The basic general exemption is increased from Rs.1.60 lakh to Rs.1.80 lakh. For those above the new limit, tax savings will be Rs.2,060 after taking into consideration cess and additional cess. For senior citizens, the basic exemption limit is raised from Rs.2.40 lakh to Rs.2.50 lakh, with tax savings of Rs.1,030 only. For women, who are not senior citizens, the same tax limit at Rs.1.90 lakh will continue without any saving. A major relief, however, is the reduction of age limit for senior citizens from 65 to 60 so that all citizens who complete 60 years at any time during the financial year would be eligible for the revised limit of Rs.2.50 lakh.

An unexpected windfall is for those super-senior citizens, who are 80 years of age, whose basic exemption limit will now be Rs.5 lakh in lieu of Rs.2.50 lakh. Tax savings compared to current liability for those with income larger than Rs.5 lakh will be Rs.26,780. These changes would be effective from assessment year 2012-13 relating to the income for the financial year 2011-12.

There is no change in Sec. 80CCD, which provides for deduction of contribution to pension funds to the extent of 10 per cent of salary/ gross total income under Sec. 80CCD(1), besides distribution of employer's contribution up to 10 per cent of his salary under Sec. 80CCD(2).

Sec. 80CCE is proposed to be amended so as to exclude the employee's contribution to a pension fund under Sec. 80CCD(1) from the purview of aggregate ceiling of contribution under Sec. 80C, 80CCC and 80CCD at Rs.1 lakh. It would mean that the extent of employee's contribution presently permitted under Sec. 80CCD(1) will not be further limited to Rs.1 lakh. This is a more clarificatory amendment so that removal of the limit of Rs.1 lakh applies only to his contribution under Sec. 80CCD(1) read with Sec. 80CCE.

Corporate taxation

There is no change in the basic rate of tax for companies. For companies with income exceeding Rs.1 crore, surcharge is 7.5 per cent for domestic companies and 2.5 per cent for other companies. It will now be reduced to 5 per cent and 2 per cent respectively with effect from assessment year 2012-13. Education cess and higher education cess at the rate of 2 per cent and 1 per cent respectively will, however, continue at the same rate. Minimum Alternate Tax (MAT) will be increased from 18 per cent to 18.5 per cent.

Developers of special economic zones (SEZs) availing benefit of exemption under Sec. 10AA and the units in SEZs eligible for deduction under Sec. 80IAB are presently eligible for deduction from taxable book profits under Sec. 115JB(6). They will lose such benefit for assessment year 2012-13. Dividend distributed out of such income by the developers now exempt under Sec. 10(34) will be liable for dividend distribution tax under Sec. 115-O from June 1, 2011.

An amendment to Sec. 115R would also bring to tax the distribution of mutual funds to individuals and HUFs (Hindu Undivided Families) at 12.5 per cent under schemes other than money market schemes, and 15 per cent for money market shares, while for others tax will be at 30 per cent, but distribution in respect of equity-oriented schemes will continue to be exempt.

Limited Liability Partnerships (LLPs) were treated on a par with firms with the tax advantage of exemption available on conversion of company to LLP. But such exemption was neutralised by restricting the exemption to companies with sales turnover or gross receipts not exceeding Rs.60 lakh on one hand and neutralising the advantage of non-application of deemed dividend under Sec. 2(22)(e) by barring withdrawal of accumulated profits as on date of conversion for the next three years. There is now a further imposition of liability for MAT proposed for LLPs with effect from April 1, 2012, by a new Chapter XII-BA of the Act. These steps would take away the attraction which LLPs had from tax point of view to a very large extent.

Non-resident taxation

There had been complaints of tax avoidance and evasion both by residents and non-residents in respect of international transactions. There are some amendments proposed to facilitate enquiry.

Sec. 92C allows a tolerance limit of up to 5 per cent where there is a variation between arm's length price and the transaction price. An amendment now proposes to substitute the present limit by a different limit which is to be notified apparently taking into consideration the different facts relating to different industries or as between different countries or different turnovers with effect from assessment year 2012-13.

Sec. 92CA is proposed to be amended so as to enlarge the powers of the Transfer Pricing Officer to include power of survey under Sec. 133A over and above the present power of summons under Sec. 131 and enquiry under Sec. 133. He will also be empowered to include suo motu additional items for determination of arm's length price in the assessment referred to him.

The Government is either having or proposes to have agreements with countries and territories with which it does not presently have agreements for exchange of information by what is known as Tax Information Exchange Agreement (TIEA). Countries with which India has agreement will be notified.

As regards transactions with parties in the notified countries, powers of assessment for the assessing officer are proposed to be enlarged under Sec. 94A. Every assessment with such countries or territories will be deemed associated transaction so as to enable application of transfer pricing rules. Deductions of payments would be only on approval of notified authorities. Source of funding, if any, from such countries would be put to strict proof with the burden on the assessee to prove the same, failing which the amount would be treated as income of the assessee.

Sec. 285 would require every liaison office to file prescribed statement for every financial year within 60 days from the end of the financial year, so as to enable the assessing officer to verify the claim, whether the activities are limited only to liaison work.

The above steps appear to be hardly sufficient for purposes for which they are enacted.

The expected amnesty has not materialised but the existing in-built amnesty provision for waiver of penalty under Sec. 273A or waiver of interest under Sec. 119(2)(a) now delegated to the Chief Commissioners probably could be utilised for encouraging inward remittances by sparing penalty and possible interest, wherever there is admission of liability prior to detection, as was once done in 1985 fairly successfully by publicising the waiver provisions.

Indian money abroad to a sizable extent has been rendered possible by the liberal recognition of status of non-resident both under the income-tax law and exchange control law solely with reference to period of stay in India so that it has been possible for Indian residents to legitimately stack money abroad, taking the advantage of the loopholes in law. These loopholes are required to be plugged with steps to encourage repatriation of such moneys back to India.

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