India: India Tax Weekly Budget Edition 2012

Last Updated: 15 November 2012

1. TAX PROPOSALS

1.1 Non-resident / International taxation

  1. Retrospective amendment in source rule regime under section 9 to neutralize the impact of Vodafone decision of Supreme Court in case of indirect transfer of controlling interest in an Indian company.
  2. All notice for show cause/tax assessments already issued in respect of similar transactions have been sought to be validated
  3. Definition of 'property' and 'transfer' to be amended to cover direct or indirect transfer of management or controlling rights in an Indian company for levy of capital gains tax
  4. Non-resident purchaser to withhold tax in case of non-resident to non-resident transactions whether or not there is a residence or place of business or business connection or any other presence in India
  5. Comprehensive amendment in scope of 'royalties' on a retrospective basis to:

    1. deal with controversies in relation to package software/off-the-shelf software and sale of a 'copyrighted software' versus 'right to use copyright' in the software
    2. include payment for any property whether or not there is any possession or control over such property
    3. include payment for transmission, up-linking, amplification services by satellite whether or not such process is secret

  6. Specific provision for making tax residency certificate a necessary condition for seeking tax treaty benefits
  7. Time period for obtaining information for completion of assessment or reassessment from other country under the provisions of DTAA extended to 1 year instead of 6 months
  8. Income arising in India to a non-citizen, non-resident entertainer, non-resident sportsmen and non-resident sports association will be taxed at 20% of gross receipts instead of 10%
  9. Any meaning assigned to a term used in DTAA but not defined in domestic laws by way of a notification will be effective from the date of coming into force of the DTAA itself

1.2 General anti-avoidance rule ("GAAR")

  1. GAAR was originally conceived for introduction under proposed Direct Tax Code is proposed to be inserted in the extant tax laws to deal with aggressive tax planning
  2. An arrangement main purpose of which is to obtain a tax benefit and satisfies at least one of the four prescribed tests can be declared as an "impermissible avoidance arrangement"
  3. GAAR can be invoked to re-christen a transaction according to its commercial substance as perceived by the tax department by collapsing any fancy structure or nodes/steps in a financial /strategic investment structure
  4. Tax Officer to make a reference to the Commissioner of Income-tax ("CIT") for invoking GAAR. CIT will make a reference to an 'Approving Panel' in case he is not satisfied by the explanation given by the taxpayer in respect of the arrangement
  5. Approving Panel will make a declaration whether such arrangement is an 'impermissible avoidance arrangement' or not after hearing the taxpayer
  6. Tax Officer will pass an order in terms of such declaration which can be challenged before the Tax Tribunal as the first appellate authority
  7. Tax department will constitute an 'Approving Panel' consisting of at least three members of CIT rank and above

1.3 Transfer Pricing

  1. Introduction of advance pricing agreement ("APA") mechanism to offer better assurance, certainty and unanimity of approach in transfer pricing matters
  2. Transfer Pricing Officer ("TPO") empowered to examine an international transaction not reported by the taxpayer even if Tax Officer has not referred such transactions to the TPO
  3. Transfer pricing regulations will be applicable even to domestic transactions between related resident parties exceeding a value of INR 50 million in a year. 'Related persons' will include fellow subsidiaries
  4. Due date for filing Income-tax return in cases involving transfer pricing issues extended to November 30 for non-corporate taxpayers as well
  5. Definition of 'international transaction' will include transactions of business restructuring or reorganization with an associated enterprise whether or not such transactions have a bearing on the profit, income, losses or assets
  6. No adjustment to the price where the variation between the arms length price (arithmetic mean of more than one appropriate price) and transaction price does not exceed 3% of the transaction price
  7. Penalty of 2% of the value of the international transaction in case the taxpayer fails to maintain prescribed documents, information, fails to report any international transaction required to be reported or furnishes any incorrect information/documents
  8. Tax Officer will also be empowered to file an appeal against the order passed in pursuance of directions from dispute resolution panel ("DRP") in respect of objection filed on or after July 1, 2012
  9. DRP will be empowered to enhance the variation and consider any matter or new issues under the draft assessment order whether or not such matter was raised by the taxpayer

1.4 Key transactional tax issues

  1. Any excessive consideration (benchmarked to fair market value of share) received by a closely held company from a resident for issue of shares will be taxed as 'income from other sources' in the hands of the company (excessive share premium to be taxable)
  2. Capital gains — In case sale consideration in respect of a transfer of an asset is not determinable, capital gains tax liability is not attracted due to failure of computation provisions (machinery provisions). It is now proposed that in such cases fair market of the asset will be taken to be full value of the consideration and capital gains tax liability computed accordingly
  3. Amalgamation of a subsidiary company into a holding company will enjoy capital gains tax exemption even if shares cannot be issued by the amalgamated company (holding company) to itself due to cancellation of shares
  4. Dividends distribution tax (DDT) — removal of cascading effect of DDT paid at 16.22% on distribution of profits by an Indian company extended to multi-tier structure instead of only a two-tier structure
  5. Taxation of gross dividends received by an Indian company from a foreign group company (with atleast 26% participation in it) at a beneficial rate of 15% extended to one more tax year

1.5 Venture capital

  1. Restrictions on SEBI registered venture capital funds to invest only in 9 prescribed sectors for availing pass through status for taxability of income in the hands of investors directly has been removed.
  2. Income-tax to be withheld by venture capital funds on income attributable to investors
  3. Income will be taxable in the hands of investors on accrual basis and there will be no deferral.

1.6 Minimum alternate tax ("MAT")

  1. Profit and loss account prepared by insurance, banking or electricity companies in accordance with the provisions of their respective regulatory Acts will be taken as a basis for computing the book profits under section 115JB
  2. Gains attributable to revaluation of a capital asset will be subject to MAT by adding amount standing in revaluation reserve to book profits

1.7 Alternate minimum tax ("AMT")

  1. AMT proposed to be extended to all persons other than a company such as general partnership, individual, HUF, association of person in addition to LLPs with a threshold exemption in case adjusted total income does not exceed INR 2 million
  2. AMT will be payable in respect of profit linked deductions including tax holidays for special economic zones undertakings

1.8 Tax withholding / tax deducted at source (TDS)

  1. Transferred to withhold tax at 1% in case consideration for purchase of immovable property (other than agricultural land) exceeds INR 5 million in case of property in urban agglomeration and INR 2 million in case of other area
  2. Stamp duty value to be adopted as transaction value
  3. Registrar not to register property unless proof of TDS compliance is furnished
  4. TDS at 10% on remuneration other than salary to a director (sitting fee)

1.9 Tax collection at source (TCS)

  1. TCS at 1% of sale consideration to be collected by seller of bullion or jewellery in case of cash sale exceeding INR 0.2 million to any buyer
  2. TCS at 1% of sale consideration to be collected by the seller from the buyer on sale of minerals such as coal, lignite iron ore
  3. TCS will not apply on purchase of minerals for personal consumption

1.10 Black money

  1. Share application money received by a closely held company to be taxed in its hands in case the source of such money in the hands of a shareholder cannot be satisfactorily explained
  2. Income-tax return will be furnished by any resident having asset outside India including any financial interest in a company or signing authority outside India even if not earning any taxable income otherwise
  3. 16 year window to issue notice for re-opening of tax assessment if any income earned from assets located outside India has escaped assessment
  4. No tax deduction for any donation for philanthropic purposes in respect of any sum exceeding INR 10,000 paid in cash

1.11 Sectoral tax implications

1.11.1 Oil n gas

Foreign company to enjoy exemption on income received in India in Indian currency on account of sale of crude oil to any person subject to the following conditions:

  1. Receipt of money is under an agreement or an arrangement which is either entered into by the Central Government or approved by it.
  2. Foreign company and the arrangement or agreement has been notified by the Central Government having regard to the national interest
  3. Receipt of money is the only activity carried out by the foreign company in India

1.11.2 Power

  1. Power producer will be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant acquired and installed in a previous year.
  2. Extension of tax holiday under section 80(IA) for generation, transmission and distribution and substantial renovation and modernisation of existing network achieved by March 31, 2013 (holiday was expiring on March 31, 2012).

1.12 Weighted deductions and investment linked incentives

  1. Weighted deduction of 200% of the expenditure incurred on approved in-house research and development facilities extended for a period of 5 years up to March 31, 2017
  2. Weighted deduction of 150% of the expenditure incurred on notified agricultural extension projects is proposed
  3. Weighted deduction of 150% of the expenditure incurred on notified skill development projects is proposed
  4. 100% investment- linked deduction proposed to be extended to following business:

    1. Setting up an operating an inland container, depot or a notified container freight station
    2. Bee-keeping and production of honey and bees wax
    3. Setting up and operating a warehousing facility for storage of sugar

2. FINANCE MINISTER ON TAX REFORMS IN HIS BUDGET SPEECH

"26.

As Hon'ble Members are aware, the Direct Taxes Code (DTC) Bill was introduced in Parliament in August 2010. It was our earnest desire to give effect to DTC from April 1, 2012. However, we received the Report of the Parliamentary Standing Committee on March 9, 2012. We will examine the report expeditiously and take steps for the enactment of DTC at the earliest.

27.

Similarly, the Constitution Amendment Bill, a preparatory step in the implementation of Goods and Services Tax (GST) was introduced in Parliament in March 2011 and is before the Parliamentary Standing Committee. As we await recommendations of the Committee, drafting of model legislation for Centre and State GST in concert with States is under progress."

3. FINANCE MINISTER ON FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR IN HIS BUDGET SPEECH

"32. Organised retail helps in reducing cost of intermediation due to economies of scale, benefiting both consumers and producers. At present, FDI in single brand and in cash and carry wholesale trade is permitted to the extent of 100 per cent. The decision in respect of allowing FDI in multi-brand retail trade up to 51 per cent, subject to compliance with specified conditions, has been held in abeyance. Efforts are on to arrive at a broad based consensus in consultation with the State Governments."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Trilegal
Nishith Desai Associates
Trilegal
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Trilegal
Nishith Desai Associates
Trilegal
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions