INCOME TAX CIA

BY PRATIXCHA SHARMA 5th BBM C 0911235

FINANCIAL BILL 2009-2010

Some highlights of the financial bill as introduced in Lok Sabha on 6th July 2009:

OVERVIEW OF ECONOMY AND BUDGET ESTIMATES

Growth rate of Gross Domestic Product dipped from an average of over 9 per cent in the previous three fiscal years to 6.7 per cent during 2008-09. Total expenditure for fiscal 2009-10 estimated at Rs.9, 53,231 crore. Plan expenditure estimated at Rs.2, 85,149 crore and Non-Plan expenditure at Rs.6, 68,082 crore. Gross tax receipts budgeted at Rs.6, 41,079 crore. Non-tax revenue receipts estimated at Rs.1, 40,279 crore. Allocation for Defence increased to Rs.1, 41,703 crore which includes Rs.54, 824 for Capital Expenditure. Major subsidies including food, fertilizer and petroleum estimated at Rs.95, 579 crore.

DIRECT TAXES
No changes made in the Corporate Tax rates. Exemption limit in personal income tax rose from Rs.2.25 lakh to Rs.2.40 lakh for senior citizens; from Rs.1.80 lakh to Rs.1.90 lakh for women tax payers; and from Rs.1.50 lakh to Rs.1.60 lakh for all other categories of individual taxpayers. Deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability being raised from the present limit of Rs.75, 000 to Rs.1 lakh. Fringe Benefit Tax on the value of certain fringe benefits provided by employers to their employees to be abolished. Donations to electoral trusts to be allowed as a 100 percent deduction in the computation of the income of the donor.

INDIRECT TAXES
Customs duty of 5% to be imposed on Set Top Box for television broadcasting. Customs duty on LCD Panels for manufacture of LCD televisions to be reduced from 10% to 5%. Customs duty on 10 specified life saving drugs/vaccine and their bulk drugs to be reduced from 10% to 5% with Nil CVD (by way of excise duty exemption).

SERVICE TAXES
Service Tax to be imposed on the following services: Service provided in relation to transport of coastal cargo; and goods through inland water including National Waterways Advice, consultancy or technical assistance provided in the field of law (this tax would not be applicable in case the service provider or service receiver is an individual). Cosmetic and plastic surgery service.

FINANCIAL BILL 2011-2012

Some highlights of the financial bill as introduced in the Lok Sabha on 28th February 2011:

OVERVIEW OF THE ECONOMY

Gross Domestic Product (GDP) estimated to have grown at 8.6 per cent in 2010-11 in real terms. Economy has shown remarkable resilience. Continued high food prices have been principal concern this year. Consumers denied the benefit of seasonal fall in prices despite improved availability of food items, revealing shortcomings in distribution and marketing systems. Monetary policy measures taken expected to further moderate inflation in coming months. Exports have grown by 29.4 per cent, while imports have recorded a growth of 17.6 per cent during April to January 2010-11 over the corresponding period last year. Indian economy expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12. Average inflation expected lower next year and current account deficit smaller.

BUDGET ESTIMATES 2011-12

Gross Tax receipts are estimated at Rs 9, 32,440 crore. Non-tax revenue receipts estimated at Rs 1, 25,435 crore. Total expenditure proposed at Rs 12, 57,729 crore. Increase of 18.3 per cent in total Plan allocation. Increase of 10.9 per cent in the Non-plan expenditure. Increase of 23 per cent in Plan and Non-plan transfer to States and UTs. Fiscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1 per cent of GDP in RE 2010-11. Fiscal Deficit kept at 4.6 per cent of GDP for 2011-12. Effective Revenue Deficit estimated at 2.3 per cent of GDP in the Revised Estimates for 2010-11 and 1.8 per cent for 2011-12. All subsidy related liabilities brought into fiscal accounting.

Net market borrowing of the Government through dated securities in 2011-12 would be Rs 3.43 lakh crore. Central Government debt estimated at 44.2 per cent of GDP for 2011-12 as against 52.5 per cent recommended by the 13th Finance Commission.

DIRECT TAXES

Exemption limit for the general category of individual taxpayers enhanced from Rs 1,60,000 to Rs 1,80,000 giving uniform tax relief of Rs 2,000. Exemption limit enhanced and qualifying age reduced for senior citizens. Higher exemption limit for Very Senior Citizens, who are 80 years or above. Current surcharge of 7.5 per cent on domestic companies proposed to be reduced to 5 per cent. Rate of Minimum Alternative Tax proposed to be increased from 18 per cent to 18.5 per cent of book profits. Tax incentives extended to attract foreign funds for financing of infrastructure. Additional deduction of Rs 20,000 for investment in long-term infrastructure bonds proposed to be extended for one more year. Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. Benefit of investment linked deduction extended to businesses engaged in the production of fertilisers. Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200 per cent. System of collection of information from foreign tax jurisdictions to be strengthened.

INDIRECT TAXES

Central Excise Duty to be maintained at standard rate of 10 per cent. Reduction in number of exemptions in Central Excise rate structure. Nominal Central Excise Duty of 1 per cent imposed on 130 items entering in the tax net. Lower rate of Central Excise Duty enhanced from 4 per cent to 5 per cent. Optional levy on branded garments or made up proposed to be converted into a mandatory levy at unified rate of 10 per cent. Peak rate of Custom Duty held at its current level.

SERVICE TAX

Standard rate of Service Tax retained at 10 per cent, while seeking a closer fit between present regime and its GST successor. Hotel accommodation in excess of Rs 1,000 per day and service provided by air conditioned restaurants that have license to serve liquor added as new services for levying Service Tax. Tax on all services provided by hospitals with 25 or more beds with facility of central air conditioning. Service Tax on air travel both domestic and international raised.

Services provided by life insurance companies in the area of investment and some more legal services proposed to be brought into tax net. All individual and sole proprietor tax payers with a turn over upto Rs 60 lakh freed from the formalities of audit. To encourage voluntary compliance the penal provision for Service Tax are being rationalised. Similar changes being carried out in Central Excise and Custom laws.

AMENDMENTS IN FINANCIAL BILL 2011 IN COMPARISON TO FINANCIAL BILL 2009 DIRECT TAXES
1. Personal income tax exemption limit raised to180,000 from160,000 for individual tax payers. The following table shows the new tax slab: Total Income (Rs.) Upto 1,80,000 1,80,001-5,00,000 5,00,001-8,00,000 Above 8,00,000 Rates NIL 10%(Total Income 1,80,000) 32,000 + 20%( Total Income 5,00,000) 92,000 + 30%(Total Income -8,00,000)

2. For senior citizens, the qualifying age reduced to 60 years from 65 years and exemption limit raised to2.50 lakh i.e. by Rs. 10000. The following table shows the tax exemption limit for different individuals: Age (Years) Individual (Below 60) Women (Below 60) Senior Citizens (Above 60 to Below 80) Senior Citizens (Below 80) Income Exempted (Rs.) Upto 1,80,000 Upto 1,90,000 Upto 2,50,000 Upto 5,00,000

The table below shows the rates of individuals and women resident above 60 years of age but below 80 years: Total Income (Rs.) Upto 2,50,000 2,50,001-5,00,000 5,00,001-8,00,000 Above 8,00,000 Rates NIL 10%(Total Income 2,50,000) 25,000 + 20%(Total Income 5,00,000) 85,000 + 30%(Total Income 8,00,000)

3. Citizens over 80 years to have exemption limit of5 lakh. The table below shows the rates of individuals and women resident above 80 years: Total Income (Rs.) Upto 5,00,000 5,00,001-8,00,000 Above 8,00,000 Rates NIL 20%(Total Income 5,00,000) 60,000 + 30%(Total Income 8,00,000)

4. To reduce surcharge on domestic companies to 5 percent from 7.5 percent. The rate of surcharge in computing Advance tax in case of every company is show below: Total Income Exceeds Rs. 1 crore Rs. 1 crore Rate of Surcharge on Advance Tax (2009) 10% 2.5% Rate of Surcharge on Advance Tax (2011) 5% 2%

Domestic Company Other Company

5. A new revised income tax return form 'Sugam' to be introduced for small tax papers. 6. No income-tax returns is required for salaried persons whose annual annual taxable income including salary and interest is up to Rs 5 lakh.

INDIRECT TAXES
1. Iron ore export duty raised to 20 percent 2. Nominal one per cent central excise duty on 130 items entering the tax net. Basic food and fuel and precious stones, gold and silver jewellery will be exempted. 3. Peak rate of customs duty maintained at 10 per cent in view of the global economic situation. 4. Basic customs duty on agricultural machinery reduced to 4.5 per cent from 5 per cent. 5. To raise minimum alternate tax to 18.5 percent from 18 percent. 6. Standard rate of excise duty held at 10 percent; no change in CENVAT rates 7. Works of art exempt from customs when imported for exhibition in state-run institutions; this now extended to private institutions.

SERVICE TAXES
1. Service tax widened to cover hotel accommodation above1,000 per day, A/C restaurants serving liquor, some category of hospitals, diagnostic tests. 2. Service tax on air travel increased by50 for domestic travel and250 for international travel in economy class. On higher classes, it will be ten per cent flat. 3. Electronic filing of TDS returns at source stabilised; simplified forms to be introduced for small taxpayers.

ANALYSIS
The MAT tax rate has been increased to 18.5% in 2011 from 15% in 2009.

Normally, a comapny is liable to pay tax on the income computed in accordance with the provisions of the income tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies Act. There were large number of companies who had book profits as per their profit and loss account but were not paying any tax because income computed as per provisions of the income tax act was either nil or negative or insignificant. These companies are popularly known as Zero Tax companies. Surcharge of 10 percent abolished for all non-corporate tax payers Pursuant to abolition of FBT, Employee Stock Options (ESOPs) on exercise date, contribution to Superannuation Fund (in excess of INR 100,000) and other fringe benefits / amenities are taxable in the hands of employees as perquisites Deduction for medical treatment of a dependent suffering from severe prescribed disability increased to INR 100,000 from INR 75,000 The income tax slabs for the financial year 2009-2010 and 2011-2012 is provided in the highlights of the same.

Individual Income Taxes in India

Individual Income tax exemption hiked to 10 % tax for Rs 1.5-3 lakh 20 % tax for Rs 3-5 lakh 30 % tax for income above Exemption limit for women hiked to Exemption limit for senior citizens raised to Rs 2.25 lakh Rs 1.5 income income Rs 5 Rs 1.8 lakh slab slab lakh lakh

Tax Holidays in some Sectors in India

A five-year tax holiday for setting up hospitals anywhere in India specially in tier-II and tierIII towns to serve the rural population. Certain specified urban agglomerations will not be covered. A five-year tax holiday for two, three and four star hotels established in specified districts, which have UNESCO declared World Heritage sites.

Custom Duties in India

No change in the peak rate of customs duty Custom Duties on helicopter simulators removed in India

BIBLIOGRAPHY

WEBSITES
http://www.eximguru.com/budget_2009_highlights.aspx http://www.eximguru.com/budget_2011_12-highlights.aspx http://connect.in.com/finance-bill-2011/blog/budget-highlights-finance-bill-budget-speechand-other-info--4e426501139f40ac662b0699ae2c22c6efa7b044.html http://exim.indiamart.com/budget-2011-12/finance-bill-2011-12.html http://www.cbec.gov.in/budget0910/finbill0910.htm