2. Analysis of
UNION BUDGET 2012
(For internal circulation only)

3. Contents
• Budget Estimates
• Direct Taxes
• Indirect Taxes
• Service Tax
• Others

4. Budget Estimates

5. Budget Estimates
• GDP growth estimated to be 7.6 per cent (+/- 0.25 %)
• Gross Tax receipts are estimated at ` 10,77,612 crore vs ` 9,32,440 crore
for the previous year.
• Non-tax revenue receipts estimated at ` 1,64,614 as compared to `
1,25,435 crore for the previous year..
• Total expenditure proposed at ` 14,90,925 as against ` 12,57,729 crore for
2011-12
• Increase of 18 per cent in total Plan allocation.
• Fiscal deficit projected to be 5.1% of GDP as compared to 5.9% for 2011-
12.
• The projection for 2011-12 was 4% with the aim of reducing it to 3.5% by
2013-14

6. Direct Taxes

7. Direct Taxes
Change Impact/Comments
No separate categories
Personal Taxes:
for men and women.
New common slabs introduced for
Tax rates have been
individuals
brought in line with
Income Rate DTC rates
Upto ` 2,00,000** Nil Expectations for a
higher exemption limit
` 2,00,000 to ` 10
have been quashed
5,00,000
` 5,00,000 to ` 20
10,00,000
** ` 2,50,000 for individuals between
the age of 60 and 80
** ` 5,00,000 for individuals above 80
Additional rebate of ` 5 thousand
for periodic health checks allowed
Up to ` 50 thousand deduction on
account of investment in equities

8. Direct Taxes
Change Impact/Comments
Benefits available under
Personal Taxes (Cont.):
section 80CCF of up to
Deduction of up to ` 10 thousand `20,000 on account of
against bank interest income investment in
Senior citizens not having business infrastructure bonds
income shall not be liable to have not been extended
deposit advance tax in this budget

9. Direct Taxes
Change Impact/Comments
Retrospective amendments to Section 2 Indirect transfers of
and section 9 from 1962, by means of Indian capital assets
addition of explanations to would be subject to tax
Re-define Capital Assets as all in India.
rights in or related to an Indian This also raises issues
company, including rights of on what constitutes a
management or control or any right to manage and
other rights whatsoever control the Indian
Include parting of rights incidental company
to ownership of shares in foreign Effect of landmark
company as “transfer” ruling on Vodafone has
Deem as situated in India, shares been reversed by the
in a foreign company if the shares government.
derive substantial value from This creates scope for
assets in India. conflict with revenue
authorities in other
jurisdictions

10. Direct Taxes
Change Impact/Comments
Definition of “Royalty” has been Withholding tax shall
retrospective amended from 1st June be applicable on such
1976 to deem the following incomes as incomes irrespective of
accruing in India the residential status of
Transfer of right to use ( including or lack of place of
license) computer software business of the recipient
Consideration in respect of any in India.The proposed
right, property or information amendment attempts to
tax as “royalty”
Further, “process” has been deemed to
embedded
have always included transmission by
products, online
satellite (including up-linking,
subscription
amplification, conversion for down
products, shrink-wrap
linking of any signal), cable, optic fibre
software
or by any other similar technology.
etc, notwithstanding
that they are merely a
sale of a good in
electronic form.

11. Direct Taxes
Change Impact/Comments
VCs are now free to
Venture Capital Funds (“VCF”)
invest in sectors other
Definition of venture capital
than the 9 specified
undertaking has been altered to
sectors without having
match the SEBI definition.
to rely upon
Pass through benefits are now
“irrevocable
available to VCs for all sectors
determinate trusts ”
VC income shall now be taxed in
the hands of the LPs on accrual
basis
Exemption from applicability of
DDT and withholding tax
provisions on distribution of
income by VCFs will remain valid.

12. Direct Taxes
Change Impact/Comments
While the submission of
To claim treaty benefits under Double
a TRC is mandatory for
Tax Avoidance Agreements (“DTAA”)
claiming DTAA
non residents will have to furnish a Tax
benefits, mere
Residency Certificate (“TRC”) from
furnishing of same shall
their home state.
not provide relief.
Income derived by a notified foreign
company on account of sale of crude oil
to any person in India is now exempt
from tax in India
Deduction of 150% of expenditure
incurred on notified agricultural
extension projects.
Deduction of 150% of expenditure on
skill development projects

13. Direct Taxes
Change Impact/Comments
Additional cushion for
Additional depreciation of 20% on
power businesses .
capital expansion allowed to power
Encouragement to
generation and distribution businesses.
invest in power
infrastructure.
Investment linked deductions extended Benefits of 150% of
to the following industries : investment now
Bee keeping and production of available to these
honey, beeswax
specified industries.
inland container depot or a container
freight station
Sugar warehousing
Weighted deduction of 200% against in
house research and expenditure on
specified industries has been extended
for 5 more years

14. Direct Taxes
Change Impact/Comments
Limits for compulsory tax audit hiked Lower compliance
from ` 60 lakhs to ` 1crore for firms, and burden for small and
from ` 15 lakhs to ` 25 lakhs medium sized
enterprises as well as
individuals
Long term capital gain arising from sale The provision seeks to
of residential property will be exempt if provide tax benefits to
invested in an eligible company and entrepreneurs seeking
then used by such company to acquire to finance themselves
new assets by selling residential
Fair market value to be considered as property
consideration for the purposes of
calculation of capital gains, if
consideration in a certain transaction is
not quantifiable.
LTCG on sale of unlisted securities by
all non residents will also attract tax at
reduced rate of 10%.

15. Direct Taxes
Change Impact/Comments
Capital gain tax will be exempt on sale
of unlisted securities in IPO provided
STT @.2% has been paid.
Consideration received by a private Provision has been
company or unlisted public company ostensibly inserted to
for shares, in excess of the Fair Market check the generation
Value (“FMV”) of such shares will be and use of black money.
considered incomes in the hands of the The provision fails to
company and chargeable to tax as consider cases where
“income from other sources”. This there is genuine
provision is not applicable in the case of commercial reason for
investments by a VCF and other issuing shares at
notified category of persons. premium.
This proposal in its
current guise would
pose many fold
challenges for
structuring of genuine
investments into
companies.

16. Direct Taxes
Change Impact/Comments
Lower compliance
In the case of conversion of conversion
burden for small and
of partnership /proprietorship into
medium sized
corporate entity cost of acquisition of
enterprises as well as
assets in hands of company to be the
individuals
cost of acquisition for the company.
Exemption on sale of agricultural land
extended to HUFs
Amalgamating company need not issue
shares to itself to avail capital gains
exemption in case of merger of
subsidiary with holding company. A
similar provision has been introduced
in the case of a demerger.
No capital gain tax will be levied in Conversion should
case of conversion of Indian branch of made in accordance
foreign company carrying banking with the scheme framed
business in India to an Indian company by RBI.

17. Direct Taxes
Change Impact/Comments
This move looks to
Onus shall now be on a private
curtail the flow of
company to prove source of (sic)
questionable money.
investments made by individuals in the
The onus of proving
company.
source of money has
been shifted from the
payer to the
receiver, overturning
the law laid down
in ”CIT vs Lovely
Exports”
No deduction allowed for contributions Again, cash based
to charitable purposes of any sum transaction are sought
exceeding ` 10 thousand unless paid in to be curbed in a bid to
mode other than cash. check the circulation of
black money.

18. Direct Taxes
Change Impact/Comments
Transfer pricing
International transaction to now
include restructuring capital
financing, guarantees, purchase, sal
e/lease/use of intangible
property, inter company
receivables, payables etc. with
retrospective effect from 1.04. 2001
New Definition for “intangible
property” has been introduced to
cover marketing and customer
related intangibles, technology and
data processing related intangible
assets, customer
relationships, customer lists, human
capital related intangibles including
trained work force, employment
agreements, leasehold
interests, commercial
rights, studies, forecasts, surveys
and others

19. Direct Taxes
Change Impact/Comments
APAs are a welcome
Transfer pricing (Cont.)
move. APA agreements
Advance Pricing Agreement
would be valid for 5
(“APA”) system introduced .
years and would be
Specified domestic transactions to applicable both on the
be covered under transfer pricing assessee and the
regime if aggregate value of revenue
transactions exceeds ` 5 crores in a
APA benefit is not
year.
available for domestic
Safe Harbor of 5% as allowed earlier assessees
has been removed with
Compliance burden of
retrospective effect, upper limit of
corporate tax payers
safe harbor to be 3% from April
shall rise as a
1, 2012 onwards
consequence.
Transfer Pricing Officer (“TPO”) is
now empowered to review cross
border transactions even if CA
certificate has not been furnished.

20. Direct Taxes
Change Impact/Comments
GAAR provides
Introduction of General Anti Avoidance
sweeping powers to tax
Rules (“GAAR”), the proposed rules
authorities and is open
shall crack down on “impermissible
to misuse.
avoidance arrangements”. If
invoked GAAR has the effect of GAAR is to be invoked
only on arrangements
Denial of treaty benefit
where the main purpose
Deemed relocation of
or one of the main
assets, location etc to a place other
purposes of the
than the one envisioned
arrangement should be
arrangement
tax avoidance and the
Deemed re-characterization of
onus of proving this has
equity into debt, revenue etc.
been shifted on
Re-allocation of expenses
revenue.
The provisions will be applicable from
A committee under the
A/Y 2013-2014.
chairmanship of
For ensuring transparency one DGIT(international
additional member from Indian Legal taxation) has been
service has been added to Approving constituted to give
Panel. recommendations.

21. Direct Taxes
Change Impact/Comments
For determining the applicability or
GAAR provisions on any arrangements
, both residents and NR are eligible to
approach AAR .
Provisions of AMT are
the scope of Alternate Minimum Tax not applicable in case
(“AMT”) to non corporate assesses the total adjusted
(individuals, Sole income is less than „‟20
proprietors, partnerships etc.) lakhs
Withholding taxes for external
commercial borrowings in certain
sectors reduced to 5%
Cascading effect of Dividend
Distribution Tax (“DDT”) in multi- tier
structures has been negated.

22. Direct Taxes
Change Impact/Comments
Due date of returns for non corporate
assessees who need to obtain and file
transfer pricing report is now 30th of
November
Time limit for completion of
assessments have been extended by a
period of 3 months
Residents having assets abroad need to This will not be
file mandatory Income Tax Returns applicable to
(“ITR”) even if they have no taxable individuals who are not
incomes ordinarily residents in
India.
Re-assessment proceedings can be
initiated after up to 16 years from
relevant year in case of non disclosure
of foreign assets.

23. Direct Taxes
Change Impact/Comments
Reduction in Securities Transaction Tax
(“STT”) Rate to 0.1% from 0.1255% with
effect from 1st July 2012
Tax collection at source on purchase of
Jewelry and bullion exceeding ` 5 lakhs
and on trading of coal, iron ore and
lignite
Interest on Debentures issued by public
company will not be subject to
withholding tax upto ` 5,000
Income payable to non resident, foreign
entertainers subject to withholding tax
at the rate of 20%

24. Direct Taxes
Change Impact/Comments
The proposed
Remuneration paid to Director of
amendment attempts to
nature other than salary to be subject to
confirm the revenue
withholding at 10%
position by bringing
embedded products,
Interest on foreign currency loans
online subscription
payable by all Indian companies
products, shrink-wrap
against approved loan agreements to be
software etc within the
subject to withholding tax at the rate of
ambit of royalty,
5%
notwithstanding that
they are merely a sale of
a good in electronic
form.

25. Direct Taxes
Change Impact/Comments
Assessee not to be treated as assessee in
default on account of non deduction of
TDS in case recipient of such sum has
filed return of income and deposited
such taxes.
The Assessing Officer can now appeal
against an order passed in pursuance of
directions of the DRP in respect of
objections filed post July 1, 2012
MAT provisions would not be
applicable on the taxpayers having
income form Life Insurance business.

26. Indirect Taxes

27. Indirect Taxes - Excise
Change Impact
Central Excise Duty Raised to 12 per Rate increased from
cent ad valorem 10%
Excise duty on items subject to alternate
rates hiked to 6% with and 2% without
cenvat credit
Lower rate of Central Excise Duty More expensive items
enhanced from 5 per cent to 6 per cent
Automobiles larger than 4 m subject to
higher rates of excise as under :
Engine Size Rates of Duty
Below 1500 24%
CC
Above 1500 27%
CC

28. Indirect Taxes - Excise
Change Impact
Exemptions from Excise Duty enlarged
to include Parts of aircraft and testing
equipment used in manufacture, repair
and overhauling of aircraft
Duty on branded garments reduced by
20%
Exemption for ships and vessels if
obtained under general license.
Duty at 1/120 factor upon conversion
of general license to coastal license.

29. Indirect Taxes - Customs
Change Impact
Exemptions from Excise Duty enlarged
to include Parts of aircraft and testing
equipment used in manufacture, repair
and overhauling of aircraft
Rationalization of customs duty
calculation to avoid double levy of
Education Cess.
Exemption from customs duty on parts
and testing equipments for
maintenance, repair and overhaul
(MRO) of aircraft.
Retrospective exemption from CVD on
import of supply vessels and dredgers
for the past period
Offences involving prohibited goods or
duty evasion exceeding 5 million will
be treated as „cognizable offences‟.
It has been provided that all the
offences has been bailable.

30. Service tax

31. Service Tax
Change Impact
Complete overhaul of service tax
regime with the introduction of the
concept of “Negative Lists”
All “Services” as defined in the act are
“Service” is now
now subject to tax
defined as “any activity
The only exclusions are :
carried out by a person
Negative list of 19 services
for another for
Exemption list of 34 services
consideration
Part payment of tax by provider and …”, thereby bringing
receivers in case of specified services any “activity”
Standard rate of Service Tax hiked to 12 whatsoever, regardless
per cent of whether it is a
Common returns for service tax and service, under the
excise service tax net. The
proposed law makes no
distinction between
service and sale of
goods but excludes the
activities treated as “
deemed sale”.

32. Service Tax
Change Impact
Period of limitation increased to 18
months from relevant date
Introduction of settlement commission
in Service tax act.
Time limit for raising of invoices raised
to 30 days
Self adjustment of excess service tax
paid without limits introduced
Special audits by revenue introduced
CENVAT credit now available on
delivery of goods, subject to
maintenance of records.

33. Service Tax
Change Impact
Rationalization of refund provisions for
CENVAT credit
Input Service distribution made more
strict:
Credit of tax attributable to a unit to be
availed only by that unit
Credit for common services to be
availed by units in proportion of
revenue from such units.
Additional duty of customs can now be
transferred from one unit to another in
case of assessee with multiple units
No interest liability in cases of wrong
credit of CENVAT without actual
utilization
New rules for determining place of
origin of services to be notified.

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35. Disclaimer
This presentation provides general information existing at the time of preparation.
The presentation is intended as a news update and Arkay & Arkay, Chartered
Accountants neither assumes nor accepts any responsibility for any loss arising to any
person acting or refraining from acting as a result of any material contained in
this presentation. It is recommended that professional advice be taken based on the
specific facts and circumstances. This presentation does not substitute the need to refer
to the original pronouncements.
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