, the same shall be classified as necessary that the re-export or relinquishment of
if consisting wholly of that textile article which is title or destruction of goods is done within 30 days
predominant by weight. Further, if no single from the date of clearance of goods by the
material is predominant in weight, it shall be customs officer.
classified as if consisting wholly of that textile
article which is covered by the heading which
occurs last in the numerical order in the Customs
Tariff Act, 1975.
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50. Budget 2009
Advance Rulings Others
It is provided that the Central Government may In respect of the following offences or in
authorize the Authority of Advance Rulings set up following circumstances, the accused will be
under the provisions of the Income Tax Act, 1961 restricted from opting for compounding of
to function as the Authority of Advance Rulings offence:
under the Customs Act, 1962.
If the accused has already been allowed to
It is further provided that upon the Central compound once in respect of specified
Government notifying the above, the Authority of offences
Advance Rulings set up under the Customs Act, If the offence is also an offence under
1962 would cease to function. certain other specified Acts
If the offence is in respect of goods which
The above would be equally applicable to Central Excise are specified as prohibited items
and Service Tax matters. If the offence or documents involved
therein are likely to affect friendly relations
with the foreign state
If the accused has already compounded
once in respect of an offence for the value
of goods exceeding INR 10 Mil
If the accused if convicted by any Court on
/ after 30.12.2005
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51. Budget 2009
EFFECTIVE DATES
The Direct Tax proposals are effective for the Service Tax
financial year 2009-10 unless alternatively
Particulars Effective Date
provided therein.
New services introduced To be notified
Expansion of scope in existing To be notified
The effective dates for the Indirect Tax
services
proposals are as follows:
Exemptions to certain services 07.07.2009
Customs & Central Excise Retrospective exemption to To be notified
specified taxable services provided
Particulars Effective Date to GTA effective 01.01.2005
Changes in duty rates & 07.07.2009 Amendments in Works Contract 07.07.2009
exemptions (including exemption (Composition Scheme for
to packaged software) payment of Service Tax Rules,
CENVAT procedures 07.07.2009 2009)
Changes in Customs and Central To be notified Refund of Service tax for 07.07.2009
exporters
Excise provisions
Reduced rates on exempted goods 07.07.2009
Refund of import duties on To be notified / services (CENVAT Rules)
damaged / defectives Other procedural changes To be notified
Other s To be notified
Page | 51 of 52