1. 4th March, 2010
The Union Budget for 2011-12 was presented against a challenging macroeconomic environment
with the need to balance several conflicting objectives like tackling inflation without impairing
growth and emphasising social inclusion at a time when fiscal consolidation is of paramount
importance, reviving investor confidence and market sentiment. The presentation of Budget was
also amidst the most critical scenario when the Government is loosing confidence of people due
to extensive scams being broke out including those of 2G Scam, Adarsh Scam, etc.
This year was also a defining year for Legislative tax Policy in India since the Country is heading
towards the revived law on direct and indirect taxes with the freezed deadline for introduction of
DTC and GST in 2012. In that sense, the present Budget could be the last of the Budget on the
present legal structure.
The budget presented in the parliament today seeks to achieve the following objectives:
• To achieve double digit growth in GDP as against the estimated growth rate of 8.6% for the
FY 2010-11.
• To address the menace of black money
• To Enhance growth rate of agriculture sector
• To establish good governance in the Government system
With the kind of Budget introduced by Mr. FM, he appears to aim at withdrawing stimulus in the
form of subsidies and wants to advance the infrastructure development to promote nourished
growth. Agriculture and social sector. The measures taken by him in the form of technological
advancement should make India an striking avenue for foreign investments.
The effects of these proposals may have positive impact on the economy in times to come. We
have tried to analyze the Budget proposals on Direct Taxes as enunciated in the Finance Bill, 2011.
The Proposals related to Indirect taxes –service tax, which has substantial and effective
amendments will be sent to you once the fineprints of the same are analysed.
The copy is also available on our website http://www.amcount.com.
This material is prepared by Smart Consultants Pvt. Ltd., a Company established under the Indian Companies Act, 1956.
While due care has been taken to ensure the accuracy of the information contained herein, no warranty, express or implied, is being
made, by Smart Consultants Pvt. Ltd. as regards the accuracy and adequacy of the information contained herein. The information in
this material is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The
information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making
any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional
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it on their behalf. The recipient is strictly prohibited from further circulation of this material.
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2. Union Budget 2011-12
FINANCE BILL, 2011
HIGHLIGHTS & COMMENTS
The goals can only be achieved by a considerable increase in national income and our economic
policy must, therefore, aim at plenty and equitable distribution. We must produce wealth, and
then divide it equitably. How can we have a welfare state without wealth?
-- Pandit Jawaharlal Nehru
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4. index ……
Section A- Direct Taxes
A1 Business Expense - Contribution to A8 MAT – Companies
National Laboratory
A2 Business expense - Housing Projects A9 MAT – LLP
A3 Business expense - Contribution to A10 Non-Resident – Liaison
Pension Scheme Office
A4 Deduction - Power Sector A11 Transfer Pricing –ALP
A5 Exemption - Charitable Trust A12 Transfer Pricing – Specified
International Areas
A6 Exemption – Infrastructure Debt Fund A13 Transfer of Pricing –
Powers of TPO
A7 Income – Foreign Dividend A14 Settlement Commission –
Powers
Section B – rates of tax on income
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5. direct taxes……
Sr. No. Subject hospitals with 100-beds or more. The deduction
A1 Business Expense - Contribution to was earlier granted only in respect of any new
National Laboratory hotel or new hospital.
Amended
Sec. +/- w.e.f. Comments
35(2AA) + 01.04.2012 1. The Govt. has taken note of unprecedented
rise in the price of residential housing making it
Highlights almost impossible for the common man to own
house.
The contribution to any National Laboratory or 2. In order to control the price, the Govt. has now
university or IIT for use of scientific research, which introduced a new scheme for development of
was deductible @ 175% of the sum paid is now housing projects so as to allow the deduction of
enhanced to 200%. any capital expenditure incurred for the purpose
of such business.
Comments 3. Similar deduction is also introduced for
1. The Finance Act, 2010 permitted contribution to increased production of fertilizer by installing new
such institutions at 175% of the amount paid instead plant or increasing installed capacity of an existing
of earlier 125%. plant.
2. The deduction is further enhanced to 200% to 4. Such deduction was earlier granted to the new
encourage more contribution to such scientific hotels of specified category and new hospitals of
research programmes. the specified size. It is now proposed to extend the
deduction to the building and operating of any
hotel or hospital of these specified types.
Sr. No. Subject
A2 Business expense - Housing Sr. No. Subject
Projects A3 Business expense - Contribution
Introduced to Pension Scheme
Sec. +/- w.e.f. Introduced
35AD + 01.04.2012 Sec. +/- w.e.f.
36(1)(iv) + 01.04.2012
Highlights
Highlights
1. The deduction on account of capital expenditure Any contribution as an employer towards pension
has been now extended to the business in the nature scheme on account of employee is proposed to be
of developing and building the housing project allowed as deduction.
under the scheme framed by the Govt. as well as to a
new plant or to a newly installed capacity in an Comments
existing plant for production of fertilizer.
1. The new amendment seeks to grant deduction
2. Similar deduction was also granted to all the
of the contribution to employee’s account towards
hotels of 2-star category or above as well as to
Pension Scheme as referred to in s. 80CCD.

6. 2. However, such deduction is restricted to 10% of permitting the business activity as a part of
the salary of the employee. charitable purpose if the gross receipt does not
exceed Rs.10 lacs. This limit now be enhanced to
Sr. No. Subject Rs.25 lacs
A4 Deduction - Power Sector 3. This is a welcome provision enabling
Amended furtherance of the charitable activity.
Sec. +/- w.e.f.
80IA(4) + 01.04.2012 Sr. No. Subject
A6 Exemption –
Highlights Infrastructure Debt Fund
Tax Holiday given to Power Sector is extended Introduced
for a period of one year, i.e. upto 31.3.2012. Sec. +/- w.e.f.
10(47)/ 115A/ + 01.06.2011
194LB
Comments
1. Under sec. 80-IA(4)(iv), the deduction is Highlights
available to undertaking engaged in generation,
distribution and transmission of power till 31.3.2011. 1. In order to boost investment in infrastructure
2. The said Tax Holiday is extended for a further sector, the Govt. proposes to introduce dedicated
period of one year making them eligible for Infrastructure Debt Fund (IDF) Scheme.
deduction upto 31.3.2012. 2. Any income earned by the notified IDF, is
3. This will boost the power sector and may be proposed to be exempt under the Act.
instrumental in bringing down the cost of electricity 3. Corresponding amendment is also made to
for the needy consumers. seek to tax the interest received by non-resident or
a foreign company on investment made in IDF at a
Sr. No. Subject reduced tax rate of 5%.
A5 Exemption - Charitable Trust 4. Accordingly, IDF shall be liable to withhold
Amended tax of 5% on such interest paid.
Sec. +/- w.e.f.
2(15) + 01.04.2012 Comments
Highlights 1. This is a welcome provision which can go a
The value of business receipts permitted by a long way to reduce the cost of investment.
Charitable Trust is now raised from Rs. 10 Lakhs to 2. It also benefits the foreign entities as they are
Rs. 25 Lakhs. taxed at a marginal rate of 5% instead of normal
rate of 30%.
Comments
Sr. No. Subject
1. Definition of charitable purposes has been a A7 Income – Foreign Dividend
matter of controversy over the period more so Amended
relating to business activity carried on by the Trust Sec. +/- w.e.f.
for the purpose of charitable objects. 115BBD + 01.04.2012
2. The Finance Act, 2008 restricted the charitable
purpose activity by excluding the business activity Highlights
from its definition. However, this brought in lot of
agitation amongst charitable public and therefore a Dividend from foreign subsidiaries to the Indian
proviso was introduced by Finance Act, 2010 companies is proposed to be taxed at 15%.

7. have now been subjected to minimum tax
provisions at 18.5%.
Comments
2. The credit of MAT paid over and above the
1. The dividend from foreign subsidiary normal tax liability is allowed to be carried
companies are presently taxed at marginal rate is forward upto 10 years.
30% plus surcharge and cess. It is now proposed to
tax such dividend at 15% plus surcharge and cess. Comments
2. It is also proposed that no expenditure in respect
of such dividend shall be allowed. 1. The concept of LLP was introduced by the
Finance Act, 2010, in order to permit creation of
partnership with limited liability. The LLPs were
Sr. No. Subject
granted status of a partnership firm.
A8 MAT - Companies 2. Though, in general, partnership are not liable
Amended to MAT, by the proposed amendment, the LLPs
Sec. +/- w.e.f. which have been granted the status of partnership
115JB - 01.04.2012 firm are specially made liable to MAT and brought
at par with Companies.
Highlights 3. One of the main benefits of forming LLP was
that they were not subjected to MAT and Dividend
1. The tax rate for the purpose of MAT is increased tax. With the proposed amendment, the LLP are
from 18% to 18.5%. also subjected to MAT which may reduce the
2. The exemption from MAT granted to SEZ is attraction of people towards LLP in future.
now sought to be withdrawn.
Comments Sr. No. Subject
A10 Non-Resident – Liaison Office
1. The increase in the rate of MAT would certainly Amended
be an additional burden to the Companies. Sec. +/- w.e.f.
2. Moreover, withdrawal of exemption from MAT
285 - 01.06.2011
is a very harsh provision on the SEZ units. Earlier,
it was declared that the SEZ units would be allowed
several benefits based on which companies had set Highlights
up the SEZ making the huge investments in it. The
promises made to them at the time when It is proposed that the non-residents have who
investments were made are not fulfilled. This may liaison office (LO) in India are required to file the
lead cause dis-satifaction and lack of confidence in annual statement within 60 days from the end of
the Parliament and on t he promises made by them. the financial year.
Comments
Sr. No. Subject 1. It is judicially recognized that LO does not
A9 MAT - LLP create a permanent establishment and hence are
Introduced not required to file the return.
Sec. +/- w.e.f. 2. However, with the proposed amendments
115JC / 115JD - 01.04.2012 they are now made liable to file the annual
statement very year.
3. This proposal will enable the department to
Highlights
gather the data to examine whether LO constitutes
1. The Limited Liability Partnerships (LLP), a Permanent Establishment in India or not. This
newly introduced concept by the Finance Act, 2010,

8. may also increase long drawn litigations on the issue notified International area if there is lack of
whether the LO constitutes PE in India. effective exchange of information from them.
Stringent rules have been framed to monitor the
transactions with parties in the said area.
Sr. No. Subject a) Parties in such areas shall be subjected to
A11 Transfer Pricing -ALP transfer pricing regulations even if they are not
Amended associated or related enterprises.
Sec. +/- w.e.f. b) Payment made to Financial Institutions (FI) in
92C + 01.04.2011 such areas is proposed to be disallowed unless
CBDT is authorized to seek relevant information
Highlights from such FI.
1. Sec. 92C seek determination of income applying c) Expenditure/allowance shall not be allowed
transfer pricing rules permitting the variation of 5% unless the assessee maintains the prescribed
between ALP determined and the actual price at documents.
which the international transactions is undertaken. d) Any sum received from any source stated to be
2. The said variation of 5% is now done way in such area shall be treated as income under
within the proposed amendments thereby granting certain circumstances.
power to the Central Govt. to notify the permissible e) Payments to such parties abroad, if chargeable
variance across the business segments. to tax, shall be subjected to TDS at 30%.
Comments
Comments
1. The permissible variance of 5% was an Adhoc 1. The said amendment is introduced as part of
safe harbour granted to an assessee. Accordingly, if anti tax avoidance provisions in order to tighten
difference between the actual value of transaction the hands of non-cooperative countries.
and ALP is 5% or less, no adjustments are made to 2. However, tough provisions have been
the income of the assessee. thrashed upon the present assessee by giving wide
2. It is however felt that the pricing factor cannot powers to the department. In the past, this has led
be freezed at 5% variance since the same vary from to misuse of powers and may lead to long drawn
industry to industry. litigations.
3. It is therefore thought appropriate to leave the 3. These provisions may also increase
determination of the variance on the Central Govt. administrative burden on the assessee as well as
depending upon the business activity. on the department.
4. This may help in reducing the litigation at least
on the issues relating to price variance.
Sr. No. Subject
A13 Transfer of Pricing – Powers
Sr. No. Subject
of TPO
A12 Transfer Pricing – Specified
Amended
International Areas
Sec. +/- w.e.f.
Introduced
92CA - 01.4.2011
Sec. +/- w.e.f.
94A - 01.06.2011
Highlights
Highlights
1. Earlier, the Transfer Pricing Officer (TPO) was
only empowered to consider the issues referred to
1. The new provisions have been introduced to
him by the Assessing Officer.
empower the Govt. to specify any country as

9. anomaly since there was lack of clarity as to
As per the proposed amendment, the TPO is now eligibility to file the application by the entities who
empowered to look into any other international were relating to the parties covered under search
transactions even if is same is not referred to him by but are themselves not subjected to search
Assessing Officer. proceedings.
2. It is therefore clarified that such entities can
file the application if the disclosed tax liability
Comments
exceeds Rs.10 lacs.
1. Earlier TPO was empowered to look into
transactions which are referred to him by the
Assessing Officer. It is now proposed that the TPO
may look into any other international transactions
which he may come across even if the same is not
referred to him by Assessing Officer.
2. He has also been granted wide powers to call for
information, to carry out survey and initiate the
proceedings to determine ALP.
3. The said powers granted to TPO would increase
substantial litigation and multiplicity of
proceedings.
4. This amendment also seeks to overrule the
decision of Delhi Tribunal in the case of Amadus
India Pvt. Ltd [2011 TII 22 (ITAT (Del)] which held
that the TPO merely has power to consider the
issues referred to him by the Assessing Officer and
cannot go beyond such reference.
Sr. No. Subject
A14 Settlement Commission – Powers
Amended
Sec. +/- w.e.f.
245C + 01.06.2011
Highlights
1. It is proposed to permit the entities (who are not
covered under the search assessments u/s.
153A/153C) but are related to such taxpayers
undergoing search assessments, to file an
application for settlement, if the tax liability exceed
Rs. 10 lacs.
2. Settlement commission is also empowered to
rectify its orders passed u/s. 245D(4).
Comments
1. Earlier, the entities covered under search were
allowed to file the application for settlement with
minimum tax liability of Rs.50 lacs. This created an

10. rates of tax on income ……
The comparative chart showing the tax rates for various levels of income during
A.Y. 2011-12 and A.Y. 2012-13 is given below:
For Male (below 60 years of age)
Slab Rates A.Y. 2011-12 A.Y. 2012-13
Tax SC EC Total Tax SC EC Total
Upto 1,60,000 0 0 0 0 0 0 0 0
1,60,001 to 1,80,000 10.00 0.00 0.30 10.30 0 0 0 0
1,80,001 to 5,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.30
5,00,001 to 8,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.60
8,00,001 and above 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.90
For Female (below 60 years of age)
Slab Rates A.Y. 2011-12 A.Y. 2012-13
Tax SC EC Total Tax SC EC Total
Upto 1,90,000 0 0 0 0 0 0 0 0
1,90,001 to 5,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.3 10.30
5,00,001 to 8,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.60
8,00,001 and above 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.90
For Senior Citizens (Between 60 years and 80 years)
Slab Rates A.Y. 2011-12 A.Y. 2012-13
Tax SC EC Total Tax SC EC Total
Upto 2,40,000 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2,40,001 to 2,50,000 10.00 0.00 0.30 10.30 0.00 0.00 0.00 0.00
2,50,001 to 5,00,000 10.00 0.00 0.30 10.30 10.00 0.00 0.30 10.30
5,00,001 to 8,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.60
8,00,001 and above 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.90
Tax SC EC Total Tax SC EC Total
For Senior Citizens (Above 80 years)
Slab Rates A.Y. 2011-12 A.Y. 2012-13
Tax SC EC Total Tax SC EC Total
Upto 2,40,000 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2,40,001 to 5,00,000 10.00 0.00 0.30 10.30 0.00 0.00 0.00 0.00
5,00,001 to 8,00,000 20.00 0.00 0.60 20.60 20.00 0.00 0.60 20.60
8,00,001 and above 30.00 0.00 0.90 30.90 30.00 0.00 0.90 30.90
Tax SC EC Total Tax SC EC Total
• There are no changes in the corporate rates and rates of tax on partnership firms.