Recent reforms in Direct Taxation brought in by Budget 2012-2013

[sapna avasthi]

1. Direct Taxes Code Bill – Long awaited DTC Bill is promised to be enacted at the earliest after expeditious examination of the report of the Parliamentary Standing Committee.
2. Relief in income tax rates -
   Income tax exemption limit raised to Rs 2 lakhs
   Tax slabs for Individual/ HUF/ AOP/BOI have been revised.
   For F.Y. 12-13/ A.Y. 13-14
   Income upto Rs.2 lakh will be free from income tax;
   Income above Rs.2 lakh and upto Rs.5 lakh now carries tax at the rate of 10 per cent;
   Income above Rs.5 lakh and upto Rs.10 lakh now carries tax at the rate of 20 per cent;
   Income above Rs 10 lakh would be taxable at rate of 30%
   
   Tax slabs for Individual/ HUF/ AOP/BOI for F.Y. 11-12/A.Y. 12-13 were:
   Income upto Rs.1.8 lakh was free from income tax;
   Income above Rs.1.8 lakh and upto Rs.5 lakh was taxable at the rate of 10 per cent;
   Income above Rs.5 lakh and upto Rs.8 lakh was taxable at the rate of 20 per cent;
   Income above Rs 8 lakh carried the rate of 30%
   However, income was exempt from tax upto Rs 1.90 lakh in hands of women assesee, upto Rs 2.50 lakhs in hands of Senior Citizen( aged between 60- 80 years) and upto Rs 5 lakhs in hands of very Senior Citizen( aged above 80 years).
   
   In recent budget, there is no mention about different income tax exemption limit in case of aforesaid which implies that women assessee would no more enjoy privileged situation and they would be at par with general tax payers.
   Senior Citizens and Very senior citizens would also have same income exempted from income tax in forthcoming financial year as in previous financial year. No upward revision is proposed in their case also.
   No changes are proposed in levy of Education Cess, Senior Higher Education Cess and Surcharge
3. Senior Citizen - Though tax slabs for Senior citizen and very senior citizens are not revised, however some relief is provided to them by declaring that Senior citizens not having income from business will not need to pay advance tax.
4. Corporate taxation - No relief is provided to Corporate world by bringing no changes in corporate taxes.
5. Deduction of upto Rs.10,000 is now available for interest from savings bank accounts to individual taxpayers under new section inserted vide Section 80TTA . This step would bring some relief though marginal to small taxpayers. With omission of Section 80L w.e.f. 01.04.2006 providing deduction in respect of interest on certain securities, dividends, even small income earned by way of saving bank interest was taxable. This would help a large number of small taxpayers with salary incomes upto 5 lakh and interest from savings bank accounts up to 10,000, as they would not be required to file income tax returns.
6. Within the existing limit for deduction allowed for health insurance u/s 80D, a deduction of upto Rs.5000 is being allowed for preventive health check-up of assessee, his family and parents of the assessee. With increased cost incurred in health related problems and majorly in case of Senior citizens, preventive health check up are pre-requiste these days. This proposal would bring in some relief to small taxpayers and salaried persons.
7. Budget proposes a number of measures to promote investment in specific sectors. In order to provide low cost funds to some stressed infrastructure sectors, withholding tax on interest payments on external borrowings (ECBs) is being reduced from 20 percent to 5 per cent for 3 years. These sectors are -

• power;

• airlines;

• roads and bridges;

• ports and shipyards;

• affordable housing;

• fertilizer; and

• dams

8. To promote Venture Capital, restriction on Venture Capital Funds to invest only in nine specified sectors is removed.
9. Cascading effect of Dividend Distribution Tax (DDT) in a multi-tier corporate structure is also removed. Also, repatriation of dividends is allowed from foreign subsidiaries of Indian companies to India at a lower tax rate of 15 per cent as against the tax rate of 30 per cent for one more year i.e. upto March 31, 2013.
10. Investment linked deduction of capital expenditure in some businesses is proposed to be provided at 150 per cent as against the current rate of 100 per cent. These sectors include cold chain facility, warehouses for storing food-grains, hospitals, fertilizers and affordable housing. Bee keeping and production of honey and beeswax, container freight station and inland container depots, and warehousing for storage of sugar will now also be eligible for investment linked deduction.
11. The budget also proposes weighted deduction of 200 per cent for R&D expenditure in an
    in-house facility beyond March 31, 2012 for a further period of five years.
12. In order to facilitate growth in agriculture sector, weighted deduction of 150 per cent on expenditure incurred for agri-extension services is introduced.
13. Power sector - Besides access to low cost funds, sunset date is extended by one year for power sector undertakings so that they can be set up on or before March 31, 2013 for claiming 100 per cent deduction of profits for 10 years. Additional depreciation of 20 per cent in the initial year is proposed to be extended to new assets acquired by power generation companies.
14. To meet shortage of skilled manpower in the manufacturing sector and to generate employment, weighted deduction is provided at the rate of 150 per cent of expenditure incurred on skill development in manufacturing sector in accordance with specified guidelines.
15. Turnover limit raised for Tax audit for SMEs - For small and medium enterprises, the turnover limit for compulsory tax audit of accounts as well as for presumptive taxation is raised from Rs. 60 lakh to Rs. 1 crore.
16. SMES – Exemption from capital gain tax on sale of residential property on fulfillment of conditions - In order to augment funds for SMEs, capital gains tax is exempted on sale of a residential property, if the sale consideration is used for subscription in equity of a manufacturing SME company for purchase of new plant and machinery
17. A General Anti-Avoidance Rule (GAAR) is being introduced in order to counter aggressive tax avoidance.
18. Reduction in rate of STT - Securities transaction tax (STT) is being reduced by 20 per cent on cash delivery transactions, from 0.125% to 0.1%.
19. Alternative Minimum Tax is proposed to be levied from all persons, other than companies, claiming profit linked deductions.
20. Measures to discourage generation and use of unaccounted money - Finance Minister has proposed a series of measures to deter the generation and use of unaccounted money.
    a. Compulsory reporting is being introduced in case of assets held abroad.
    b. Reopening of assessment up to 16 years is allowed in relation to assets held abroad. Period introduced is of long span which would enhance/widen and extend powers of Revenue.
    c. Tax will be collected at source on trading in coal, lignite and iron ore; purchase of bullion or jewellery above Rs. 2 lakh in cash
    d. Tax to be deducted at source on transfer of immovable property (other than agricultural land) above a specified threshold. Aforesaid were the main tools for creation of unaccounted money With introduction of concept of tax collection and deduction at source from aforesaid transactions, generation and use of accounted money would certainly be discouraged.
    e. Unexplained money, credits, investments, expenditures etc. will be taxed at the highest rate of 30 per cent irrespective of the slab of income.
    f. Onus of proof is increased on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value.
21. Strengthening Investment Environment
    Foreign Direct Investment - Efforts to arrive at a broad based consensus in consultation with the State Governments in respect of decision to allow FDI in multi-brand retail upto 51 per cent.
    Advance Pricing Agreement - Provision regarding implementation of Advance Pricing Agreement to be introduced in Finance Bill, 2012.
    Financial Sector - Rajiv Gandhi Equity Saving Scheme to allow for income tax deduction of 50 percent to new retail investors, who invest upto `50,000 directly in equities and whose annual income is below `10 lakh to be introduced. The scheme will have a lock-in period of 3 years.