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Union Budget 2012: Income Tax amendments and its implications

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As part of his Union Budget 2012 proposals, the Finance Minister, Shri Pranab Mukherjee announced a number of amendments to the Income Tax Act. Let us try to understand a few of these amendments and its implications which impact the common man and / or the small scale business men:

Corporate Tax:

1. Minimum Alternative Tax (MAT) levied on partnership firms, Association of Persons (AOP) and Sole proprietory concerns claiming profit linked deduction, being tax holidays etc., under Chapter VIA: A GOOD MOVE TO BRING ALL ENTITIES AT PAR, THESE ENTITIES WOULD ALSO NOW BE REQUIRED TO PAY MAT @ 20.01% EVEN IN CASE OF NO TAXABLE PROFITS UNDER NORMAL COMPUTATION WHICH WAS HITHERTO APPLICABLE ONLY FOR CORPORATES.

2. Share capital / share premium credits in Private Companies to be taxed in the hands of the recipient unless the source of the funds of the investors are explained – A GOOD MOVE SINCE MANY CLOSELY HELD COMPANIES RESORT TO ONE TIME ENTRY TO ENHANCE THEIR EQUITY HOLDING IN THE BOOKS WHICH WILL NOW BE CURBED.

3. Share premium received in excess of the fair market value of the shares to be taxable as income in the hands of Private Companies: A GOOD MOVE AGAIN AIMED AT MITIGATING THE ONE TIME ENTRY MENACE, IT WILL ALSO CURB PROMOTERS BRINGING IN FUNDS WITHOUT ENHANCING THE AUTHORISED CAPITAL. THE ONUS WILL NOW BE ON THE RECEIPIENT TO PROVE THE FMV OF THEIR SHARES.

4. Undisclosed Income to be subject to tax at max. marginal rate of 30% and penalty of 10% to 90% to be levied – A RISKY MOVE, DURING SEARCH PROCEDURES, UNDISCLOSED INCOME IS SUBJECT TO TAX AT 30% EVEN IF IT FALLS BELOW THE BASIC EXEMPTION LIMIT. EARLIER, ONLY TAX AND INTEREST WAS LEVIED, NOW PENALTY AT 10%-90% ALSO TO BE LEVIED.

5. Exemption limit for compulsory tax audit for SMEs increased to INR 1 crore and INR 25 lakhs for professionals – A GOOD MOVE, RESULTING IN LESSER COMPLIANCE FOR SMALLER FIRMS AND PROFESSIONALS.

6. Time limit for claiming exemption u/s 80IA extended to 31.3.2012 for power sector – A GOOD MOVE, WILL  CERTAINLY AUGMENT INVESTMENT IN POWER SECTOR

7.  The weighted average deduction of 200% for in-house R&D extended by another 5 years – A GOOD MOVE, WILL AUGMENT AND ENCOURAGE COMPANIES TO SPEND ON INHOUSE R&D.

Personal Tax:

1. Basic threshold limit for chargeability of Income Tax increased from INR 1.80 lakhs to INR 2.00 Lakhs – A GOOD MOVE, WILL RESULT IN REDUCING THE TAX BURDEN BY INR 2,060/- FOR GENERAL TAX PAYERS. LESSER BENEFIT FOR WOMEN ASSESSEES SINCE THEY BENEFIT BY WAY OF ENHANCEMENT OF THE LIMIT BY ONLY INR 10,000/- AND CONSEQUENT TAX SAVING OF INR 1030/-, THE HIGHER EXEMPTION LIMIT FOR WOMEN ASSESSEES SINCE LAST MANY YEARS HAS NOW BEEN DONE AWAY WITH.

2. The higher ceiling in the tax slab for the 20% tax has been increased from INR 8.00 lakhs to INR 10.00 Lakhs – A GOOD MOVE, THIS WILL RESULT IN REDUCING THE TAX LIABILITY FOR PEOPLE HAVING INCOME ABOVE RS.8 LACS WITH A MAXIMUM BENEFIT OF INR 20,060/- FOR ASSESSEES HAVING INCOME OF INR 10 LAKHS AND ABOVE.

3. Additional deduction of upto INR 5,000/- provided for preventive medical checkup in the total ambit of INR 15000/- deduction u/s  80D – A GOOD MOVE, THIS WILL CERTAINLY ENCOURAGE PEOPLE TO GO FOR ANNUAL MEDICAL CHECKUP AND CLAIM DEDUCTION FOR THESE EXPENSES.


 

4. Additional deduction u/s 80CCB for investment in infrastructure bonds upto INR 20,000/- has been extended beyond a.y.12-13. – A GOOD MOVE, AN ADDITIONAL AVENUE FOR TAX SAVING INVESTMENT FOR SMALL TAX PAYERS CONTINUES FURTHER.

5. Senior citizens not having business income not required to pay advance tax - A GOOD MOVE, RESULTING IN LESSER COMPLIANCE FOR SENIOR CITIZENS, BUT WOULD BURDEN THEM WITH THE ENTIRE TAX LIABILITY TO BE PAID AT ONE GO AT THE TIME OF FILING RETURNS.

6. Deduction of upto INR 10,000/- for interest earned in SB account - A GOOD MOVE, WOULD REDUCE TAX BURDEN OF SMALL TAX PAYERS WHO KEEP THEIR SAVINGS IN NORMAL BANK SAVING BANK ACCOUNTS.

7. Salaried employees having salary income upto INR 5 Lakhs and interest income from SB account upto INR 10,000/- would not be required to file tax returns - A GOOD MOVE, RESULTING IN LESSER COMPLIANCE BY SALARIED EMPLOYEES DRAWING LOW SALARY, BEING SMALL TAX PAYERS.

8. Tax deduction for payment of life insurance premia and tax exemption for maturity proceeds received shall no longer be available for new policies taken where the annual premium exceeds 10% of the sum assured. – THIS WOULD DISCOURAGE INVESTMENT IN LIFE INSURANCE SCHEMES. EARLIER LIMIT WAS FOR POLICIES HAVING ANNUAL PREMIUM OVER 20% OF THE SUM ASSURED. FORTUNATELY, THE SAME HAS NOT BEEN MADE APPLICABLE TO EXISTING POLICIES.

9. Capital gain on sale of residential property to be exempt from tax if it is invested in equity shares of eligible companies - A GOOD MOVE, ANOTHER CAPITAL GAIN TAX SAVING AVENUE AVAILABLE TO THE ASSESSEES.

10. Buyer of immovable property worth INR 50 lakhs and above in urban areas and INR 20 lakhs and above in rural areas will now be required to deduct tax at source @1% on payments made to the seller -  THIS WOULD RESULT IN UNNECESSARY COMPLIANCE FOR THE BUYER OF PROPERTIES WHO WILL NOW BE REQUIRED TO OBTAIN THE PAN OF THE SELLER AND THEN DEPOSIT THIS TAX. THE DEPOSIT OF TDS REQUIRES A PERSON TO OBTAIN A TAX DEDUCTION ACCOUNT NUMBER (TAN) AND THEN CONTINUE TO FILE THE TDS RETURNS (EVEN IF IT IS NIL) TILL HE HOLDS THE TAN. HOW THIS PROBLEM IS TO BE SOLVED, HAS NOT BEEN EXPLANIED.

11. Cash purchase of jewellery and bullion over Rs. 2 lakhs would require tax to be collected at source @ 1% by the seller from the buyer - GOOD MOVE TO CURB CASH TRANSACTIONS, BUT WOULD IMPACT JEWELLERY BUSINESS. ALSO UNNECESSARY COMPLIANCE FOR THE JEWELLERY SHOP OWNERS TO OBTAIN PAN OF THE BUYER. THE DEPOSIT OF TCS REQUIRES A PERSON TO OBTAIN A TAX COLLECTION ACCOUNT NUMBER (TAN) AND THEN CONTINUE TO FILE THE TCS RETURNS (EVEN IF IT IS NIL) TILL HE HOLDS THE TAN. HOW THIS PROBLEM IS TO BE SOLVED, HAS NOT BEEN EXPLANIED.

12. STT on delivery transactions reduced by 20% from 0.125% to 0.10% - A GOOD MOVE SINCE IT WILL REDUCE THE COST BURDEN OF IRREGULAR INVESTORS WHO WERE NOT ABLE TO CLAIM THE DEDUCTION FOR THE STT PAID.

CA Sanjay Thampy
ACA, Grad. CWA, CS, DBM
For Kerala IT News

About the Author: Sanjay is a CA based in Mumbai and can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Comments (1)
1 Monday, 19 March 2012 18:36
Thank you, the information you shared is very informative

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