2. BUDGET 2012
Topics for Discussion
PERSONAL TAXATION
CORPORATE TAXATION
MAT /AMT
GAAR
NON-RESIDENT TAXATION
TRANSFER PRICING
Q&A
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3. BUDGET 2012
Proposal / Amendment – Personal Taxation
Income slab Exiting Tax Rate Proposed Tax Tax Saving (Rs)
Rate
Upto Rs. 1,80,000 Nil Nil Nil
Rs. 1,80,000 to Rs. 2,00,000 10% Nil 2,000
Rs. 2,00,000 to Rs. 5,00,000 10% 10% Nil
Rs. 5,00,000 to Rs. 8,00,000 20% 20% Nil
Rs. 8,00,000 to Rs. 10,00,000/- 30% 20% 20,000
Above Rs. 10,00,000 30% 30% Nil
-Education cess of 3% continues.
-No differentiation for basic exemption limit for Woman tax payer.
-Basic Exemption limit in the case of Senior Citizen (> 60 yrs < 80 yrs) of
Rs.2,50,000/- and for very Senior Citizen (> 80 yrs) of Rs.5,00,000/-
remain unchanged.
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4. BUDGET 2012
Proposal / Amendment – Personal Taxation
80 TTA introduced - Deduction up to Rs.10,000 in respect of Savings Bank Interest
Section 80 CCG Introduced - Rajiv Gandhi Equity Savings Scheme Proposed: 50% on the amount
deposited upto Rs.50,000/- for the assessee whose income is below Rs. 10 lac. The scheme will have
a lock in period of 3 years. The Scheme is yet to be notified.
Scope of Section 80D extended to include expenses on preventive health checkup upto
Rs.5000, within the overall limit
No requirement of filing of return for individual having salary income of Rs. 5,00,000 and interest on
saving of Rs. 10,000.
Exemption from payment of Advance Tax for Resident Senior Citizens having no income from
business source.
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5. BUDGET 2012
Proposal / Amendment – Personal Taxation
Tax Benefit for Infrastructure Bonds under Section 80CCF discontinued.
Benefit u/s 80C for Life Insurance Premium available only if the premium is less than 10% of sum assured
(earlier 20%). Similar amendment u/s 10(10D) for maturity proceeds.
No 80G / 80GGA deduction for donations in cash above Rs.10,000
New avenue for reinvestment of Long Term Capital Gains from sale of residential property – Section 54GB
introduced to allow exemption if invested in equity shares of SMEs.
Section 194LAA introduced - TDS on payment for purchase of Property - any purchase of property above
Rs.50 lakhs in specified area and Rs.20 lakhs in other areas should deduct TDS @ 1% on sale consideration.
No TAN required, tax can be remitted based on the PAN of both parties.
TCS @ 1% for purchase of bullion or jewellery in cash in excess of Rs. 2 5 lakhs
The threshold limit for deduction of TDS in the case of compensation as well as additional compensation on
account of compulsory acquisition of any immovable property under section 194LA enhanced to Rs. 2 Lac
from Rs. One Lac at present.
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6. BUDGET 2012
Corporate Tax Proposals
No Changes in
Corporate Tax Rate of 30%
Minimum Alternative Tax (MAT) on Book profit of 18.50%.
Rate of surcharge of 5% (for income > Rs.1 Cr) and Cess of 3% in all cases.
Rate of STCG of 15%
DDT of 15%
Tax on Dividends from overseas subsidiaries of 15% (upto 31-3-2013)
Effective tax rates under normal provisions are as below:
–For domestic companies, where income exceeds Rs.1 crore @ 32.445%, where income is less than Rs.1
crore @30.6%.
–For foreign companies, where income exceeds Rs.1 crore @ 42.024%, where income is less than Rs.1
crore @ 41.2%.
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7. BUDGET 2012
Corporate Tax Proposals
Key Amendments in Corporate taxation.
1. Cascading effect of DDT in a multi tier holding structure removed
• A company would be exempt from DDT when paying dividend to its parent company to the
extent that the dividend is paid out of the dividend received from its subsidiary which has
paid the DDT in the same year.
2. Extension of 80IA for setting up power generation, transmission or distribution
undertakings by one year to 31st March 2013.
3. Extending benefit of Additional depreciation to the power sector
• Section 32(1)(iia) amended to provide initial depreciation @ 20% on new machinery or plant
for an assessee engaged in the business of generation or generation and distribution of power
4. TDS on Directors’ remuneration
• Provision of Section 194J are being widened to include payment of any remuneration or fee or
commission by whatever name called other than on which tax deductible under Section 192 to
a director of a company for a deduction of tax at source at the rate of 10%. This amendment
shall be effective from 1st July 2012.
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8. BUDGET 2012
Corporate Tax Proposals
Key Amendments in Corporate taxation (Cont….)
5. Share Capital, Share Premium and share application to be deemed as Income
• A proviso is inserted in section 68 that in the case of a closely held company, the amount credited
as share capital /SAM needs to be explained with regard to source of funds.
• Further Share premium in excess of the fair market value to be treated as income under Section
56(2)(viib) .
6. Turnover Limit for Tax Audit enhanced
•The threshold limit of total sales, turnover or gross receipts specified U/s 44AB for getting accounts
audited enhanced to Rs. 1 Cr from Rs.60 lac in the case of person carrying on business & to Rs. 25 lac
from Rs.15 lac in the case of person carrying on profession
7. Extension of time for completion of assessments and reassessments
• Time limit for completion of assessment extended by 3 months, from existing deadline of 31st December
to 31st March
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9. BUDGET 2012
Corporate Tax Proposals
8. Others
Compulsory filing of income tax return in relation to assets located outside India.
The time limit for Re-opening of tax assessments in relation to assets located outside India
to be increased to 16 years.
Weighted deduction at the rate of 200% for approved in-house scientific research and
development.
‘FMV’ to be considered as deemed consideration in certain cases (where consideration is
not determinable) for capital gains purposes .
TCS @1% on trading in coal, lignite and iron ore.
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10. BUDGET 2012
MAT/AMT
Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT):
Section 115JB is amended so as to provide that
Certain Companies insurance, banking or electricity prepares financials as per regulatory Act. For
these company financial as per regulatory Act shall be taken as a basis for computing the book
profit under MAT.
Gains arising from disposal of ‘revalued asset’ is to be added to profits even if such gains are taken
directly to the balance sheet.
Alternate Minimum Tax (AMT) on tax payers other than companies: Where the regular income tax is
less than the AMT, their Adjusted Total Income (ATI), will be regarded as taxable income and will be
taxed at the rate of 18.50%.
Adjusted total income (ATI) shall be the total income as increased by deductions claimed,
if any, under any section included in Chapter VI-A or under section 10AA.
This amendment will not be applicable if ATI not exceed Rs.2 million.
MAT/AMT paid shall be available as Tax credit and can be adjusted against the amount of regular tax
payable in subsequent 10 assessment years.
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11. BUDGET 2012
GAAR
General Anti Avoidance Rules Formulated – w.e.f – April 1, 2013
To tackle aggressive tax planning / sophisticated tax structures, comprehensive GAAR is to be
introduced to codify ‘substance’ ‘over form’ principle for tax purposes.
It will apply to both Indian residents as well as non-residents.
It would apply only to those cases of ‘impermissible avoidance arrangements’ where the main
purpose or one of the main purposes of entering into an ‘arrangement’ is to obtain a ‘tax
benefit’.
The arrangement should satisfies at least one of the following four tests:-
It creates rights and obligations that are normally not created between two parties dealing
on arm’s length basis;
It abuses or misuses the provisions of the ITA;
It lacks ‘commercial substance’ or is deemed to lack commercial substance; and
It is carried out in a manner which is normally not employed for bona fide purposes.
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12. BUDGET 2012
GAAR
Procedure for Invoking GAAR
• AO shall make a reference to the Commissioner for invoking GAAR
• Commissioner shall hear the taxpayer and if he is not satisfied with response, will refer the
matter to the Approving Panel
• The Panel shall examine and either declare an arrangement to be impermissible or not.
• The Panel to dispose of the reference within a period of six months
• The (AO) will determine consequences and pass an order accordingly after approval by
Commissioner.
• The first appeal against such order shall lie to the Appellate Tribunal
• The Approving Panel shall be set up by the Board and would comprise of officers of rank of
Commissioner and above.
• The panel will have a minimum of three members.
• CBDT will prescribe a scheme for regulating the condition and manner of application of these
provisions
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13. NON RESIDENT TAXATION
Amendments / Clarifications with Retrospective Effect
Sl. No. Case Court Ruling Budget Amendments
1 Vodafone SC held that transfer of shares Scope of section 9 expanded to cover
between two non resident indirect transfers
entities not taxable in India
2 Azadi Bachao Case Validity of Mauritius Tax Rules Tweaked – ‘ TRC’ necessary but not
Residency certificate upheld sufficient. GAAR can override treaty
3 Ishikawajima Harima Services can be taxed in India Section 9 amended (in 2007) that services
only if rendered in India need not rendered in India to be taxed
4 Various rulings on Conflicting judgments across the Clarified that Software is royalty and hence
taxability of Software country taxable in India
5 New Skies Satellites Transponder Charges is not Clarified that such payments are royalty
Royalty
6 Four Soft Ltd Hyd Tribunal ruled that Scope of International Transaction
Corporate Guarantee is not an extended to include, among others,
International Transaction Guarantee
7 GE Technology HC ruled that DRP cannot go Power of DRP enhanced retrospectively to
beyond the issues in the Draft enhance the variation proposed by AO.
Order
8 Glaxo Smithkline SC ruled that domestic Specified domestic transactions brought
transactions are not under the under the purview of Transfer Pricing. (To
purview of Transfer Pricing apply prospectively) 13
Also discuss COCO COLA CASE
14. BUDGET 2012
Retrospective Amendments
Constitutional Validity
“In testing whether a retrospective imposition of a tax operates so harshly as to violate
fundamental rights under article 19(1)(g), the factors considered relevant include the
context in which retroactivity was contemplated such as whether the law is one of
validation of taxing statute struck-down by courts for certain defects; the period of such
retroactivity, and the decree and extent of any unforeseen or unforeseeable financial
burden imposed for the past period etc.”
(SC in Sri Prithvi Cotton Mills Ltd vs Broach Borough Municipality 1970 S.C.R. 388)
Global Practice
Australia
“Provisions that have a retrospective operation adversely affecting rights or imposing
liabilities are to be included only in exceptional circumstances and on explicit policy
authority”
UK
There are instances where tax laws have been amended retrospectively on the argument
that if not done, select tax payers will obtain a windfall at the expense of the general
taxpayers
USA
There is a specific prohibition against passing retrospective legislations, but procedural
clarifications have been made retrospectively in certain cases
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15. NON RESIDENT TAXATION
Changes to Basis of Charge
• INDIRECT TRANSFER OF CAPITAL ASSET
Income taxable in India includes income from transfer of a Capital Asset in India
1. Definition of a Capital Asset – deemed to have always included any rights in relation to an
Indian Company, including rights of management or control or any other rights whatsoever.
2. Scope of deemed income expanded to include income from transfer of share or interest in
a Company / entity registered / incorporated outside India if the share or interest derives,
directly or indirectly, its value substantially from the assets located in India.
3. “Property” as defined in Capital Asset includes Management Control, or any rights
whatsoever in the Indian Company
4. Transfer includes indirect transfer of shares in an Indian company by way of transfer of
shares of a company incorporated outside India.
5. There is an obligation on a non resident to withhold taxes on any payments to another non-
resident , if the payment attracts tax in India.
* Amendments made retrospectively from 1962
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16. NON RESIDENT TAXATION
Taxability of Royalties / Link Charges
• Taxability of payments towards purchase of Software / Payments for Link Charges
• This issue has been subject to extensive litigation
• Court rulings have been utterly inconsistent
• Definition of royalty amended to specifically cover the use or right to
use computer software (including granting of a license). Medium of
transfer not relevant for determining taxability.
• The term “process” used in the definition of royalty has been clarified to
include transmission by satellite, cable, optic fibre or by any other
* Amendments made retrospectively from 1976
similar technology, whether or not such process is secret. Effective
retrospectively from 01 June 1976.
• The above amendment will not settle the controversy as the definition
of royalty as per the DTAAs remain unchanged and the prevailing
interpretations will stay.
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17. NON RESIDENT TAXATION
Other Changes
• Withholding tax (WHT) on interest on foreign funds provided to a specified company:
The WHT rate on interest paid by a specified Indian company to a non-resident in respect of
borrowing made in foreign currency from sources outside India between July 1st 2012 to July
1st 2015 is reduced to 5% from 20%(plus applicable surcharge and cess) at present.
• Withholding tax on payment to non-resident sports persons and entertainers / Sports
Association(Section 115BBA increased from 10% to 20%
• Tax Residence Certificate (TRC) for claiming relief under DTAA
• To make submission of TRC by a foreign resident is proposed to be made mandatory but not
sufficient for availing the benefits under the concerned tax treaty.
• The Indian tax authorities could examine the „substance‟ of the concerned foreign entity who
has produced TRC giving prescribed details etc before it is granted benefits of the tax treaty.
Residents having any asset (including financial interest in any entity) located outside India
or having signing authority in any account located outside India mandatorily required to file
return of income whether or not they earn taxable income
Any meaning assigned through a notification for a term in the DTAA will be effective from
the day the treaty came into force
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18. TRANSFER PRICING
SIGNIFICANT AMENDMENTS - SUMMARY
• Definition of International Transaction clarified /
expanded
• Advance Pricing Arrangement (APA) Introduced
• Introduction of Domestic Transfer Pricing to specified
transactions
• Clarification on applicability of variation to ALP
• Changes to the functioning of DRP
• Changes to the guidelines for reference of cases to TPO
• Certain procedural changes
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19. TRANSFER PRICING
Definition of International Transaction (Effective April 2002)
• International Transaction to include
• Purchase / sale, transfer / lease or use of tangible property
• Purchase, sale, transfer, lease or use of intangible property. Intangible property
explained with an exhaustive list of items covered
• Capital financing, any short term / long term borrowings, deferred payments /
any debt, guarantee
• Provision of any kind of services
• Business restructuring, irrespective of whether it has a bearing on the profit.
• Intangibles even covers institutional goodwill, personal good will, general
business going concern value.
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20. TRANSFER PRICING
Advance Pricing Arrangement Introduced – From July 2012
Finance Bill 2012 proposes to introduce APA, which was proposed in the DTC Bill 2010 as well.
• APA is an ahead of time agreement between a taxpayer and a taxing authority on an
appropriate transfer pricing methodology (TPM) for some set of transactions at issue over a
fixed period of time
• Valid for a maximum of five consecutive years unless there is a change in the provisions or
the facts having a bearing on the international transaction
• Not clear whether there is an option for Bilateral or Multilateral APAs.
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21. TRANSFER PRICING
Domestic Transfer Pricing
• Specified Domestic Transactions brought under the purview of Transfer Pricing Regulations
• Provision applicable if the value exceeds INR 5 Crores
Transactions covered for Domestic Transfer Pricing
• Expenses or payments made to domestic related persons as specified in Section 40A(2)(b) of
the Act. Scope of Section 40A(2)(b) of the Act expanded to include companies having a
common parent
• Transfer of goods/ services/ business from one unit/ undertaking of the Assesse to another
unit/ undertaking of the assesse, claiming benefit under Section 80 IA, under Chapter VI A or
10 AA where the provisions of 80IA are applicable;
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22. TRANSFER PRICING
Determination of Arms Length Price
• Section 92 C provides that where more than one price is determined by application of the
most appropriate method, the arithmetic mean of such prices will be the ALP.
• Finance Act 2009 clarified that the 5% variance is not a standard deduction but can only be
claimed if the ALP is a arithmetic mean of multiple prices.
• The budget has clarified that this rule will apply from 2001-02.
• From FY 2012-13, the variation %age is reduced to 3%
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23. TRANSFER PRICING
Other Changes
• Functioning of Dispute Resolution Panel
•The order of DRP is now appealable by the Assessing Officer to the ITAT with effect from 1st July
2012
• DRP is empowered to pass directions on any matter arising out of the assessment proceedings
irrespective whether such matter was raised by the eligible assessee or not. This amendment
effective FY 2008-09
•Reference to TPO
•TPO can determine Arm’s Length Price of any international transaction entered into by the
assesse, not referred to him by the AO, provided that assessee has not reported the same under
section 92E. Amendment retrospectively from 1 June 2002
•However, for cases concluded before 1 July 2012, the Assessing officer will not have right to re-
open the case only on account of such amendment
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