Budget 2011: Highlights of the Indirect Tax Proposals

The key points in the speech of the Hon’ble Finance Minister, Mr. Pranab Mukherjee in relation to Indirect Taxes are highlighted hereunder: 

EXCISE:

 o Standard rate of excise duty held at 10 percent; no change in CENVAT rates

o Nominal one per cent central excise duty on 130 items entering the tax net. Basic food and fuel and precious stones, gold and silver jewellery will be exempted.

SERVICE TAX:

o Service tax rate kept at 10 percent

o Service tax widened to cover hotel accommodation above Rs 1,000 per day, A/C restaurants serving liquor, some category of hospitals, diagnostic tests.

o Service tax on air travel increased by Rs 50 for domestic travel and Rs 250 for international travel in economy class. On higher classes, it will be ten per cent flat.

CUSTOMS:

o Iron ore export duty raised to 20 percent

o Peak rate of customs duty maintained at 10 per cent in view of the global economic situation.

o Basic customs duty on agricultural machinery reduced to 4.5 per cent from 5 per cent.

o Works of art exempt from customs when imported for exhibition in state-run institutions; this now extended to private institutions.

o Customs and excise proposals to result in net revenue gain of 73 billion rupees.

Budget 2011: Highlights of the Direct Tax Proposals

The key points in the speech of the Hon’ble Finance Minister, Mr. Pranab Mukherjee in relation to Direct Taxes are highlighted hereunder:

Ø Direct Taxes Code proposed to be effective from April 1, 2012

Ø The tirade against black-money continued with a 5 fold strategy being proposed by the Govt. viz.

o Joining the global crusade against 'black money';

o Creating an appropriate legislative framework;

o Setting up institutions for dealing with illicit funds;

o Developing systems for implementation;

o and Imparting skills to the manpower for effective action.

Ø 11 new Tax Information Exchange Agreements and 13 Double Taxation Avoidance Agreements’s entered into.

Ø E-filing of Income Tax Returns and e-filing of Tax Deducted at Source.

Ø New Centralized Processing Centers proposed in Manesar, Pune and Kolkala, besides the existing one in Bengaluru.

Ø Notified salaried persons not to file returns since their tax liability discharged by the employer.

Ø New simplified tax return form titled ‘Sugam’ to be introduced.

Ø 3 more benches of the Settlement Commission to be set-up.

Ø Gross Tax Receipts are estimated at ` 9,32,440 crore.

Ø Exemption limit for individuals raised to ` 1,80,000

Ø Qualifying age for senior citizens reduced to 60 years; exemption limit enhanced to ` 2,50,000

Ø New category of ‘Very Senior Citizens’ – qualifying limit 80 years and exemption limit ` 5,00,000

Ø Corporates: Surcharge reduced to 5% from 7.5%

Ø Minimum Alternate Tax (MAT) increased to 18.5% from 18%

Ø MAT to be levied on developers of the Special Economic Zones and units operating in SEZ’s

Ø In financing of infrastructure:

o special vehicles in the form of notified infrastructure debt funds to be created;

o interest payment on the borrowings of these funds to a reduced withholding tax rate of 5%, down from 20%;

o exemption of the income of the fund from tax.

Ø Additional deduction of ` 20,000 for investment in long-term infrastructure bonds.

Ø A much lower rate of 15% of tax on dividends received by an Indian company from its foreign subsidiary.

Ø Investment linked deduction to businesses engaged in the production of fertilizers.

Ø Investment linked deduction to businesses which develop affordable housing under a notified scheme.

Ø Weighted deduction on payments made to National Laboratories, universities and Institutes of technology, for scientific research to be increased to 200%.

Ø Disincentives in dealing with Non-cooperative Tax Jurisdictions.

Ø Net revenue loss to the exchequer to be ` 11,500 Crore.