TIMES GUIDE TO PERSONAL TAX

Sl. / Proposal / Impact
1. / The basic threshold limits for income-tax are proposed to be changed marginally.There is no change in the number of slabs or the tax rates for every slab (which remain at 10%,20% and 30%) or education cess which remains at 3%. /
  • Now those having taxable income of Rs 1,80,000 (earlier Rs 1,60,000) or less are out of the income-tax ambit.
  • While for senior citizens below 80 years, the basic threshold exemption limit would be at Rs 2,50,000 (earlier Rs 2,40,000),a new category of very senior citizens 80 years or above has been introduced,for whom the basic threshold exemption limit is Rs 5,00,000.
  • These amendments result in a very small tax saving of Rs 2,060 in general and Rs 1,030 for senior citizens below 80 years.Tax savings for very senior citizens would be Rs 26,780.

2. / Age limit for qualifying as senior citizens brought down from 65 years to 60 years. / The benefit of enhanced basic exemption limit of Rs 2,50,000 would be available a few years earlier.This will also apply for benefits such as concession in railway tickets,etc.
3. / Deduction of up to Rs 20,000 for investment in long-term infrastructure bonds (to be notified) is proposed to be continued for one more year. / Additional avenue to save tax of up to Rs 6,180 by investing in such bonds stays available.This will also enable channelization of funds in infrastructure sector.
4. / Central government/employer contribution to notified pension scheme available as deduction over and above the limit of Rs 1,00,000. /
  • Employer contribution up to 10% of salary would also be allowed as a deduction (without any cap on quantum) from taxable income.
  • In addition to providing additional tax break to such employees,this will also give impetus to the notified pension schemes (presently New Pension Scheme) and make them more attractive to those in the government/ unorganized sector.

5. / Interest paid by notified infrastructure debt funds to non-residents would be taxable @ 5%. / Non-residents and foreign companies would be subject to a lower withholding tax at the rate of 5% on interest income from such notified infrastructure debt funds. Otherwise the withholding tax rate in India would have been 20% or lower depending on the applicable tax treaties. However,most tax treaties prescribe a rate of 10-15 % as tax.
6. / Central Government to notify class of salaried persons who are not required to file tax returns, whose entire tax liability is discharged by employer through deduction of tax at source. /
  • This not only helps these employees to avoid filing tax return every year, but also will go to reduce the workload of the I-T department.
  • As the effective date is June 2011,it also remains to be seen whether this provision will apply for the financial year ended March 2011.

7. / New return filing form Sugam to be notified for small taxpayers under presumptive taxation. / Once notified,this will ease the hassles of filling detailed returns for small businessmen such as civil contractors, goods transporters and retailers.
8. / Two more Central Processing Centres ( CPCs ) will become operational by May 2011 in Manesar and Pune.Another CPC in Kolkata will commence operations in 2011-12. / Will speed up processing of returns and issue of refunds, as online return filing picks up.

TIMES GUIDE TO CORPORATE TAX

Sl. / Proposal / Impact
1. / Surcharge on the Income-tax for domestic companies with total income above Rs 1 crore reduced to 5% from existing 7.5%. / This will marginally reduce tax burden.The effective tax rate shall be reduced from 33.22% to 32.445%.This will also marginally reduce effective rate of dividend distribution tax on domestic companies to 16.22% from 16.61%.
2. / Surcharge on income-tax for foreign companies with total income above Rs 1 cr reduced to 2% from 2.5%,on whom surcharge is levied. / This will marginally reduce tax burden. The effective tax rate will be cut from 42.23% to 42.02%
3. / Income of infrastructure debt fund to be exempt. Interest received by non-residents from such funds taxable at 5% (plus surcharge,etc) and taxes to be withheld at 5% effective June 1,2011. / Will augment the raising of long-term,low-cost funds from abroad for the infrastructure sector,giving a much-required boost to the sector.
4. / Minimum Alternate Tax (MAT) rate increased to 18.50% of book profits from existing 18%. / The effective MAT rate for companies including surcharge shall stand increased marginally from 19.93% to 20.01%.
5. / MAT levied on Special Economic Zone (SEZ) developers and units operating in SEZ. / This shall impose a tax burden on SEZ developers and units operating in SEZ effectively at 20.01% of book profits.
6. / Investment-linked deduction provided to taxpayers engaged in business of developing and building affordable housing or engaged in production of fertilizer in India. / Will provide fiscal impetus to affordable housing and fertilizer industries.
7. / Blocks licensed under contract awarded after March 31,2011 under New Exploration Licensing Policy (NELP) not eligible for deduction available for commercial production of mineral oil. / The income earned on commercial production of mineral oil from the new contracts awarded post March 31,2011,will not be eligible for tax holiday.
8. / Taxation of dividends received from foreign subsidiaries taxable at reduced effective rate of 16.22%.Also,no expenditure incurred in earning such dividend shall be allowed as deduction. /
  • This would incentivize Indian companies to repatriate excess cash lying in overseas subsidiaries to India.
  • However, the dividend income would be taxable on gross basis without any deduction of corresponding expenditure.
  • This provision is only applicable to dividend received from subsidiaries and dividend income other than from subsidiaries would be taxable at higher effective rate of 32.445%.

9. / Tax on income distributed to unit holders other than individuals or HUF increased from 25% to 30%. / Will reduce returns on investment in mutual funds by companies.
10. / Deduction allowed for contribution towards New Pension Scheme (NPS),as employer,subject to specified limits. / Under the new proposal,employers would be encouraged to contribute to the NPS.
11. / Liaison office of NRIs to file annual information within 60 days of end of financial year. / This would increase compliance burden on the Liaison offices of NRIs and enable tax authorities to track them.

TIMES GUIDE TO INDIRECT TAX

Sl. / Proposal / Impact
1. / Exemptions on 130 specified items withdrawn. Now liable to 1% excise duty without Cenvat credit benefit. / Goods such as tooth powder, spectacles, lenses, bicycles, sewing machines, pens, pencils etc will now be costlier by 0.5% to 0.7%.
2. / Concessional rate of excise duty of 4% increased to 5% on many specified products. / Goods such as sugar confectionery, pastry, cakes, paper, drugs, medical equipment etc will now be costlier by 0.5% to 0.7%.
3. / Basic customs duty on endovascular stents reduced from 5% to 0%. / Treatment for heart attacks will be cheaper as a stent costing Rs 1.25 lakh can now be procured for Rs 1.19 lakh.
4. / Air-conditioned restaurants having licence to serve liquor liable to service tax. / A visit for two to an such a fine-dine restaurant cum bar that cost Rs 700 will now pinch harder by around Rs 22.
5. / Service tax proposed on short-term accommodation in hotels,clubs,guest houses,etc / Holidaying in India now costlier as you will have to shell out around Rs 200 extra on a deluxe room costing Rs 4,000 per night.
6. / Investment management services provided by life insurance companies are now liable to service tax / A life insurance premium of Rs 25,000 could now be costlier around by Rs 125.
7. / Club and association services provided to non-members now liable to service tax. / Visit to a nearby club will be costlier by around 10% even if you are not a member.
8. / Advice and consultancy provided by legal firms to individuals now liable to service tax / Legal advice,say for property and marriage matters now costlier by around 10%.
9. / Services provided by clinical establishments with central AC and more than 25 beds, diagnostic services, health-related services provided by doctors (individual practitioners) providing healthcare from a clinical establishment covered under service tax net. / Going to hospitals for treatments now costlier. A regular health check up for Rs 5,000 will now cost Rs 5,250.
10. / Service tax on Transport of passenger by air services increased from Rs 100 to Rs 150 for domestic economy travel and from Rs 500 to Rs 750 for international economy travel. / Economy class travel for visiting home-town costing Rs 5,000 will now cost Rs 50 more.
11. / Special additional customs duty on patent and proprietary medicines imported for retail sale exempted. However, additional customs duty increased from 4% to 5%. / Imported medicines may be cheaper by 3.4%-3.7%.
12. / Excise duty on sanitary napkins, baby, clinical, adult diapers reduced from 10% to 1% with no cenvat credit. / Huggies diapers costing Rs 105 could now be cheaper by Rs 3 and a packet of Whisper sanitary napkins costing Rs 55 could be cheaper by Rs 1.5.
13. / Concessional excise duty of 10% is being extended to factory built ambulances. / Ambulance having ex-factory price of Rs 5 lakh will now be cheaper by Rs 45,000-Rs 50,000.
14. / Excise duty of 1% is introduced on branded jewellery and branded articles of precious metals. / An anniversary gift of a Ddamas gold pendant to your spouse costing Rs 20,000 may now be dearer by Rs 200.
15. / Concessional CVD at 5% and full exemption from special additional customs duty on LEDs used for lights, fixtures. / LED lights could now be cheaper by around 3%-5 %.
16. / Cements now liable to advalorem excise duty rate of 10% as against specified fixed excise duty rate per tone. / A 50kg bag of cement costing around Rs 250 will now be available at Rs 257.