UNION BUDGET 2011

1. UNION BUDGET 2011 CA. R. Krishnan FCA Alleppey

2. India Budget The Union Budget of India also called the General India Budget Presented each year on the last working day of February It outlines all the economic planning of the Government of India for the next year.

3. Origin and History The first general budget of India was presented by the India's first Finance Minister Sir R.K. Shanmugham Chetty on November 26, 1947. 28 Union Finance Ministers have been presenting the budget year after year. This is the 6th Budget of Mr. Pranab Mukherjee Agricultural sector alone was focused initially, but later on, the focus shifted to the many sectors including the industrial, financial and other sectors.

4. Passing of Budget The annual India budget has to be passed by the House of the parliament before it can come into effect on April 1, the start of India's financial year The Indian parliament has one month to review and modify the government's budget proposals If by April 1, the parliamentary discussion on the budget has not been completed, the budget as proposed by the minister of finance goes into effect subject to retroactive modifications after the parliamentary review.

5. 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. Agricultural growth at 5.4 %. Industrial growth at 8.1% Services at 9.6% Continued high food prices have been principal concern this year.

6. Consumers denied the benefit of seasonal fall in prices despite improved availability of food items, revealing shortcomings in distribution and marketing systems. High gap between wholesale and retail prices. Rural India not growing at the desired level. 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

7. THE GREAT EXPECTATIONS OF THE FM Indian economy expected to grow at 9 per cent with an outside band of +/- 0.25 per cent in 2011-12. Average inflation expected to lower next year and current account deficit expected to decrease.

8. Budget Highlights 2011 AGRICULTURE Agriculture outlay increased to Rs.7860 Cr from Rs.6755 Cr. Green Revolution to Eastern Region by allocating Rs.400 Cr for rice based cropping systems. Integrated development of 60000 pulses in rainfed areas -Rs.300 Cr.

9. Initiative on Vegetable Clusters –Rs.300 Cr for implementation of vegetable initiative for quality vegetables at competitive rates. Rs 300 crores for promotion of higher production of Bajra, Jowar, Ragi etc, which are highly nutritious and have several medicinal properties.

10. Accelerated Fodder Development Programme to benefit farmers in 25000 villages Promotion of organic farming. Credit flow for farmers raised from Rs 3,75,000 Cr to Rs 4,75,000 Cr. Approval for 15 Mega Food Parks

11. INFRASTRUCTURE Allocation of Rs 2,14,000 crores for infrastructure in 2011-12 at an increase of 23.3 % over 2010-11- amounts to 48.5 % of total plan allocation. Comprehensive policy for PPP projects. To boost infrastructure development, tax free bonds of Rs 30,000 crore proposed to be issued by Government.

12. EDUCATION Allocation to education at Rs. 52,057 Cr, an increase by 24 % over current year. Rs.21,000 Cr for Sarva Shiksha Abhiyan – 40 % more than last year. Connectivity to all 1,500 institutions of Higher Learning and Research using optical fiber backbone.

13. HEALTH Plan allocation for health stepped-up by 20 %. Scope of Rashtriya Swasthya Bima Yojana expanded with wide coverage.

14. TAX REFORMS DTC proposed to be effective from April 1, 2012. GST issues narrowed down with states. Companies Bill to be introduced in Lok Sabha during the current session.

15. SUBSIDIES Subsidy for urea under consideration. Direct transfer of cash subsidy to people living below poverty line for better delivery of kerosene, LPG and fertilizers

16. DISINVESTMENT Rs 40,000 crores to be raised through disinvestment in 2011-12. Government to retain 51% ownership and management control of the Central PSU.

17. INVESTMENT INITIATIVE FDI policy to be liberalised further. Mutual Funds permitted to accept FDI under certain conditions.

18. BANKING More capital for Public Sector Banks.

19. HOUSING SECTOR FINANCE Existing scheme of interest subvention of 1% on housing loan further liberalised. Housing loan limit enhanced to Rs 25 lakhs for dwelling units under priority sector lending. Rural Housing Fund enhanced to Rs 3,000 crores. Central Electronic Registry to prevent frauds involving multiple lending on the same immovable property.

20. BLACK MONEY Five fold strategy to be put into operation to deal with the problem of generation and circulation of black money. Membership of various international fora engaged in anti money laundering, Financial integrity and Economic development, Exchange of information for tax purposes and transparency to be secured.

21. Various Tax Information Exchange Agreements (TIEA) and Double Taxation Avoidance Agreements (DTAA) concluded. Foreign Tax Division of CBDT has been strengthened to effectively handle increase in tax information exchange and transfer pricing issues. Enforcement Directorate strengthened three fold to handle increased number of cases registered under amended Money Laundering Legislation

22. Finance Ministry has commissioned study on unaccounted income and wealth held within and outside the country. Comprehensive national policy to be announced in near future to strengthen controls over prevention of trafficking on narcotic drugs

23. INNOVATIONS National Innovation Council set up to prepare road map for innovations in India. Special grant provided to various universities and academic institutions to recognise excellence

24. IMPROVING GOVERNANCE IT Initiatives Various IT initiatives for efficient tax administration such as:- e-filing and e-payment of taxes adoption of ‘Sevottam’ concept by CBEC and CBDT web based facility for tax payers to track the refunds and credit for pre-paid taxes augmentation of processing capacity.

25. A new scheme with an outlay of Rs 300 crores to be launched to provide assistance to States to modernise their stamp and registration administration and roll out e-stamping in all the states in the next three years. A new simplified form ‘Sugam’ to be introduced to reduce the compliance burden of small tax payers falling within presumptive taxation

26. Three more benches of Settlement Commission to be set up to fast track the disposal of cases. Steps initiated to reduce litigation and focus attention on high revenue cases

27. CORRUPTION Group of Ministers constituted to consider measures for tackling corruption.

28. FINANCE BILL 2011 DIRECT TAXES

29. Definition of “charitable purpose” It is proposed to amend section 2(15) to enhance the current monetary limit in respect of receipts from ancillary activities from ten lakhs rupees to twenty-five lakhs rupees. This amendment is proposed to take effect from A.Y 2012-13

30. Exemption of certain perquisites of Chairmen and Members of Union Public Service Commission It is proposed to amend section 10 to extend benefit of exemption in respect of specific perquisites and allowances, which will be notified by the central government, received by both serving as well as retired Chairmen and Members of Union Public Service Commission. This amendment is proposed to take effect retrospectively from 1st April,2008.

31. Exemption of specific income of notified body or authority or trust or board or commission A new clause in section 10 of the Income-tax Act is being inserted to provide exemption from income tax to any specified income of a body, authority, board, trust or commission which is set up or constituted by a Central, State or Provincial Act or constituted by the Central Government or a State Government with the object of regulating or administering an activity for the benefit of the general public, provided-

32. it is not engaged in any commercial activity, is notified by the Central Government in this behalf The nature and extent of income to be exempted will also be specified while notifying such entity. A consequential amendment is proposed in section 139 to provide filing of the return of income. These amendments are proposed to take effect from 1st June 2011

33. Infrastructure Debt Fund In order to augment long term, low cost funds from abroad for the infrastructure sector, it is proposed to facilitate setting up of dedicated debt funds, which will be exempt u/s 10 of the IT Act, once notified by the Central Government. It will however, be required to file return of income.

34. It is also proposed to amend section 115A of the Income tax Act to provide that any interest received by a non-resident from such notified infrastructure debt fund shall be taxable at the rate of 5% on the gross amount of such interest income. New section 194LB to provide that the tax shall be deducted at the rate of 5% by such notified infrastructure debt fund on any interest paid by it to non-resident. These amendments are proposed to take effect from 1st June 2011.

35. Provisions relating to MAT and DDT in case of SEZ The above provisions were inserted in the Income tax Act by the SEZ Act w.e.f 10th February,2006. It is proposed to sunset the availability of exemption from minimum alternate tax in the case of SEZ Developers and units in SEZ’s in the Income tax Act as well as the SEZ Act.

36. This amendment to section 115JB of the Income –tax Act will take effect from 1st April,2012. It is further proposed to discontinue the availability of exemption from DDT in the case of SEZ Developers under the Income-tax Act as well as the SEZ Act for dividends declared, distributed or paid on or after 1st June, 2011. This amendment to section 115-O of the IT Act will take effect from 1st June,2011

37. Weighted deduction for contribution made for approved scientific research programme In order to encourage more contributions to approved scientific research programmes, it is proposed to increase the weighted deduction u/s 35(2AA) from 175 % to 200% ,in respect of amounts paid to National Laboratories, Universities, IITs etc for the purpose of approved scientific research programme. This amendment is proposed to take effect from 1st April, 2012.

38. Tax benefit for New Pension System (NPS) It is proposed to amend section 80CCE so as to provide that the contribution made by the Central Government or any other employer to a pension scheme u/s 80CCD(2) shall be excluded from the limit of 1 lakh provided u/s 80CCE.

39. Currently, the contribution made by the employer towards a recognised provident fund, an approved gratuity fund is allowable as a deduction from business income u/s 36, subject to certain limits. However, the contribution made by an employer to the NPS is not allowed as deduction.

40. It is, therefore, proposed to amend section 36 so as to provide that any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as referred to in section 80CCD(2) on account of an employee to the extent it does not exceed 10% of salary of the employee in the previous year, shall be allowed as deduction in computing the income under the head “Profits and gains of business or profession” These amendments are proposed to take effect from A.Y 2012-13.

41. Deduction for investment in long-term infrastructure bonds It is proposed to amend section 80CCF to allow deduction on account of investment in notified long term infrastructure bonds for the A.Y 2012-13.

42. Extension of sunset clause for tax holiday for power sector It is proposed to amend section 80-IA(4)(iv) to extend the terminal date for a further period of one year, ie upto 31/03/12. This amendment will take effect from 1st April,2012

43. Rationalisation of provisions relating to Transfer Pricing It is proposed to amend section 92C of the Act to provide that instead of present variation of 5% in respect of pricing in Intl’ transaction, the allowable variation will be such percentage as may be notified by the Central Government in this behalf. This amendment is proposed to take effect from 1st April, 2012.

44. It is proposed to amend section 92CA so as to specifically provide that the jurisdiction of the transfer pricing officer shall extend to the determination of the ALP in respect of other international transactions, which are noticed by him ,subsequently in the course of proceedings before him. These international transactions would be in addition to international transactions referred to the TPO by the Assessing Officer.

45. In order to enable the TPO to conduct on -the-spot enquiry and verification, it is proposed to amend section 92CA (7) so as to enable the TPO to also exercise the power of survey conferred on the income- tax authority u/s133 A of the Act. These amendments are proposed to take effect from 1st June 2011.

46. Corporate assessees face practical difficulties in accessing contemporary comparable data before 30th September in order to furnish a report in respect of their international transactions. It is, therefore, proposed to amend section 139 to extend the due date of filing of income by such corporate assesses to 30th November of the AY. This amendment is proposed to take effect from 1st April 2011.

47. Tool Box of counter measures in respect of transaction with persons located in a notified jurisdictional area In order to discourage transactions by a resident assessee with persons located in any country or jurisdiction which does not effectively exchange information with India, anti-avoidance measures have been proposed in the Income-tax Act.

48. New section 94A to be inserted in the Act to specifically deal with transactions undertaken with persons located in such non co-operative country or area . The proposed section provides :- an enabling power to the Central Government to notify any country or territory outside India, having regard to the lack of effective exchange of information by it with India, as a notified jurisdictional area

49. that if an assessee enters into a transaction, where one of the parties to the transaction is a person located in a notified jurisdictional area, then all the parties to the transaction shall be deemed to be associated enterprises and the transaction shall be deemed to be an international transaction and accordingly, transfer pricing regulations shall apply to such transactions;

50. that no deduction in respect of any payment made to any financial institution shall be allowed unless the assessee furnishes an authorization, in the prescribed form, authorizing the Board or any other income-tax authority acting on its behalf, to seek relevant information from the said financial institution

51. that no deduction in respect of any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified jurisdictional area shall be allowed under any provision of the Act unless the assessee maintains such other documents and furnishes the information as may be prescribed;

52. that if any sum is received from a person located in the notified jurisdictional area, then, the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assessee

53. that any payment made to a person located in the notified jurisdictional area shall be liable to deduction of tax at the higher of the rates specified in the relevant provision of the Act or rate or rates in force or a rate of 30 per cent. This amendment is proposed to take effect from 1st June 2011

54. Taxation of certain foreign dividends at a reduced rate New section 115BBD to provide that where total income of an Indian company includes any income by way of dividends received from a foreign subsidiary company, then such dividends shall be taxable at the rate of 15%. (plus applicable surcharge and cess) on the gross amount of dividends. No expenditure in respect of such dividends shall be allowed under the Act. This amendment is proposed to take effect from 1st April, 2012

55. Minimum Alternate Tax It is proposed to amend section 115JB (1) to increase the rate of MAT to eighteen and one-half per cent from the existing rate of 18% of such book profit. This amendment will take effect from 1st April, 2012

56. Alternate Minimum Tax for Limited Liability Partnership (LLP) New Chapter XII-BA in the Income-tax Act containing special provisions relating to certain limited liability partnerships.

57. Where the regular income-tax payable for a previous year by a LLP is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such LLP and it shall be liable to pay income-tax on such total income at the rate of eighteen and one-half per cent..

58. Collection of information on requests received from tax authorities outside India It is proposed to facilitate prompt collection of information on requests received from tax authorities outside India in relation to an agreement for exchange of information u/s 90 or section 90A of the Income-tax Act.

59. Section 131(3) to be amended to empower the tax authority, as notified by the Board, to impound and retain any books of account and other documents produced before it in any proceeding under the Act. These amendments will take effect from 1st June, 2011

60. Exemption to a class or classes of persons from furnishing a return of income In order to reduce the compliance burden on small tax payers, it is proposed to insert sub-section (1C) in section 139. This provision empowers the Central Government to exempt, by notification in the Official Gazette, any class or classes of persons from the requirement of furnishing a return of income, having regard to such conditions as may be specified in that notification These amendments will take effect from 1st June 2011

61. Notification for processing of returns in Centralised Processing Centers It is proposed to amend section 143(1B) to extend the existing time limit for issue of notification to 31st March 2012. This amendment will take effect retrospectively from 1st April 2011

62. Extension of time limit for assessments in case of exchange of information It is proposed to exclude the time taken in obtaining information from the tax authorities in jurisdictions situated outside India, under an agreement referred to in section 90 or section 90A, from the statutory time limit prescribed for completion of assessment or reassessment. These amendments will take effect from 1st June, 2011

63. Modification in the conditions for filing an application before the Settlement Commission It is proposed to expand the criteria for filing an application for settlement by a tax payer in whose case proceedings have been initiated as a result of search or requisition of books of account in the case of his relative.

64. It is proposed to insert a new clause (ia) in the proviso to section 245C(1). This stipulates that an application can also be made, where the applicant— is related to the person in whose case proceedings have been initiated as a result of search and who has filed an application; and is a person in whose case proceedings have also been initiated as a result of search in the hands of his relative. the additional amount of income-tax payable on the income disclosed in his application exceeds ten lakh rupees

65. Omission of the requirement of quoting of Document Identification Number Considering the practical difficulties due to non-availability of requisite infrastructure on an all India basis, it is proposed to omit section 282B of the IT Act requiring every IT Authority to allot DIN. This amendment will take w.r.e.f 1st April 2011

66. Reporting of activities of liaison offices It is proposed to seek regular information from non-residents regarding the activities of their liaison offices in India. A new section 285 is proposed in the Income-tax Act mandating the filing of annual information, within sixty days from the end of the financial year, in the prescribed form and providing prescribed details by non-residents as regards their liaison offices. This amendment is proposed to take effect from 1st June, 2011

67. INDIRECT TAXESService 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.

68. 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.

69. Tax on all services provided by- Hospitals with 25 or more beds with facility of central air conditioning. Diagnostic services being provided by a clinical establishment with the aid of laboratory of other medical equipment. Service provided by Doctor, not being an employee of a clinical establishment, from the premises of such establishment

70. All individual and sole proprietor tax payers with a turnover 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