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TAX

Budget2009Highlights
KPM G I N I N D I A

Foreword

TheHonorableFinanceMinisterpresentedtheUnion

TheclearmandategiventotheUnitedProgressiveAlliance

Budget,amidstgreatexpectationsthathewouldsignala

GovernmentledbytheIndianNationalCongress(INC)had

progressivewayforward,despitemajorchallengesoriginat-

alsoraisedhopesthatthisGovernmentwould:

inginIndiasexternalsector.
TheEconomicSurvey200809identifiedthefollowingchallenges:
1.Surgeincapitalinflowsinthelastquarterof2007-08
2.Inflationaryexplosioninglobalcommodityprices
3.Globalfinancialmeltdownandcollapseofinternational
tradeplungingtheworldintoafinancialcrisisreminiscent
ofthe1930sGreatDepression.
ThesechallengesadverselyimpactedtheIndianeconomy
whosegrowthratedeceleratedin200809to6.7percent
fromitsaveragegrowthrateof8.8percentoverthelast5
years(200304to200708).TheEconomicSurveyalsohighlightedtheneedtoreturntoafiscaldeficittargetof3percentoftheGDP--asenvisagedbytheFRBMAct--atthe
earliest.

1. Maintainthepathofhighgrowthwithfiscalprudence
andlowinflation
2. RaiseForeignDirectInvestmentlimitsinsectorssuchas
insuranceanddefense
3. Usheringreatertransparencyintaxes,bringinaunified
GoodsandServicesTaxbyApril1,2010;simplifyandrationalizethetaxstructurebyphasingoutsurcharges,
cessesandtransactiontaxesandoverhaultheregimeof
DividendDistributionTaxtoensurefullsingletaxationin
thehandsofthereceiver
4. AcceleratetheGovernmentsPublicSectorUnitsdisinvestmentprogramtomeetthegoalofaminimumofINR
25,000croresannually,toberaisedthroughthedisinvestmentprocess
5. Createasecondarymarketintheproposedauctioningof
the3GSpectrumwithcapitalgainsarisingfromafreelytradedspectrumbeingseparatelytaxed

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6. Focusoninclusivegrowthmeasurestostimulatede-

employeeincreasesthetaxburdenonthem.TheServiceTax

mandinthedomesticeconomyandtoensurethatthere

basetoohasbeenbroadenedbyincludingmostlegalserv-

ismorepurchasingpowerinthehandsofthepeople

icesandcosmeticandplasticsurgeryservices.

7. Guaranteemaximumpossiblesecuritytocitizens,ensure

Overall,iftheimmediatenegativereactionfromthestock

thehighestlevelofdefensepreparednesspossible,ac-

marketsisanyindication,thecorporatesectorandinvesting

celeratepolicereforms,buildonNationalRuralEmploy-

communityseemdisappointed,thisdevelopmentcould

mentGuaranteeAct,enactanationalFoodSecurityAct,

partlybeaconsequenceofunrealisticexpectations.The

guaranteehealthsecurityforall,ensureenergysecurity

Budgetseemstobewellintendedtoaddressthecon-

tothecountryandmakequalityeducationaffordablefor

stituencyofthecommonman,butdoeslittletorevertto

all.

thepathtofiscalrectitude,whichcouldhavenegativeeco-

TheFinanceMinisterhastriedtomeettheseexpectations
byexpendinghugeamounts,suchthattheoverallsizeofthe
BudgethasexceededINR10lakhcroresanincreaseof36
percentovertheBudgetEstimatesfor2008-09.Substantial

nomicconsequencesfortheeconomyinthelongterm.Corporatesingeneraldonotseemtohavemuchtocheerabout
especiallyastheMinimumAlternateTaxwouldresultinan
immediatecashoutflow.

increasesinallocationshavebeenmadetovariousschemes

Thesummarythatfollowshighlightsthesalientfeaturesof

providingwelfaremeasurestothecommonman.Thetax

theFinance(No.2)Bill2009,intermsofdirectandindirect

proposalshaveremainedlargelyrevenueneutral.

taxes.Unlessotherwiseindicated,theproposedamend-

Whatisreassuringisthedirectionalstanceinre-iteratingthe
GovernmentscommitmenttobringinginauniformGoods
andServicesTaxregimeby1April,2010andanewDirect
TaxesCode,mergingtheAuthoritiesforAdvanceRulingon
DirectandIndirecttaxes,thepromisetosetupanAlternativeDisputeResolutionMechanismintheIncome-taxDe-

mentsrelatingtodirecttaxeswillapplyfromtheassessmentyear2010-11andunlessotherwiseindicated,the
changesrelatingtoCentralExciseandCustomsDuties
comeintoeffectimmediately.ChangesinServicetaxwill
comeintoeffectfromadatetobenotified,aftertheenactmentoftheFinance(No2)Bill,2009.

partmentforTransferPricingcasesandempowermentofthe
CentralBoardofDirectTaxestoformulatesafeharborrules
forTransferPricingininternationaltransactions.
TheremovalofFringeBenefitstaxinthehandsofcorporatesisapositivestepandreducesthecomplianceburden
butre-introducingESOPsasaperquisiteinthehandsofthe

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TableofContents

DirectTax

Corporatetax

Taxholidays

Non-residentrelatedprovisions

Capitalgains

Personaltaxation

Otherdirecttaxprovisions

IndirectTax

10

Customsduty

10

Centralexcise

12

Servicetax

14

Goodsandservicestax

18

Glossary

19

DirectTax

CorporateTax
TheCorporateTaxrateremainsunchanged
TheFBTisabolished
TheMATrateisraisedto15percentfrom10percent.Thecarryforwardand
set-offofcreditforMATisextendedto10fromsevenyears.Further,forthe
purposeofcomputingMAT,Bookprofitistobeincreasedbyprovisionfor
diminutioninthevalueofanyassetifdebitedtotheprofitandlossaccount.
ThelatteramendmentisproposedretrospectivelyfromAY1998-99
Weighteddeductionattherateof150percentavailabletospecificindustries
inrespectofapprovedin-housescientificresearchanddevelopmentfacilityis
extendedtoallcompaniesengagedinthebusinessofmanufactureor
productionofanyarticleorthingfallingoutsidethenegativelist
Deductioniseligibleinrespectofentirecapitalexpenditure(otherthanthe
acquisitionofanylandorgoodwillorfinancialinstrument)incurredbythe
taxpayerengagedinthefollowingbusinesses:
- settingupandoperatingcoldchainfacilitiesforspecifiedproducts
- warehousingfacilitiesforstorageofagriculturalproduce
- laying/operatingcross-countrynaturalgasorcrudeorpetroleumoilpipeline
networkfordistribution/storageasspecified.
Consequentialchangeshavebeenmadeinprovisionsforcomputingcapitalgains
onsaleofsuchcapitalassets,carryforwardofsuchlosses,etc.

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Inthecaseofnon-lifeinsurancecompanies,anyamountcreditedonaccount
ofappreciation/gainsontherealizationofinvestmentsshallbetaxedas
income,andanyamountwrittenofforprovidedfordiminutionorlosson
realizationofinvestmentsshallbeallowedasadeduction.Thisamendment
willapplyfromAY2011-12
Deductioninrespectofamounttransferredtospecialreservebyspecified
entitiesnowextendedtoentitiesengagedinthebusinessofprovidinglong
termfinance(includingrefinance)forthedevelopmentofhousinginIndia
Incomputingtheincomeofacompositebusinesscomprisingpartlyfrom
agricultureandpartlyfromincomechargeabletotax,thetaxWDVofassetsis
tobecomputedbydeductingthetotaldepreciationattributabletothe
compositebusiness,includingthatforanagriculturalbusinessasifitwerea
taxablebusiness
CashpaymentsasspecifiedexceedingINR35,000inadayforplying,hiringor
leasinggoodscarriagestobedisallowedfortransactionseffectedonorafter
October1,2009asagainstthecurrentceilingofINR20,000inaday
A100percentdeductionforcontributionstoapprovedElectoralTrusts.

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TaxHolidays
A100percenttaxholidayisextendedfor1moreyearuptoMarch31,2011to
undertakingslocatedinafreetradezoneunderSection10AandforEOU
underSection10B
Thestartdateofthespecifiedactivityisextendedfor1moreyearupto
March31,2011forthoseengagedinthefollowingundertakings:
- engagedinthegenerationoforgenerationanddistributionofpower
- forthetransmissionanddistributionofpowerbylayinganetworkofnew
transmissionordistributionlines
- carryingoutsubstantialrenovationandmodernizationoftheexisting
networkoftransmissionordistributionlines.
A100percentdeductionofprofitsincaseofunitslocatedinSEZistobe
computedwithreferencetothetotalturnoveroftheundertakinginsteadof
thetotalturnoverofthecompany
InrespectofataxpayerwhoisengagedinsoftwaredevelopmentinanSTP
unitorexportofanarticle/thinginanEOUorfromaspecialeconomiczone
ortheenterprisewhichiseligiblefordeductionorclaimsdeductionunderits
respectivesection,thennofurtherdeductioninrespectofthesameamount
shallbeallowedunderanyotherprovisionsinthesameassessmentyear
Further,theaggregateofthedeductionsundertheaforesaidprovisionsshall
notexceedtheprofitsorgainsoftheundertakingorunitorenterpriseofthe
business.Deductionsundertheaforesaidprovisionsshallbeallowedonlyif
thedeductionhasbeenclaimedinthereturnofincome.Theseamendments
areretrospectivefromtheAY2003-2004
Whilecomputingprofitsandgainsoftheeligibleundertakingorunitor
enterprise,transferpriceinrespectoftransactionsenteredintowithanyother
undertakingorunitorenterpriseofthetaxpayershallbeconsideredatthe
marketvalueasdefined.ThisamendmentisapplicablefromtheAY2009-2010
Thestartdateofthespecifiedactivityisextendedfor3moreyearsupto
March31,2011forundertakingsset-upforthereconstructionorrevivalofa
powergeneratingplant
Startdateofrefiningofmineraloilextendedfor3moreyearsuptoMarch31,
2012forprivatesectorundertakings

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Taxholidaydiscontinuedforundertakingscarryingonthebusinessoflaying
andoperatingacrosscountrynaturalgasdistributionnetwork.Instead,all
capitalexpenditure(otherthanexpenditureonland,goodwillandfinancial
instruments)willbefullyallowedasadeductionwhilecomputingbusiness
income
Taxholidayinrespectofspecifiedinfrastructurefacilityshallnotbeavailableto
anyundertakingorenterprisewhichhasbeenawardedaworkscontractby
anyperson(includingCentral/StateGovernment)andexecutedbythe
undertakingorenterprise.ThisamendmentisretrospectivefromtheAY20002001
A100percenttaxholidayfor7yearsisallowedforundertakingsengagedin
thecommercialproductionofnaturalgasonorafterApril1,2009inblocks
licensedundertheNELP-VIII
AllblockslicensedunderasinglecontractawardedunderNELP-VIIIorin
pursuanceofanylaworbytheCentralorStateGovernmentinanymanner,
shallbetreatedasasingleundertakingforthepurposeofataxholiday
availabletoanundertakingengagedinthebusinessofcommercialproduction
orrefiningofmineraloilandnaturalgas.Thisamendmentisretrospectivefrom
AY2000-2001
Adeveloperwillnotbeentitledtoataxholidayinrespectofahousingproject,
ifmorethanoneresidentialunitisallottedtoanypersonotherthanan
individualandincaseofanindividualtohisspouseorminorchildrenorakarta
ofHUForanypersonrepresentingsuchspecifiedpersons
Further,thetaxholidaywillnotbeavailabletoanyundertakingwhichexecutes
housingprojectsasaworkscontractawardedtoanyentity(includingthe
CentralorStateGovernment).ThisamendmentisretrospectivefromAY20012002
Anynewundertakingengagedintheproductionormanufactureofitemsin
thepaperindustrylocatedinHimachalPradeshandUttaranchalwillnotbe
eligibleforataxholiday
Taxexemptionhasbeenextendedtothemutualfundset-upbyanyother
publicsectorbankspecifiedbytheRBI.

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Non-residentrelatedprovisions
TheCentralGovernmenthasbeenempoweredtoenterintoagreementwith
theGovernmentofanyspecifiedterritoryoutsideIndiaforthepurposeof
doubletaxreliefandspecifiedpurposesinthesamemanneraswiththe
GovernmentofanycountryoutsideIndia
Inaninternationaltransaction,wheremorethanonepriceisdeterminedby
themostappropriatemethod,thearmslengthpriceisthearithmeticalmean
ofsuchprices.Incaseswherethevariationbetweenthepricesodetermined
andpriceatwhichthetransactionhasbeenundertakendoesnotexceed5
percentofthelatter,thetransactionpricewillbedeemedtobethearms
lengthprice
TheCBDThasbeenempoweredtomakeSafeHarborRulestominimize
disputesrelatingtotransferpricingmatters
AnAlternateDisputeResolutionMechanismwillbeformulatedtofacilitatethe
expeditiousresolutionoftransferpricingmattersandothermattersofforeign
companies.Underthismechanism,theAOisrequiredtoforwardthedraft
assessmentordertothetaxpayerforacceptanceorlodginganobjection
within30daystotheDisputeResolutionPanel(DRP)[acollegiumcomprising
ofthreeCommissionersofIncome-tax].Afterhearingfrombothsides,within
ninemonths,theDRPwillissuenecessarydirectionswhichshallbebinding
ontheAObutcanbechallengedbythetaxpayerinanappealtotheIncome
TaxAppellateTribunal.

CapitalGains
ThevalueassessedorassessablebyanyStampDutyAuthoritydeemedtobe
thefullvalueofconsiderationforcomputingcapitalgainsontransferofland
and/orbuildings.

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PersonalTaxation
BasicExemptionLimitshavebeenincreased:
Limits for:

To (INR):

From (INR):

ResidentWomenbelow65years

190,000

180,000

ResidentIndividualsof65yearsandabove 240,000

225,000

OtherIndividuals

150,000

160,000

Surchargeof10percentabolishedforallnon-corporatetaxpayers
PursuanttoabolitionofFBT,EmployeeStockOptions(ESOPs)onexercise
date,contributiontoSuperannuationFund(inexcessofINR100,000)and
otherfringebenefits/amenitiesaretaxableinthehandsofemployeesas
perquisites
Deductionformedicaltreatmentofadependentsufferingfromsevere
prescribeddisabilityincreasedtoINR100,000fromINR75,000
Deductioninrespectofinterestonloantakenforhighereducationextended
toallfieldsofstudies(includingvocationalstudies)afterpassingtheSenior
SecondaryExaminationoritsequivalent,fromanyrecognizedSchool,Boardor
University
AnysumofmoneyreceivedincashorkindexceedingINR50,000byan
individualorHUFwithoutanyorinadequateconsiderationshallbetaxableas
otherincome.Propertyincludesimmovableproperty,land,buildings,shares&
securities,jewellery,archaeologicalcollections,drawings,paintings,sculptures
oranyworkofart.ThisamendmentwillapplyfromOctober1,2009
Taxrelieftobeeligibleonvoluntaryretirementcompensationonlyifemployee
hasnotclaimedtaxexemptiononthesame
TaxbenefitinrespectofinvestmentinNewPensionScheme(NPS)iscurrently
availabletosalariedemployeesonly.Thesameisproposedtobeextendedto
allindividualsfromAY2009-10
TimelimitforcompliancebyprivateProvidentFundTrusttoreceiveorretain
recognitionextendedfromMarch31,2009toDecember31,2010.

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Otherdirecttaxprovisions
WealthtaxexemptionlimitincreasedtoINR3millionfromINR1.5million
Themeaningofpartnershipandpartnerexpandedtoincludelimitedliability
partnershipandlimitedliabilitypartnersasdefinedintheLimitedLiability
PartnershipAct2008.Accordinglytheincome-taxtreatmentofpartnership
firmsandpartnersistoextendtolimitedliabilitypartnershipsandtheir
partners
TheCTThasbeenabolished
Themeaningofmanufacturehasbeenintroducedinthestatutewiththe
purposeofeliminatingdisputesandconflictsamongstjudicialcases.
Manufacturehasbeennowdefinedtomeanachangeinanynon-living
physicalobjectorarticleorthingresultinginitstransformationorbringinginto
existenceanewanddistinctobjectorarticleorthingwithdifferentname/
character/useorchemicalcompositionorintegralstructure
ZeroCouponBondscheme/provisionsextendedtoscheduledbanks
Interestreceivedoncompensationorenhancedcompensationisdeemedto
beincomeundertheheadIncomefromOtherSourcesoftheyearinwhichit
isreceived,irrespectiveofthemethodofaccountingregularlyfollowedbythe
taxpayer,andwillqualifyforadeductionof50percentthereon
FromOctober1,2009,thescopeoftheprovisionfortaxwithholdingon
paymentstocontractorshasbeenexpandedtoincludeacontractfor
manufacturingorsupplyingaproducttotherequirement/specificationofa
customerbyusingmaterialpurchasedfromsuchcustomer.Ifthecredits/
paymentsaremadetoIndividuals/HUF,thetaxesaretobewithheldat1
percentand2percentforallotherentities.Further,incaseofspecifieda
manufacturing/supplycontract,ifthematerialcomponenthasnotbeen
separatelymentionedontheinvoice,thetaxshallbewithheldonthefull
invoicevalue.Paymentstotransportcontractorwouldbenotbeliablefor
withholdingprovidedthetransportcontractorfurnisheshisPAN.The
withholdingtaxobligationsunderthisnewsectionareextendedevento
foreigngovernment/entitiesestablishedoutsideIndia

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Theratesforwithholdingtaxonrentalpaymentsareproposedtobereduced
witheffectfrom1October2009.Theproposedratesareasfollows:

Particulars

Proposed rate
(w. e. f. October 1, 2009)

Existing rate

Rentofplant,machineryorequipment

2percent

10percent

Rentofland,buildingorfurnituretoan
individualandHUF

10percent

15percent

Rentofland,buildingorfurnituretoa
personotherthananindividualor
HUFservice

10percent

20percent

SurchargeandEducationCessnotapplicableforwithholdingtaxonnon-salary
paymentstoresidenttaxpayers
ThethresholdlimitforpaymentofadvancetaxincreasedtoINR10,000from
INR5,000
SimpleanduserfriendlySaralformstobeintroduced
Variousamendmentsmadetoproceduralaspectsoffurnishingofquarterly
returnsforwithholdingtax,issuingcertificatesfortaxeswithheld,timelimits
forassessmentofwithholdingtax,etc
IncasethePANisnotquoted,taxwouldbewithheldatwhicheverrateis
highestfromamongstthefollowing:
- aspecifiedrate
- theratesinforce
- arateof20percent
Scopeofreassessmenthasbeenwidenedtoincludeanyincomewhichmay
cometotheattentionoftheAOduringreassessmentproceedings,
irrespectiveofwhetherornotanyreasonhasbeenrecordedforthesame
whilereopeningtheassessment.Thisamendmentiseffectiveretrospectively
fromApril1,1989
Inconcealmentpenaltyproceedings,incomepertainingtotheperiodpriorto
searchforwhichthereturnofincomehasbeenfiledbythetaxpayerbut
wheresuchincomehasnotbeendisclosedthereintobeliableforlevyofthe
penalty.TheamendmentiseffectiveretrospectivelyfromJune1,2007
ServiceofNoticebyapprovedcourierorelectronictransmissiontobe
consideredasvalid.Further,CBDTtomakerulesregardingaddresses
(includingelectronicmailorelectronicmailmessages)towhichsuch
communicationmaybedeliveredortransmitted

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Everydocument,notice,order,letteroranyothercorrespondenceissuedor
receivedbytheIncomeTaxAuthorityonorafterOctober1,2010tobeara
computer-generatedDocumentIdentificationNumberwithoutwhichitwillbe
treatedasinvalid
Therevisedlimitsforallowingexpenditureonaccountofsalary,bonus,
commissionorremunerationtoaworkingpartnerofallpartnershipfirmsare
asunder:

Book-profit / Losses

Amount allowed as deduction

Inthecaseoflossorbook-profituptoINR
300,000

HigherofINR150,000or90percentofthe
book-profit

Book-profitaboveINR300,000

60percentofbook-profit

Theschemeofpresumptivetaxationmadeapplicabletoallbusinesses(except
forthebusinessofplying,hiringorleasinggoodscarriagesorthoseclaiming
specifiedtaxbenefits)havingtotalturnoverorgrossreceiptoflessthanINR4
million.Theschemeappliestoindividuals,HinduUndividedFamiliesand
partnershipfirms(excludingLimitedLiabilityPartnerships).Underthis
Scheme,8percentoftotalturnover/grossreceiptswillbedeemedtobethe
taxableincomeofthetaxpayeronwhichentireincome-taxcanbepaidasselfassessmenttax.ThisschemewillapplyfromAY2011-12.Incasethetaxpayer
claimslowertaxableincomethenhewillberequiredtomaintainaccountsand
getthemaudited
ThemeaningofCharitablepurposeforthepurposeoftaxregistrationand
exemptionisexpandedtoincludethepreservationoftheenvironment
(includingwatersheds,forestsandwildlife)andpreservationofmonuments,or
placesorobjectsofartisticorhistoricinterest
AggregateanonymousdonationsreceivedbyRegisteredCharitableTrusts/
EntitiesnottaxabletotheextenttheydonotexceedINR100,000or5percent
oftheirtotalincome,whicheverishigher
VoluntarycontributionsreceivedbyApprovedElectoralTrustfunctioningasper
itsrulesistobeexemptifitdistributes95percentthereoftospecifiedpolitical
parties
IncomeoftheNewPensionSchemeTrustistobetaxexempt.Theprovisions
oftheDDTwillnotapplytodividendsreceivedbysuchaTrust.Nowithholding
taxwouldapplyonanyincomepaidtothem.Securitiessold/purchasedby
suchaTrustwillnotattractSTT.

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10

IndirectTax

CustomsDuty
General amendments
Thegeneralratesofcustomsdutyunchanged
RetrospectiveamendmentwitheffectfromJuly1,2003hasbeenmade
empoweringHighCourtstocondoneadelayinfilingofappealsbeyondthe
prescribedperiod.Similaramendmentshavebeenmadeforapplications/
crossobjectionswitheffectfromJuly1,1999.Similaramendmentmadein
centralexciselaw.
TheofficersofDirectorateGeneralofCentralExciseIntelligence(DGCEI)have
beenempoweredasofficersofCustomswithallIndiajurisdictionwith
retrospectiveeffectfromMay9,2000.

New exemption notifications (effective from July 7, 2009)


ExemptionfromCVDtosuchvalueofpackagedsoftwareattributableto
transferofrighttouseforcommercialexploitation
Currentnotificationexemptingpaymentofcustomsdutyonspecifiedgoods
importedbymanufacturer-exportersofsportsgoodsandmanufacturerexportersofleathergoods,textileproductsandfootwearindustryextendedto
covercertainotherrawmaterials/inputs/equipment.

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11

Amendments (effective from July 7, 2009)


IllustrativeChangesinBCDrates:

Items

Prior to July 6, 2009

With Effect From


July 6, 2009

SpecifiedLifesavingdrugs/vaccine

10%

5%

Artificialheartdevices(leftventricular
assistdevice)

7.5%

5%

Goldbars,otherthantolabars,bearing
manufacturersorrefinersengravedserial
numbersandweightexpressedinmetric INR100per10gram
units,andgoldcoins(subjecttospecified
conditions)

INR 200per10gram

Goldinanyform,otherthanthose
specifiedabove,includingliquidgoldand
tolabars(subjecttospecifiedconditions)

INR 250per10gram

INR 500per10gram

Silverinanyform(subjecttospecified
conditions)

INR 500perKg

INR 1000perKg

Permanentmagnetsforuseinwind
operatedelectricitygenerators

7.5%

5%

Set-topboxes

Nil

5%

LCDpanelsformanufactureofLCDTVs

10%

5%

Parts,componentsandaccessoriesof
mobilehandsetsincludingcellphones
(ADC)(subjecttotheprocedure
prescribed)

4%(ADC)

Nil

Proposed amendments (effective from enactment of the


Finance (No.2) Bill, 2009)
Customs Act, 1962
Refundofcustomsdutypaidonunused,identifiableimportedgoodsifthey
arefoundtobedefectiveornotconformingtothespecificationsagreedupon
betweentheimporterandtheseller,subjecttocertainconditionslike:
- Goodsshouldbere-exportedor
- Importerrelinquisheshistitleandabandonstothecustomsor
- Goodsaredestroyedorrenderedcommerciallyvalueless,within30daysor
extendedperiodasmaybepermitted.

Customs Tariff Act, 1975


ForthepurposeofcalculationofCVD,theTariffvaluefixedunderthecentral
exciselawshouldbeadoptedforsimilarimportedarticles.

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12

CentralExcise
General
Thegeneralrateofexcisedutyof8percentisunchanged.

Amendments (effective from July 7, 2009)


Theexistingrateof4percentincreasedto8percenttoalignwiththemean
rate.Certainitemslikefood,drugs,pharmaceuticalsetc.havebeenspared
Cenvatcreditoncement,steelandothermetalitemsetc.usedforthe
constructionofafactoryshed,buildingorsupportstructureofcapitalgoods
excludedfromthedefinitionofinputsandhenceCenvatcreditisnot
available
Manufacturerofbothdutiableandexemptedgoodsoptingnottomaintain
separateaccountsofcommoninputs,topayanamountequalto5percentof
thevalueofexemptedgoodsinsteadof10percent
Exemptionfromexcisedutytosuchvalueofpackagedsoftwareattributableto
transferofrighttouseforcommercialexploitation
Processofaddingormixingcardamom,copra,menthol,spices,etc.other
thanlime,kathaortobaccotobetelnutshallamounttomanufacture
SSIexemptionbenefitextendedtoprintedlaminatedrollsbearingthebrand
nameofanotherperson
BooksofaccountsorotherdocumentsseizedbytheCentralexciseofficerand
notreliedforissueofnotice,tobereturnedwithin30daysoftheissueofthe
notice.

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13

Reduction in excise duty (effective from July 7, 2009)


Item

Upto July 6, 2009

Naphtha,specialboilingpoint
spirits

With effect from


July 7, 2009

14%+INR15perlitre

14%

2%

NIL

20%+INR20,000
perunit

20%+INR15,000perunit

Petroldrivenmotorvehiclesfor
transportofgoods,except
dumpersofspecificcategories

20%

8%

Motorchassisforpetroldriven
vehiclesfittedwithengines
whetherornotwithcab

20%+INR10,000
perchassis

8%+INR10,000perchassis

Brandedjewellery(brandname
ortradenameindeliblyaffixed
orembossed)
MotorVehiclesEngine
capacityexceeding1999cc

Increase in Excise Duty (effective from July 7, 2009)


Item

Upto July 6, 2009

With effect from


July 7, 2009

PolyesterChips

4%

8%

Articlesofwood

4%

8%

ManmadeFilamentYarn/Fibres
(towandstaplefibre)

4%

8%

MRP-based Rate Changes (effective from July 7, 2009)


Upto July 6, 2009

With effect from


July 7, 2009

Item
Central Excise
Abatement
duty rate

Central Excise
duty rate

Abatement

CeramicTiles,
manufacturedina
factorynotusing
electricityforfiringthe
kiln

4%

43%

8%

45%

LPGGasStoves

4%

33%

8%

35%

MP3/MP4orMPEG4
Playerswithorwithout
radio/videoreception
facility

4%

33%

8%

35%

Proposed amendments (effective from enactment of Finance


(No.2) Bill, 2009)
CharteredAccountantscanbenominatedbyChiefCommissionerofcentral
exciseforconductingspecialaudits.

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
Allrightsreserved.

14

ServiceTax
Rateofservicetaxremainsunchanged
AuthorityforAdvanceRulingsnotifiedforITA,toactastheAuthorityforthe
purposesofcustoms,centralexciseandservicetaxfromadatetobenotified.

Introduction of new taxable services (effective from a


date to be notified upon enactment of Finance (No.2) Bill,
2009):
Legalconsultancyservicesexcludingservicesprovided/receivedby
individualsandservicesofappearancebeforeanycourt,tribunalorauthority
Servicesprovidedinrelationtotransportofcoastalgoods,goodsthrough
nationalwaterwayorinlandwater
Cosmeticandplasticsurgeryservicesexcludingsurgeryundertakendueto
specifiedreasons.

Amendments (expansion / modification) in scope of


existing taxable services (effective from a date to be
notified upon enactment of Finance (No.2) Bill, 2009):
Service category

Amendments

Toincludeservicesprovidedbygovernmentrailways
Transportofgoodsbyrailservice andtransportofgoodswhetherincontainersor
otherwise
Businessauxiliaryservice

Toexcludeonlythoseactivitiesthatresultin
manufactureofexcisablegoods.Earliertheconditionof
excisablegoodswasnotprescribed

Stock-brokersservice

Toexcludeservicesofsub-broker

Informationtechnologysoftware
services

RetrospectiveamendmentwitheffectfromMay16,
2008tosubstitutethetermacquiringwithproviding
inclauses(v)and(vi)whichapplyforrighttouseIT
softwareforcommercialexploitation/supplied
electronically

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
Allrightsreserved.

15

Exemptions from service tax (effective from July 7, 2009):


Touroperatorsservices:Toexemptinter-stateorintra-statetransportationof
passengersinvehiclewithcontractcarriagepermitexcludingservices
providedinrelationtotourism,conductedtoursandcharterorhireservices.
Bankingandotherfinancialservices:Toexemptinter-banktransactionsof
purchaseandsaleofforeigncurrencybetweenscheduledbanks.
Cluborassociationservices:Toexemptservicesprovidedbyspecifiedexport
promotioncouncilsincludingFederationofIndianExportOrganizations(FIEO),
GemandJewelleryExportPromotionCouncil(GJEPC),ExportPromotion
CouncilforExportOrientedUnitsandSpecialEconomicZones,etc.upto
March31,2010.

Amendment in Works Contract (Composition Scheme for


Payment of Service Tax) Rules, 2007 (effective from 7 July
2009)
Therulesaremodifiedtorestrictbenefitofoptionalcompositionschemeonlyto
suchworkscontractswheregrossamountchargedforaworkscontractinclude:
Valueofallgoodsusedinorinrelationtoexecutionofworkscontractwhether
suppliedunderanyothercontractforconsiderationorotherwise;
Valueofallservices(includinghirechargesformachineryandtools)tobe
providedfortheexecutionofaworkscontract.
Thegrossamountchargedexcludes:
Valueaddedtaxorsalestaxontransferofpropertyingoodsinvolved;
Costofmachineryandtoolsusedinexecutionofworkscontract.
Theamendmentisnotapplicabletothoseworkscontractswhichhave
commencedorforwhichanypaymenthasbeenmade(otherthancreditordebit
toanyaccount)onorbefore7July2009.

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
Allrightsreserved.

16

Extension in territorial jurisdiction of service tax (effective


from July 7, 2009)
Levyofservicetaxextendedtoinstallations,structuresandvesselsinthe
continentalshelfofIndiaandtheexclusiveeconomiczonesofIndia.The
definitionofIndiahasbeensimilarlyamendedintheImportRules.

New scheme for refund of service tax to exporters of


goods (effective from July 7, 2009)
Newschemeintroducedforrefundofservicetaxtoexportersofgoods.New
schemeisinsupersessionofearlierschemeunderNotificationNo.41/2007
datedOctober6,2007.
Keyfeaturesofthenewschemeinclude:
- Exporterstofilerefundclaimforeachexportshipment.
- Selfcertificationofdocumentsbyexporterswherethetotalamountof
refundclaimdoesnotexceed0.25percentofFOBvalueofexports.
- CertificationofdocumentsbyauditorundertheCompaniesAct/ITAwhere
thetotalamountofrefundclaimexceed0.25percentofFOBvalueof
exports.
- Timeperiodforfilingtherefundclaimextendedtooneyearfromtheexport
ofgoods.
- Exemptionfromservicetaxunderreversechargetoexportersfortransport
ofgoodsbyroadserviceandcommissionpaidtoforeignagents(exemption
restrictedtoservicetaxamountupto1percentofF.O.B.valuefor
commission).

Amendments under Cenvat Credit Rules, 2004 (effective


from July 7, 2009)
Serviceproviderofbothtaxableandexemptedservicesoptingnottomaintain
separateaccountsofcommoninputservices,topayanamountequalto6
percentofthevalueofexemptedservicesinsteadof8percent.
Requirementofcreditreversalincaseofinputs/capitalgoodsfullywrittenoff
inbooksofaccount,extendedtoserviceproviders

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
Allrightsreserved.

17

Other Proposals (effective date of enactment of Finance


(No.2) Bill, 2009):
PowertoCentralgovernmenttoformulaterulestodeterminetherelevantdate
forrateofservicetaxandplaceofprovisionoftaxableservice.
RetrospectiveeffectgivenfromJanuary1,2005tothenotificationexempting
certaintaxableservicesprovidedtothegoodstransportagency.Refund
applicationsforthepastperiodwillbeallowedwithin6monthsfromthedate
whenFinance(No.2)Bill,2009receivestheassentofthePresidentsubjectto
unjustenrichment.
RevisionarypoweroftheCommissionerofCentralExciseunderSection84is
replacedwiththeprocedureoffilingdepartmentalappealsbeforethe
CommissionerofCentralExcise(Appeal)tobringtheprocedureinlinewith
theCentralExciselaw.

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
Allrightsreserved.

18

GoodsandServicesTax
GSTtransitiontimelineof2010reaffirmed
GSTstructurebasedonprinciplesoffiscalfederalism,comprisingofaCentral
GSTandaStateGST
TheCentreandtheStateswilleachlegislate,levyandadministertheCentral
GSTandStateGST,respectively.

2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwisscooperative.
Allrightsreserved.

19

GlossaryofContents

AO

AssessingOfficer

BCD

BasicCustomDuty

CBDT

CentralBoardofDirectTaxes

CENVAT

CentralValueAddedTax

CTT

CommoditiesTransactionTax

CVD

CountervailingDuty

DDT

DividendDistributionTax

EOU

ExportOrientedUnit

FBT

FringeBenefitTax

FDI

ForeignDirectInvestment

FOB

Freeonboard

GST

GoodsandServicesTax

HUF

HinduUndividedFamily

ITA

IncomeTaxAct

MAT

MinimumAlternateTax

MRP

MaximumRetailPrice

PAN

PermanentAccountNumber

RBI

ReserveBankofIndia

SEZ

SpecialEconomicZone

SSI

SmallScaleIndustries

STP

SoftwareTechnologyPark

STT

SecuritiesTransactionTax

WDV

WrittenDownValue

in.kpmg.com

KPMGinIndia

KPMGContacts

Mumbai
KPMG House, Kamala Mills Compound
448, Senapati Bapat Marg
Lower Parel
Mumbai 400 013
Tel: +91 22 3989 6000
Fax: +91 22 3983 6000

Hyderabad
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Reliance Humsafar, 4th Floor
Road No.11, Banjara Hills
Hyderabad - 500 034
Tel: +91 40 6630 5000
Fax: +91 40 6630 5299

Delhi
DLF Building No. 10,
8th Floor, Tower B,
DLF Cyber City, Phase 2, Gurgaon 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101

Kolkata
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10th Floor, Block EP & GP, Sector V
Salt Lake City, Kolkata 700 091
Tel: +91 33 44034000
Fax: +91 33 44034199

Bangalore
Solitaire, 139/26, 3rd Floor,
Inner Ring Road, Koramangala,
Bangalore 560 071
Tel: +91 80 3980 6000
Fax: +91 80 3980 6999

Pune
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Bund Garden
Pune 411 001
Tel: +91 20 305 85764/65
Fax: +91 20 305 85775

Chennai
No.10 Mahatma Gandhi Road
Nungambakkam
Chennai 600 034
Tel: +91 44 3914 5000
Fax: +91 44 3914 5999

Kochi
4/F, Palal Towers
M. G. Road, Ravipuram,
Kochi 682 016
Tel: +91 484 309 4120
Fax: +91 484 309 4121

Theinformationcontainedhereinisofageneralnatureandisnotintendedtoaddressthecircumstancesofanyparticularindividual
orentity.Althoughweendeavortoprovideaccurateandtimelyinformation,therecanbenoguaranteethatsuchinformationis
accurateasofthedateitisreceivedorthatitwillcontinuetobeaccurateinthefuture.Nooneshouldactonsuchinformation
withoutappropriateprofessionaladviceafterathoroughexaminationoftheparticularsituation.

Pradip Kanakia
Executive Director
Head - Markets
e-Mail: pkanakia@kpmg.com
Tel: +91 80 3980 6100
Uday Ved
Executive Director
Head - Tax
e-Mail: uved@kpmg.com
Tel: +91 22 3983 5933

2009KPMG,anIndianPartnershipandamemberfirmof
theKPMGnetworkofindependentmemberfirms
affiliatedwithKPMGInternational,aSwisscooperative.
Allrightsreserved.
KPMGandtheKPMGlogoareregisteredtrademarksof
KPMGInternational,aSwisscooperative.PrintedinIndia.

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