Direct Tax Proposals 2010

Courtesy by-
Shri. Sanjay V. Kulkarni
Chartered Accountant
Audit House, Belgaum

The Finance Minister has presented the Finance Bill 2010 on 26th of February 2010. The substance of the important direct tax proposals applicable for the financial year 2010-11 are summarised below:

1    Rates of Income Tax:
A. Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person:
In the case of every individual or Hindu undivided:
UptoRs. 1,60,000    Nil.
Rs. 1,60,001 to Rs. 5,00,000     10 per cent.
Rs. 5,00,001 to Rs. 8,00,000     20 per cent.
Above Rs. 8,00,000    30 per cent.
In the case of every individual, being a woman resident in India, and below the age of sixty-five years at any time during the previous year:
UptoRs. 1,90,000    Nil.
Rs. 1,90,001 to Rs. 5,00,000     10 per cent.
Rs.5,00,001 to Rs. 8,00,000     20 per cent.
Above Rs. 8,00,000    30 per cent..
In the case of every individual, being a resident in India, who is of the age of sixty-five years or more at any time during the previous year:
Upto Rs. 2,40,000    Nil.
Rs. 2,40,001 to Rs. 5,00,000    10 per cent.
Rs. 5,00,001 to Rs.8,00,000    20 per cent.
Above Rs. 8,00,000    30 per cent.
No surcharge shall be levied.
B. Co-operative Societies:
In the case of co-operative societies, the rates of income-tax will continue to be the same. No surcharge will be levied.
C. Firms:
In the case of firms, the rates of income-tax will continue to be the same. No surcharge will be levied.
D. Local authorities:
The rate of income-tax in the case of every local authority will continue to be the same. No surcharge will be levied.
E. Companies:
The rate of income-tax in the case of companies is same. The existing surcharge of 10%. on a domestic company is proposed to be reduced to 7.5%.
It is proposed to enhance Minimum Alternate Tax u/s 115 JB from 15% to 18%.
“Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of 2%. and 1% respectively.

2    The definition of charitable purpose under the Income Tax act has been amended. The absolute restriction on receipt of commercial nature has been relaxed and it is       proposed to amend section 2(15) to provide that “advancement of any other object of general public utility” shall continue to be a “Charitable purpose” if the total receipts from any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business do not exceed Rs 10 lakh in the previous year.It is important to note that the said amendment is proposed to take effect retrospectively i.e., w.e.f AY 2009-10.

3 Under the present law certain expenses are not allowed as a deduction if TDS provisions are not complied with. A change is proposed in these provisions. It is now proposed to amend the said section to provide that no disallowance will be made if after deduction of tax during the year, the same has been paid on or before the due date of filing the return u/s 139(1).
If the disallowance is to be avoided then it is compulsory that the deduction of tax is made within the previous year. If deduction is made after the end of the previous year then the disallowance will continue.
The said amendment is proposed to be retrospective and will be applicable from AY 2010-11.
The rate of interest charged for delay in payment of tax deducted is increased from 1% to 1.5% p.m. w.e.f. 01/07/2010. So any delay in payment after the said date shall attract interest at the rate of 1.5% p.m.

4     The scope of section 35 AD is proposed to be enlarged to include business of building and operating Hotel of two-star or above category any where in India.
Under this section 100% deduction is given for Capital Expenditure incurred wholly and exclusively for the purpose of specified business.

5    The present limit prescribed for getting accounts audited is proposed to be increased from 40 lakhs to Rs. 60 lakhs in case of Business and from Rs. 10 lakhs to 15 lakhs in case of  profession

6    Presently the penalty leviable for not getting the accounts audited u/s 44AB is 0.5% of the turnover or Rs 1 lakh whichever is less. It is proposed to increase the maximum limit to Rs 1.5 lakh.

7    It is proposed that the transfer of assets on conversion of a company into an LLP (Limited Liability partnership) shall not be regarded as transfer for the purpose of capital gains tax subject to fulfillment of certain conditions.

8    Under the existing provisions any immovable property received without consideration or at inadequate consideration is chargeable to tax as income of the recipient. It is proposed to exclude the transactions of transfer of immoveable property for inadequate consideration. Only the properties transferred without consideration will now attract income tax in the hands of recipient.

The definition of the property is proposed to be enlarged to include “bullion “also.
Earlier, only transfer of property to individuals and HUFs were only covered by the provisions of section 56 (2), whereas the recipient firms, companies, etc. were excluded from taxation. By proposed amendment, it is sought to tax the firms and closely held companies if they receive shares of a closely held company on or after 1st June, 2010, either without consideration or for inadequate consideration. Even shares held as stock in trade are also hit by this amendment though the definition of “Property” excludes stock in trade for the purpose of the said section.
It is also proposed to exclude the transactions undertaken for business reorganisation amalgamations and demerger which are not regarded as transfer u/s 47 of the Act.

9    It is proposed to allow a deduction of Rs 20,000 for investments made in long term infrastructure bonds by inserting a new section 80CCF. This is over and above the deduction allowed u/s 80C

10    Contributions made to Central Health Scheme shall qualify for deduction u/s 80D subject to
the limits prescribed therein.

11    The requirement of furnishing of TDS certificate by the deductor to the deductee was dispensed with w e f 1/4/2010. However it is proposed that the deductor shall continue to furnish the TDS certificate as in the past.

12    Earlier search cases were not allowed to take the benefit of settlement commission. Now it is proposed to include the search cases also provided the settlement application is filed on or before compilation of assessment.

13  It is proposed to raise the threshold limit for payments liable for deduction to tax as source as under:


SI.       Section    Nature of payment    Existing threshold    Proposed threshold
No.            limit of payment    limit of payment
(Rupees)    (Rupees)
1.    194B    Winnings from lottery or crossword puzzle     5,000    10,000
2.    194BB    Winnings from horse race    2,500     5,000
3.    194C    Payment to contractors    20,000    30,000
(for a single transaction)    (for a single transaction)

50,000    75,000
(for aggregate of transactions     (for aggregate of transactions
during financial year)    during financial year)

4.    194D    Insurance commission    5,000    20,000
5.    194H    Commission or Brokerage    2,500    5,000
6.    194-1    Rent    1,20,000    1,80,000
7.    194J    Fees for professional or technical services    20,000    30,000

These amendments are proposed to take effect from 1st July, 2010.
14     There was confusion as to the taxability of Royalty and fees for technical services received by a non resident in India when the services are rendered from outside India. The Hon’ble Karnataka High Court in the case ofJindal Thermal Company Ltd. recently held that the services provided off shore or outside India cannot be taxed in India. It is proposed to change the explanation to section 9 by which services rendered outside India will be taxable in India. As such the taxation will be decided on the basis of utilization of services and not the place of rendering services.

Last Updated (Wednesday, 14 April 2010 20:13)