They say no news is good news. Budget 2012 embodies this saying. It was good --- because it was not bad! Especially after the recent assembly election debacle, one almost expected the Finance Minister to use the budget platform to dole out huge subsidies and waivers in a bid to woo back the electorate. That he refrained from doing so is in itself the best news in Budget 2012 and kudos to the government for this mature stand.
Also, after years of being conditioned to taxes being raised or new taxes being introduced (e.g. FBT and BCTT etc), one almost expects the annual Budget to upset the apple cart. But even though experts have called it “a non event” or an anticlimax – to me this Budget was a rather pleasant disappointment!
The following are some of the key proposals of the Finance Minister.
Relaxations in the tax slabs
A small lip service increase in tax slabs aligning them to those specified in the proposed Direct Tax Code (DTC) was carried out. The new slabs are as contained in the accompanying table.
Earlier, anyone earning an income of Rs. 10 lakh would have paid a tax of Rs. 1.52 lakh. Now, with the revised slabs, the tax outgo works out to Rs. 1.30 lakh – a net benefit of Rs. 22,000.
The surprising thing is that the tax relaxations apply only to higher income group. Those who earn lesser than Rs. 8 lakh stand to gain a maximum of Rs. 2,000 only. A more equitable system is where the
richer pay higher taxes and get lesser benefits than the lower income group rather than the other way around!
Secondly, and in an extremely unchivalrous move, ladies and senior citizen taxpayers stand to gain (although marginally) lower than their male counterparts. Consider the following table. At different income levels, both ladies and senior citizens would be saving tax of Rs. 1,000 and Rs. 2,000 respectively, lower than the gentlemen.
Relaxations in the tax slabs
A small lip service increase in tax slabs aligning them to those specified in the proposed Direct Tax Code (DTC) was carried out. The new slabs are as contained in the accompanying table.
Earlier, anyone earning an income of Rs. 10 lakh would have paid a tax of Rs. 1.52 lakh. Now, with the revised slabs, the tax outgo works out to Rs. 1.30 lakh – a net benefit of Rs. 22,000.
The surprising thing is that the tax relaxations apply only to higher income group. Those who earn lesser than Rs. 8 lakh stand to gain a maximum of Rs. 2,000 only. A more equitable system is where the
richer pay higher taxes and get lesser benefits than the lower income group rather than the other way around!
Secondly, and in an extremely unchivalrous move, ladies and senior citizen taxpayers stand to gain (although marginally) lower than their male counterparts. Consider the following table. At different income levels, both ladies and senior citizens would be saving tax of Rs. 1,000 and Rs. 2,000 respectively, lower than the gentlemen.
Tax Deduction at Source (TDS) on sale of immovable property
This was perhaps the most significant step taken by the Budget.Currently only in the case of sale of immovable property by an NRI, TDS is required to be deducted by the buyer. However, there is no such requirement on sale of property by a resident.
Now, w.e.f. 1st October 2012, it will be obligatory for the buyer of a property at the time of making payment to the seller, deduct tax at source @ 1% of such sum, if the sale consideration exceeds (a) Rs. 50 lakh where the property is situated in urban areas (b) Rs. 25 lakh in other cases.
There will be no registration of the sale of property unless the buyer furnishes proof of deduction and payment of TDS.
For reducing the compliance burden on the transferee, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property.
The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one time transaction. The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS.
Tax Collection at Source (TCS) on cash sale of bullion and jewellery
In order to curb the quantum of unreported cash transactions in jewellery, with effect from 1st of July 2012, a seller of bullion and jewellery shall collect tax at@ 1% of sale consideration from every buyer of bullion and jewellery if sale consideration exceeds two lakh rupees and the sale is in cash. This would be irrespective of the fact whether buyer is a manufacturer, trader or purchase is for personal use.
Reporting of foreign assets through return of income
Currently, no income tax return needs to be filed if the income of the taxpayer is below the basic threshold. Budget 2012 proposes to amend this provision by providing that filing of the tax return would be compulsory where the resident individual has any asset (including financial interest in any entity) located outside India or signing authority in any account (bank account, demat account etc.) located outside India. In other words, filing of tax return would be compulsory irrespective of whether such individual has taxable income or not.
Particularly noteworthy is the fact that this amendment is applicable retrospectively for FY 11-12 i.e. it is applicable for the return filing of FY 11-12.
Tax Audit limits increased
Currently, under the provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total annual sales exceed Rs. 60 lakh. Similarly, a professional is required to get his accounts audited if the gross receipts exceed Rs. 15 lakh. Such audit is popularly known as tax audit.
The threshold of Rs. 60 lakh is being enhanced to Rs. 1 crore. Similarly the ceiling of Rs. 15 lakh in the case of professionals is being enhanced to Rs. 25 lakh for the purposes of tax audit. This provision will be applicable w.e.f FY 12-13.
Exemption for Senior Citizens from payment of advance tax
Currently, all taxpayers have to pay advance tax if their tax liability exceeds Rs. 10,000. Budget 2012 proposes to exempt senior citizens (60 years of age and above) from paying advance tax provided they do not earn any business income.
Exemption from long-term capital gains tax for investment in SME
As per newly introduced Sec. 54GB, long term capital gains tax exemption would be available to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of the sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.
This relief would be subject to the conditions that-
(i) The investment in the SME has to be made before the due date of furnishing income tax return.
(ii) The investment should be such that post investment the taxpayer holds more than 50% share capital or more than 50% voting rights in the company.
(ii) the SME has to use the funds invested in it for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares.
(iii) If the shares or the plant and machinery purchased is sold before five years, the exempted capital gain would be brought to tax in the year of sale.
(v) By way of a sunset clause it is provided that this exemption would not be available for any sale of residential property made after 31st March, 2017.
Reduction in the rate of Securities Transaction
Tax (STT)
In a bid to improve market sentiment and at the same time boost revenue collection, the STT rate on delivery based equity transactions has been reduced by 20% from 0.125% to 0.1%. STT collections are estimated to be around Rs. 7,000 crore and according to experts, reducing the transaction cost could actually result in promoting growth without sacrificing revenue significantly The proposed reduced STT rates will be effective w.e.f. 1st of July, 2012.
Sec. 80D to include expenditure on preventive health check up
An expenditure of up to Rs. 5,000 incurred by a taxpayer on the preventive health check-up of self, spouse, dependant children or parents(s) would be allowed as a deduction within the overall limit of Sec.80D. That is to say, this Rs. 5,000 is not an extra deduction but would be covered under the general limit of Sec. 80D.
Deduction in respect of interest on deposits in savings accounts
Savings bank interest up to Rs. 10,000 would be exempted from tax in the case of an individual taxpayer and HUF. Interest on fixed deposits will not be covered.
Exemption of any sum or property received by an HUF from its members
Currently, under Sec. 56, in the case of individuals and HUFs, gifts from relatives are exempted from tax. The provision was ambigious in the case of HUFs as it could be argued that an HUF by definition does not have a relative as such.
Therefore, the provisions of the section are being amended so as to provide that any sum or property received without consideration or inadequate consideration by an HUF from its members would also be excluded from taxation.
Of note is the fact that this amendment is being made effective retrospectively from the 1st of October, 2009.
Eligibility conditions for exempt life insurance policies
Currently, any sum received under a life insurance policy is exempted provided the premium payable for any of the years does not exceed 20% of the actual capital sum assured. Similarly, any premium paid for a life insurance policy is deductible under Sec. 80C provided such premium does not exceed 20% of the actual capital sum assured.
The Budget proposes to reduce the above 20% limit to 10% for policies issued on or after 1st April, 2012. This amendment seems to have been carried out in order to limit the deduction to only those policies that primarily offer insurance as against others which are more of investment plans than insurance policies.
Service Tax
Readers may remember that in the third stimulus package unveiled in February 2008, the service tax rate was brought down from 12% to 10%. Budget 2012 proposes to reinstate the same to the earlier 12%.
Service tax, though an indirect tax, directly adds to our cost of living. Expenses on almost all amenities such as telephones, electricity, restaurants, transport, credit cards etc., are subject to service tax. As this service tax is passed on by the service provider, in effect, it is the common man who bears it. Any increase therein would further add to the burden of the aam aadmi – something the government could have avoided especially in the current environment where general price levels remain elevated.
To Sum
These then were the key proposals of Budget 2012.
The FM also mentioned in his Budget speech that a a new scheme called Rajiv Gandhi Equity Savings Scheme is to be introduced where retail investors having income below Rs. 10 lakh would get a 50% tax deduction on Rs. 50,000 invested directly in equities A lock-in period of 3 years is proposed on such investment. However, so far this is just a budget announcement – no details have been announced yet.
Big ticket items such as disinvestment, fuel policy, FDI, FDI in multi brand retail, the high fiscal deficit etc were reserved only for comments in the Budget speech - there has been no firm action taken.
Significantly, the Finance Minister mentioned that the Direct Tax Code could be introduced in the coming fiscal year. One can’t help but get the feeling that the tinkering and fixing exercise that Budget 2012 eventually turned into is a precursor to the new Tax Code. Watch this space for updates.
Read More
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Also, after years of being conditioned to taxes being raised or new taxes being introduced (e.g. FBT and BCTT etc), one almost expects the annual Budget to upset the apple cart. But even though experts have called it “a non event” or an anticlimax – to me this Budget was a rather pleasant disappointment!
The following are some of the key proposals of the Finance Minister.
Relaxations in the tax slabs
A small lip service increase in tax slabs aligning them to those specified in the proposed Direct Tax Code (DTC) was carried out. The new slabs are as contained in the accompanying table.
Earlier, anyone earning an income of Rs. 10 lakh would have paid a tax of Rs. 1.52 lakh. Now, with the revised slabs, the tax outgo works out to Rs. 1.30 lakh – a net benefit of Rs. 22,000.
The surprising thing is that the tax relaxations apply only to higher income group. Those who earn lesser than Rs. 8 lakh stand to gain a maximum of Rs. 2,000 only. A more equitable system is where the
richer pay higher taxes and get lesser benefits than the lower income group rather than the other way around!
Secondly, and in an extremely unchivalrous move, ladies and senior citizen taxpayers stand to gain (although marginally) lower than their male counterparts. Consider the following table. At different income levels, both ladies and senior citizens would be saving tax of Rs. 1,000 and Rs. 2,000 respectively, lower than the gentlemen.
Relaxations in the tax slabs
A small lip service increase in tax slabs aligning them to those specified in the proposed Direct Tax Code (DTC) was carried out. The new slabs are as contained in the accompanying table.
Earlier, anyone earning an income of Rs. 10 lakh would have paid a tax of Rs. 1.52 lakh. Now, with the revised slabs, the tax outgo works out to Rs. 1.30 lakh – a net benefit of Rs. 22,000.
The surprising thing is that the tax relaxations apply only to higher income group. Those who earn lesser than Rs. 8 lakh stand to gain a maximum of Rs. 2,000 only. A more equitable system is where the
richer pay higher taxes and get lesser benefits than the lower income group rather than the other way around!
Secondly, and in an extremely unchivalrous move, ladies and senior citizen taxpayers stand to gain (although marginally) lower than their male counterparts. Consider the following table. At different income levels, both ladies and senior citizens would be saving tax of Rs. 1,000 and Rs. 2,000 respectively, lower than the gentlemen.
Tax Deduction at Source (TDS) on sale of immovable property
This was perhaps the most significant step taken by the Budget.Currently only in the case of sale of immovable property by an NRI, TDS is required to be deducted by the buyer. However, there is no such requirement on sale of property by a resident.
Now, w.e.f. 1st October 2012, it will be obligatory for the buyer of a property at the time of making payment to the seller, deduct tax at source @ 1% of such sum, if the sale consideration exceeds (a) Rs. 50 lakh where the property is situated in urban areas (b) Rs. 25 lakh in other cases.
There will be no registration of the sale of property unless the buyer furnishes proof of deduction and payment of TDS.
For reducing the compliance burden on the transferee, it is also proposed that a simple one page challan for payment of TDS would be prescribed containing details (including PAN) of transferor and transferee and also certain details of the property.
The transferee would not be required to obtain any Tax Deduction and Collection Account Number (TAN) or to furnish any TDS statement as this would be mostly a one time transaction. The transferor would get credit of TDS like any other pre-paid taxes on the basis of information furnished by the transferee in the challan of payment of TDS.
Tax Collection at Source (TCS) on cash sale of bullion and jewellery
In order to curb the quantum of unreported cash transactions in jewellery, with effect from 1st of July 2012, a seller of bullion and jewellery shall collect tax at@ 1% of sale consideration from every buyer of bullion and jewellery if sale consideration exceeds two lakh rupees and the sale is in cash. This would be irrespective of the fact whether buyer is a manufacturer, trader or purchase is for personal use.
Reporting of foreign assets through return of income
Currently, no income tax return needs to be filed if the income of the taxpayer is below the basic threshold. Budget 2012 proposes to amend this provision by providing that filing of the tax return would be compulsory where the resident individual has any asset (including financial interest in any entity) located outside India or signing authority in any account (bank account, demat account etc.) located outside India. In other words, filing of tax return would be compulsory irrespective of whether such individual has taxable income or not.
Particularly noteworthy is the fact that this amendment is applicable retrospectively for FY 11-12 i.e. it is applicable for the return filing of FY 11-12.
Tax Audit limits increased
Currently, under the provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total annual sales exceed Rs. 60 lakh. Similarly, a professional is required to get his accounts audited if the gross receipts exceed Rs. 15 lakh. Such audit is popularly known as tax audit.
The threshold of Rs. 60 lakh is being enhanced to Rs. 1 crore. Similarly the ceiling of Rs. 15 lakh in the case of professionals is being enhanced to Rs. 25 lakh for the purposes of tax audit. This provision will be applicable w.e.f FY 12-13.
Exemption for Senior Citizens from payment of advance tax
Currently, all taxpayers have to pay advance tax if their tax liability exceeds Rs. 10,000. Budget 2012 proposes to exempt senior citizens (60 years of age and above) from paying advance tax provided they do not earn any business income.
Exemption from long-term capital gains tax for investment in SME
As per newly introduced Sec. 54GB, long term capital gains tax exemption would be available to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of the sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.
This relief would be subject to the conditions that-
(i) The investment in the SME has to be made before the due date of furnishing income tax return.
(ii) The investment should be such that post investment the taxpayer holds more than 50% share capital or more than 50% voting rights in the company.
(ii) the SME has to use the funds invested in it for the purchase of new plant and machinery within a period of one year from the date of subscription in the equity shares.
(iii) If the shares or the plant and machinery purchased is sold before five years, the exempted capital gain would be brought to tax in the year of sale.
(v) By way of a sunset clause it is provided that this exemption would not be available for any sale of residential property made after 31st March, 2017.
Reduction in the rate of Securities Transaction
Tax (STT)
In a bid to improve market sentiment and at the same time boost revenue collection, the STT rate on delivery based equity transactions has been reduced by 20% from 0.125% to 0.1%. STT collections are estimated to be around Rs. 7,000 crore and according to experts, reducing the transaction cost could actually result in promoting growth without sacrificing revenue significantly The proposed reduced STT rates will be effective w.e.f. 1st of July, 2012.
Sec. 80D to include expenditure on preventive health check up
An expenditure of up to Rs. 5,000 incurred by a taxpayer on the preventive health check-up of self, spouse, dependant children or parents(s) would be allowed as a deduction within the overall limit of Sec.80D. That is to say, this Rs. 5,000 is not an extra deduction but would be covered under the general limit of Sec. 80D.
Deduction in respect of interest on deposits in savings accounts
Savings bank interest up to Rs. 10,000 would be exempted from tax in the case of an individual taxpayer and HUF. Interest on fixed deposits will not be covered.
Exemption of any sum or property received by an HUF from its members
Currently, under Sec. 56, in the case of individuals and HUFs, gifts from relatives are exempted from tax. The provision was ambigious in the case of HUFs as it could be argued that an HUF by definition does not have a relative as such.
Therefore, the provisions of the section are being amended so as to provide that any sum or property received without consideration or inadequate consideration by an HUF from its members would also be excluded from taxation.
Of note is the fact that this amendment is being made effective retrospectively from the 1st of October, 2009.
Eligibility conditions for exempt life insurance policies
Currently, any sum received under a life insurance policy is exempted provided the premium payable for any of the years does not exceed 20% of the actual capital sum assured. Similarly, any premium paid for a life insurance policy is deductible under Sec. 80C provided such premium does not exceed 20% of the actual capital sum assured.
The Budget proposes to reduce the above 20% limit to 10% for policies issued on or after 1st April, 2012. This amendment seems to have been carried out in order to limit the deduction to only those policies that primarily offer insurance as against others which are more of investment plans than insurance policies.
Service Tax
Readers may remember that in the third stimulus package unveiled in February 2008, the service tax rate was brought down from 12% to 10%. Budget 2012 proposes to reinstate the same to the earlier 12%.
Service tax, though an indirect tax, directly adds to our cost of living. Expenses on almost all amenities such as telephones, electricity, restaurants, transport, credit cards etc., are subject to service tax. As this service tax is passed on by the service provider, in effect, it is the common man who bears it. Any increase therein would further add to the burden of the aam aadmi – something the government could have avoided especially in the current environment where general price levels remain elevated.
To Sum
These then were the key proposals of Budget 2012.
The FM also mentioned in his Budget speech that a a new scheme called Rajiv Gandhi Equity Savings Scheme is to be introduced where retail investors having income below Rs. 10 lakh would get a 50% tax deduction on Rs. 50,000 invested directly in equities A lock-in period of 3 years is proposed on such investment. However, so far this is just a budget announcement – no details have been announced yet.
Big ticket items such as disinvestment, fuel policy, FDI, FDI in multi brand retail, the high fiscal deficit etc were reserved only for comments in the Budget speech - there has been no firm action taken.
Significantly, the Finance Minister mentioned that the Direct Tax Code could be introduced in the coming fiscal year. One can’t help but get the feeling that the tinkering and fixing exercise that Budget 2012 eventually turned into is a precursor to the new Tax Code. Watch this space for updates.
Read More
Halloween Costumes
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