Wtlc Budget Booklet

8/7/2019 Wtlc Budget Booklet

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March 1 15, 2011 Volume II No 5

egd. Office: A-13, Shalimar Industrial Premises, Labour Camp, Matunga, Mumbai 400 019, IndiaTel:+91 22 24043464/5 Fax: +91 22 24043465 Mail: [email protected]; URL: www.wtlc.in

Union Budget 2011

Insights


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GLOSSARY

Abbreviation Full Form@ At the Rate

BCD Basic Customs DutyCFA Central Financial AssistanceCSO Central Statistical OrganisationCVD Countervailing DutyDTA Domestic Tariff AreaF Y Financial YearFDI Foreign Direct InvestmentFII Foreign Institutional InvestorGDP Gross Domestic ProductGST Goods and Services Tax

Hudco Housing and Urban Development Corporationi.e. That isIDF Infrastructure Debt FundIIT Indian Institute of TechnologyIRFC Indian Railway Finance CorporationI-T Income TaxLLP Limited Liability PartnershipMF Mutual FundMfg ManufacturingMNRE Ministry of Non-conventional & Renewable Energy

NABARD National Bank for Agriculture and Rural DevelopmentNHAI National Highway Authority of Indiap.a Per AnnumRBI Reserve Bank of IndiaSCAD Special Additional Customs DutySEBI Securities Exchange Board of IndiaSEZ Special Economic ZoneSIDBI Small Industries Development Bank of IndiaT/O TurnoverTDS Tax Deducted at SourceUSD US Dollarw.r.t. With Respect To


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EDITORIAL

Dear Reader,

The Union Budget proposals for FY 2011-12 have been announced by the Finance Minister, Mr.Pranab Mukherjee. After a long time, not many people really expected Big Ticket announcementsfrom the FM in his Customary Budget Speech. At best, people were keen to find out whether anymeasures would be taken to curb inflationary trends and prevent breeding of black money in thecountry. From a tax perspective, the general feeling was that announcements shall be in line withmajor tax reforms on the anvil on both Direct taxes (to herald the introduction of DTC in FY 2012-13)and the Indirect taxes (to progress towards a harmonized GST regime) front.

The Budget proposals have more or less lived upto all these expectations. Yet, somewhere in thefine print, certain noteworthy initiatives have indeed been taken by the FM. On the Economy front,

measures such as raising over ` 40,000 crores through disinvestment, allowing FIIs to invest inInfrastructure Bonds and trading in such bonds, inter-se, while simultaneously raising the investmentlimit to USD 40 Billion from USD 25 Billion are going to have a positive outcome on ForeignInvestment inflows in the next fiscal. Additional allocations have been made for upgradation of RuralInfrastructure, Rural Housing, SMEs and Micro-Finance Institutions, the last mentioned category alsobeing promised a robust regulatory framework very soon, to protect the interests of small borrowers.

On the tax front, the Budget proposals are a mixed bag for Corporates. While it is heartening that thestimulus package announced in 2009 has not been fully rolled back by maintaining the presentExcise duty and Service Tax rates, increase in the rate of MAT and extension of MAT provisions to

SEZ developers and units have come as dampeners for business houses. Reduction in rate ofsurcharge from the present 7.5% to 5% in the next FY as well as allowing a lower withholding ratefor foreign funds for financing of infrastructure are small consolations, in an otherwise lack lustreshow. The FM has demonstrated an intention to have a level playing field for future GSTimplementation by withdrawing the Excise duty exemption on a large number of goods and bymaking excise duty payment option mandatory to the textiles sector.

The ray of hope on an early introduction of GST has given way to a beam of action in the FMsannouncement that the Constitutional Amendment Bill shall be introduced in the Parliament in theon-going Budget Session itself and that the IT infrastructure for GST shall be put on test by NSDL in11 states on a pilot basis effective from June 2011. It was good to see the FM also emphasising theneed to modernise Stamp and Registration related legislations by States and has indicated that theIndian Stamp Act shall be amended shortly. If in this announcement, there lies a hint that in thedistant future, stamp duty shall subsume into GST, then this Budget should be considered aswatershed, only to that extent, and nothing beyond that.

At Chambers for World Trade Laws (WTLC), we have made an attempt to bring to you the mostimpacting budgetary proposals with a cursory analysis and tried to dissect these even on sectorallines, to cover the sectors where the maximum action is anticipated in the next FY. We hope you

benefit out of our maiden attempt. Your feedback on the newsletter is eagerly awaited.WTLC Knowledge & Research Team


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HIGHLIGHTS

Budgetary Allocations

Health allocation up by 20% to ` 27,600 crores. Tax free bonds of ` 30,000 crores to be issued for

infrastructure development. This will cover Warehousing

Corporation, NHAI, IRFC and Hudco. ` 200 crores for environmental remediation programme. ` 500 crores for National Development Fund. ` 400-cr as one-time grant for IIT-Kharagpur. NABARD capital base to be increased by infusing ` 10,000 crores Rural housing fund increased to ` 3,000 crores Allocation under Rashtriya Krishi Vikas Yojana to be raised

from ` 6,755 crore in the current year to ` 7,860 crores. ` 3,000 crores to NABARD for handloom societies Allocation to education sector raised to ` 52,000 crores Credit flows to farmers raised from ` 3.75 lakh crores to ` 4.75 lakh crore.

Major Announcements for FY 2011-12

15 more mega food parks to be set up Disinvestment target at ` 40,000 crore. Public Debt Management Agency Bill to be introduced Constitutional Amendment Bill on GST to be introduced. Indian micro-finance equity fund under SIDBI to be formed (corpus - ` 100 crore) FIIs to be allowed to invest in Mutual Funds


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HIGHLIGHTS

Direct Tax

I-T exemption limit raised to ` 1.80 lakh from ` 1.60 lakh Exemption for senior citizens raised to ` 2.5 lakh Direct Taxes Code (DTC) to be finalized for enactment during 2011-12 DTC proposed to be effective from April 1, 2012

Indirect Taxes

No change in standard rate of excise duty, continues to be 10% 1% Excise Duty on 130 items introduced (no cenvat benefit but entitled to SSI exemption) Option to claim exemption for branded textile apparels & textile made ups withdrawn, shall

attract 10 % excise duty (entitled to SSI exemption/Cenvat benefit) Lower rate of Excise Duty integrated at 5% (to align with lower rate of State VAT) Peak rate of BCD maintained at 10% ; Lower rate of BCD integrated at 2.5% BCD reduced on specified textile goods No change in service tax rate, continues to be 10%. Interest on delayed payments of Service Tax, Excise Duty and Customs Duties increased to

18% p.a. Two new services brought into service tax net namely - Serving of Food or Alcoholic

Beverages by Air Conditioned Restaurants and Short Term Accommodation in

hotels/inns/clubs/guest houses etc. Scope of seven existing taxable service categories such as Life Insurance Service, Legal

Service, health checkup service, Business Support Service and commercial training and

coaching service expanded No change in CST Rate Constitutional Amendment Bill for GST to be introduced in parliament in budget session IT infrastructure for GST to be tested on pilot basis for 11 identified States from June 2011


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ECONOMY TRENDS

GDP

Indian economy has emerged rapidly from the slowdown caused by the global financial crisis of

2007-2009. With a rebound in agriculture and continued momentum in manufacturing, growth has

been strong in 2010-2011. The rise in savings and investments has resulted in strong growth of the

GDP at constant market prices at 9.7% in 2010-2011. Indian economy is likely to grow at 8.75-9.25%

in FY12. Indian economy is likely to see fast, strong turnaround and can expect to top at 9% growth

rate FY12. However, key challenge lies in maintaining growth with price stability. Also, monsoon,

crude prices pose risk to economy growth.

Source: Central Statistics Office

Inflation

Inflation remained at elevated levels for a large part of the current fiscal was largely driven by fooditems, though the goods that were inflating at the start of the fiscal year were different from the

goods for which prices are rising now. Inflation, year-on-year, as measured by the wholesale price

index (WPI), remained at elevated levels of 11 per cent. A series of steps, both structural and macro-

economic, was taken to combat the rising food inflation. Inflation in food articles remained in double

digits at 17.05 % on January 22, 2011 mainly driven by demand factors despite higher supply levels.

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

GDP Rate (in %) 9.5 9.6 9.3 6.8 8 8.6

0

2

4

6

8

10

12

Percentage

GDP Rate (in %)


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ECONOMY TRENDS

Agriculture

The 2010 South West monsoon was a normal one with average precipitation marginally higher than

normal. Overall, from the farm perspective, output conditions are likely to result in good economic

growth and have been assessed in the CSOs Advance Estimate to be 5.4 per cent in 2010-2011

which implied an overall share of 14.2 per cent in real GDP in 2010-11. However, the agriculture

sector is at a crossroads with rising demand for food items and relatively slower supply response in

many commodities resulting in frequent spikes in food inflation. There is a need for second green

revolution and a need to significantly step up both private & public investment to achieve target

growth of around 4 per cent per annum.

Services

The services sector has played a dominant role in the Indian economy with

a 57.3 per cent share in the GDP. Growth in service sector decelerated to

9.6% in 2010-11 against 10.1% in 2009-10. The estimated growth in GDP

for the trade, hospitality, transport and communication sectors during 2010-

11 is placed at 11%, mainly on account of growth during April-November,

2010-11 of 14.9 per cent in passengers handled in civil aviation, 21.3 % in

air cargo handled and 40.9 % in number of new telephone connections.

18 12.35.3 9.4

Primary Articles Fuel & Power Mfg. Products All Commodities

Inflation (in %)Inflation (in %)


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8.2

11.68.5

3.2

10.58.6

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

IIP Growth (in %)IIP Growth (in %)

9.6 8.8 8.6

5.4

Services Manufacturing Industry Agriculture

Sector wise Growth Rate for 2010-11

Growth Rate (in %)

ECONOMY TRENDS

Industrial Growth

The CSO has released the Index of Industrial Production (IIP) Data for the month of December 2010

on February 11, 2011 where IIP has grown at by 1.6 % year-on-year basis and 8.6 per cent during

April-December 2010. The short-run nature of the IIP slowdown suggests that the deceleration is

more in the nature of road bumps than indication of any long-run problems.

OMY TNS


E

Fiscal Management

The Fiscal Outcome in the first nine months of the current financial year remained broadly on the

consolidation track chalked out by the Budget last year. With growth reverting back to pre-crisis level

in the current fiscal, revenues remained buoyant and a much higher than budget realization in non-


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ECONOMY TRENDS

tax revenues arising from telecom 3G/BWA auctions, there was headroom for higher levels of

expenditure at the given fiscal deficit targets. In the first nine months, fiscal and revenue deficits are

placed at ` . 171,249 crores and ` . 116,309 crores respectively, which constituted 44.9 % and 42.1

per cent of the Budget Estimates. The target for the current fiscal in terms of the fiscal deficit to GDP

ratio is placed at 4.8% and in terms of revenue deficit at 3.5 %. The Finance Minister has given

targets for lowering the fiscal deficit over the next two years from 4.6% in 2011-12 to 4.1% for

2012-13.

Foreign Trades

Cumulative Export Growth in April- December 2010-11 was at 29.5 % with cumulative exports

reaching 164.7 Billion USD which indicates that India would surpass the target of 200 Billion USD in

2010-11. Indias merchandise imports were also affected by the global recession leading to 288.4

Billion USD with a negative growth of -5.0 % in 2009-10. In the present context, higher divergences

in inflation rates between India and its trading partners created much pressure on Indias export

competitiveness in the international market.


105.15 128.88166.16 189

81.14

164.7157.05190.67

257.62307.65

139.35

288.4

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Chart TitleExports (USD Billion) Imports (USD Billion)


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ECONOMY TRENDS

Capital Flows

Net Capital Flows was seen at USD 36.7 billion in the first half of 2010-11 which was higher as

compared to USD 23.0 billion in the first half of 2009-10. The increase was primarily composed of

inflow of portfolio investment, mainly FIIs, short-term trade credits, and external commercial

borrowings (ECBs). The large increase, however, was considerably offset by the moderation in net

FDI inflows to India.


Foreign Exchange Reserves

Indias Foreign exchange reserves increased from 279.6 Billion USD at the end of April 2010 to

297.3 Billion USD at the end of December 2010 showing an increase of 18.2 Billion UDS mainly on

account of valuation changes.

8.9

19.625.5

32.528.5

24

9.93.2

20.3

57.5 60.3

21.4

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

FDI (USD Billion) FII (USD Billion)


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KEY PROPOSALS

Direct Tax

Tax exemption limit raised from ` 1.6 lakh to ` 1.8 lakh Eligible age limit for Senior Citizens reduced from 65 to 60 years; New category of Very Senior

Citizen above 80 created and exemption upto ` 5 lakh granted Senior Citizens' age reduced from 65 to 60; New category of Senior citizens created for 80

above - ` 5 lakh exemption limit fixed Salaried taxpayers with entire tax liability discharged through TDS not required to file tax returns Surcharge on domestic companies reduced from 7.5% to 5% MAT rate hiked from 18% to 18.5%; SEZ developers and units in SEZs to pay MAT Dividend of Foreign Subsidiaries brought back to India by domestic companies to be taxed at

concessional rate of 15% SEBI-registered Mutual Funds allowed to accept subscriptions from KYC (Know Your Customer)

compliant foreign investors Transfer Pricing: Second proviso to Sec 92C(2) proposed to be amended to do away with

variation of plus/minus 5%; to be substituted by percentage to be notified by CBDT Liaison Offices will be required to file Annual Information in prescribed Form Reduction in Surcharge proposed as under:

Company Current Rate Proposed Rate

Domestic Co. 7.5% 5%

Other than Domestic Co. 2.5% 2%

Minimum Alternate Tax (MAT) Rate to be increased from 18% to 18.5% for AY 2012-13 SEZ developers and units shall be covered under the ambit of MAT Dividend from Foreign subsidiary-Lower rate of 15% (Instead of applicable tax rate of 30%)

proposed on dividend received by an Indian Company from its foreign subsidiary

Dividend Distribution Tax (DDT) Exemption from DDT withdrawn for SEZ Developers in respect

of dividends declared, distributed or paid on or after June 1, 2011 Investment linked deduction u/s.35AD Scope is proposed to be widened by inclusion of following

two businesses in its ambit (Operations should be commenced on or after April 1, 2011)


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KEY PROPOSALS

1. Developing and building a housing Project under a scheme for affordable housing2. Production of fertilizers in India.

MAT @18.5% on adjusted total income introduced (where regular income tax payable by LLPis less than MAT).

permissible variation of plus/minus 5% in transaction price shall be substituted by specifiedrate of variation to be notified by CBDT

Transfer Pricing officer shall determine Arms Length Price not only in relation to internationaltransactions referred by the Assessing office but also for those international transactionswhich are noticed by him subsequently in the course of proceedings before him.

Transfer Pricing officer is also conferred upon the power of survey so as to enable to conducton-the-spot enquiry & verification.

Indirect Taxes

Customs Duties

Self-Assessment introduced for importers(discretion extended to proper officer of Customs for

finalization of assessment Time limit for claiming refund of duty and interest by importer extended to one year (from 6

months, earlier) Interest on Customs Duty short paid, unpaid or erroneously refunded shall be recovered at 18% Power to release ceased goods delegated to adjudicating authority (earlier , Commissioner) Requirement of cash security under Project Import has been done away with; bank guarantee is

sufficient Rate of Export Duty increased for all types of iron ores All clearances from SEZ to DTA exempt from SACD (provided VAT is levied) Parts of cash dispensers exempt from BCD on actual user basis (for manufacturer or repairer) S142A to be inserted in the Customs Act to create first charge on the property of defaulter w.r.t

recovery of Customs Duties


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KEY PROPOSALS

Central Excise Duty

Majority of Cement & Cement products are now subject to ad valorem duties (earlier only

specific duty charged) Medicaments manufactured and cleared under Pharmacopoeial Name will attract excise duty of

1% without cenvat credit (or 5% with Cenvat credit) S11E to be inserted in the Central Excise Act to create first charge on the property of defaulter

w.r.t recovery of Central Excise Duty. Cenvat Credit Rules amended - definition of input, exempted goods made simple. Goods attracting 1% excise duty will be considered as exempted goods and will not qualify as

input

Service Tax

New Services

o Services by air-conditioned restaurants having license to serve liquor

o Accommodation in hotels/inns/clubs/guest houses etc. for less than 3 months

Expansion of Scope for Existing Services

o Authorised Service Station Taxable Service shall also include activities such as decoration

or any other similar services provided by any person ( presently only by Authorised Service

Centre) for any motor vehicle other than three wheeler auto rickshaw and goods carrier

o Life Insurance Service - Services in relation to management of investments included

o Club or Association Service - service provided to non-members also covered

o Legal Services to include:

(i) Services of advice, consultancy or assistance provided by a business entity to

individuals as well;

(ii) Representational services provided by any person to a business entity; and

(iii) Services provided by arbitrators to business entities.

o Health Checkup Services Services provided by a specified clinical establishment or by a

doctor from premises of such clinical establishment shall be coveredo Business Support Service - Shall include operational or administrative assistance of any kind


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KEY PROPOSALS

o Commercial Training or Coaching Service - The scope of the service is proposed to be

expanded to include all coaching and training that is not recognized by law

(New Services and expansion in scope of existing services shall be effective from a date notified

after enactment of Finance Bill 2011)

Exemptions - Following Taxable Services have been exempted

o Services provided by an organizer of business exhibitions in relation to business

exhibitions held outside India. (w.e.f March 1, 2011)

o 25% of value of taxable service under Transport of goods through coastal and inland

shipping. (w.e.f March 1, 2011)o Services provided within a port or other port or an airport under the Works contract

service for specified purposes. (w.e.f March 1, 2011)

o Value of air freight included in the assessable value of goods for charging customs

duties under Transport of goods by air service (w.e.f April 1, 2011)

o Services related to transportation of goods by road, rail or air when both the origin and

the destination are located outside India is being exempted from service tax (w.e.f April

1, 2011)

Other Amendments

o Money Changing Service - Value of taxable service shall be 0.1% of Gross Amount of

currency exchanged

o Telegraph Service Value of taxable service shall be gross amount paid by the person to

whom such telecom service is provided (ultimate user)

o Revision in Optional Rate of Service Tax on Air Travel Services

Air Travel

Category

Class Existing Rate Proposed

Rate

Domestic Economy ` 100 ` 150

International Economy ` 500 ` 750

Domestic Others ` 100 10 %

o Refund to SEZ unit/developerExemption from payment of service tax to services provided to or received by SEZ unit,

as the case may be if all such services are wholly consumed within SEZ


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KEY PROPOSALS

In case where the services are not wholly consumed in SEZ then refund of service tax

paid shall be available based on proportion of services to SEZ vis--vis total services for

both SEZ and DTA.

o Procedural Changes

o Point of Taxation Rules Notified

Rules to be Effective from April 1, 2011

Rules seek to Resolve ambiguity concerning timing for imposition of levy

Raising of invoice shall also be construed as provision of service

Rules define continuous supply of service, where services are provided over three

months, continuously, under a contract or where services are notified

Point of Taxation for continuous supply shall be

date of raising invoice; or

date when payment is liable to be made or

date mentioned in contract when payment is liable to be made,

whichever occurs earlier

The Point of Taxation in case of change in rate of tax is summarized below -

Taxable service provided before change of rate

Event occurring

before Change of

Rate

Event occurring after

Change of Rate

Point of Taxation

None Issuance of invoice andReceipt of payment

Date of receipt of paymentor issuing invoice,

whichever is earlier

Issuance of invoice Receipt of payment Date of issuance of invoice

Receipt of payment Issuance of invoice Date of receipt of payment


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KEY PROPOSALS

Taxable service provided after the change of rate

Event occurring

before Change of

Rate

Event occurring after

Change of Rate

Point of Taxation

Issuance of invoice Receipt of payment Date of Receipt of payment

Issuance of invoice

and Receipt of

payment

None Date of receipt of payment

or issuing invoice,

whichever is earlier

Receipt of payment Issuance of invoice Date of issuance of invoice

Interest on delayed payment of Service Tax under section 75 has been increased to

18% p.a. against the earlier notified rate of 13% p.a.

Adjustment of excess amount paid by an assessee is being enhanced to Rs. 2 lakhs.

CENVAT credit benefit extended to a Works Contractor opting to pay Service Tax under

the Composition Scheme in respect of specified input services, namely - Commissioning

and Installation, Commercial / Industrial Construction and Construction of Complex

Services availed by him to the extent of 40% of the service tax paid on the full value of

the service (without availing abatement) after availing Cenvat Credit on inputs.

Where during the course of audit, verification or investigation it is found that service tax

has been short levied or not levied or erroneously refunded but the true and complete

details of transactions are available, penalty reduced to 1% per month of the tax

amount paid in full or in part upto a maximum of 25% .

Where Service provider is unable to provide services for which invoice has already been

issued, he can issue a Credit note for not to be liable to Service Tax on such value.


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SECTORAL IMPACT

Agriculture & Food

Government actively considering extension of the Nutrient

Based Subsidy regime to cover urea. Corpus of RIDF (Rural Infrastructure Development Fund) XVII to

be raised from ` .16,000 crore to ` . 18,000 crores. Removal of production and distribution bottlenecks for items like

fruits & vegetables, milk, meat, poultry and fish to be prioritized Allocation under Rashtriya Krishi Vikas Yojana (RKVY)

increased from ` . 6,755 crore to ` . 7,860 crore Allocation of ` . 300 crore to promote 60,000 pulses villages in rain fed areas. Allocation of ` . 300 crore to bring 60,000 hectares under oil palm plantations Allocation of ` . 300 crore for implementation of vegetable initiative to provide quality vegetable

at competitive prices. Allocation of ` . 300 crore to promote higher production of Bajra, Jowar, Ragi and other millets,

which are highly nutritious and have several medicinal properties. Allocation of ` . 300 crore to promote animal based protein production through livestock

development, dairy farming, piggery, goat rearing and fisheries. Accelerated Fodder Development Programme: Allocation of ` . 300 crore for Accelerated

Fodder Development Programme to benefit farmers in 25,000 villages. Credit flow for farmers raised from ` . 3,75,000 crore to ` . 4,75,000 crore in FY 2011-12. Interest subvention proposed to be enhanced from 2 per cent to 3 per cent for providing short-

term crop loans to farmers who repay their crop loan on time. Capital base of NABARD to be strengthened by ` . 3,000 crore in phased manner. ` . 10,000

crore to be contributed to NABARDs Short-term Rural Credit Fund for FY 2011-12. Approval being given to set up 15 more Mega Food Parks during FY 2011-12. Augmentation of storage capacity through private entrepreneurs and warehousing

corporations fast tracked. Capital investment for modern storage capacity shall be eligible for viability gap funding of the

Finance Ministry.


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SECTORAL IMPACT

Automobiles

Specified parts of hybrid vehicles (eg. Battery pack, battery

chargers, motors & motor controllers) exempt from BCD

and SACD; such parts shall also attract a concessional

CVD rate of 5% These benefits shall be available till March 31, 2013 Definition of Completely Knocked Down (CKD) unit in case

of vehicles (including two-wheelers) inserted for the

purpose of eligibility for concessional rate of BCD Benefits under Central Excise

o Tax refund scheme has been extended to vehicles carrying 13 persons

o Refund of 20 % of Excise Duty paid on vehicles registered as taxis subsequent to removal

o Hydrogen vehicles based on fuel cell technology is now chargeable @ 10%

o Hybrid kits and parts thereof for the purpose of conversion of fossil fuel vehicles to hybrid

vehicles shall attract a concessional rate of excise duty of 5%

Aviation

Full exemption from Customs Duties (BCD, CVD and

SACD) was earlier available to import of aircraft by non-

scheduled operators whether for passenger services or

chartered services. Exemption from BCD withdrawn and BCD of 2.5% levied.

The exemptions from CVD and SACD are retained. The conditions of the exemption have also been amended

so as to allow the aircraft to be used interchangeably

between passenger and charter services in consonance

with the Civil Aviation Requirements.

BCD on pneumatic tyres & retreaded tyres of kind used for aircrafts reduced from 3% to

2.5%


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SECTORAL IMPACT

Banking & Finance

Banking Licenses - RBI will put draft guidelines regarding

entry of new banks in the private sector by making

amendments in Banking Regulation Act, 1949. Reforms proposed in legislations related to Banking,

Insurance, Pension, Factoring & Assignment of receivables. FIIs and sub-accounts registered with SEBI allowed to

invest in Mutual Funds (MFs) schemes SEBI registered MFs permitted to accept subscription from

KYC compliant foreign Investors for equity schemes Infrastructure development tax free bonds of ` . 30,000 crores

to be issued by government undertakings during FY 2011-12. The subscription ceiling by FIIs to five years corporate bonds issued by companies in

infrastructure sector raised taking total limit available to FIIs to USD 40 billion. FIIs are permitted to invest in unlisted bonds of Infrastructure Companies with a minimum

lock-in of three years; however they would be allowed to trade inter-se during the lock-in Microfinance Equity fund to be created with SIDBI for protecting interest of small borrowers. Women Self Help Groups Development funds to be created with a corpus of ` 500 crores. Interest subvention scheme for Housing loans extended to loans upto ` 15 lakhs for house

cost not in excess of ` 25 Lakhs

Chemicals

Silicon in all form and potassium Iodate will attract 1% Excise Duty if cenvat is not

availed (and 5% duty if cenvat credit is availed) BCD on Poly Tetra Methylene Ether Glycol (PTMEG) and Diphenylmethane 4, 4-

diisocyanate (MDI) reduced from 7.5% to 5% subject to actual user condition. BCD reduced from 5% to 2.5% on Acrylonitrile ; BCD reduced from 7.5% to 5% on Sodium

Polyacrylate ; BCD reduced from 10% to 7.5% on Caprolactum. BCD reduced from 10% to 7.5% on Nylon chips, fibre & yarn.


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SECTORAL IMPACT

Energy

Extension of Sunset clause for undertakings engaged in generation and

distribution of power extended upto March 31, 2012 Undertaking engaged in generation, distribution and / or transmission of

power are allowed to take deduction u/s.80-IA(4)(iv) for a further period

of one year, i.e upto 31st March,2012 Excise duty on Light Emitting Diodes (LEDs) for manufacture of LED

lights and light fixtures reduced to 5%; BCD reduced to 5% from 10% on solar lanterns/lamps CVD exemption available to toughened glass imported for the manufacture of solar cells

or solar modules SACD exemption for LEDs used in manufacture of LED lights and light fixtures

Fast Moving Consumer Goods (FMCG)

Tooth powder will attract 1% Excise Duty if cenvat credit is not availed (and 5% if cenvat

credit is availed) Excise duty on sanitary napkin, Baby and Clinical diapers and Adult diapers reduced from

10 % to 1% (no cenvat credit facility is available)

Infrastructure

Allocation of ` 2,14,000 crores for infrastructure in FY 2011-12 (increase of 23.3% over

allocation for FY 2010-11) Tax free bonds of ` . 30,000 crores proposed to be issued by Government undertakings during

FY 2011-12 to boost infrastructure development RIDF corpus raised from ` . 16,000 crores to ` . 18,000 crores.


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SECTORAL IMPACT

Government to come up with a comprehensive policy for further developing Public Private

Partnership (PPP) projects. Tax Impact - Direct Tax:

o Infrastructure Debt Fund (IDF) to be notified

o Income earned by IDF shall be entitled to 100% Income tax exemption

o Lower TDS rate @ 5% on Interest Income received by Non-Resident on Investment in

such notified IDF Tax Impact - Indirect Tax:

o BCD exemption to bio-asphalt and specified machinery used in the construction of

national highways

Media

100% exemption of CVD has been proposed on unexposed rolls of cinematographic films of

400 to 1000 feet by providing full exemption from Central Excise Duty

Pharma and Health care

BCD reduced to 5% on four specified live saving drugs (with Nil

CVD) BCD reduced from 10% to 5% on Polypropylene, Stainless Steel

Strip and Stainless Steel capillary tube for manufacture of syringes,

needles, catheters and cannulae on actual user basis (CVDreduced from10% to 5% and SACD reduced to Nil)

Endovascular stents have been fully exempted from BCD (earlier

attracting 5 % BCD)

Real Estate

Basic Custom Duty on two critical raw materials of cement industry viz. petcoke and gypsum

is proposed to be reduced to 2.5 %


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SECTORAL IMPACT

Shipping

The exemption from BCD and CVD to import of

spares and consumables for the purpose of repairs

of ocean going vessels is extended to vessels

registered in India (earlier such exemption was

available only to registered ship repair units)

Metals & Minerals Copper dross, copper residues, copper oxide mill scale, brass dross and zinc ash exempt

from SACD Stainless steel scrap fully exempted from BCD BCD on Ferro-nickel reduced from 5% to 2.5% BCD on carbon black feed, petroleum coke stock reduced from 5% to 2.5%


23/23

OUTLOOK

Direct Tax Code (DTC) to be finalized for enactment during FY 2011-12

DTC Proposed to be effective from April 1, 2012

IT initiatives for efficient tax administration such as e-filing and e-payment of taxes, web

based facility for tax payers to track the resolution of refunds and credit for pre-paid taxes and

augmentation of processing capacity.

Steps initiated to reduce litigation and focus attention on high revenue cases.

Major Amendments to Indian Stamp Act proposed

Convergence of views on GST likely in the coming fiscal between Centre and the States

Major Reforms envisaged for Banking and Financial Sectors

11 Tax Information Exchange Agreements (TIEAs) and 13 new Double Taxation Avoidance

Agreements (DTAAs)

Provisions of 10 existing DTAAs revised

This document is not an advice or opinion and is based on information available in publicdomain. For any specific queries, please email us at [email protected]

Chambers for World Trade Laws is a Management Consultancy firm advising businesses onTrade Taxes, Corporate Laws, FEMA and Intellectual Property Laws as applicable in India.

For more information regarding Chambers for World Trade Laws please visit- www.wtlc.in

All text contents in this newsletter are Copyright 2011 of Chambers for World Trade Laws

Documents

Wtlc Budget Booklet