Breaking the Budget down

DIRECT TAXES

TAX RATES

• Personal income tax exemption limit to be enhanced by Rs 15,000 and Rs 10,000 for senior citizens and other individuals, respectively. Surcharge to be removed for all non-corporate assesses.
• No change in corporate tax rates. 
• MAT rate to be increased to 15% of book profits from 10%.
• Threshold limit for payment of wealth tax to be increased to Rs 30 lakh

[Clauses 2, 45, 82 and First Schedule]

Extension of sunset clause for STPI/EoUs
Benefit of tax holiday to export oriented units (EoUs) under Section 10A and Section 10B extended by one year. It would now be available up to assessment year 2011-12.

[Clauses 5, 7]

Tax holiday for SEZ units
The method of computation of eligible profits as a proportion of export turnover to the total turnover of the taxpayer, instead of the total turnover of the SEZ (special economic zone) undertaking, was discriminatory and is now sought to be corrected prospectively.

[Clause 6]

Discontinuation of Fringe Benefit Tax (FBT)
FBT to be abolished. Consequently, taxation in respect of following specified benefits would be levied in the hands of employee as perquisites:

a) Allotment or transfer of specified security or sweat equity shares by an employer to its employees. Perquisite value shall be the difference between Fair Market Value (FMV) of the security/shares on the date on which the option is exercised and the amount actually paid by/recovered from the employee.

b) Contribution in excess of Rs 100,000 by an employer to an approved superannuation fund for employees.

c) Other fringe benefits as prescribed.

[Clauses 9, 23, 48]

Commodities Transaction Tax
Commodity transaction tax abolished (Effective from assessment year 2009-2010 onwards).

[Clause 115]

Deduction of interest on loan taken for higher education
Definition of higher education for deduction in respect of interest paid on loan for purposes of higher education to be widened to include any course of study pursued after passing senior secondary examination or its equivalent from recognised institutions.

[Clause 32]

Enhancement of deduction for medical treatment of dependent
Deduction to be enhanced in respect of maintenance of dependent with severe disability from Rs 75,000 to Rs 100,000.

[Clause 31]

Extension for setting-up undertakings in power sector
Tax holiday available to an undertaking set up for purpose of reconstruction or revival of a power generating plant to be extended to undertakings set-up by March 31, 2011 (Effective assessment year 2009-10 onwards).

[Clause 36]

Extension of weighted deduction for in-house scientific research and development
The scope of claiming a weighted deduction of 150 per cent of the expenditure incurred on in-house scientific research and development expanded to include companies engaged in manufacture or production of any article or thing, except those specified in Schedule Eleven of the Income Tax Act.

[Clause 12]

Deduction for undertakings engaged in commercial production of mineral oil and natural gas
Refineries in private sector which commence refining of mineral oil before April 1 2012 are also eligible for tax holiday.

Tax holiday has also been extended to undertakings engaged in commercial production of natural gas, provided the blocks are licensed under NELP-VIII and the production commences on or after April 1, 2009.

[Clause 37]

Special provisions for presumptive taxation of small businesses

• Scheme of presumptive taxation made applicable to all businesses (except for plying, hiring or leasing goods carriages or those claiming specified tax benefits) having total turnover/gross receipts of less than Rs 40 lakh.
• 8 percent of total turnover/gross receipts will be deemed to be the taxable income of the taxpayer and complete tax liability can be deposited by way of self assessment tax. Such tax payers also exempted from maintaining audited accounts.
• Presumptive tax regime available to individuals, HUF, partnership firm (not an LLP firm) who/which is a resident .
• The presumptive income of truck owners covered under section 44AE sought to be enhanced.

[Clauses 18, 19, 20, 21, 22]

Increase in limit for disallowance of payments made to transporters
Considering special circumstances of transport operators for incurring expenditure on long-haul journeys, limit for payments, otherwise than by an account payee cheque or account payee bank draft to be raised from Rs 20,000 to Rs 35,000 per transaction per day (Effective October 1, 2009 onwards). [Clause 16]

Transfer Pricing Amendments

• Arm's length price is defined to mean the arithmetical mean of prices determined under the most appropriate method. It is sought to be clarified that, where the said arithmetical mean is not within 5% of the transfer price declared by the taxpayer, an adjustment to the extent of difference between the arithmetical mean and transfer price adopted by the taxpayer would be made (Effective in respect of TP assessments completed after October 1, 2009).
• Safe harbour rules proposed to provide for circumstances in which the authorities will accept the transfer price declared by the taxpayer (Effective assessment year 2009-10 onwards).
• Creation of Alternate Dispute Resolution panel to deal with disputes pertaining to transfer pricing and taxation of foreign companies proposed from October 1, 2009.

[Clauses 40, 41, 49, 55, 71, 72]

Investment-linked tax incentive scheme
A deduction of 100% of capital expenditure (excluding land, goodwill, and financial instrument) proposed to incentivise setting up and operating following specified businesses:

(a) cold chain facilities for specified products (should be set-up on or after April 1, 2009);

(b) warehousing facilities for storage of agricultural produce (should be set-up on or after April 1, 2009);

(c) cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network (should be set-up on or after April 1, 2007).

Losses on account of aforesaid deduction can be set-off from profits of such business only and can be carried forward indefinitely.

[Clauses 10, 13, 17, 24, 28]

Transactions without consideration or inadequate consideration considered as income
Currently, gifts in kind are not subject to tax. It is proposed that, subject to certain exceptions, value of property received in excess of Rs 50,000 without consideration/inadequate consideration shall be taxable as 'Income from Other Sources' (this will be effective from October 1, 2009 onwards).

[Clauses 26]

Minimum Alternate Tax ('MAT')

• Provision for diminution in value of any asset to be added back for computing book profits for purposes of MAT (Effective assessment year 1998-1999).
• Period of availing MAT credit increased from seven to ten years.

[Clause 43, 44 and 45]

Simplifying Tax Administration Procedures

• Revenue authorities to allot and quote Document Identification Number for every notice, letter, order, correspondence.
• Centralised Processing Centre to be set-up at Bangalore to ensure faster processing of tax returns.
• Service of notice, summon, requisition, order or any other communication may be made in prescribed manner including electronic mode.

[Clause 76,77]

Enhancement of limit for payment of advance tax
Threshold limit for payment of advance tax increased from Rs 5,000 to Rs 10,000.

[Clause 70]

Taxation of Limited Liability Partnership (LLP)
Taxability of LLPs and their partners put on par with general partnership firm, ie taxation in hands of the entity and exempt in hands of partners.

[Clauses 3, 53 and 58]

Rationalisation of provisions relating to tax deduction at source ('TDS')

• TDS on rental payments for use of plant machinery or equipment and use of land building, furniture or fittings reduced to 2% and 10%, respectively.
• TDS on contractual payments proposed at 1%, where payee is an individual/and 2% in other cases. Lower rate of 1% in case of payments to sub-contractor/advertising contracts removed.
• No TDS on payments to transporters who furnish PAN details to deductors.
• Surcharge and cess not to be levied on tax deducted from payments, other than salaries, made to residents (Effective October 1, 2009 onwards).
• Time limits of two and four years prescribed for passing verification orders in the case of TDS matters. 
• Failure to quote PAN shall result in tax deduction at higher of rate specified under relevant provisions or 20%, with effect from April 1, 2010.

[Clauses 16, 60, 61, 65, 68]

INDIRECT TAXES

CUSTOMS DUTY

INFORMATION TECHNOLOGY/ELECTRONIC HARDWARE INDUSTRY

• Exemption from countervailing duty (CVD) provided on packaged or canned software, on the amount charged for transfer of right to use such software for commercial exploitation. This exemption is only available if the importer is registered under service tax law. 
• Full exemption from 4% special additional duty on parts/accessories imported for manufacture of mobile handsets re-introduced for one year.

MEDIA, ENTERTAINMENT AND SPORTS INDUSTRY

• Basic custom duty (BCD) reduced from 10% to 5% on LCD panels for manufacture of LCD televisions. 
• BCD exemption on set-top boxes (STBs) withdrawn; these goods will attract BCD at the rate of 5%.
• BCD on specified water sports equipment exempted.
• Five additional items exempted from BCD when imported by a manufacturer-exporter of sports goods.

PHARMACEUTICALS AND DRUGS INDUSTRY

• BCD on nine specified life saving drugs/bulk drugs and one vaccine reduced from 10% to 5%. CVD on these goods also exempted.
• BCD on specified artificial heart device reduced from 7.5% to 5%.
• BCD on patent ductus arteriosus/atrial septal defect occlusion devices reduced from 7.5% to 5%. CVD on these goods also exempted.

OIL AND GAS INDUSTRY

• BCD on permanent magnets used for manufacture of PM synchronous generator above 500 Kw for use in wind-operated electricity generators reduced from 7.5% to 5%.
• BCD on bio-diesel reduced from 7.5% to 2.5%.

TEA, COFFEE AND RUBBER PLANTATION INDUSTRY

• BCD of 5% on specified machinery used for tea, coffee and rubber plantations' re-introduced for one more year.
• BCD on 'mechanical harvester' for coffee plantation reduced from 7.5% to 5%.

GEMS AND JEWELLERY INDUSTRY

• BCD on gold and silver increased as follows*:

Item Present Duty Proposed Duty

Gold bars (other than Rs. 100 Rs. 200 tola bars) and gold coins per 10 gms per 10 gms Gold in any form Rs. 250 Rs. 500 including liquid gold per 10 gms per 10 gms and tola bars Silver in any form Rs. 500 per Kg Rs. 1,000 per Kg *Increase in duty rates also applicable to gold and silver ornaments (except those studded with stones or pearls) imported as personal baggage by prescribed passengers.

TEXTILE/ FOOTWEAR INDUSTRY

• BCD on cotton waste and wool waste reduced from 15% to 10%.
• Description changed for exempted specified machinery/equipment for use in leather goods or footwear manufacture.
• The list of exempted goods imported by manufacturers-exporters of leather garments/textile garments/leather goods/footwear etc, extended.

MISCELLANEOUS

• BCD on rock phosphate reduced from 5% to 2%.
• CVD exemption provided to aerial passenger ropeway projects withdrawn; imports by such projects will now be subject to applicable CVD.
• BCD exemption on concrete batching plants of capacity 50 cum/hr or more withdrawn; such plants to attract BCD of 7.5%. 
• BCD on un-worked coral reduced from 5% to Nil.

KEY AMENDMENTS TO THE ACT, RULES Etc

• Import duty to be refunded for imported goods that are defective/not conforming to the specifications agreed upon between the parties.
• Benefit of rebate can be claimed for goods locally procured under the Duty Free Import Authorisation Scheme.

CENTRAL EXCISE

RATE OF EXCISE DUTY
Duty rate on items currently attracting 4% excise duty increased to 8% with the following major exceptions:

• Specified food items.
• Drugs and pharmaceutical products.
• Medical equipment.
• Paper, paperboard and articles thereof.
• Paraxylene.
• Power driven pumps for handling water.
• Footwear of maximum retail price (MRP) between Rs. 250 and Rs. 750 per pair.
• Pressure cookers.
• Vacuum and gas filled bulbs of MRP not exceeding Rs. 20 per bulb.
• Compact Fluorescent Lamps.
• Cars for physically handicapped persons.

Duty rate on the specified items of following types increased from 4% to 8%:

• Ink used in writing instruments.
• Heat resistance latex rubber thread, tension tape.
• Raw, tanned and dressed fur skins.
• Articles of wood, plywood, doors, etc.
• Articles of papers, paper board, folders, and other articles of stationary, etc.
• Goods containing more than 25% fly ash or phosphogypsum.
• Articles of mica.
• Concrete block and slabs.
• Ceramic tiles manufactured in a factory not using electricity for firing the kiln.
• LPG gas stoves.
• Electronic milk fat tester/solid non-fat tester.
• Contact lenses.
• Parts of drawing and mathematical instruments.
• Playing cards.
• Paint brushes, shaving brush, tooth brush, etc.
• Slide fasteners and its parts.

INFORMATION TECHNOLOGY/ELECTRONIC INDUSTRY

• Duty exemption on 'recorded smart cards' and 'recorded proximity cards and tags' made optional.
• Duty exempted on packaged or canned software on the amount charged for transfer of right to use such software for commercial exploitation. This exemption is only available if the importer is registered under service tax law.
• Duty increased from 4% to 8% on MP3/MP4 or MPEG 4 players with or without radio/video reception facility.

AUTOMOBILE INDUSTRY
Duty rate reduced on:

• Specific component of duty on large cars/utility vehicles of engine capacity exceeding 1,999cc from 20% + Rs. 20,000/- per unit to 20% + Rs. 15,000 per unit.
• Petrol-driven trucks/lorries from 20% to 8%.
• Chassis of petrol-driven trucks/lorries from '20%' + Rs. 10,000 per chasis to '8%' + Rs. 10,000 per chasis.

TEXTILE/FOOTWEAR INDUSTRY

• The scheme of optional excise duty of 4% for textile goods made of pure cotton restored.
• Optional excise duty exemption on tops of manmade fibre manufactured from duty paid tow.
• Duty exempted on EVA compound manufactured on job work for further use in manufacture of footwear.
• Duty increased from 4% to 8% on:
  Specified manmade fibre and yarn;
  pure terephthalic acid (PTA) and di-methylterephthalate (DMT);
  polyester chips; and acrylonitrile. 
• Duty increased from nil to 4% on goods of cotton manufactured wholly out of indigenous raw material and cleared by export oriented unit (EOU) in domestic tariff area (DTA).

OIL & GAS INDUSTRY

• Duty on special boiling point spirits reduced to 14%.
• Duty on naptha reduced to 14%.
• High Speed Diesel blended with up to 20% bio-diesel fully exempted from duty.
• Branded petrol would now attract duty of Rs. 14.50 per litre instead of '6% + Rs.13 per litre'.
• Branded diesel would now attract total duty of Rs. 4.75 per litre instead of '6% + Rs.3.25 per litre'. 
• Exemption from duty provided on Naphtha or Natural Gasoline Liquid used in manufacture of fertilizer and ammonia.

MISCELLANEOUS

• Duty increased from 4% to 8% on all goods (other than cotton), which is manufactured wholly out of indigenous raw material and cleared by EOU in DTA.
• Duty on branded jewellery reduced from 2% to Nil.
• Appropriate classification provided for coffee or tea pre-mixes which are fully exempt from excise duty.
• Full exemption from duty provided on goods stones, plaster, cement, asbestos, mica, etc manufactured at the site of construction for use in the construction work.
• Benefit of SSI exemption extended to printed laminated rolls bearing brand name of another person.
• Consequent to increase in duty rates from 4% to 8%, abatement rates revised on items subject to MRP-based levy.

OTHER AMENDMENTS TO THE ACT/ RULES, ETC

• Cenvat Credit Rules amended to clarify that 'inputs' shall not include cement, angles, channels, TMT bars and other items for construction of shed, building or structure for support of capital goods.
• Manufacturer of both dutiable and exempted goods, but not maintaining separate accounts of inputs will now be liable to pay an amount equal to 5% (instead of 10%) on the total price of the exempted goods.

SERVICE TAX