INVESTMENT_ENVIRONMENT_&_TAX_ASPECTS-BUDGET_2011

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UNION BUDGET- INVESTMENT ENVIRONMENT & TAX ASPECTS

INTRODUCTIONThe Honble Finance Minister Shri Pranab Mukherjee on28.02.2011 in his Budget speech could only propose certainlimited amendments in Tax Laws and Investment environmentdue to the fact that the Government policy on Direct Taxes hasbeen outlined in detail in the Direct Tax Code (DTC) which isalready before the Parliament. The Finance Minister laid

emphasis on:

Opportunities and Challenges

Sustaining Growth

Improving Investment environment

Agriculture Development

Strategy for Black Money

Strengthening Inclusion and Improving governance

KEY ASSURANCES

Direct Taxes Code (DTC) to be finalized for enactmentduring FY 2011-12. DTC proposed to be effective fromApril 1, 2012.

Constitutional Amendment Bill proposed to be introducedin this session of Parliament on proposed Goods andServices Tax (GST).

Companies Bill to be tabled in Lokh Sabha during currentsession

The key Investment environment and Tax aspects proposed inBudget 2011 are summarized below. Take note that all thebelow mentioned changes shall come in effect w.e.f. April 1,2012 i.e. Assessment Year (A.Y.) 2012-13 unless specificallyspecified.

1. CORPORATE TAXATION

1.1.CORPORATE TAX RATES

1.1.1. For Domestic Companies

Tax rates have been kept same at 30%,

However, current surcharge has been

reduced to 5% from 7.5% (if Total Incomeexceeds Rs 1 cr.) and Education cess @ 3%

has remained unchanged.

Due date of Return for Transfer Pricing in

respect of international transactions extended

to November 30 of the Assessment Year.

TAX NEWSWIRE


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1.1.2. For Foreign Companies

Tax rates have been kept same at 40%, Surcharge

has been reduced from 2.5 to 2% (if Total Income

exceeds Rs 1 cr.) and Education cess @ 3% has

remained unchanged.

1.2.MINIMUM ALTERNATIVE TAX (Section 115JB)

Rate of MAT increased from 18% to 18.5%

MAT Levied on developers of SEZ and units

operating therein

Alternate Minimum Tax (AMT) levied in case of

Limited Liability Partnership (LLP) at same rate

applicable to MAT

Rules for Carry forward and set off of MAT creditremain unchanged.

1.3.DIVIDEND DISTRIBUTION TAX

Rates unchanged

w.e.f June 1, 2011 SEZ Developers would have to

pay tax on the dividends declared, distributed or

paid as is applicable to other Companies.

2. FIRM TAXATION (INCLUDING LIMITED LIABILITYPARTNERSHIP)

For Partnership Firms (including Limited

Liability Partnerships)

o Tax rates have been kept same at 30%

and Education cess @ 3%.

o Surcharge is not applicable, as before.

3. INDIVIDUAL TAXATION

3.1.For Individual Tax Payers

Total Income Tax Rate

For GENERAL Tax Payers

Income upto Rs 1.8 Lakhs NIL

Income above Rs 1.8 Lakh and uptoRs. 5 Lakhs

10%

Income above Rs 5 Lakhs and upto Rs.8 Lakhs

20%

Income above Rs 8 Lakhs 30%

For WOMEN Tax Payers



10%


20%


For SENIOR CITIZENS



10%


20%



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Note 1. For Senior Citizens eligibility, age reducedto 60 from 65 years.

Note 2. For Very Senior Citizens (80 years andabove), higher exemption limit of Rs 5 Lakhsapplicable

Note 3. w.e.f. June 1, 2011, for Salaried assesseenot having any other source of Income, CentralGovernment by notification exempt the requirementof filing of ROI.

3.2. INVESTMENT LINKED DEDUCTIONS/SUNSETCLAUSES

Under section 35AD of the Income Tax Act, two

new businesses have been specified for-

o Developing and building a housing projectscheme for affordable housing framed by

the Central Government/State

Government and

o Production of Fertilizer in India

EXTENTION OF SUNSET CLAUSE FOR TAX

HOLIDAY FOR POWER SECTOR

o Section 80-IA(4)(iv) has been proposed to

be amended to extend the terminal date

for further period of one year i.e. upto

March 31, 2012

SUNSET FOR TAX HOLIDAY IN COMMERCIAL

PRODUCTION OF MINERAL OIL

o It is proposed that the deduction u/s 80-

IB(9) would not be available for blocks

licenced under a contract awarded after

31st March 2011 under New Exploration

Licensing policy announced by GOI in

year 1999 or in pursuance of any law in

force.

INFRASTRUCTURE DEBT FUND (w.e.f.01.06.2011)

o Section 10 is proposed to be amended to

enable Central Government to notify any

infrastructure debt fund which is set up in

accordance with rules.

o The income of this infrastructure debt fund

would be exempt for tax subject to filing of

the ROI.

o In case of interest income paid to a non-

resident by a notified infrastructure debt

fund, the rates would be as prescribed

under new section 194LB @5%.

3.3.TAXATION OF CERTAIN FOREIGN DIVIDENDS ATREDUCED RATE

Lower tax of 15% is proposed on dividends

received by an Indian company from its foreign

subsidiary.


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3.4.REGULATORY CHANGES IN INVESTMENTENVIRONMENT

FDI Policy to be further liberalized

SEBI Registered Mutual Funds permitted to

accept subscriptions from foreign Investors for

Equity Schemes.

For Boost to Infrastructure sector, FII limit for

Investment in Corporate Bonds issued in

infrastructure sector being raised.

Financial Sector Legislative Initiatives

o Financial Sector Legislative Reforms

committee set up to rewrite and

streamline the financial sector laws, rules

and regulations.

o Amendment proposed to Banking

Regulation Act in field of additional

banking licenses to private sector players

Microfinance Institutions

o India Microfinance Equity Fund ofRs 100

crores proposed with SIDBI in interest of

small borrowers

o Womens SHGs Development Fund to

be created with corpus of Rs 500 crores.

Micro Small & Medium Enterpriseso Rs 5000 crores to be provided to SIDBI

for refinancing incremental lending by

banks to such enterprises

o Rs 3000 crores to be provided to

NABARD to provide support to handloom

weaver co-oerative societies which have

become financially unviable for

refinancing incremental lending by banks

to such enterprises facing debt crises

AGRICULTURE

o Removal of production and distribution

bottlenecks for items like fruits and

vegetables, milk, poultry and fish to be the

attention this year.

o Approval being given to set up 15 more

Mega Food Parks during FY 2011-12

o Augmentation of storage capacity through

private entrepreneurs and warehousing

corporations has been fast tracked.

INFRASTRUCTURE

o Allocation of Rs 214,000 crores for

infrastructure during FY 2011-12 @ 48.5%

of total plan allocation

o Tax free bonds of Rs 30,000 croresproposed for FY 2011-12

NATIONAL MANUFACTURING POLICY

o Share of manufacturing in GDP expected

to grow from 16-25% in next 10 years.

Government to come out with a

manufacturing policy.


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o Issues relating to reconciliation of

environment concern from various

departmental activities including those

related to infrastructure and mining to be

considered by Group of Ministers.

o Financial Assistance for Metro projects in

Delhi, Mumbai, Bengaluru, Kolkata and

Chennai.

o Capital Investment in Fertilizer Production

proposed to be included as an

infrastructure sub sector.

INDIAN STAMP ACT, AMENDMENT BILL

o It is proposed to introduce a Bill shortly

to amend the Indian Stamp Act, 1899

which would also remove the

ambiguity in stamp duty aspects onM&A.


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