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8/7/2019 India Budget 2011-Highlights
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INDIA
BUDGET 2011- HIGHLIGHTS
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RSM Internat ional
6th largest network of independent
accounting and consulting firms in the world
Annual combined fee income of US$ 3.9 bill ion
714 of fices across 83 countries
www.astuteconsulting.com
RSM Ast ut e Consult ing Group
Indian member of RSM Internat ional
Personnel strength of over 800
5th largest accounting and consult ing group in India(Source : Internat ional Accounting Bullet in, September 2010)
Nationwide presence
International delivery capabilit ies
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February 2011
INDIA
BUDGET 2011- HIGHLIGHTS
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INDIA BUDGET 2011 - Highlights
CONTENTS
CHAPTER 1 : INTRODUCTION
CHAPTER 2 : INDIAN ECONOMY - AN OVERVIEW
CHAPTER 3 : TAX RATES
CHAPTER 4 : TAX INCENTIVES FOR BUSINESSES
CHAPTER 5 : DIRECT TAXES - SIGNIFICANT CHANGES
5.1 Business Entities
5.2 Personal5.3 Non Residents
CHAPTER 6 : INDIRECT TAXES - SIGNIFICANT CHANGES
6.1 Goods and Service Tax6.2 Service Tax6.3 Customs Duty
6.4 Excise Duty
CHAPTER 7 :
5.4 Transfer Pricing
OTHER SIGNIFICANT PROPOSALS
INDIA
BUDGET 2011- HIGHLIGHTS
7
10
13
17
32
46
60
32
414243
46
465356
EXECUTIVE SUMMARY
CHAPTER 8 : 62
CHAPTER 9 : 68
CHAPTER 10 : TDS RATES
DTAA RATES
75
ABBREVIATIONS 77
1
IMPACT ON SELECT INDUSTRIES
5.5 General 44
ii
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Budget 2011 Tax Rates* Existing Tax Rates*Upto Rs. 2,50,000 Nil Upto Rs. 2,40,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 10.30% Rs. 2,40,001 to Rs. 5,00,000 10.30%
Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
Budget 2011 Tax Rates* Existing Tax Rates*
Upto Rs. 1,90,000 Nil Upto Rs. 1,90,000 Nil
Rs. 1,90,001 to Rs. 5,00,000 10.30% Rs. 1,90,001 to Rs. 5,00,000 10.30%
Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
Budget 2011 Tax Rates* Existing Tax Rates*
Upto Rs. 1,80,000 Nil Upto Rs. 1,60,000 Nil
Rs. 1,80,001 to Rs. 5,00,000 10.30% Rs. 1,60,001 to Rs. 5,00,000 10.30%Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
proposed and existing tax rates for the FYs 2011-12 and 2010-11respectively, in case of Individuals / HUFs / AOPs / BOIs are as follows:
The rates of income-tax in the case of every individual (other than those specifiedbelow) or HUF are as under:
EXECUTIVE SUMMARY
1.0 DIRECT TAXES
1.1 Effective Tax Rates
1.1.1 Personal taxation
The Bill proposes certain modi-fications to the tax structure forIndividuals, HUFs, AOPs and BOIs.Consequently, the effective
1INDIA BUDGET 2011 - Highlights
Females below the age of 60 years (existing l imit - below 65 years)
Senior Citizens - indiv iduals between the age of 60-80 years (existing limit 65 yearsand above)
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* The tax rates are inclusive of education cess of 3%. No surcharge will belevied.
Surcharge for domestic companies has been reduced from 7.50% to 5%.Surcharge for foreign companies has been reduced from 2.50% to 2%.Effective corporate tax rate for domestic companies having incomeexceeding Rs. 1,00,00,000, has been reduced from 33.2175% to 32.445%.Effective corporate tax rate for foreign companies having income exceedingRs. 1,00,00,000, has been reduced from 42.23% to 42.024%.Effective MAT rate has been increased from 19.93% to 20.008% forcompanies having income exceeding Rs. 1,00,00,000.Effective DDT has been reduced from 16.60875% to 16.2225%.Lower rate of tax @ 15% on dividend received by an Indian company fromits foreign subsidiary, resulting into reduction in the effective tax rate from33.2175% to 16.2225%.
The Bill proposes no change in the existing tax rate of 30.90% forpartnership firms / LLPs.The Bill proposes to apply AMT in case of LLPs also, resulting into effectivetax @ 19.055% on its adjusted total income.
In case of salaried tax payers, where there is no other source of income,filing of tax return may not be required for certain persons as may be notified.Additional deduction of Rs. 20,000 for investment in long term infrastructurebonds, has been extended for 1 more year.The contribution made by employer to a pension scheme shall be excludedfrom the deduction limit of Rs. 1,00,000 available to employees under
1.1.2 Corporate Taxation
1.1.3 Partnership Firms / LLPs
1.2 Proposals for Personal Taxation
2INDIA BUDGET 2011 - Highlights
Very Senior Citizens - individuals having age of 80 years or more
Budget 2011 Tax Rates* Existing (no special slabs Tax Rates*for Very Senior Citizens)
Upto Rs. 5,00,000 Nil Upto Rs. 2,40,000 Nil
Rs. 2,40,001 to Rs. 5,00,000 10.30%
Rs. 5,00,001 to Rs. 8,00,000 20.60% Rs. 5,00,001 to Rs. 8,00,000 20.60%
Above Rs. 8,00,000 30.90% Above Rs. 8,00,000 30.90%
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section 80CCE. Accordingly, such contribution will be eligible for deductionover and above the limit of Rs. 1,00,000.
Benefit of investment linked deduction by way of allowing 100% deduction inrespect of expenditure of capital nature has been extended to businessesengaged in production of fertilisers and businesses engaged in developingand building of housing projects under a scheme of affordable housing.The weighted deduction on payments made to national laboratories oruniversities or IIT or a specified person for the approved scientific researchprogramme, has been increased from 175% to 200%.
It is proposed to discontinue the exemption from MAT in case of SEZdevelopers and units in SEZ.It is proposed to discontinue DDT exemption to SEZ developers, effectivefrom 1 June 2011.The terminal date for tax holiday available to power sector has beenextended for 1 more year i.e. upto 31 March 2012.No extension in terminal date for tax holiday in case of STP / EOU units.Any sum paid by assessee as an employer by way of contribution towards a
certain pension scheme shall be allowable expenditure to the extent of 10%of salary of the employees.
It is proposed to facilitate setting-up of dedicated debt funds forinfrastructure sector. Once notified, such funds are proposed to beexempted from tax. It is also proposed that the gross interest from such
funds shall be liable to tax at a reduced rate of 5% in the hands of non-residents.Non-residents operating through liaison office would be required to submitthe annual information within 60 days from the end of FY in the prescribedmanner.
Various provisions are proposed to be inserted to provide a set of countermeasures in relation to jurisdictions with which there is a lack of effectiveexchange of information.It is proposed to extend the due date of filing of tax returns till 30 November incase of corporate assessees, who are required to furnish the report inrespect of their international transactions. However, non-corporate
1.3 Tax Incentives and Proposals for Businesses
1.4 Proposals for Non-Residents
1.5 Other Proposals
3INDIA BUDGET 2011 - Highlights
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assessees having requirement of furnishing such report, have to file returnsby 30 September.Effective from 1 June 2011, the TPO will have power to survey.In case of adjustment under TP, if variation of price is +/-5% then adjustmentis not to be made. It is proposed to remove such fixed percentage andinstead, the allowable variation would be notified.The TPO can determine ALP in respect of even those internationaltransactions, which are not referred by the AO.A new simplified form Sugam to be introduced in order to reduce thecompliance burden of small tax payers falling within presumptive taxation.
The concessional rate of duty of 4% is being increased to 5%.A duty of 1% without Cenvat credit facility is being imposed, on about 130specified items, which were hitherto either fully exempt from excise duty orchargeable to 'nil' rate of excise duty.A mandatory duty of 10% is being imposed on readymade garments and
textile made-ups bearing a brand name or sold under a brand name.Duty of 1% is being imposed on branded jewellery and branded articles ofprecious metals.A concessional rate of duty of 10% is being prescribed for hydrogen vehiclesbased on fuel cell technology.Duty on sanitary napkins, baby and clinical diapers and adult diapers isbeing reduced from 10% to 1% with no Cenvat credit.
The general peak rate of 10% has been maintained.The basic customs duty rates of 2%, 2.50% and 3% are being unified at themedian rate of 2.50%.The existing system of assessment shall be replaced with self-assessmentof duty on imported and exported goods by the importer or exporter.Statutory rate of export duty on iron ores is being increased from 20% to 30%
while unifying the effective rate of export duty on iron ore fines and lumps at20%. Iron ore pellets are being fully exempted from export duty.CVD of Rs. 140 per 10 grams and 'Nil' basic customs duty and SAD has beenprescribed for gold dore bars of upto 80% gold purity imported for refiningand manufacturing serially numbered gold bars in India.Basic customs duty is being reduced from 7.50% to 5% for specified gems
2.0 INDIRECT TAXES
2.1 Excise Duty
2.2 Customs Duty
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and jewellery machinery.All clearances from SEZ into DTA are being exempted from SAD, providedthey are not exempt from the levy of VAT / Sales Tax.Concessional CVD @ 5% and full exemption from SAD is being provided toLEDs used for manufacture of LED lights and light fixtures.Concessional import duty structure of 5% CVD and 'Nil' SAD has beenprescribed on parts of inkjet and laser-jet printers imported for manufactureof printers.Full exemption from SAD presently available up to 31 March 2011 on parts,components and accessories for manufacture of mobile handsets includingcellular phones, is being extended up to 31 March 2012.Certain notifications are being amended retrospectively to allow exports
made under the Export Promotion Capital Goods Scheme to simultaneouslyavail of benefits under Export Reward Schemes such as Served From IndiaScheme, Focus Market Scheme etc.
There is no change in the current effective service tax rate of 10.30%.Service tax is proposed to be imposed on certain new specified category of
services such as services provided by air-conditioned restaurants having alicense to serve alcoholic beverages in relation to serving of food and/orbeverages, short-term accommodation provided by a hotel/inn/guesthouse,etc. for a continuous period of less than 3 months. Suitable abatement is alsoproposed to be prescribed in this regard.Scope of certain existing categories of services such as life insuranceservice, club or association service, authorized service station service,business support services, legal consultancy services, commercial training
or coaching service and health service, is being expanded / altered.Certain additional exemptions have been provided in respect of certainspecified services which are covered under the category of businessexhibitions service, transport of goods through coastal and inland shipping,works contract service, general insurance service and transportation ofgoods by road, rail or air.The rates of service tax on travel by air are being revised from Rs. 100 to Rs.150 for domestic travel (economy class), from Rs. 500 to Rs. 750 for
international travel (economy class) and 10% (standard rate) for domestictravel (other than economy class).A modified scheme is being introduced to refund service tax to SEZ units anddevelopers.The Export of Services Rules, 2005 and Taxation of Services (provided fromoutside India and received in India) Rules, 2006 are being amended so as to
2.3 Service Tax
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move some of the specified services from one category to another.The Works Contract (composition scheme for payment of service tax) Rulesare being amended to provide that the credit of tax on input services oferection, commissioning or installation, commercial or industrialconstruction and construction of complex services as available to a personproviding works contract service shall be restricted to 40% of tax paid, whensuch tax has been paid on full value of the service after availment of Cenvatcredit on inputs.The Point of Taxation Rules, 2011 shall be effective from 1 April 2011. Theserules determine the point in time when the services shall be deemed to beprovided.Interest on delayed payment of service tax is being increased from 13% to
18% per annum.Significant changes have been made in the Cenvat Rules including thedefinition of input, input services, capital goods, exempted goods andexempted services.
Areas of divergence with states on proposed GST have been narrowed. As a
step towards roll out of GST, Constitution Amendment Bill proposed to beintroduced in this session of Parliament. Significant progress in establishingthe GST network, which will serve as Information Technology infrastructurefor introduction of GST. However, there is still no clarity as regards the date ofimplementation of GST.
SEBI registered mutual funds permitted to accept subscription from foreigninvestors who meet KYC requirements for equity schemes.To enhance flow of funds to infrastructure sector, FIIs limit for investment incorporate bonds issued in infrastructure sector, being raised by US$ 20million to US$ 25 million. This will raise the total limit available to FIIs forinvestment in corporate bonds to US$ 40 billion.Rs. 40,000 crore to be raised through disinvestments in FY 2011-12.
3.0 GST ROADMAP LAID OUT
4.0 CAPITAL MARKET INITIATIVES
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1.1 Background
During the current year 2010-11, theIndian economy has emerged withremarkable resilience with a GDP growthrate of 8.60%. Considering the globalpolitical and economic uncertainties andvolatility in commodity prices like crudeoil, there is a need for fiscal consolidationand high economic growth.
As such, the focus of the Budget 2011 ison growth, a stable tax regime andconsolidation at a time when the Indianeconomy is at a crucial juncture. TheFinance Minister has reiterated his
commitment to introduce Direct Taxes Code from 1 April 2012 and has laiddown specific milestones for implementation of GST from 1 April 2012.
The opening of Indian capital markets by permitting foreign investors (overand above FIIs, sub-accounts and NRIs) to invest in SEBI approvedmutual funds, will augment foreign investments in the country in a big way.The continuation of the current rate of 10.30% for service tax and exciseduty without rolling back the same to 12.36%, is a major positive step.
The increase in basic exemption limit to Rs. 1,80,000 for Individuals /
HUFs will benefit vast number of tax payers. The reduction of CorporateTax Rate from 33.22% to 32.445% (due to reduction of Surcharge from7.50% to 5%) is a step in the right direction. Both these steps are inalignment to the DTC rate structure.
Further, it is proposed to levy AMT @ 19.055% on the adjusted totalincome in the hands of LLP. This would decrease the attractiveness of LLPstructure to a certain extent.
The export sector needed much rejuvenation due to the continuedchallenging global environment and increasing trade account deficit dueto increase in crude oil and commodity prices. The announcement foreasier refunds of service tax in case of exporters will help in this direction.
7INDIA BUDGET 2011 - Highlights
CHAPTER 1: INTRODUCTION
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However, non-extension of tax holidays to units operating in STPI andEOU parks beyond sun-set date of 31 March 2011, is a matter ofdisappointment. SEZ units which are currently not liable to MAT @ 18%,would henceforth be liable to MAT on book profits @ 18.50% (excluding
surcharge and cess). This is completely in contradiction to the existingnotified SEZ framework.
The Budget continues to maintain thrust on infrastructure section byallowing extension of additional deduction of Rs. 20,000 for investment inlong-term infrastructure bonds under Section 80CCF for 1 more year.Further, investment linked deduction is being proposed to be extended forthe businesses developing affordable housing. The Bill also provides for a
lower tax on overseas borrowings by infrastructure debt funds. Theextension of tax holiday to power sector for projects commencingoperations up to 31 March 2012 as well as grant of investment based taxdeduction to fertilizer manufacturing units are welcome.
The lower rate of 15% tax (excluding surcharge and cess) on dividendsreceived by an Indian company from its foreign subsidiary shall be anincentive for repatriation of funds into India, which otherwise would
continue to remain invested abroad due to higher rate of taxation @ 30%(excluding surcharge and cess) on such dividends.
A multi-pronged strategy is proposed to be put into operation to deal withthe problem of generation and circulation of unaccounted income andwealth.
Liberalization of Foreign Direct Investment ('FDI') policy is being
contemplated.
In this booklet compiled by us, we intend to offer a broad outline of thehighlights of the Union Budget 2011. We have discussed the significantproposals of general interest in respect of direct taxes. In respect ofindirect taxes and other policy initiatives, only the highlights have beenbriefly enumerated. Preceding the budget proposals are the macro-indicators of the Indian economy which provide a backdrop to the legal andfinancial proposals.
This booklet is not an offer, invitation or solicitation of any kind and it does
1.2 Scope and Limitations
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not purport to be comprehensive, or to render legal, economic or financialadvice. This booklet should not be relied upon for taking actions ordecisions without appropriate professional advice as the facts of eachcase have to be studied and the legal position analysed properly before
taking any action or decision in the matter. Further, this booklet containsonly the proposals and amendments as given in the Finance Bill, 2011,which may be modified before it receives the approval and assent of theParliament and the President. The proposals regarding direct taxes wouldbecome effective from AY 2012-13 (FY 1 April 2011 to 31 March 2012),unless otherwise specified. In this booklet, the terms 'IT Act', 'the Rules'and 'the Bill' are used for the 'Income-tax Act, 1961', 'Income-tax Rules,1962' and 'Finance Bill, 2011' respectively.
While all reasonable care has been taken in preparation of this booklet, weaccept no responsibility for any errors it may contain or for any omissionsor otherwise or for any loss, howsoever caused or sustained, by the personwho relies on it.
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As per the advance estimates of GDP for FY 2010-11, the economy is
estimated to have grown at 8.60% and the growth rate is expected to be
around 9% next year. The growth has been strong and broad based, with a
rebound in agricultural sector which is expected to grow at around 5.40% and
continued momentum in the manufacturing sector which is expected to grow
at 8.80%.
The services sector has also played a dominant role in the Indian economy
with a 57.30% share in the GDP, a high share in FDI equity inflows and a 35%share in total exports.
During the period April 2010 to January 2011, the exports went up by 29.40%
while imports registered a growth rate of 17.60%. The Gross Fiscal Deficit in
FY 2010-11 is 4.80% of GDP as against 6.30% in the previous year. During
the current fiscal, foreign exchange reserves have increased from US$
279.40 billion in end April 2010 to reach US$ 300 billion in February 2011.
The year-on-year inflation, as measured by the WPI, remained at elevated
levels from December 2009 and stood at 8.23% in January 2011. Inflation in
primary articles, particularly food articles, was the main contributor to the
The Indian economy has witnessed
robust growth and steady fiscal
consolidation in the FY 2010-11 so
far, thereby emphasizing itself as
one of the most exciting places
globally from an economic point of
view. India has emerged with
remarkable resilience from the
slowdown caused by the global
financial crisis in the later part of the
FY 2008-09.
CHAPTER 2 : INDIAN ECONOMY - AN OVERVIEW
2.1 Overview
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elevated levels of WPI inflation.
The monthly average exchange rate of the rupee has generally been range
bound, moving in the range of Rs. 44-47 per US$ between April and
December 2010. The exchange rate of the rupee depreciated by 1.50%against the US$ from Rs. 44.50 per US$ in April 2010 to Rs. 45.16 per US$ in
December 2010. The Rupee also depreciated against other major
international currencies such as the Pound Sterling (3.20%) and Japanese
Yen (12.20%) during the year.
The performance of the Indian
equity markets has also
witnessed a steady growth
wherein the Sensex had earlier
recovered from its 2009 low of
8,160 as on 9 March 2009 to
reach a level of 21,108 on 5
November 2010. As on 28February 2011, the Sensex closed at the level of 17,823.
Despite the risks of global events, such as volatility in commodity prices like
crude oil exacerbated by political turmoil in the Middle-East, the Indian
economy seems poised to scale greater heights in terms of macro economic
indicators. The real GDP growth is expected to reach the 9% mark in FY
2011-12 and the next two decades may well see the economy growing faster
than it has done any time in the past. However, food inflation, governance
concerns, higher commodity prices and volatility in global commodity
markets are causes of concern.
11INDIA BUDGET 2011 - Highlights
BSE Sensex
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
28-Feb-07 28-Feb-08 27-Feb-09 26-Feb-10 28-Feb-11
12,938
17,578
8,892
17,82316,430
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2.2 India - Key Economic Indicators
PE Provisional Estimates
QE Quick Estimates
AE Advance Estimates
a Final estimates
b Second advance estimates
c The Index of Industrial Production has been revised since 1993-94. The indices have been recompiled from April 2004 onwardsusing new series of WPI for the IIP items reported in value terms.
d New series of WPI has been released from 2004-05 with base2004-05=100.
Absolute values % change over previous periodItems
2010-112009-102007-08 2008-09 2009-102007-08 2008-09
Gross Domestic Product
(Rs. thousand crore)At current market pricesAt factor cost (2004-05 prices)
Index of IndustrialProductionc
Electricity generated(Utilities only) (billion KWH)
Wholesale Price Index(Average)
d
exchange rate)h(US$ billion - Annual Average
At current market prices
Foodgrains produc tion(million tonnes)
QE6,550 AE7,878QE4,494 4,879AE
130.4 na
316.2 na
4,9863,899
277.1
116.5
PE5,583PE4,163
125.9
286.1
12.06.8
8.1
3.2
16.19.3
4.8
8.7
20.38.6
na
na
17.38.0
218.1a b232.1230.8 234.5 1.66.2 6.4(7.0)
768 na704 724 2.86.3 na6.1
3.6
1381 17251239 1214 (2.0)30.6 24.913.8
10.5
2010-11
e As of 31 December 2010
f Average exchange rate for FY 2010-11 (April - December 2010)
g Fiscal indicators for FY 2009-10 are based on the provisional
actuals for FY 2009-10.h Calculated based on available figures.
i April - December 2010
j Relates to mid-financial year (as on 1 October) based onpopulation figure of Central Statistical Organisation
na not available / not released for FY 2010-11
Imports
(US$ million)
Exports
288,373 na251,654 303,696 20.735.5 i19.0(5.0)
Foreign exchange reserves
(US$ million)178,751 na163,132 185,295 13.629.0 i29.5(3.5)
(in US$ billion)279.1 e297.3309.7 252.0 (18.6)55.5 6.510.8
Average exchange rate(Rs. / US$)
47.42 45.68f40.26 45.99 14.2(11. )0 (3.7)3.1
Gross fiscal deficit g6.3 4.82.5 6.0
Populationj .1,170 1,1861,138 1,154 1.411.43 1.371.39
(% of GDP)
(Million)
12INDIA BUDGET 2011 - Highlights
(Base: 1993-94 = 100)
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CHAPTER 3 : TAX RATES
3.1 Individuals, HUFs, AOPs and BOIs
3.1.1 Tax rates
The Bill proposes certain modificationsto the tax structure for individuals,HUFs, AOPs and BOIs. Consequently,the effective present and proposed taxrates for the FYs 2010-11 and 2011-12
in case of individuals / HUFs / AOPs /BOIs are as follows:
* The tax rates are inclusive of education cess of 3%.
# In case of a resident woman below 60 (reduced from 65) years of age at any time
during the previous year, the basic exemption income slab has remained
unchanged at Rs. 1,90,000 and in case of a resident individual of the age of 60
(reduced from 65) years or more (senior citizen) attained at any time during the
previous year, the basic exemption income slab is Rs. 2,50,000 (increased from
Rs. 2,40,000). Further, a new category is proposed to be introduced the residentindividuals of the age of 80 years or more (very senior citizens) attained at any
time during the previous year, for whom the basic exemption income slab is
proposed to be Rs. 5,00,000. The tax for other slabs will change accordingly.
Income Slabs(Rs.)
Income Slabs(Rs.)
Tax Rates* Proposed TaxRates*
For FY 2010-11 For FY 2011-12
Nil
10.30% of incomeexceedingRs. 1,80,000
Rs. 32,960 plus20.60% of incomeexceedingRs. 5,00,000
Rs. 94,760 plus30.90% of incomeexceedingRs. 8,00,000
0 - 1,80,000#
1,80,001# - 5,00,000
5,00,001 - 8,00,000
8,00,001 - and above
Nil
10.30% of incomeexceedingRs. 1,60,000
Rs. 35,020 plus20.60% of incomeexceedingRs. 5,00,000
Rs. 96,820 plus30.90% of incomeexceedingRs. 8,00,000
0 - 1,60,000#
1,60,001# - 5,00,000
5,00,001 - 8,00,000
8,00,001 - and above
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3.1.2 Proposed tax incidence
3.2 Companies
3.2.1 Domestic companies
The incidence of income-tax for individuals, women, senior citizens andvery senior citizens for FY 2011-12, having different income levels can beexemplified as follows:
* The tax incidence for HUFs, AOPs and BOIs will be same as that ofindividuals.
The effective tax rates and MAT rates for domestic companies for FY 2010-11 and FY 2011-12 are as follows:
Annual
Income (Rs.) Individuals*
Tax Liability (Rs.)
Very Senior CitizensSenior Citizens
1,80,000
2,00,000
2,50,000
3,00,000
4,00,0005,00,000
8,00,000
10,00,000
15,00,000
20,00,000
25,00,000
Women
-
2,060
7,210
12,360
22,66032,960
94,760
1,56,560
3,11,060
4,65,560
6,20,060
-
1,030
6,180
11,330
21,63031,930
93,730
1,55,530
3,10,030
4,64,530
6,19,030
-
-
-
-
--
61,800
1,23,600
2,78,100
4,32,600
5,87,100
-
-
-
5,150
15,45025,750
87,550
1,49,350
3,03,850
4,58,350
6,12,850
14INDIA BUDGET 2011 - Highlights
Having totalincome
exceedingRs.1,00,00,000
Having totalincome upto
Rs.1,00,00,000
33.22% [(tax rate30% plus
surcharge 7.50%thereon) plus
education cess3% thereon]
32.445% [(taxrate 30% plussurcharge 5%thereon) plus
education cess3% thereon]
30.90% (tax rate30% plus
education cess3% thereon)
30.90% (tax rate30% plus
education cess3% thereon)
19.93% [(tax rate18% plus
surcharge 7.50%thereon) plus
education cess3% thereon]
20.008% [(taxrate 18.50% plussurcharge 5%thereon) plus
education cess3% thereon]
18.54% (tax rate18% plus
education cess3% thereon)
19.055% (taxrate 18.50% pluseducation cess3% thereon)
DomesticCompany
Effective MAT Rates
FY 2010-11 FY 2011-12
Effective Tax Rates
FY 2010-11 FY 2011-12
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Marginal relief is available to ensure that the additional income-tax payable,
including surcharge of 5% for FY 2011-12 (7.50% for FY 2010-11) on the
excess of income over Rs. 1,00,00,000, is limited to the amount by which the
income is more than Rs. 1,00,00,000. However, no marginal relief shall be
available in respect of the education cess.
Due to proposed reduction in the rate of surcharge from 7.50% to 5%, theeffective rate of 16.60875% [(tax rate 15% plus surcharge 7.50% thereon)
plus education cess 3% thereon] for additional tax on the dividend
distributed by the domestic companies for FY 2010-11, would be reduced to
16.2225% [(tax rate 15% plus surcharge 5% thereon) plus education cess
3% thereon] for FY 2011-12.
The Bill proposes no change in the existing tax rate of 30.90% (tax rate 30%
plus education cess 3% thereon) for partnership firms / LLPs.
The Bill proposes to levy AMT on LLPs @ 19.055% (tax rate 18.50% plus
education cess 3% thereon) on adjusted total income.
The effective rate of tax on dividends distributed by mutual funds for
3.2.2 Foreign companies
3.2.3 Additional tax on dividends distributed by domestic companies
3.3 Partnership Firms / LLPs
3.3.1 AMT on LLPs
3.4 Additional Tax on Dividends Distributed by Mutual Funds
15INDIA BUDGET 2011 - Highlights
Having totalincome
exceedingRs.1,00,00,000
Having totalincome upto
Rs.1,00,00,000
42.23% [(tax rate 40% plussurcharge 2.50% thereon) plus
education cess 3% thereon]
41.20% (tax rate 40% plus education cess 3% thereon)
42.024% [(tax rate 40% plussurcharge 2% thereon) plus
education cess 3% thereon]
ForeignCompany
FY 2011-12
Effective Tax Rates
FY 2010-11
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FY 2010-11 and FY 2011-12 are as follows:
* The tax rates are inclusive of surcharge of 5% for FY 2011-12 (7.50% for
FY 2010-11) and education cess of 3% thereon.
The Bill proposes no change in the tax rates for co-operative societies. As
such, the effective tax rates for FY 2010-11 as well as FY 2011-12 are as
follows:
The Bill proposes no change in the effective tax rates of 30.90% (tax rate
30% plus 3% education cess thereon) for local authorities.
3.5 Other Entities
3.5.1 Co-operative societies
3.5.2 Local authorit ies
Income Slabs (Rs.) Tax Rates
0 - 10,000 10.30%
10,001 - 20,000 Rs. 1,030 plus 20.60% of income exceeding Rs. 10,000
20,001 - and above Rs. 3,090 plus 30.90% of income exceeding Rs. 20,000
16INDIA BUDGET 2011 - Highlights
Type of Income(For FY 2011-12)
27.0375%*
Income distributed by a money market mutualfund or a liquid mutual fund to
- an Individual or a HUF
- Others
Income distributed by a mutual fund (includingdebt fund) other than a money market mutualfund or a liquid mutual fund to
- an Individual or a HUF
- Others
32.445%*
13.519%*
32.445%*
(For FY 2010-11)
Effect ive Tax Rate
27.681%*27.681%*
13.841%*
22.145%*
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CHAPTER 4 : TAX INCENTIVES FOR BUSINESSES(As Updated upto the Finance Bill , 2011)
PeriodDetails of Exemption / Deduct ionSection Quantumof Deduction
10A /
10B
First 10 years up toFY 2010-11
First 5 yearsNext 2 yearsNext 3 years*
100%
100%50%50%
EHTP, STP or EOU
For any eligible undertaking set up in a SEZafter 1 April 2003 but before 31 March 2005Exemption is available for profits from export of
certain articles or things or computer software,manufactured or produced by an eligibleundertaking subject to fulfillment of specifiedconditionsThe term computer software includes notified
information technology enabled servicesThe profits and gains derived from on-site
development of computer software (includingservices for development of software) outsideIndia shall be deemed to be the profits andgains derived from the export of computersoftware outside IndiaThe benefit is available to units engaged in
cutting and polishing of precious and semi-precious stonesThe export proceeds must be realised within
the specified timeNo deduction under these sections will be
allowed unless the assessee files the return ofincome within the prescribed time limitThe deduction under this section is the amount
which bears to the profits of the business of theundertaking, the same proportion as the export
For newly established undertakings in FTZ,
The IT Act provides for far reaching taxholidays and other tax incentives for thebusinesses. We have enumerated, in brief,the significant tax holidays and incentivesavailable to businesses along with thenature of deductions, eligibility criteria,quantum of deduction and period for whichthe deductions are available. The taxholidays and incentives are subject tofulfillment of specified conditions. Thechanges proposed by the Finance Bill, 2011are highlighted inbold font.
17INDIA BUDGET 2011 - Highlights
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PeriodDetails of Exemption / Deduct ionSection Quantumof Deduction
turnover in respect of such articles or things orcomputer software bears to the total turnover ofthe business carried on by the undertakingThe unit availing these deductions will be
subject to MAT @ 20.008% [(tax rate 18.50%plus surcharge 5%) plus education cess 3%thereon] (having book profit exceedingRs. 1,00,00,000) or 19.055% (in other cases)The tax holiday available under sections 10A /
10B to units in STPI, EHTP, FTZ and EOU willbe available up to 31 March 2011.The FinanceBill, 2011 has not proposed extension ofsuch tax holidays beyond 31 March 2011
* The deduction is allowed only on creation of aspecified reserve, which is utilized for specifiedpurposes
10AA First 5 yearsNext 5 years
+Next 5 years
100%50%50%
after 1 April 2005
Exemption is available to the entrepreneur asreferred to in section (2j) of SEZ Act, 2005 forprofits derived from export of articles or thingsor services, manufactured, or produced or
provided any services by an eligible unitThere is no restriction on realisation of the
export proceeds within a particular time framefor the purpose of claiming the deduction
The profits and gains derived from on-sitedevelopment of computer software (includingservices for development of software) outsideIndia shall be deemed to be the profits andgains derived from the export of computer
software outside IndiaThe benefit is available to units engaged incutting and polishing of precious and semi-precious stones
The deduction under this section is to becomputed in the same proportion, which theexport turnover of the eligible unit bears with thetotal turnover of the said unit
The benefit under this section will be available if :
the unit is not formed by splitting up or
reconstruction of a business already inexistence subject to certain exceptionsthe unit is not formed by transfer ofmachinery and plant previously used forany purpose to the new business subject tocertain exceptions
For any new eligible unit set up in SEZ on or
l
l
18INDIA BUDGET 2011 - Highlights
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PeriodDetails of Exemption / Deduct ionSection Quantumof Deduction
Tea / Rubber / Coffee development allowanceDeduction is available to assessee engaged inthe business of growing and manufacturing
tea, coffee or rubber in IndiaDeduction equal to an amount deposited in aspecial account with NABARD or any DepositAccount opened by the assessee andapproved by the Tea Board or Coffee Board orRubber Board from the profits is allowedThe amount has to be deposited withinspecified period from the end of the FY orbefore furnishing the return of income,whichever is earlierThe amount has to be utilized by the assesseefor specified purposes
33AB NA Upto 40%of profits or
amount
deposited inspecialaccount,
whicheveris less
19INDIA BUDGET 2011 - Highlights
It is proposed to discontinue the exemptionfrom MAT in case of SEZ developers andunits in SEZ
It is further proposed to discontinue theexemption from DDT in case of SEZdevelopers effective f rom 1 June 2011
The deduction is allowed only on creation of aspecified reserve, which is required to beutilized for specified purposes
+
Expenditure on Scientific ResearchWhere any expenditure (not being in nature of capital expenditure) has been laid outor expended on scientific research related to business carried on by the assessee,100% of such expenditure can be claimed as deductionWhere any capital expenditure (other than expenditure on land and building) isincurred on scientific research related to the business carried on by the assessee,
100% of such expenditure can be claimed as deductionWhere any expenditure is paid to a National Laboratory or a University or an IndianInstitute of Technology or a specified person with a specific direction that the said sumshall be used for scientific research undertaken under a programme approved by theprescribed authority, then deduction upto 125% of the expenditure incurred shall beallowed
35 / 35(2AA) /35(2AB)
Additional DepreciationGeneral rate of depreciation for plant and machinery is 15% (other than certainspecified types of plant and machinery)
Additional depreciation of 20% is allowed for new plant and machinery acquired andinstalled after 31 March 2005. Additional depreciation is available only in the year inwhich such machinery is first put to use
32
Eligibil ity Criteria, Quantum and Period of DeductionSection
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Eligibil ity Criteria, Quantum and Period of DeductionSection
Where any expenditure (other than expenditure on cost of land and building) on in-house research and development facility, as approved by the prescribed authority, isincurred by the assessee engaged in the business of bio-technology or manufacture
or production of article or thing (except those specified in the Eleventh Schedule), thededuction shall be 200% of the expenditure incurred upto 31 March 2012 subject tocomplying with the prescribed conditionsWhere amount is paid to an approved research association, which has its object ofundertaking scientific research or to a university, college or other institution to be usedfor scientific research, the deduction shall be 175% of the amount paid provided thatsuch association, university, college or institution is approved by the CentralGovernment. It is proposed to increase this weighted deduction from 175% to200%Deduction of 125% is available for amount paid to approved research association
which has as its object of undertaking research or university, college or otherinstitution to be used for research in social science or statistical researchWhere amount is paid to a company to be used by such company for scientificresearch, provided that the company complies with the specified conditions, theweighted deduction shall be 125%. Such an approved company will not be entitled toclaim weighted deduction under section 35(2AB). However, deduction to the extent of100% of the sum spent as revenue expenditure on scientific research, which isavailable under section 35(1)(ii) will continue to be allowed
20INDIA BUDGET 2011 - Highlights
35AD Expenditure on specified businesses
Any expenditure of capital nature incurred, wholly and exclusively, during the year forspecified businessSpecified business and the year (in which the operations commenced) for availingbenefits under this section are as under:
The business of setting up and operating of cold chain on or after 1 April 2009The business of warehousing for storing agricultural produce on or after 1 April2009The business of laying and operating a cross-country natural gas or crude orpetroleum oil pipeline network for distribution, including storage facilities being anintegral part of such network, subject to fulfillment of specified conditions on orafter 1 April 2007The business of building and operating new hotel of two star or above category onor after 1 April 2010. It is proposed to remove the word 'new' to allow set offunder section 73A wi th retrospective effect f rom AY 2011-12The business of building and operating any hospital with at least 100 beds forpatients on or after 1 April 2010Building a housing project under specified scheme framed for this purpose by theCentral or State Government on or after 1 April 2010It is proposed to include the following two new businesses as 'specified
business', which start functioning on or after 1 Apri l 2011:(a) developing and building a housing project under a scheme for
affordable housing framed by the Central Government or a StateGovernment, as the case may be, and notified by the Board in thisbehalf in accordance with the guidelines as may be prescribed; and
(b) production of fertilizer in India
l
l
l
l
l
l
l
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Any expenditure incurred by way of payment of any sum to employee in connection with hisvoluntary retirement is eligible for amortisation over 5 years, subject to specified conditions.From AY 2011-12, in case of conversion of private company or unlisted public company to aLLP, unabsorbed expenditure incurred under voluntary retirement scheme by the private
company or unlisted public company will be amortised for the remaining period by the LLP
35DDA
Capital gains arising on transfer of plant, machinery, land, building or any rights in land /building effected in course of or in consequence of the shifting of an industrial undertakingsituated in an urban area to any area (other than an urban area) shall be exempt from tax.Exemption shall be least of the following:lAmount of capital gainslAmount of capital gains utilized within a period of 1 year before or 3 years after the date
of transfer of the above assets, for purchase of new plant and machinery, land andbuilding and for shifting expenses, subject to specified conditions
54G
Eligibil ity Criteria, Quantum and Period of DeductionSection
Long term capital gains shall be exempt from tax, if an assessee invests, within a period of6 months from the date of transfer of a long term capital asset, the capital gains in thespecified assets. The specified asset must be held for a period of 3 years from the date ofits acquisition. This exemption shall be least of the following:lInvestment in specified assets viz. bonds issued by National Highway Authority of
India and the Rural Electrification Corporation Ltd. The investment is restricted uptoRs. 50,00,000 per assessee per FY for investment made on or after 1 April 2007lAmount of capital gains
54EC
Dividend referred to in section 115-O shall not be included in the total income of assessee10(34)
Capital gains arising on transfer of plant, machinery, land, building or any rights in land /building effected in course of or in consequence of the shifting of an industrial undertakingsituated in an urban area to any SEZ shall be exempt from tax. Exemption shall be least ofthe following:lAmount of capital gainslAmount of capital gains utilized within a period of 1 year before or 3 years after the
date of transfer of the above assets, for purchase of new plant and machinery, landand building and for shifting expenses, subject to specified conditions
54GA
Capital gain arising from transfer of long term capital asset being an equity share in acompany or a unit of an equity oriented fund, on which securities transaction tax ischarged, is exempt from tax. However, this exemption is not available for computation ofMAT
10(38)
21INDIA BUDGET 2011 - Highlights
100% deduction is allowed in respect of any capital expenditure incurred (other than
expenditure incurred on the acquisition of any land or goodwill or financial instrument),
during the year by the specified business subject to the specified provisions
The assessee shall not be allowed any deduction in respect of the specified businessunder the provisions of chapter VIA for the same or any other AY. No deduction in
respect of the expenditure incurred, in respect of which deduction has been claimed,
shall be allowed to the assesee under any other provisions of the IT Act
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Undertaking set up in any part of Indiafor the generation or generation anddistribution, of power, which hascommenced operations during 1 April1993 to 31 March 2011*Undertaking which starts transmission
or distribution by laying a network of
new transmission or distribution linesbetween 1 April 1999 and 31 March2011*Undertaking which undertakes
substantial renovation andmodernization of the existing networkof transmission or distribution linesbetween 1 April 2004 and 31 March2011*
* It is proposed to extend the period
by one year, i.e. upto 31 March 2012The renovation / modernization shouldresult in increase in plant andmachinery by at least 50% of the bookvalue of such plant and machinery ason 1 April 2004
i.(b) All 100% Any 10consecutiveyears out of first15 years
Others 100%25%
First 5 yearsNext 5 years
Company 100%30%
First 5 yearsNext 5 years
Co-operativeSociety
100%25%
First 5 yearsNext 7 years
Industrial undertaking located innotified industrially backward statesManufacturing or producing any
articles or things or operating coldstorage plant, which has commencedoperations during 1 April 1993 to 31March 2004 (31 March 2012 for Stateof Jammu and Kashmir)
Industrial undertaking deriving profitfrom the business of setting up andoperating cold chain facility foragricultural produce which has begunto operate such facility on or after 1April 1999 but before 31 March 2004The deduction of 100% of the profits
hitherto available under section 80-IBfor a period of 10 AYs to notifiedindustries set up in North-Eastern
Region, will be available under Section80-IC only, from FY 2003-04
Deductions of Profits derived by Newly Established IndustrialUndertakings / Infrastructure Projects / Facilities / Developers of SEZs /Banking units, etc.
80-IA / 80-IB /80-IC / 80-IAB/ 80-ID / 80-IE /80-LA
Nature of Activi ty and Location Type of
Organization
Quantum of
Exemption
Number of
Years
Sr.
No.
i.(a)
22INDIA BUDGET 2011 - Highlights
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Undertaking owned by Indian Company(formed before 30 November 2005 andnotified before 31 December 2005) set upfor reconstruction or revival of a powergenerating unit, which has commencedoperations in power before 31 March 2011
Deduction shall not be available to a personexecuting the above referred activities as aworks contract
i.(c) 100% Any 10consecutiveyears out of first15 years
IndianCompany
Nature of Activi ty and LocationType of
OrganizationQuantum ofExemption
Number ofYears
Sr.No.
Deduction shall not be available to a personexecuting the above referred activities as aworks contract
23INDIA BUDGET 2011 - Highlights
Industrial undertaking located inindustrially backward districts of categoriesA and B notified by Central Government,manufacturing or producing articles orthings (except specified low priority items)or to operate its cold storage plant or plantswhich has commenced operations during 1October 1994 to 31 March 2004
i.(d)
i.(e)
100%30%
First 5 yearsNext 5 years
Company
100%25%
100%25%
First 5 yearsNext 7 years
First 5 yearsNext 5 years
Co-operativeSociety
Others
Company 100%30%
First 3 yearsNext 5 years
Co-operativeSociety
100%25%
First 3 yearsNext 9 years
Others 100%
25%
First 3 years
Next 5 years
A. Set up in category 'A' districts for all theassessees:
B. Set up in category 'B' districts for all theassessees:
Company 30% First 10consecutiveyears
In the business of a ship which is owned byan Indian Company and is wholly used forthe purpose of the business. It was notused in Indian territorial waters by a personresident in India prior to its acquisition bythe Indian Company. Further, it wasbrought to use at any time from 1 April 1991to 31 March 1995
ii. Company 30% First 10 yearsIndustrial undertaking other than (i) above,manufacturing or producing articles orthings (except specified low priority items)or operating cold storage plant which hascommenced its operations during 1 April
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Hotel located in any place other than a hillyor rural area or place of pilgrimage whichhas started functioning during 1 April 1991to 31 March 1995 or during 1April 1997 to31 March 2001
v. Indiancompany witha minimumpaid upcapital ofRs. 5,00,000
30%
First 10 years
Approved hotel located in hilly or rural areaor place of pilgrimage, which has startedfunctioning during 1 April 1990 to 31 March1994 or during 1 April 1997 to 31 March2001
iv. Indiancompany witha minimumpaid upcapital ofRs. 5,00,000
50%
First 10 years
Enterprise being company or consortium ofcompanies registered in India or anyauthority or board or a corporation or anyother body established or constituted under
any Central or State Act, for carrying onbusiness of (i) developing or (ii) operatingand maintaining or (iii) developing,operating and maintaining of a newinfrastructure facility like road including tollroad, bridge, rail system, highway project,water supply project, water treatmentsystem, irrigation project, sanitation andsewage system or solid wastemanagement system, airport, port, inlandwaterways and inland ports, commencingits operations on or after 1 April 1995.Widening of an existing road byconstructing additional lanes as a part ofhighway project is also eligible as perCircular No. 4/2010 dated 18 May 2010
Deduction shall not be available to a personexecuting above referred activities as a
works contract
iii. Company /any otherbodyestablished
or constitutedunder anyCentral orStateAct
100%
For 10consecutiveyears out of first15 years
(20 years forroad, bridge, railsystem, highwayproject, watersupply project,water treatmentsystem, irrigationproject,sanitation andseweragesystem or solidwastemanagementsystem)
Sr.No.
24INDIA BUDGET 2011 - Highlights
Co-operativeSociety
25% First 12 years1991 to 31 March 1995. However, a smallscale industrial undertaking manufacturingand producing any article or thing andcommencing manufacturing operations oroperating cold storage plant from 1 April1995 to 31 March 2002 is also eligible
Other 25% First 10 years
Nature of Activi ty and LocationType of
OrganizationQuantum ofExemption
Number ofYears
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(However, for both (iv) and (v), hotel
located at a place within the municipal
jurisdiction of four metro cities of Kolkata,Chennai, Delhi and Mumbai are not eligible
if they start functioning during 1 April 1997
to 31 March 2001)
Any company registered in India with its
main object being scientific and industrialresearch and development which is for the
time being approved by the DSIR at any
time after 31 March 2000 but before 1 April2007
vi. Company 100%
For first 10 years(5 years ifapproved before1 April 1999)
Sr.No.
Any undertaking which starts providing
tele-communication services, whetherbasic or cellular, including radio paging,
domestic satellite service or network of
trunking, broadband network and internetservices on or after 1 April 1995 but before
31 March 2005
Deduction shall not be available to a person
executing the above referred services as aworks contract
vii. All 100%30%
First 5 yearsNext 5 years
The above 10years shall beconsecutive AYsout of first 15
years
25INDIA BUDGET 2011 - Highlights
Any assessee being developer of a SEZnotified by the Central Government after1 April 2005
ix. All 100%
10 years out offirst 15 years
Any undertaking which begins to developor develops and operates or maintains andoperates an industrial park or SEZ notified
by the Central Government which hascommenced operations during 1 April 1997
#to 31 March 2011# As per amendments by the SEZ Act 2005,the exemption for SEZs notified after 1 April2005 will now be available under a section80-IABDeduction shall not be available to a personexecuting the above referred services as a
works contract
10 years out offirst 15 AYs
viii. All 100%
Nature of Activi ty and LocationType of
OrganizationQuantum ofExemption
Number ofYears
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Sr.No.
Any undertaking engaged in
developing and building housingprojects approved by a local authoritybefore 31 March 2008In case of projects approved during FY2004-05, it should be completed within4 years from the end of the FY in whichit is approvedIn case of projects approved on or after1 April 2005, it should be completedwithin 5 years from the end of the FY in
which it is approvedIn other cases it should be completedbefore 31 March 2008The deduction is allowed subject tofulfillment of various other conditionslike minimum area of the land,maximum built-up area of residentialand commercial units, etc.In case of multiple approvals from thelocal authority, the date of firstapproval will be considered for thecalculation of time limit of completionDeduction shall not be available to aperson executing the housing projectas a works contractThe deduction is subject to a conditionthat not more than one residential unit
26INDIA BUDGET 2011 - Highlights
Any undertaking, which is engaged inrefining of mineral oil on or after 1 October1998 but not later than 31 March 2012subject to certain conditions
The tax holiday is also available in respectof profits arising from the commercialproduction of natural gas from blocks whichare licensed under the VIII Round ofbidding for award of exploration contractsunder the New Exploration LicensingPolicy announced by the Government ofIndia and IV Round for the Coal BedMethane and begins commercialproduction of natural gas on or after 1 April2009. It is proposed that the deductionwill not be available for blocks l icensedunder a contract awarded after 31 March2011 under the New ExplorationLicensing Policy.
x. All 100%
First 7 years
xi. All 100%
Not applicable
Nature of Activi ty and LocationType of
OrganizationQuantum ofExemption
Number ofYears
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Sr.No.
27INDIA BUDGET 2011 - Highlights
is allotted to any person not being anindividual and in a case where aresidential unit in the housing project is
allotted to a person being an individual,no other residential unit in suchhousing project is allotted to any of thefollowing persons:(i) the spouse or minor children of
such individual,(ii) the HUF in which such individual
is the karta,(iii) any person representing such
individual, the spouse or the minor
children of such individual or theHUF in which such individual isthe karta
An undertaking deriving profit from theintegrated business of handling,storage and transportation of foodgrains subject to such businessbeginning its operations on or after 1April 2001
The benefit is extended toundertakings engaged in the businessof processing, preservation andpackaging of fruits and vegetablesw.e.f. 1 April 2004Further, the benefit is extended to theundertakings engaged in the businessof meat and meat products or poultryor marine or dairy products whichbegin to operate such business on orafter 1 April 2009
xii. Company 100%30%
First 5 yearsNext 5 years
Others 100%25%
First 5 yearsNext 5 years
Any undertaking engaged in the businessof building, owning and operating amultiplex theater located at any place otherthan a place within the municipal
jurisdiction of four metro cities i.e. Kolkatta,Chennai, Delhi and Mumbai andconstructed at any time during the period of1 April 2002 to 31 March 2005
xiii. All 50% First 5 years
Any undertaking engaged in the businessof building, owning and operating aconvention center constructed at any timeduring the period of 1 April 2002 to 31March 2005
xiv. All 50%
First 5 years
Nature of Activi ty and LocationType of
OrganizationQuantum ofExemption
Number ofYears
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Sr.No.
Any undertaking engaged in thebusiness of operating and maintaininga hospital in a rural areaThe undertaking shall be eligible forthe deduction if such hospital isconstructed in accordance with thelocal regulations in force and has atleast 100 beds for patientsThe hospital should be constructedduring the period beginning on 1October 2004 and ending on 31 March2008The deduction is also available to
hospitals located anywhere in Indiaother than specified excluded areasThe said tax benefit is available to ahospital, which is constructed and hasstarted or starts functioning at any timeduring the period beginning 1 April2008 and ending on 31 March 2013
28INDIA BUDGET 2011 - Highlights
xv. All 100%
First 5 years
All 100%
First 10 years
Others 100%25%
First 5 yearsNext 5 years
a) Undertakings and enterprises, whichbegins to manufacture or produce anyarticle or thing and / or undertakesubstantial expansion of existingundertakings
b) Undertakings and enterprises, whichbegins to manufacture or produce anyarticles or things or commences anyoperation specified and / or undertakesubstantial expansion; during theperiod beginning from:
If located in Sikkim, from 23 December2002 to 31 March 2007
If located in Himachal Pradesh andUttaranchal, from 7 January 2003 to 31March 2012
If located in North-Eastern States*,from 24 December 1997 to 31 March2007
List of articles and products entitled /not entitled for such deduction havebeen prescribed
* States of Assam, Tripura, Meghalaya,Mizoram, Nagaland, Manipur andArunachal Pradesh
xvi.
All 100%
First 10 years
Company 100%30%
First 5 yearsNext 5 years
Nature of Activi ty and LocationType of
OrganizationQuantum ofExemption
Number ofYears
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Offshore banking unit in SEZ
From the business referred to insection 6(1) of the Banking RegulationAct, 1949From any unit of the International
Financial Services Centre fromapproved business
xviii. Scheduled
Bank or anybank incor-porated by orunder the lawof a countryoutside India.Or a unit of anInternationalFinancial Ser-vices Centre
100% First 5 years
(beginning withthe year in whichprescribedpermissions areobtained)
50% Next 5 years
Any undertaking engaged in business ofconvention centers or hotels in specifiedarea of the National Capital Territorysubject to fulfillment of certain conditions
a) engaged in the business of hotel locatedin specified area or b) engaged in thebusiness of building / owning and operatinga convention centre located in specifiedarea, which has started its operations from1 April 2007 to 31 March 2010
The aforesaid deduction has beenextended to new 2 star, 3 star or 4 starhotels located in specified districts having'World Heritage Sites'. Such hotels arerequired to be constructed and startedduring the period beginning 1 April 2008and ending on 31 March 2013
xix. All 100% First 5 years
Sr.No.
New undertakings and enterprises, whichbegins to manufacture or produce anyeligible article or thing or provide any
services or undertake substantial expansionor carry on any eligible business in any of theNorth-Eastern states beginning from 1 April2007 to 31 March 2017The eligible businesses for this purpose arehotel (not below 2 star category), adventureand leisure sports including ropeways,providing medical and health services in thenature of nursing home with a minimumcapacity of 25 beds; running an old-agehome; operating vocational training institutefor hotel management, catering and foodcraft, entrepreneurship development,nursing and para-medical, civil aviationrelated training, fashion designing andindustrial training, running informationtechnology related training centre,manufacturing of information technologyhardware and bio-technology
xvii. All 100% First 10 years
29INDIA BUDGET 2011 - Highlights
Nature of Activi ty and LocationType of
OrganizationQuantum ofExemption
Number ofYears
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Significant Condit ions for Eligibility for Deduction under section 80-IA / 80-IB / 80-IAB
/ 80-IC / 80-ID / 80-IE / 80-LA
For the purpose of sections 80-IA, 80-IB and 80-IC, an eligible industrial undertakingis one, which fulfils all of the following conditions:
lIt manufactures or produces any article or thing (other than any non-priorityarticle or thing as specified in the Eleventh Schedule) or operates one or morecold storage plant or plants in any part of India. However, restriction regardingmanufacture of non-priority article specified in eleventh schedule is notapplicable to small-scale industrial undertakings and industrial undertakingslocated in backward states (applicable in case of section 80-IB and 80-IC).
lIt employs (a) 10 or more workers in a manufacturing process carried on withthe aid of power; or (b) 20 or more workers in a manufacturing process carriedon without the aid of power (applicable in case of section 80-IB).
lIt is not formed by splitting up, or reconstruction, of a business already inexistence or by transfer to a new business of machinery previously used forany purpose (except under certain circumstances).
The benefit of section 80-IA shall not be available to an amalgamated or demergedentity after 1 April 2007.
The profits and gains of an eligible business, for the purpose of determining thequantum of deduction, is to be computed as if such eligible business were the onlysource of income of the assessee during the previous year relevant to the AY forwhich the deduction is to be made.
An eligible enterprise engaged in the development, operation and maintenance ofany infrastructure facility should have entered into an agreement with the CentralGovernment / State Government / local authority / other statutory body fordeveloping or operating and maintaining or developing, operating and maintaining anew infrastructure facility.
The exemption is also available to profits and gains derived from ships and approvedhotels subject to fulfillment of certain conditions. In the case of a hotel, a significant
condition is that the business of the hotel should be owned and carried on by acompany registered in India with a paid up capital of Rs. 5,00,000 or more.
For the enterprise where, housing or other activities are an integral part of thehighway project, then the exemption is available to profits and gains derived fromsuch project subject to condition that the profit has been transferred to a special
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reserve account and the same is actually utilised for the highway project excludinghousing and other activities before the expiry of 3 years following the year in whichsuch amount was transferred to the reserve account and the amount remainingunutilised shall be chargeable to tax as income of the year in which transfer to reserveaccount took place.
Where any amount of profits and gains of an industrial undertaking or of a hotel in thecase of an assessee is claimed and allowed under this section for any AY, deductionto the extent of such profits and gains shall not be allowed under any other provisionof the IT Act and shall in no case exceed the profits and gains of the undertaking orhotel as the case may be.
Any undertaking claiming a deduction under this section must furnish a report of audit
in the prescribed form duly signed and verified by an accountant.
No deduction under 80-IA, 80-IB, 80-IAB, 80-IC, 80-ID, 80-IE will be allowed unlessthe assessee files return of income within the due date specified under section139(1).
With retrospective effect from FY 2002-03,
ldeduction in respect of profits and gains shall not be allowed under anyprovisions of section 10A or section 10AA or section 10B or section 10BA ofthe IT Act or under any provisions of Chapter VI A under the heading 'C -Deductions in respect of certain incomes' in any AY, if a deduction in respect ofsame amount is claimed and allowed under the various provisions referredabove in such AY;lthe aggregate of the deductions under the various provisions referred above,
shall not exceed the profits and gains of the undertaking or unit or enterprise or
eligible business, as the case may be;lno deductions under the various provisions referred above, shall be allowed if
the deduction has not been claimed in the return of income.
The transfer price of goods and services between the undertaking or unit orenterprise or eligible business and any other undertaking or unit or enterprise orbusiness of the assessee shall be determined at the market value of such goods orservices as on the date of transfer.
It is proposed that no deduction, claimed and allowed in respect of any of thespecified business referred to in section 35AD(8)(c) for any AY, shall be allowedunder chapter VI A under the heading C - Deduction in respect of certain income forthe same or any other AY.
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and cess). This acts as a major disincentive for the Indian parent companieshaving subsidiaries outside India, as the profits of foreign subsidiaries arealready taxed outside India and the dividends distributed are out of suchafter-tax profits.
The Bill proposes to insert a new section 115BBD to provide tax on suchforeign dividends at a reduced rate of 15% (plus applicable surcharge andcess) on the gross amount of dividends. No expenditure in respect of such
dividends shall be allowed under the IT Act.
For the purpose of section 115BBD, subsidiary foreign company means aforeign company in which the Indian company holds more than half of thenominal value of the equity share capital. Further, dividend shall not includedeemed dividend as per section 2(22)(e) of the IT Act.
This is a very positive step for improving inflow of funds to India. This
provision is in line with similar regulation introduced in the US in recent yearsto improve dividend inflows. However, taxability of such foreign dividendsunder MAT may partially negate the benefit of concessional tax rate. There isno rationale to restrict the concessional tax treatment only to Indiancompanies and the same should have been extended to all types oftaxpayers. Further, it is to be seen as to how the aforesaid provision would bealigned in the DTC in the light of CFC Regulations contained therein. Theseregulations provide for taxability of income attributable to a CFC, irrespective
of whether the dividends are distributed or not by such foreign corporations.
Under the existing provisions of section 10AA of the IT Act, a deduction of
5.1.2 Provisions relating to MAT and DDT in case of SEZ Units andDevelopers
CHAPTER 5 : DIRECT TAXES - SIGNIFICANT CHANGES
5.1 Business Entities
5.1.1 Taxa t ion o f ce r ta in fo r e igndividends at a reduced rate of 15%
Under the existing provisions of the ITAct, dividend received from foreignsubsidiary companies is taxable in thehands of the Indian parent company@ 30% (plus applicable surcharge
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100% is allowed in respect of profits and gains derived by a unit located in aSEZ from the export of articles or things or services for the first 5 consecutiveAYs; of 50% for further 5 AYs and thereafter, of 50% of the ploughed backexport profit for the next 5 AYs. The profits of such units are excluded for the
purpose of levy of MAT based on book profits. It is proposed to bring profits ofsuch units within the purview of MAT based on book profits @ 18.50% (plusapplicable surcharge and cess).
Further, under section 80-IAB of the IT Act, a deduction of 100% is allowed inrespect of profits and gains derived by an undertaking from the business ofdevelopment of an SEZ notified on or after 1 April 2005 from the total incomefor any 10 consecutive AYs out of 15 AYs beginning from the year in which the
SEZ is notified by the Central Government.
Under the existing provisions of section 115JB(6), an exemption is allowedfrom payment of MAT on book profit in respect of the income accrued orarising on or after 1 April 2005 from any business carried on, or servicesrendered, by an entrepreneur or a developer, in a unit or SEZ, as the casemay be.
Further, under the existing provisions of section 115O(6), an exemption isallowed from payment of DDT in respect of the total income of an undertakingor enterprise engaged in developing or developing and operating ordeveloping, operating and maintaining a SEZ for any AY on any amountdeclared, distributed or paid by such developer or enterprise, by way ofdividends (whether interim or otherwise) on or after 1 April 2005 out of itscurrent income. Such distributed income is also exempt from tax undersection 10(34) of the IT Act.
Currently, there is no sunset date provided for exemption from MAT in thecase of a developer of an SEZ or a unit located in an SEZ. Similarly, there is nosunset date for exemption from DDT in the case of a developer of an SEZ.
It is proposed to sunset the availability of exemption from MAT, in the case ofSEZ developers and units in SEZs in the IT Act as well as the SEZ Act.
It is further proposed to discontinue the availability of exemption of DDT in thecase of SEZ Developers under the IT Act as well as the SEZ Act for dividendsdeclared, distributed or paid on or after 1 June 2011.
It is also proposed to make consequential amendments by omitting theexplanation to section 10(34) of the IT Act.
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5.1.3 AMT for LLP
The LLP Act, 2008 has come into effect in 2009. The LLP has features of abody corporate as well as a traditional partnership. The IT Act provides for the
same taxation regime for a LLP as is applicable to a partnership firm. It alsoprovides tax neutrality (subject to fulfillment of certain conditions) toconversion of a private limited company or an unlisted public company into aLLP.
A LLP being treated as a firm for taxation has the following tax advantagesover a company under the IT Act:
i) it is not subject to MAT:ii) it is not subject to DDT; andiii) it is not subject to surcharge.
It is proposed that where the regular income-tax payable for a previous yearby a LLP is less than the AMT payable for such previous year, the adjustedtotal income shall be deemed to be the total income of such LLP and it shall beliable to pay income-tax on such total income @ 19.055%.
For the purpose of the above,
(i) adjusted total income shall be the total income before giving effect tothis newly inserted Chapter XII-BA as increased by the deductionsclaimed under any section included in Chapter VI-A under the headingC - Deductions in respect of certain incomes and deduction claimedunder section 10AA;
(ii) alternate minimum tax shall be the amount of tax computed onadjusted total income @ 18.50%; and(iii) regular income-tax shall be the income-tax payable for a previous
year by a LLP on its total income in accordance with the provisions ofthe IT Act other than the provisions of this newly inserted Chapter XII-BA.
It is further provided that the credit for tax (tax credit) paid by a LLP under this
newly inserted Chapter XII-BA shall be allowed to the extent of the excess ofAMT paid over and above the regular income-tax. This tax credit shall beallowed to be carried forward up to 10 AYs immediately succeeding the AY forwhich such credit becomes allowable. It shall be allowed to be set off for anAY in which the regular income-tax exceeds the AMT, to the extent of theexcess of the regular income-tax over the AMT.
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Every LLP to which this section applies shall obtain a report, in such form asmay be prescribed, from an accountant certifying that the adjusted totalincome and the AMT have been computed in accordance with the provisionsof this Chapter and furnish such report on or before the due date for filing of
return under section 139 (1).
Under the existing provisions of section 115JB(1) of the IT Act, a company isrequired to pay MAT @ 18% on its book profit, if the income-tax payable onthe total income, as computed under the IT Act in respect of any previous yearrelevant to AY commencing on or after 1 April 2011, is less than the MAT.
It is proposed to amend section 115JB(1) to increase MAT rate to 18.50%(plus applicable surcharge and cess) from the existing 18% (plus applicablesurcharge and cess). However, due to reduction in surcharge, the effectiverate of 19.93% for companies having income exceeding Rs. 1,00,00,000stands marginally increased to 20.008%.
Under the existing provisions of section 35(2AA) of the IT Act, weighteddeduction to the extent of 175% is allowed for any sum paid to a NationalLaboratory or a university or an IIT or a specified person for the purpose of anapproved scientific research programme.
In order to encourage more contributions to such approved scientific
research programmes, it is proposed to increase this weighted deductionfrom 175% to 200%.
Under the existing provisions of section 35AD of the IT Act, investment-linkedtax incentive is provided by way of allowing 100% deduction in respect of anyexpenditure of capital nature (other than on land, goodwill and financial
instrument) incurred wholly and exclusively, for the purposes of certainspecified business.
It is proposed to include two new businesses as specified business, i.e.
(a) developing and building a housing project under a scheme for
5.1.4 MAT increased from 18% to 18.50%
5.1.5 Weighted deduction for contribution made for approved scientific
research programme
5.1.6 Investment linked deduction in respect of specified businesses
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affordable housing framed by the Central Government or a StateGovernment, as the case may be, and notified by the Board in thisbehalf in accordance with the guidelines as may be prescribed; and
(b) production of fertilisers in India.
Under section 73A, any loss of a specified business (under section 35AD) isallowed to be set-off against profit and gains of any other specified business.In order to remove any ambiguity in this regard in respect of the business ofhotels and hospitals, it is proposed to remove the word new from thedefinition of specified business in the case of hotels and hospitals undersection 35AD(8)(c). With this, the loss of an assessee on account of aspecified business claiming deduction under section 35AD would be
allowed to be set off against the profit of another specified business undersection 73A, whether or not the latter is eligible for deduction under section35AD. Therefore, an assessee who currently operates a hospital or a hotelwould be able to set-off the profits of such business against the losses, if any,of a new hospital or new hotel which begins to operate after 1 April 2010 andwhich is eligible for deduction of expenditure under section 35AD.
This amendment will take effect retrospectively from 1 April 2011 and will,accordingly, apply in relation to AY 2011-12 and subsequent years.
Under the existing provisions of section 80-IA(4)(iv) of the IT Act, a deductionof profits and gains is allowed to an undertaking which:
(a) is set up for the generation and distribution of power, if it begins togenerate power at any time during the period beginning on 1 April 1993and ending on 31 March 2011;
(b) starts transmission or distribution by laying a network of newtransmission or distribution lines at any time during the periodbeginning on 1 April 1999 and ending on 31 March 2011;
(c) undertakes substantial renovation and modernisation of existing
network of transmission or distribution lines at any time during theperiod beginning on 1 April 2004 and ending on 31 March 2011.
It is proposed to amend section 80-IA(4)(iv) to extend the terminal date for afurther period of 1 year, i.e. up to 31 March 2012.
5.1.7 Extension of sunset clause for tax holiday for power sector
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5.1.8 Sunset of tax holiday for certain undertakings engaged in commercialproduction of mineral oil
5.1.9 Toolbox of counter measures in respect of transactions with personslocated in a noti fied jurisdictional area
Under the existing provisions of section 80-IB(9) of the IT Act, a 7 year profit-
linked deduction of 100% is available to an undertaking, if it fulfils certainprescribed conditions.
For the purposes of claiming this deduction, all blocks licensed under a singlecontract are treated as a single undertaking.
Thus, an undertaking, which is located in any part of India and is engaged incommercial production of mineral oil, is eligible for the above-mentioned
deduction, if it has begun or begins commercial production of mineral oil atany time after 1 April 1997. No sunset date has been provided for suchbusiness.
It is proposed that the aforesaid deduction available for commercialproduction of mineral oil will not be available for blocks licensed under acontract awarded after 31 March 2011 under the NELP announced by theGovernment of India.
In order to discourage transactions by a resident assessee with personslocated in any country or jurisdiction which does not effectively exchangeinformation with India, anti-avoidance measures have been proposed in theIT Act.
It is proposed to insert a new section 94A in the IT Act to specifically deal withthe transactions undertaken with persons located in such country or area.
The proposed section provides:
an enabling power to the Central Government to notify any country or territoryoutside India, having regard to lack of effective exchange of information by it
with India, as a notified jurisdictional area;
that if an assessee enters into a transaction, where one of the parties to thetransaction is a person located in a notified jurisdictional area, then all theparties to the transaction shall be deemed to be AEs and the transaction shall
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be deemed to be an international transaction within the meaning of section92B of the IT Act and accordingly, TP regulations shall apply to suchtransactions;
that no deduction in respect of any payment made to any financial institutionshall be allowed unless the assessee furnishes an authorization, in theprescribed form, authorizing the Board or any other income-tax authorityacting on its behalf, to seek relevant information from the said financialinstitution;
that no deduction in respect of any other expenditure or allowance (includingdepreciation) arising from the transaction with a person located in a notified
jurisdictional area, shall be allowed under any provision of the IT Act unlessthe assessee maintains such other documents and furnishes the informationas may be prescribed;
that if any sum is received from a person located in the notified jurisdictionalarea, then the onus is on the assessee to satisfactorily explain the source ofsuch money in the hands of such person or in the hands of the beneficialowner and in case of his failure to do so, the amount shall be deemed to be the
income of the assessee;
that any payment made to a person located in the notified jurisdictional areashall be liable to TDS at the higher of the rates specified in the relevantprovision of the IT Act or rate or rates in force or @ 30%.
This amendment is proposed to take effect from 1 June 2011.
Under the existing provisions of section 131(1) of the IT Act, certain income-tax authorities have been conferred the same powers as are available to aCivil Court while trying a suit in respect of discovery and inspection, enforcingthe attendance of any person, including any officer of a banking company andexamining him on oath, compelling production of books of account and other
documents and issuing commissions.
It is proposed to facilitate prompt collection of information on requestsreceived from tax authorities outside India in relation to an agreement forexchange of information under section 90 or section 90A of the IT Act.
5.1.10 Collection of information on requests received from tax authoritiesoutside India
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The authority notified by the Board shall be able to exercise the powers undersection 131(1) of the IT Act notwithstanding that no proceedings with respectto such person or class of persons are pending before it or any other income-tax authority. It is further proposed to amend section 131(3) so as to empower
the aforesaid authority, as notified by the Board, to impound and retain anybooks of account and other documents produced before it in any proceedingunder the IT Act.
Similar amendments have also been proposed in section 133 of the IT Act.These amendments will take effect from 1 June 2011.
Section 153 of the IT Act provides for the time limits for completion ofassessments and reassessments. Explanation 1 to section 153 of the IT Actprovides to exclude certain periods specified therein, while computing theperiod of limitation for completion of assessments and reassessments.
It is proposed to insert a new clause (viii) in explanation 1 to section 153 of the
IT Act to exclude the time taken in obtaining information from the taxauthorities in jurisdictions situated outside India, under an agreementreferred to in section 90 or section 90A, from the statutory time limitprescribed for completion of assessment or reassessment.
It provides that the period commencing from the date on which a reference forexchange of information is made by an authority competent under anagreement referred to in section 90 or section 90A and ending with the date
on which the information so requested is received by the Commissioner, or aperiod of 6 months, whichever is less, shall be excluded.
Similar amendments are proposed in section 153B of the IT Act.
These amendments are proposed to take effect from 1 June 2011.
The existing provisions contained in the proviso to section 245C(1) of IT Actallow an application to be made before the Settlement Commission if,
(a) the proceedings have been initiated against the applicant under
5.1.11 Extension of time limit for assessments in case of exchange of
information
5.1.12 Modification in the conditions for filing an application before the
Settlement Commission
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section 153A or under section 153C as a result of search or arequisition of books of account, as the case may be, and the additionalamount of income-tax payable on the income disclosed in theapplication exceeds Rs. 50,00,000.
(b) in other cases, if the additional amount of income-tax payable on theincome disclosed in the application exceeds Rs. 10,00,000.
It is proposed to insert a new clause (ia) to proviso to section 245C(1) of the ITAct to expand the criteria for filing an application for settlement by a tax payerin whose case proceedings have been initiated as a result of search orrequisition of books of account. This stipulates that an application can also bemade, where the applicant
(A) is related to the person [referred to in (a) above] in whose caseproceedings have been initiated as a result of search and who has filedan application; and
(B) is a person in whose case proceedings have also been initiated as aresult of search,
the additional amount of income-tax payable on the income disclosed in his
application exceeds Rs. 10,00,000.
Further, it is also proposed to insert an explanation in the section to define therelationship between the person who makes an application under clause (ia)of the proviso to section 245C(1) of the IT Act and the person mentioned inclause (i) of the proviso.
This amendment is proposed to take effect from 1 June 2011.
The existing provisions of section 245D(4) of the IT Act provide that theSettlement Commission may pass an order, as it thinks fit, on the matterscovered by the applications received by it, after giving an opportunity of beingheard to the applicant and to the Commissioner. It is proposed to insert a newsection 245D(6B) of the IT Act so as to specifically provide that the Settlement
Commission may, at any time within a period of 6 months from the date of itsorder,