Overview of the Union Financial Budget DNS ADVISORS by tonze.danzel


									     DNS Advisors

Overview of the Union
Financial Budget 2010-11


1.       Preface

2.       Snapshots of Sectoral Analysis

3.       Direct Tax Proposals

4.       Indirect Tax Proposals

5.       Contact us
                                                                                                    DNS Advisors


Finance Minister Pranab Mukherjee presented the Union Budget 2010-11 in parliament on Friday in the
backdrop of an improving economic scenario both globally and more particularly, within the country.
While the reaction to the budget has been mixed, it has been generally viewed as being balanced. The
government is faced with a major challenge of moving towards the high growth path even as it embarks
on gradual withdrawal of the stimulus measures. The Union Budget of 2010-11 seems to be growth
oriented and will be a roadmap for fiscal consolidation.

The Indian economy has embarked on the higher growth trajectory and medium term prospects are
very strong which could lift the gross domestic product to 9%, indicated the Economic Survey 2009-10,
tabled in the Parliament a day ahead of the Union Budget for 2010-11. The economy has shown a „V‟
shaped recovery. Growth in the economy had slowed down significantly following the global meltdown,
prior to which it had shown a growth of 9% in the three years preceding the financial crisis. In 2008-09,
India grew at 6.7%. It is estimated that India will grow at 7.2% in the current financial year, the Survey

The increase in slabs for individuals will spur consumption of consumer goods and consequently will
increase the turnover of companies engaged in manufacturing of consumer items. A forty six percent of
the plan allocation for infrastructure will definitely help in improving infrastructure within the country.
The increased spending on social welfare schemes and rural development is an attempt at ensuring that
the growth is inclusive and not just within restricted strata.

Disinvestment of Government's stake in National Mineral Development Corporation and Satluj Jal
Vidyut Nigam along with other PSUs to raise about Rs.25,000 crore during the FY 2010-11 will help in
reduction of fiscal deficit.

The increase in Minimum Alternate Tax from 15% to 18% and increase in excise duty of 2% will
adversely affect the bottom line. The policy statement on introduction of the Direct Tax Code, the
Goods and Services Tax and the Companies Bill is a clear indicator that tax and regulatory reforms are
very close.

As the Finance Minister said in his budget speech, ‘The opportunity is great. The time is right’, it‟s the time to
move and seize the opportunity and play a significant role in the development of country.

        P age |2
                                                                                              DNS Advisors

Snapshots of Sectoral Analysis

Infrastructure Development                              Banking & Financial Sector
 To create an environment for private                   To allocate 40 billion rupees to encourage
    investment, to raise in a phased manner the limit      lending to small firms
    for non-founder holdings in all companies, to
    ensure more flexibility to India Infrastructure        Government to provide Rs 16,500 crore to
    Finance Co Ltd                                          public sector banks to maintain tier-I capital.

   Allocation     of    Rs.1,73,552 crore    for          To set aside 1 billion rupees for banking services
    infrastructure development (46% of total plan           in unbanked areas
                                                           Additional banking licenses to be provided to
   Disbursements of long term financial assistance         private sector players and to eligible Non
    to infrastructure projects by IIFCL to reach            Banking Finance Companies
    around Rs. 20,000 crore by March 2011
                                                           Set up of Financial Sector Legislative Reforms
   Propose to maintain thrust of upgrading                 Commission proposed for rewriting and
    infrastructure in rural and urban areas. IIFCL          cleaning up the financial sector laws to bring
    authorised to refinance infrastructure projects.        them in line with the requirements of the sector

   To raise allocation for National Highways           Agriculture and allied sector
    development by 23 percent
                                                         Interest subvention for timely repayment of
                                                           crop loans raised from 1% to 2%
Power & Gas
 Mega power plant policy modified to lower cost           Rs 200 crore provided for climate resilient
   of generation and to maintain consistency with           agriculture initiative and offer direct subsidy to
   the National Electricity Policy, 2005 and Tariff         farmers
   Policy, 2006
                                                           Plans to move towards nutrient-based subsidy
   Allocation to power sector more than doubled            regime for fertilisers
    to Rs 5,130 crore in 2010-11.
                                                           Finance Minister to continue giving cash
   Government proposes to set Coal Development             subsidy for fuel and fertiliser
    Regulatory Authority.
                                                           To pay additional interest subvention of 1% to
   Liquefied natural gas infrastructure to be              farmers who pay short-term farm loans on
                                                           Extension of time for farmers under Debt
   Introduction of competitive bidding process
                                                            Waiver and Debt Relief Scheme from 31
    proposed for allocating coal blocks for captive         December 2009 to 30 June 2010
    mining and increased participation in production
    from these blocks                                      External Commercial Borrowings to be
                                                            available for cold storage or cold room facility,
   An increased outlay of Rs.1,000 crore proposed          including farm level pre-cooling, preservation or
    for Renewable Energy resources in FY 2010-11            storage of agricultural and allied produce.

   A target of 20,000 mega watt of Solar power has
      P set to be
    been a g e | 3 achieved by the year 2022
                                                                                              DNS Advisors

Direct Tax Proposals
Personal tax                                             Rate of Minimum Alternate Tax in case of
                                                          Companies is proposed to be increased from
   Personal income-tax slabs are proposed to be          15% (effective 16.995% with surcharge and cess)
    revised as under                                      to 18% (effective 19.9305% with surcharge and
                                                          cess) increased from 15% to 18%
Rate %     Existing Slab         Revised Slab

NIL        Upto Rs 160,000       Upto Rs 160,000         There is no change in the threshold limit and rate
                                                          of wealth tax.
10%        160,001 to 300,000    160,001 to 500,000
                                                      Basis of Charge
20%        300,001 to 500,000    500,001 to 800,000
                                                      Income deemed to accrue or arise in India
30%        Above 500,000         Above 800,000        [Section 9]

                                                         An explanation to section 9 was inserted by the
   Minimum exemption limit remains unchanged             Finance Act, 2007 to clarify that where income is
    for women (Rs.190,000) and for senior citizen         deemed to accrue or arise in India under clauses
    (Rs.240,000)                                          (v), (vi) or (vii) of sub section 1 of section 9, such
                                                          income shall be included in the total income of
   Education cess and Secondary and Higher
                                                          the none-resident, regardless of whether the non-
    Education Cess at 2% and 1% respectively to
    continue                                              resident has a residence or place of business or
                                                          business connection in India.
Corporate taxation
                                                         But, It has been held in certain judicial
   No change in no change in tax rates of Firms,         precedents that income from offshore services is
    Domestic Companies, Companies other than              not deemed to accrue or arise in India unless
    Domestic Companies and Co-operative Societies         services are rendered in India

   Surcharge on domestic companies reduced to           For the removal of doubts, it is proposed to
    7.5% from 10% where income exceeds                    retrospectively substitute the existing explanation
    Rs.10,000,000                                         to section 9 with a new explanation to
                                                          specifically state that income of a non resident
   Surcharge on foreign        companies   remains       shall be deemed to accrue or arise in India under
    unchanged at 2.5%                                     clause (v), (vi) or (vii) of sub section 1 of section
                                                          9 whether or not
   Education cess and Secondary and Higher               o The non resident has a residence or place of
    Education Cess at 2% and 1% respectively to                business or business connection in India; or
    continue                                              o the non resident has rendered services in
   Rate of Dividend Distribution Tax remains
    same.                                                This amendment will take effect, retrospectively,
                                                          from 1 June 1976 in relation to the AY 1977-78
   Rates of Securities Transaction Tax and its
                                                          and subsequent years
    applicability remains the same

      P age |4
                                                                                                      DNS Advisors

Direct Tax Proposals

Charitable Trust                                         Income from Business

Definition - Charitable Purpose [Section 2(15)]          Expenditure on Scientific Research [Section 35]

   Any activity in the nature of trade, commerce or     Provisions relating to weighted average deduction in
    business, or any activity of rendering any service   respect of expenditure on scientific are proposed to
    in relation to any trade, commerce or business,      be amended as under w.e.f A.Y 2011-2012.
    for a cess or fee or any other consideration does
    not qualify as an activity for charitable purpose                                        Existing    Proposed
                                                             Nature of Expenditure
    and thus any income from the above activity is                                           Deduction   Deduction
    subject to income tax.                                   Sum paid to research
                                                             association/ university/
                                                                                               125%        175%
   In order to remove hardship to the organisations         college/ other institution
    which receive sundry considerations from such            for scientific research
                                                             Payment         made      to
    activities, it is proposed to provide that
                                                             research         association
    “advancement of any other object of general              which has as its object,
    utility” shall continue to be a “charitable                                                 Nil        125%
                                                             the undertaking of social
    purpose” where total receipts from any such              science research or
    activity do not exceed Rs.1,000,000 in the               statistical research
    previous year                                            Payments         made     to
                                                             National        Laboratory/
   This amendment will take effect retrospectively          University/           Indian
    from AY (Assessment Year) 2009-10                        Institute of Technology/
                                                             specified person for              125%        175%
Procedure for registration of Trusts [Section                conducting         scientific
12AA]                                                        research        under       a
                                                             program approved in
   As per present provisions, the Commissioner of           this behalf
    Income tax has the power to cancel registration          Expenditure               on
                                                             scientific research or in
    granted to trusts / institutions registered under        an in-house research
    Section 12AA where the activities of such trust /        facility by a company
    institution are not genuine or are not in                engaged        in    certain
                                                                                               150%        200%
    accordance with their objects.                           specified business e.g.
   Certain judicial rulings have held that the              pharmaceuticals,
    Commissioner does not have power to cancel               electronic equipments
    registration obtained earlier under provisions of        etc.
    section 12A.
                                                         Corresponding amendments made
   It is therefore proposed to provide that the
    Commissioner shall also have the power to                  Section 35 (1) (iii) is proposed to be amended to
    cancel registrations of the trusts / institutions           include an approved research association which
    registered under Section 12A (prior to FY 1997-             has its object undertaking research in social
    98) w.e.f June 1 2010 (relevant for A.Y 2011-12)            sciences and statistical research.

      P age |5
                                                                                             DNS Advisors

Direct Tax Proposals
   Pursuant to the amendment in Section 35,             Presumptive Taxation for Small Businesses
    corresponding amendment has been made in             [Section 44AD]
    section 10(21) so as to provide that income of all
    such associations shall be exempt from income           For the purpose of presumptive taxation under
    tax.                                                     section 44AD, the threshold limit of total
                                                             turnover or gross receipts is proposed to increase
   Similar to the amendments in Section 10 and              from Rs. 40 Lakh to Rs. 60 Lakh w.e.f A.Y 2011-
    Section 35, it is proposed to allow deduction            2012.
    under section 80GGA to any assessee for any
    sum paid to a research association for social        Income of non resident from prospecting for, or
                                                         extraction or production of mineral oil [Section
    science research or statistical research.
                                                         44BB and section 44DA]
Investment Linked Deduction in respect of                   In order to remove doubts in respect of taxation
specified business [Section 35AD]
                                                             of income of non resident by way of fees for
   It is also proposed to include “business of              technical services, it is proposed to amend
    building and operating a new hotel of two-star           proviso to section 44BB so as to exclude income
    or above category, anywhere in India which               which is covered under section 44DA. Similarly
    starts functioning after 1.4.2010 wiithin the            section 44DA has also been amended exclude the
    specified businesses eligible to claim deduction         income covered under section 44BB
    for the whole of capital expenditure incurred
                                                            These amendments clarify that a particular
    under section 35AD
                                                             income can be taxed only under one of the above
   With respect to the business of laying and               sections and are proposed to take effect from A.Y
    operating cross-country natural gas/ crude oil/          2011-2012
    petroleum oil pipeline, the eligibility condition
    that it makes available one third of its pipeline
    capacity available for use on common carrier
    basis is proposed to be replaced with such
    proportion of its pipeline capacity as specified
    by Petroleum and Natural Gas Regulatory

   Where a deduction under 35AD is claimed and
    allowed in respect of the specified business for
    any assessment year, no deduction shall be
    allowed under the provisions of Chapter VI-A in
    relation to such specified business for the same
    or any other assessment year

   These amendments will apply from assessment
    year 2011-12 and subsequent years

     P age |6
                                                                                               DNS Advisors

Direct Tax Proposals
Tax Deducted at Source                                   Time limit for deposit of tax withheld [Section 40]

Revision in the threshold for withholding tax               The provisions of section 40(a)(ia) is proposed to
                                                             be amended to provide that no disallowance of
    The threshold limits in respect of withholding          expenditure will be made where tax deducted
     tax provisions are revised as follows with effect       during the previous year has been paid on or
     from 1st July 2010                                      before the due date of filing of return of income
                                                             w.e.f A.Y 2011-2012.
                                Existing     Proposed
                Nature of
Section                        threshold     threshold   Increase in rate of interest on failure/delay in
                                  (Rs)          (Rs)     deposit of withholding tax [Section 201(1A)]
               from lottery                                 With a view to discourage practice of delaying the
    194B                         5,000        10,000
               or crossword                                  deposit of tax, interest on failure to deposit the
                                                             tax deducted is proposed to be increase to 1.5%
    194BB      from horse        2,500         5,000         per month – for the month or part of the month
               races                                         from the date on which tax was deducted to the
               Payment to                                    date on which tax is deposited
    194C                         20,000       30,000
               (for single                                  Interest on failure to deduct the tax will continue
               transaction)                                  to be levied at 1% per month – for the month or
               Payment to                                    part of the month from the date on which tax was
               contractors                                   deductible to the date on which tax is deducted
               aggregate of
    194C                         50,000       75,000        The above changes will take effect from 1 July
               during the                                    2010
               year)                                     Tax Audit
    194D                         5,000        20,000     Enhancement of Threshold Limit [Section 44AB]
    194H                         2,500         5,000        The threshold limits for the requirement to get
               or Brokerage
    194I       Rent             120,000       180,000        accounts audited under Income Tax have been
               Fee for                                       revised from existing Rs. 40 Lakh to Rs.60 Lakh
               professional                                  for businesses and from Rs. 10 Lakh to Rs.15
    194J                         20,000       30,000
               or technical                                  Lakh for profession w.e.f A.Y 2011-2012.
                                                         Enhancement of Penalty [Section 271B]

                                                            Maximum penalty leviable under section 271B for
                                                             failure to get accounts audited under section
                                                             44AB or to furnish a report of such audit has
                                                             been increased from Rs.100,000 to Rs.150,000
                                                             w.e.f A.Y 2011-2012.

       P age |7
                                                                                              DNS Advisors

Direct Tax Proposals
Limited Liability Partnership (LLP)                     Corresponding amendments:

No Capital Gain on conversion of certain                   Aggregate depreciation allowed to LLP and
companies into LLP [Section 47 (xiiib)]                     company in the year of conversion cannot exceed
                                                            the depreciation allowable to the company in case
It is proposed that transfer of capital assets on
                                                            the conversion had not taken place [Section 32]
conversion of a private / an unlisted public company
into a LLP as per the provisions of LLP Act, 2008
                                                           The WDV (Written Down Value) of any block of
shall not be treated as transfer for the purpose of
                                                            assets in the hands of LLP shall be the WDV of
capital gains tax subject to following conditions:
                                                            such block in the hands of the company on the
   The turnover or gross receipts of the company           date of conversion [Section 43(6)]
    in any 3 years preceding the year of conversion
                                                           If any of the conditions specified above are
    should not exceed Rs. 60 Lakh
                                                            violated, the capital gains exempted earlier will be
   All the assets and liabilities of the company           taxed as capital gains income in the hands of the
    should become the assets and liability of the           LLP in the year in which the condition is violated
    LLP                                                     [Section 47A]

   All the shareholders of the company should             The cost of acquisition of a capital asset in the
    become partners in the LLP                              hands of LLP transferred on conversion shall be
                                                            deemed to be the cost at which the company had
   The capital contribution and profit sharing ratio       acquired such asset [Section 49]
    of the partners in LLP should be in the same
    proportion as their shareholding in the company        The accumulated business loss or unabsorbed
    on the date of conversion                               depreciation of the company shall be deemed to
                                                            be the loss or depreciation allowance of the LLP
   No consideration other than by way of share in          of the previous year in which the conversion takes
    profit and capital contribution in the LLP arises       place.
    to partners
                                                           The LLP shall not be eligible to carry forward any
   The aggregate of the profit sharing ratio of the
                                                            MAT credit which was otherwise allowed to be
    shareholders of the company in the LLP shall
                                                            carried forward in the hands of the company
    not be less than 50% for 5 years from the date
                                                            [Section 115JAA]
    of conversion

   No amount is paid, either directly or indirectly,
    to any partner out of the accumulated profit of
    the company on the date of conversion for a
    period of three years from the date of

      P age |8
                                                                                              DNS Advisors

Direct Tax Proposals
Income from Other Sources                                   In order to prevent the practice of transferring
                                                             shares of unlisted companies at price much below
Taxation of certain transactions without                     their fair value, it is proposed to amend section 56
consideration or inadequate consideration
                                                             w.e.f 1 June 2010 to provide that where any
[Section 56(2)]
                                                             shares of a company (not being a company in
   Under the existing provisions of section                 which the public are substantially interested) is
    56(2)(vii), any sum of money or ay property in           received by firm or another company (not being a
    kind is received by an individual or a HUF               company in which the public are substantially
    without consideration or for inadequate                  interested), without consideration or for an
    consideration (in excess of Rs. 50,000), the same        inadequate consideration in excess of Rs.50,000,
    will be taxed as income from other sources in            the same shall be taxable as income from other
    the hands of the recipient.                              sources in hands of recipient w.e.f A.Y 2011-
                                                             2012. However, this shall not applicable in cases
   It is proposed to amend the section so as to             where transactions are undertaken for business re-
    provide that in case of immovable property,              organisation, amalgamation and de-merger which
    the above provisions shall apply only if                 are not regarded as transfer under Sections 47
    immovable property is received without any               (via), (vib), (vic), (vid) or (vii)
    consideration and remove the stipulation regarding
    transactions involving inadequate consideration         Corresponding amendment has been made under
    for transfer of immovable property with                  Section 49(4) to provide that whereby the value of
    restrospective effect from A.Y 2010-2011                 which has been subject to tax under this Section
                                                             shall be deemed to be the cost of acquisition of
   The definition of property has been amended to           such shares in the hands of the recipient. Also
    restrict itself to any 'property' which is in the        amendment has been made in Section 2(24)(xv) to
    nature of capital asset of the assessee and              include value of such shares in definition of
    therefore would not apply to stock in trade,             income
    raw material, consumable stores of any business
    of the recipient. This amendment will take effect    Reference to Valuation Officer
    retrospectively from 1 October 2009
                                                            Section 142A is proposed to amend to allow the
   Further, 'bullion' has been included within the          Assessing Officer to make reference to a
    definition of property w.e.f 1 June 2010                 valuation officer to estimate the fair market value
                                                             of the property as defined under Section 56(2)

     P age |9
                                                                                               DNS Advisors

Direct Tax Proposals
Deductions/Exemptions                                        o   The existing limits with respect to the built-
                                                                 up area of the shops and other commercial
Investment made in long-term infrastructure                      establishments included in the housing
Bonds [Section 80CCF]                                            project of 5% of the built-up area of the
   It is proposed to insert section 80CCF to                    housing project or 2,000 square feet
    provide that subscription made to long- term                 whichever is less are enhanced to 3% of the
    infrastructure bonds (as may be notified by                  aggregate built-up area of the housing project
    Central Government) during 2010-2011 to the                  or 5,000 square feet, whichever is higher
    extent of Rs. 20,000 shall be allowed as
    deduction in the hands of an Individual/HUF.         Business of Hotels and Convention Centers in
                                                         specified areas [Section 80ID]
    The deduction is in addition to the deduction of
    Rs.100,000 specified under Section 80C, 80CCc           The prescribed date for starting functioning of a
    and 80CCD                                                hotel or convention centre located in the specified
                                                             area for claiming deduction u/s 80ID has been
Deduction in respect of health insurance
premium under Central Govt. Health Scheme                    extended from 31st March 2010 to 31 July 2010
[Section 80D]                                                w.e.f AY 2011-12

   It is proposed that with effect from 1 April         Computation of exempted profits for SEZ units
    2011, deduction under Section 80D shall also be      [Section 10AA]
    allowed in respect of any contribution made to
                                                            It is proposed that the amendments made under
    the Central Government Health Scheme by
                                                             section 10AA(7) replacing the words “by the
    Government Servants within the existing limits           assessee” with “by the undertaking” in the
                                                             formula for computing exempted profits in case
Developing and building housing projects
[Section 80IB (10)]                                          of SEZ units w.e.f 1st April 2010 will be
                                                             applicable retrospectively with effect from AY
   Provisions pertaining to deduction in respect of         2006- 07 which is the first year for claim of
    profits derived by an undertaking engaged in the         exemption by SEZ units under Section 10AA
    business of developing and building housing
    project are proposed to be amended as follows
    with retrospective effect from A.Y 2010-2011

    o    For housing projects approved on or after
         1st April 2005, the period for completion of
         housing project is increased from 4 years to
         5 years from the end of the financial year in
         which the housing project is so approved

        P a g e | 10
                                                                                                 DNS Advisors

Direct Tax Proposals
Other Amendments                                          Appellate Proceedings

Settlement Commission                                        In case where ITAT refuses to refer a case to
                                                              High Court, it has been proposed that an appeal
   It is proposed to amend the definition of the             by the assessee or commissioner may be admitted
    term „case‟ u/s 245A which can be admitted by             by the High Court beyond the period of six
    the Settlement Commission to include                      months if the High Court is satisfied that there is
    proceedings for assessment or reassessment                a sufficient cause for delay (section256(2A))
    resulting from search or as a result of requisition
    of books of account or other documents or any            In case of an appeal against order of ITAT, it is
    assets w.e.f 1 June 2010                                  proposed that such an appeal may be admitted by
                                                              the High Court beyond the period of 120 days if
   It is proposed that with respect to the cases             the High Court is satisfied that there is a sufficient
    described above, an application can be made to            cause for delay (section 260A)
    the Settlement Commission only where the
    additional amount of income-tax payable on
    such income disclosed exceeds Rs. 50 Lakh and         Procedural
    in other cases where the additional amount of
                                                             Centralized Processing of Returns - The time
    income-tax payable on income exceeds Rs 10
                                                              limit for issue of notifications relating to
    Lakh u/s 245C w.e.f 1 June 2010
                                                              centralized processing of returns has been
                                                              extended from 31st March 2010 to 31 March 2011
   The time-limits for passing an order of the
    Settlement Commission has been amended as                Allotment of Document Identification
    follows:                                                  Number – The date for the introduction of
                                                              scheme for allotment of computer generated
    o     In respect of applications made between 1
                                                              Document Identification Number in respect of
          June 2007 and 1 June 2010, the order should
                                                              every notice, order, letter or any correspondence
          be passed within twelve months from the
                                                              issued or accepted by an income-tax authority has
          end of the month in which such application
                                                              been deferred from 1st October 2010 to 1 July
          was made;
    o     In respect of applications made to                 Requirement to issue TDS/ TCS Certificates
          Settlement Commission on or after 1 June            - Since the system for issue of statement of tax
          2010, on order should be passed within              credit to every assessee is not fully operational
          eighteen months from the end of the month           and TDS and TCS certificates being important
          in which such application was made                  documents for claim of credit by the deductee,
                                                              the requirement to issue such certificates by the
   Similar consequential amendments are proposed
                                                              deductor/collector shall continue even after 1st
    under the Wealth Tax Act
                                                              April 2010

        P a g e | 11
                                                                                                DNS Advisors

Indirect Tax Proposals
C. SERVICE TAX                                                Certain additional services provided by a
                                                               builder to prospective buyers such as
Rate of Service Tax                                            preferential location or external or internal
                                                               development of complexes; however services of
   Service tax rate remains unchanged at 10%
                                                               providing vehicle parking spaces are not taxable
Service tax on commercial rent
                                                              The promotion, marketing or organizing of games
   The activity of commercial renting is now a                of chance, including lottery, is being introduced as
    taxable service effective from 1 June 2007. The            a separate service. Consequently, the explanation
    judgment of the Delhi High Court that struck               in provision relating to business auxiliary service
    down the levy of service tax on commercial rent            is being deleted.
    has been sought to be reversed by this
    retrospective amendment                                Scope of the following services being expanded or
                                                           altered as follows: (W.e.f. date to be notified after
Levy extended to the following new services                the enactment of Finance Bill, 2010)
(W.e.f. date to be notified after the enactment of
Finance Bill, 2010)                                           Air passenger transport services to include
                                                               domestic and international travel of all classes
   Assigning of copyrights on cinematographic
    films and sound recording. However copyright              An explanation is being added in “Auctioneer‟s
    on original literary, dramatic, musical and artistic       service” to clarify that the phrase „auction by
    work would continue to remain outside the                  government‟ means an auction involving sale of
    scope of service tax.                                      government property and not when the
                                                               government acts as an auctioneer for sale of the
   Services provided by electricity exchanges                 private property

   Health      checkup    by   hospitals/medical             Information technology software services –
    establishments and health services provided                presently tax is limited only in case where IT
    under health insurance schemes offered by                  software is used for furtherance of business or
    insurance companies. Provided the cost is                  commerce. Now scope extended to cover all cases
    directly   paid    by   employer    /business              irrespective of use.
    entity/insurance Company to the hospital or
    medical establishment.                                    Commercial training or coaching services-
                                                               expanded to include commercial training or
   Service of Promotion of a 'brand' of goods,
                                                               coaching provided for a consideration irrespective
    services, event, business entity, etc.
                                                               of the profit motive (retrospectively from 1 July
   Permitting commercial use or exploitation of               2003)
    any event organized by a person or organization
                                                              Port and airport services - all services provided
   Services provided for Maintenance of medical               within the airport/port premises made taxable
    records of employees of a business entity                  and an authorization from airport/port authority
                                                               would not be a pre- condition for taxing these

     P a g e | 12
                                                                                               DNS Advisors

Indirect Tax Proposals
   Commercial renting of immoveable property                Pre-packaged IT software, with the license for
    to include renting of vacant land where there             right to use, provided applicable excise and
    is an agreement between the lessor and lessee             customs duty is paid
    for undertaking construction activities on such
    land for furtherance of business or commerce             Technical testing and analysis service‟ and
    during the tenure of the lease                            „technical inspection and certification service‟
                                                              provided by Central and State seed testing
   Management of investment under ULIP                       laboratories and Central and State seed
    Services - definition amended to provide that             certification agencies
    the value of taxable services for any year of
    operation of policy shall be the the actual              Erection, commissioning or installation of
    amount charged by the insurer for management              mechanized food grain handling systems, cold
    of funds under ULIP or the maximum amount                 storages and machinery/equipment for initial
    of fund management charges fixed by IRDA,                 setting up or substantial expansion of units for
    whichever is higher                                       processing of agricultural, apiary, horticultural,
                                                              dairy, poultry, aquatic, marine or meat products
   Sponsorship of sporting events becomes
    taxable                                                  Transmission of electricity

   Construction of complex services is taxable           Following exemptions are withdrawn or amended
    unless the entire consideration for the property      (Applicable with immediate effect except where
                                                          otherwise stated)
    is paid after the completion of construction ( i.e.
    after the receipt of completion certificate from         Exemption for vocational training services
    the competent authority)                                  provided by commercial training or coaching
                                                              centers restricted to courses designated under the
Specific exemptions granted to following
services: (Applicable with immediate effect)                  trades specified in the Apprentices Act, 1961

   Statutory taxes charged by the foreign                   Exemption provided in relation to transport of
    governments are being excluded from taxable               goods by rail has been withdrawn with effect
    value for levy of service tax under the Air               from 1 April 2010 except for certain specified
    passenger transport service                               goods such as defence, railway equipment, postal
                                                              mail bags, relief material, etc.
   Air passenger transport service – statutory
    taxes charged by the foreign government shown            Exemption from service tax, presently available to
    separately are excluded                                   group personal accident insurance scheme
                                                              provided by Govt of Rajasthan to its employees,
   Transportation of food grains and pulses by               under General insurance service is being
    road                                                      withdrawn.

   Indian news agencies under the category of
    Online Information and Database Retrieval

      P a g e | 13
                                                                                           DNS Advisors

Indirect Tax Proposals
Amendments in ACT                                       Other changes (With immediate effect)

Chapter V of the Finance Act, 1994 is being                The construction and operation of installations,
amended to-                                                 structures and vessels for the purposes of
                                                            prospecting or extraction or production of
   Insert an explanation in sub section 3 of section
                                                            mineral oils and natural gas in the Exclusive
    73 to clarify that no penalty shall be imposed
                                                            Economic Zone and the Continental Shelf of
    where service tax along with interest has been
                                                            India and the supply of any goods connected with
    paid before issuance of notice by the department
                                                            these activities would be taxable
    under this sub section (W.e.f. date of enactment
    of Finance Bill, 2010)                                 Retrospective – the rigid requirement of
                                                            evidencing one to one nexus between output and
   Provide definition of the term business entity to
                                                            input services has been removed and refund shall
    include an association of persons, body of
                                                            not be linked to CENVAT taken only in a
    individuals, company or firm but not an
                                                            particular period
    individual. (W.e.f. date to be notified after the
    enactment of Finance Bill, 2010)

Amendments to Export of Service Rules (With
immediate effect)

   The condition of 'used outside India' for the
    services qualifying as exports has been deleted

   Services of chartered accountant, company
    secretary and cost accountant will qualify as
    exports only if the recipient is located outside

   Services of mandap keeper will qualify as
    exports only if the mandap is situated outside

Amendments to Import Rules (With immediate

   Services of chartered accountant, company
    secretary and cost accountant will qualify as
    imports only if the recipient is located in India

   Services of mandap keeper will qualify as
    imports if the mandap is situated in India

      P a g e | 14
                                                                                               DNS Advisors

Indirect Tax Proposals
D. CENTRAL EXCISE                                           Where a manufacturer avails Cenvat credit in
                                                             respect of any inputs, to manufacture both
Rate of duty                                                 dutiable and exempted goods, he can opt to
                                                             reverse credit or pay an amount equivalent to
   Basic rate of excise duty increased from 8% to
                                                             credit attributable to inputs used for manufacture
    10% on non-petroleum products
                                                             of exempted goods. Interest @ 24% p.a. is
   Rate of excise duty on motor spirit (petrol) and         payable from the date of clearance till date of
    HSD (diesel) are increased by Rs 1 per liter             reversal of the said credit. This is a retrospective
                                                             amendment applicable for the period 1 September
   The new rates would be effective from 27                 1996 to 31 March 2008
    February 2010
                                                            Rule 3(5) of Cenvat Credit Rules, 2004 is being
Amendments to Central Excise Act                             amended to provided accelerated depreciation in
   In section 11A (2B), an explanation has been             the case of computer and computer peripherals
    added to clarify that no penalty shall be leviable       cleared after use at the same rate as applicable to
    in cases where the duty and interest is paid             EOU/EHTP/STP units under notification no.
    before issuance of a demand notice                       52/2003-Customs

   Rule making power is been given to the central          Rule 4(5)(b) of Cenvat Credit Rules, 2004 is being
    government for withdrawal of facilities or               amended to permit sending of jigs, fixtures,
    imposition of restrictions by inserting a new            moulds and ides to a vendor for production of
    clause to section 37,                                    goods according to the specifications of the
                                                             principal manufacturer without reversal of credit.
   The provisions relating to the Settlement
    Commission are being amended to extend its              Small scale undertakings can now avail full credit
    scope (the above would come into effect from             of excise duty paid on capital goods in a single
    the date of enactment of the Finance Bill)               installment in the year of receipt. They can also
                                                             pay duty and file returns on a quarterly basis as
Amendments to Central Excise Tariff Act, 1985                against the earlier monthly requirements (effective
                                                             1 April 2010)
Following shall amount to manufacture:
                                                            Rule 6(6)(vii) of Cenvat Credit Rules, 2004 is
   Activities of cutting, sawing, sizing, etc. for
                                                             being amended to allow Cenvat credit on inputs
    converting stone blocks into slabs or tiles
                                                             used in the manufacture of goods supplied to
   process of drawing or redrawing of aluminum              specified mega power projects (effective 1 April
    tubes and pipes                                          2010)

Amendments made to the Excise & CENVAT                      Rule 15 of Cenvat Credit Rules, 2004 is being
Rules                                                        amended to harmonize the penal provision for
                                                             incorrect availment of Cenvat credit of duty paid
   The     requirement     regarding     the    pre-        on inputs or capital goods or input services.
    authentication of each folio of invoice has been
    removed (effective 1 April 2010)

      P a g e | 15
                                                                                                  DNS Advisors

Indirect Tax Proposals
C. CUSTOMS                                              Amendments to Customs Tariff Act

General                                                       It is provided that the CVD in respect of goods
                                                               chargeable to excise duty on the basis of
   No changes in the peak rate of customs duty                Maximum Retail Sale Price under Medicinal and
                                                               Toilet Preparations (Excise Duties) Act, 1955
   Several exemption have been granted with a
                                                               shall be computed on the retail sale price declared
    view to incentivizing certain thrust areas for
                                                               on such imported goods less the amount of
    sustainable growth and development
                                                               abatement, if any. This change will be effective
   The key sectors where such exemptions have                 from the enactment of the Finance Bill
    been granted are agriculture, environment,
    infrastructure, medical and infotainment                  The current limit of Rs. 1 lakh per annum for
                                                               duty free import of samples is being enhanced to
   The amendments in the rates is effective from              Rs. 3 lakhs per annum
    27 February 2010

Amendments in Custom Act, 1962
                                                        D. CENTRAL SALES TAX, 1956
   Provisions relating to the Settlement
    Commission are being amended on similar lines       The provisions of CST act are being amended so as to
    with Central Excise                                 provide for:

Project Imports                                         i.         Reassessment by the assessing authority on
                                                                   the basis of new facts discovered or revision
   Following projects have been added into the list               by a higher authority
    of Project Imports and would be chargeable to
    concessional rate of customs duty @ 5% at the       ii.        Filing of appeals to the highest authority of
    time of imports                                                every state against the orders made by
                                                                   assessing authorities on issues involving stock
    o   Monorail projects      for   urban    public               transfer or inter-state sale including incidental
        transportation                                             issues relating to rate of tax, computation of
                                                                   assessable turnover, penalty and procedure.
    o   Digital head end projects
                                                        iii.       Filing of appeal against any order passed by
    o   Projects for installation of mechanized food
                                                                   the highest appellate authority of a state on
        grain handling systems and pallet racking in
                                                                   disputes of intestate nature relating to stock
        mandis and warehouses for food grains and
                                                                   transfer or consignments of goods to the CST
                                                                   appellate authority
    o   cold storage, cold room (including for farm
        level pre-cooling) or Industrial projects for
        preservation, storage or processing of
        agricultural, apiary, horticultural, dairy,
        poultry, aquatic and marine produce and

        P a g e | 16
                                                                                                             DNS Advisors

 Contact Us

DNS Advisors
                                                                 Our Services
B - 2/259, Yamuna Vihar
                                                                          Business Valuation and Financial
New Delhi – 110053                                                         Advisory
Tel: 011 43658452                                                         Project Funding
                                                                          Taxation and Legal Advisory
                                                                          Advisory on FEMA matters
                                                                          Company Incorporation
Contact Persons
                                                                          Internal Audit
CA Deepak Gupta

Mob: 98113 00590

Email: deepak@dnsadvisors.com

CA Naveen Goyal

Mob: 99110 95297

Email: naveen@dnsadvisors.com


This document is prepared for information purposes only. No reader should act on the basis of any statement contained
herein without seeking professional advice. The firm expressly disclaims all and any liability to any person who has read
this, document or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by
any such person in reliance upon the contents of this document.

         P a g e | 17

To top