Comparative Analysis of Financial Bills

2009 & 2011 INCOME TAX CIA II

-Neethi Kumar

0911148 III BBM B

A Financial Bill is legislative act intended to raise public revenues. It comprises of various aspects but only the income tax and its rates have been considered in the following assignment. The financial bill, also referred to as the union budget is proposed by the finance minister of the country; in our case, it being Mr Pranab Mukherjee. Comparative Analysis of the Union Budget of 2009 and 2011 The main basis of comparison between the bills of 2009 and 2011 are in the following table:-

BASIS Personal Income

BUDGET 09 Senior Citizens: Rs.2.40 Lakhs Women: Rs.1.90 Lakhs Men: Rs. 1.60 Lakhs

BUDGET 11 Men individual taxpayers exemption enhanced from Rs.1,60,000 to Rs.1,80,000 giving uniform tax relief of Rs.2,000.

Minimum Alternate Tax

Minimum Alternate Tax (MAT) to be Rate of Minimum Alternative Tax increased to 15 per cent of book profits from 10 per cent. The period allowed to-carry forward the tax credit under MAT to be extended from seven years to ten years. proposed to be increased from 18 per cent to18.5 per cent of book profits.

Surcharge

Abolishing of Surcharge

Current surcharge of 7.5 per cent on domestic companies proposed to be reduced to 5 per cent.

Changes made in budget of 2009 y Deduction under section 80-DD in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability being raised from the present limit of Rs.75, 000 to Rs.1 lakh. y Sun-set clauses for deduction in respect of export profits under sections 10A and10B of the Income-tax Act being extended by one more year i.e. for the financial year 2010-11. y Fringe Benefit Tax on the value of certain fringe benefits provided by employers totheir employees to be abolished. y Scope of provisions relating to weighted deduction of 150% on expenditure incurredon in-house R&D to all manufacturing businesses being extended except for asmall negative list. y Businesses to be incentivized by providing investment linked tax exemptions rather than profit linked exemptions. Investment linked tax incentives to be provided, to begin with, to the businesses of setting up and operating cold chain,warehousing facilities for storing agricultural produce and the business of laying and operating cross country natural gas or crude or petroleum oil pipeline network for distribution on common carrier principle. Under this method, all capital expenditure, other than expenditure on land, goodwill and financial instruments to be fully allowable as deduction. y New Pension System (NPS) to continue to be subjected to the Exempt-Exempt-Taxed (EET) method of tax treatment of savings. Income of the NPS Trust to be exempted from income tax and any dividend paid to this Trust from Dividend Distribution Tax. All purchase and sale of equity shares and derivatives by the NPS Trust also to be exempt from the Securities Transaction Tax. Self employed persons to be enabled to participate in the NPS and to avail of the tax benefits available thereto. y Alternative dispute resolution mechanism to be created within the Income Tax Department for the resolution of transfer pricing disputes. Central Board of Direct Taxes (CBDT) to be empowered to formulate safe harbour rules to reduce the impact of judgmental errors in determining transfer price in international transactions. y Commodity Transaction Tax (CTT) to be abolished.

Donations to electoral trusts to be allowed as a 100 percent deduction in thecomputation of the income of the donor.

Deduction under section 80E of the Income-tax Act allowed in respect of intereston loans taken for pursuing higher education in specified fields of study to be extended covering all fields of study, including vocational studies, pursued after completion of schooling.

To mitigate the practical difficulties faced by charitable organisations, anonymous donations received by charitable organisations to the extent of 5 percent of their total income or a sum of Rs.1 lakh, whichever is higher, not to be taxed.

Scope of presumptive taxation to be extended to all small businesses with a turn over upto Rs. 40 lakh. All such taxpayers to have option to declare their income from business at the rate of 8 percent of their turnover and simultaneously enjoy exemption from the compliance burden of maintaining books of accounts. As a procedural simplification, they are also to be exempted from advance tax and allowed to pay their entire tax liability from business at the time of filing their return. This new scheme to come into effect from the financial year 2010-11.

Tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto available in respect of profits arising from the commercial production or refining of mineral oil, to be extended to natural gas. This tax benefit to be available to undertakings in respect of profits derived from the commercial production of mineral oil and natural gas from oil and gas blocks which are awarded under the NELP-VIII round of bidding. The section to be retrospectively amended to provide that undertaking for the purposes of section 80IB(9) will mean all blocks awarded in any single contract.

Changes made in the Budget 2011 y Lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. y Benefit of investment linked deduction extended to businesses engaged in the production of fertilizers. y y Investment linked deduction to businesses developing affordable housing. Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200 per cent. y y y System of collection of information from foreign tax jurisdictions to be strengthened. Exemption limit enhanced and qualifying age reduced for senior citizens. Higher exemption limit for Very Senior Citizens, who are 80 years or above.