INTRODUCTIONTax is a compulsory extraction of money from people by an authority, for a common purpose. There are taxes imposed by the Central Government, State Government, and Local Authorities etc. Any Government can function properly only if it is supported with adequate revenue. The developmental requirements of the society, social welfare measures of the government, modernization of the government services, etc. require huge amount of money. Therefore it is the duty of the people to pay tax and it is the right of the government to levy tax.
Taxes are levied for the receipts, which are generated from various sources. These sources are mainly classified in to five main heads, such as income from salaries, income from house property, profit and gains of business and profession, capital gain and income from other sources. Tax is charged on the total income of the assessee. An assessee includes Individual, Hindu Undivided Family, Association of Persons, Body of Individuals, Company, Firm, Local Authority, Artificial and Juridical Persons.
The Income Tax Act 1961 which came in to force on 1st April 1962, The Income Tax Rules 1962 and Finance Act passed by the Parliament every year, govern the income tax law in India
UNION BUDGET 2011-2012
The dictionary meaning of budget is a systematic plan for the expenditure of a usually fixed resource during a given period.
The Union budget is preceded by an Economic Survey which outlines the broad direction of the budget and the economic performance of the country. The Budget is the most extensive account of the Government`s finances, in which revenues from all sources and expenses of all activities undertaken are aggregated. It comprises the revenue budget and the capital budget. It also contains estimates for the next fiscal year called budgeted estimates.
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PROVISIONS RELATING TO FINANCE BILL, 2011
The proposals of the Government for levy of new taxes, modification of the existing tax structure or continuance of the existing tax structure beyond the period approved by Parliament are submitted to Parliament through the Finance Bill. The Budget documents presented in terms of the Constitution have to fulfil certain legal and procedural requirements and hence may not by themselves give a clear indication of the major features of the Budget. To facilitate an easy comprehension of the Budget, certain explanatory documents are presented along with the Budget
Every taxpaying person has certain expectation from the Union Budget every year and like every year the Union Budget 2011-12 had certain expectations. The salaried class person swished to receive a raise in exemption limit of the taxation limit, whereas others wanted an exemption in some other forms. Mr. Pranab Mukherjee, the Finance Minister of India, did gave it a positive thinking and today the Union budget has somewhat tried on acting upon the grievances of the taxpayer, that is, the assessee. The income tax slab of all the taxpaying section has certain gone certain changes apart from the women section. Following is an attempt to opt out the differences among the tax slab earlier and now.
MALES:
Then: The pre-budget period witnessed that the basic exemption limit was Rs. 1, 60, 000, where the total income of the assessee was in between Rs. 1.6 lakhs to Rs. 5 lakhs; tax levied on total income was 10%, in case the total income fell in between Rs. 5 lakhs to Rs. 8 lakhs; tax levied was 20% and whereas the total income was above Rs 8 lakhs, the applicable rate of taxation was 30%.
Now: After the Union Budget 2011-12, there has been some amendments with respect to the figures. The limit has been raised by Rs. 20, 000. The basic exemption limit is Rs. 1, 80, 000, where the total income of the assessee is in between Rs. 1.8 lakhs to Rs. 5 lakhs; tax levied on total income will be 10%, in case the total income falls in between Rs. 5 lakhs to Rs. 8 lakhs; tax levied will be 20% and whereas the total income is above Rs 8 lakhs, the applicable rate of taxation will be 30%.
FEMALES:
Then: The pre-budget period witnessed the basic exemption limit for women to be at Rs. 1, 90, 000, where the total income of the assessee was in between Rs. 1.9 lakhs to Rs. 5 lakhs; tax levied on total income was 10%, in case the total income fell in between Rs. 5 lakhs to Rs. 8 lakhs; tax levied was 20% and whereas the total income was above Rs 8 lakhs, the applicable rate of taxation was 30%.
Now: The post budget of such exemption limit remains unchanged and the same shall be applicable as per the Union Budget 2011-12. The reason behind such ignorance is the new direct tax code which is likely to prevail from 1st April, 2012, which aims at abolishing the gender distinction system in terms of payment of tax.
SENIOR CITIZENS:
Then: The pre-budget period witnessed the basic exemption limit for senior citizens to be at Rs. 2, 40, 000, where the total income of the assessee was in between Rs. 2.4 lakhs to Rs. 5 lakhs; tax levied on total income was 10%, in case the total income fell in between Rs. 5 lakhs to Rs. 8 lakhs; tax levied was 20% and whereas the total income was above Rs 8 lakhs, the applicable rate of taxation was 30%.
Now: After the Union Budget 2011-12, there has been some amendments with respect to the figures. The limit has been raised by Rs. 10, 000. The basic exemption limit is Rs. 2, 50, 000, where the total income of the assessee is in between Rs. 2.4 lakhs to Rs. 5 lakhs; tax levied on total income will be 10%, in case the total income falls in between Rs. 5 lakhs to Rs. 8 lakhs; tax levied will be 20% and whereas the total income is above Rs 8 lakhs, the applicable rate of taxation will be 30%.
VERY SENOIR CITIZENS:
A new concept of very senior citizens has been introduced where people who have attained the age of 80 or more will fall. For this category, the assessee will get an exemption upto Rs. 5, 00, 000, earlier as these people fell under the senior citizen category, there limit was also restricted to Rs. 2, 40, 000. The rest of the part shall be similar to the present position of senior citizens, that is, from Rs. 5, 00, 000 to Rs 8, 00, 000, 20% of the income shall be taxable and incase the income exceeds Rs. 8, 00, 000, 30% of the total income shall be taxable.
It shall be noted that in every case, the application of education cess and secondary and higher education cess shall prevail at the same rate of 2% and 1% respectively.
INCOME TAX
1. Rates of income tax in respect of income liable to tax for the assessment year 2011-12
A. Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person
TAX RATES OF INDIVIDUAL ASSESSEES ANNOUNCED IN UNION BUDGET 2011-12
CATEGORY | RATES |
Men (up to 60 years) | |
Up to Rs.180000 | Nil |
Rs.180000 to Rs.500000 | 10% |
Rs.500001 to Rs.800000 | 20% |
Above Rs.800000 | 30% |
Women (up to 60 years) | |
Up to Rs.190000 | Nil |
Rs.190001 to Rs.500000 | 10% |
Rs.500001 to Rs.800000 | 20% |
Above Rs.800000 | 30% |
Senior citizens (above 60 years and less than 80 years) | |
Up to Rs.250000 | Nil |
Rs.250001 to Rs.500000 | 10% |
Rs.500001 to Rs.800000 | 20% |
Above Rs.800000 | 30% |
Very senior citizens (above 80 years) | |
Up to Rs.500000 | Nil |
Rs.500001 to Rs.800000 | 20% |
Above Rs.800000 | 30% |
B. Co-operative Societies
In the case of co-operative societies, the rates of income-tax have been specified in Paragraph B of Part III of the First Schedule to the Bill. These rates will continue to be the same as those specified for assessment year 2011-12. No surcharge will be levied .
C. Firms
In the case of firms, the rate of income-tax has been specified in Paragraph C of Part III of the First Schedule to the Bill. This rate will continue to be the same as that specified for assessment year 2011-12. No surcharge will be levied .
D. Local authorities
The rate of income-tax in the case of every local authority is specified in Paragraph D of Part III of the First Schedule to the
Bill. This rate will continue to be the same as that specified for the assessment year 2011-12. No surcharge will be levied.
E. Companies
The rates of income-tax in the case of companies are specified in Paragraph E of Part III of the First Schedule to the Bill. These rates are the same as those specified for the assessment year 2011-12.
The existing surcharge of seven and one-half per cent. on a domestic company is proposed to be reduced to five per cent. In case of companies other than domestic companies, the existing surcharge of two and one-half per cent. is proposed to be reduced to two per cent.
However, the total amount payable as income-tax and surcharge on total income exceeding one crore rupees shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees.
The existing surcharge of seven and one-half per cent. in all other cases (including sections 115JB, 115-O, 115R, etc.) is proposed to be reduced to five per cent.
For financial year 2011-12, additional surcharge called the “Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent. and one per cent. respectively, on the amount of tax computed, inclusive of surcharge, in all cases. No marginal relief shall be available in respect of such Cess.
(1) Surcharge on income-tax—
Surcharge shall be levied in respect of income liable to tax for the assessment year 2011-12, in the following cases:— (a) in the case of a domestic company having total income exceeding one crore rupees, the amount of income-tax computed
shall be increased by a surcharge for the purposes of the Union calculated at the rate of seven and one-half per cent. of such income-tax.
(b) in the case of a company, other than a domestic company, having total income exceeding one crore rupees, the amount of income-tax computed shall be increased by a surcharge for the purposes of the Union calculated at the rate of two and one-half per cent. of such income-tax.
Surcharge shall also be levied in the case of every company having total income chargeable to tax under section 115JB
of the Income-tax Act, 1961 (hereinafter referred to as ‘Income-tax Act’) . However, marginal relief shall be allowed in all these cases to ensure that the additional amount of income-tax payable, including surcharge, on the excess of income over one crore rupees is limited to the amount by which the income is more than one crore rupees.
(2) Education Cess —
For assessment year 2011-12, additional surcharge called the “Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent. and one per cent., respectively, on the amount of tax computed, inclusive of surcharge, in all cases. No marginal relief shall be available in respect of such Cess.
II. Rates for deduction of income-tax at source during the financial year 2011-12 from certain incomes other than
“Salaries”
The rates for deduction of income-tax at source during the financial year 2011-12 from certain incomes other than “Salaries” have been specified in Part II of the First Schedule to the Bill. The rates for all the categories of persons will remain the same as those specified in Part II of the First Schedule to the Finance Act, 2010 for the purposes of deduction of income-tax at source during the financial year 2010-11. However, in case of interest income paid to a non-resident by a notified infrastructure debt fund, the rates for deduction have now been provided in the proposed new section 194LB.
(1) Surcharge—
The amount of tax so deducted, in the case of a company other than a domestic company, shall be increased by a surcharge at the rate of two per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees.
No surcharge will be levied on deductions in other cases.
(2) Education Cess—
“Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent. and one per cent. respectively , of income-tax including surcharge wherever applicable, in the cases of persons not resident in India including companies other than domestic company.
III. Rates for deduction of income-tax at source from “Salaries”, computation of “advance tax” and charging of income- tax in special cases during the financial year 2011-12
The rates for deduction of income-tax at source from “Salaries” during the financial year 2011-12 and also for computation of “advance tax” payable during the said year in the case of all categories of assessees have been specified in Part III of the First Schedule to the Bill.
These rates are also applicable for charging income-tax during the financial year 2011-12 on current incomes in cases where accelerated assessments have to be made, for instance, provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during the financial year, assessment of persons who are likely to transfer property to avoid tax, assessment of bodies formed for a short duration, etc.
The salient features of the rates specified in the said Part III are indicated in the following paragraphs—
[Clause 2]
Definition of “charitable purpose”
For the purposes of the Income-tax Act, “charitable purpose” has been defined in section 2(15) which, among others, includes “the advancement of any other object of general public utility”. However, “the advancement of any other object of general public utility” is not a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity and receipts from such activities is ten lakh rupees or more in the previous year.
It is proposed to amend section 2(15) to enhance the current monetary limit in respect of receipts from such activities from ten lakhs rupees to twenty-five lakhs rupees.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.
[Clause 3]
Exemption of certain perquisites of Chairmen and Members of Union Public Service Commission
The existing provisions of the Income-tax Act provide for the taxation of any perquisites or allowances received by an employee under the head "Salaries" unless it is specifically exempt under the Act.
Currently, specified perquisites of the Chief Election Commissioner or Election Commissioner and the judges of the Supreme Court are exempt from taxation consequent to the enabling provisions in the respective Acts governing their service conditions. It is proposed to amend section 10 to extend similar benefit of exemption in respect of specific perquisites and allowances, which will be notified by the Central Government, received by both serving as well as retired Chairmen and Members of the Union Public Service Commission.
This amendment is proposed to take effect retrospectively from 1st April, 2008 and will accordingly apply in relation to the assessment year 2008-09 and subsequent years.
[Clause 4]
Exemption of specified income of notified body or authority or trust or board or commission
It is proposed to insert a new clause in section 10 of the Income-tax Act to provide exemption from income-tax to any specified income of a body, authority, board, trust or commission which is set up or constituted by a Central, State or Provincial Act or constituted by the Central Government or a State Government with the object of regulating or administering an activity for the benefit of the general public, provided-
(i) it is not engaged in any commercial activity, and
(ii) is notified by the Central Government in this behalf.
The nature and extent of income to be exempted will also be specified by the Central Government while notifying such entity. A consequential amendment is proposed in section 139 of the Act to provide for filing of the return of income by such notified
entity.
These amendments are proposed to take effect from 1st June 2011.
[Clauses 4, 23 ]
Infrastructure Debt Fund
In order to augment long-term, low cost funds from abroad for the infrastructure sector, it is proposed to facilitate setting up of dedicated debt funds.
Section 10 of the Income-tax Act excludes certain incomes from the ambit of total income. It is proposed to amend section
10 of the Income-tax Act so as to provide enabling power to the Central Government to notify any infrastructure debt fund which is set up in accordance with the prescribed guidelines. Once notified, the income of such debt fund would be exempt from tax. It will, however, be required to file a return of income.
It is also proposed to amend section 115A of the Income-tax Act to provide that any interest received by a non-resident from such notified infrastructure debt fund shall be taxable at the rate of five per cent. on the gross amount of such interest income.
It is further proposed to insert a new section 194LB to provide that tax shall be deducted at the rate of five per cent. by such notified infrastructure debt fund on any interest paid by it to a non-resident.
These amendments are proposed to take effect from 1st June 2011.
[Clauses 4, 15, 23, 27]
Provisions relating to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT)
in case of Special Economic Zones
Under the existing provisions of section 10AA of the Income-tax Act, a deduction of hundred per cent. is allowed in respect of profits and gains derived by a unit located in a Special Economic Zone (SEZ) from the export of articles or things or services for the first five consecutive assessment years; of fifty per cent. for further five assessment years; and thereafter, of fifty per cent. of the ploughed back export profit for the next five years.
Further, under section 80-IAB of the Income-tax Act, a deduction of hundred per cent. is allowed in respect of profits and gains derived by an undertaking from the business of development of an SEZ notified on or after 1st April, 2005 from the total income for any ten consecutive assessment years out of fifteen years 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 allowed from payment of minimum alternate tax (MAT) on book profit in respect of the income accrued or arising on or after 1st April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone (SEZ), as the case may be.
Further, under the existing provisions of section 115-O(6), an exemption is allowed from payment of tax on distributed profits [Dividend Distribution Tax (DDT)] in respect of the total income of an undertaking or enterprise engaged in developing or developing and operating or developing, operating and maintaining a Special Economic Zone for any assessment year on any amount declared, distributed or paid by such Developer or enterprise, by way of dividends (whether interim or otherwise) on or after 1st April, 2005 out of its current income. Such distributed income is also exempt from tax under section 10(34) of the Act.
The above provisions were inserted in the Income-tax Act by the Special Economic Zones Act, 2005 (SEZ Act) with effect from 10th February, 2006.
Currently, there is no sunset date provided for exemption from MAT in the case of a developer of an SEZ or a unit located in an SEZ. Similarly, there is no sunset date for exemption from DDT in the case of a developer of an SEZ.
It is proposed to sunset the availability of exemption from minimum alternate tax in the case of SEZ Developers and units in SEZs in the Income-tax Act as well as the SEZ Act.
This amendment to section 115JB of the Income-tax Act will take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.
It is further proposed to discontinue the availability of exemption from dividend distribution tax in the case of SEZ Developers under the Income-tax Act as well as the SEZ Act for dividends declared, distributed or paid on or after 1st June, 2011.
This amendment to section 115-O of the Income-tax Act will take effect from 1st June, 2011.
It is also proposed to make consequential amendments by omitting Explanation to section 10(34) of the Income-tax Act. This amendment to section 10 will take effect from 1st June, 2011.
Consequential amendments have also been proposed in the Second Schedule of the SEZ Act by omitting clause (C) of paragraph (a) [w.e.f. 01.06.2011], paragraph (h) [w.e.f. 01.04.2012] and paragraph (i) [w.e.f. 01.06.2011] of the Second Schedule. [Clauses 4, 17, 19, 76]
Weighted deduction for contribution made for approved scientific research programme
Under the existing provisions of section 35(2AA) of the Income-tax Act, weighted deduction to the extent of 175 per cent. is allowed for any sum paid to a National Laboratory or a university or an Indian Institute of Technology (IIT) or a specified person for the purpose of an approved scientific research programme.
In order to encourage more contributions to such approved scientific research programmes, it is proposed to increase this weighted deduction from 175 per cent. to 200 per cent.
This amendment is proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-13 and subsequent years.
[Clause 5]
Investment linked deduction in respect of specified businesses
Under the existing provisions of section 35AD of the Income-tax Act, investment-linked tax incentive is provided by way of allowing hundred per cent. deduction in respect of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the “specified business”. Currently, the following specified businesses are eligible for availing investment-linked deduction under section 35AD(8)(c):-
(i) setting up and operating a cold chain facility;
(ii) setting up and operating a warehousing facility for storage of agricultural produce;
(iii) laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network;
(iv) building and operating, anywhere in India, a new hotel of two-star or above category as classified by the Central
Government;
(v) building and operating, anywhere in India, a new hospital with at least one hundred beds for patients;
(vi) developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed.
It is proposed to include two new businesses as “specified business”, i.e.,-
(a) developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed; and
(b) production of fertiliser in India.
The dates of commencement of the “specified business” as an eligibility condition are detailed in section 35AD(5). It is proposed that the date of commencement of operations in the case of the two “specified businesses” of affordable housing projects and production of fertilizer in a new plant or in a newly installed capacity in an existing plant shall be on or after 1st April, 2011.
These amendments will take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year
2012-13 and subsequent years.
Under section 73A, any loss of a “specified business” (under section 35AD) is allowed 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 of hotels and hospitals, it is proposed to remove the word “new” from the definition of “specified business” in the case of hotels and hospitals under section
35AD(8)(c). With this, the loss of an assessee on account of a “specified business” claiming deduction under section 35AD would
be allowed to be set off against the profit of another “specified business” under section 73A, whether or not the latter is eligible for deduction under section 35AD. Therefore, an assessee who currently operates a hospital or a hotel would 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 1st April, 2010 and which is eligible for deduction of expenditure under section 35AD.
This amendment will take effect retrospectively from 1st April, 2011 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years.
[Clause 6]
Tax benefits for New Pension System (NPS)
Section 80CCD of the Income-tax Act provides, inter alia, a deduction in respect of contributions made by an employee as well as an employer to the New Pension System (NPS) account on behalf of the employee. In view of the provisions of section
80CCE, the aggregate deduction under sections 80C, 80CCC and 80CCD cannot exceed one lakh rupees. The allowable deduction under section 80CCD includes both the employee’s as well the employer’s contribution to the NPS.
It is proposed to amend section 80CCE so as to provide that the contribution made by the Central Government or any other employer to a pension scheme under section 80CCD(2) shall be excluded from the limit of one lakh rupees provided under section 80CCE.
