Finance Act 2009 - Key Points
Kaushik
Direct Taxes
* No changes made in the Corporate Tax rates.
* Exemption limit in personal income tax raised by Rs.15,000 from Rs.2.25 lakh to
Rs.2.40 lakh for senior citizens; by Rs.10,000 from Rs.1.80 lakh to Rs.1.90 lakh
for women tax payers; and by Rs.10,000 from Rs.1.50 lakh to Rs.1.60 lakh for all
other categories of individual taxpayers.
* Deduction under section 80-DD in respect of maintenance, including medical
treatment, of a dependent who is a person with severe disability being raised from
the present limit of Rs.75,000 to Rs.1 lakh.
* Surcharge on various direct taxes to be phased out; in the first instance, by
eliminating the surcharge of 10 percent on personal income-tax.
* Sun-set clauses for deduction in respect of export profits under sections 10A and
10B of the Income-tax Act being extended by one more year i.e. for the financial
year 2010-11.
* Fringe Benefit Tax on the value of certain fringe benefits provided by employers to
their employees to be abolished.
* Scope of provisions relating to weighted deduction of 150% on expenditure incurred
on in-house R&D to all manufacturing businesses being extended except for a
small negative list.
* Businesses to be incentivised by providing investment linked tax exemptions
rather than profit linked exemptions. Investment linked tax incentives to be
provided, to begin with, to the businesses of setting up and operating ‘cold chain’,
warehousing facilities for storing agricultural produce and the business of laying
and operating cross country natural gas or crude or petroleum oil pipeline network
for distribution on common carrier principle. Under this method, all capital
expenditure, other than expenditure on land, goodwill and financial instruments
to be fully allowable as deduction.
* Minimum Alternate Tax (MAT) to be increased to 15 per cent of book profits from
10 per cent. The period allowed to carry forward the tax credit under MAT to be
extended from seven years to ten years.
* New Pension System (NPS) to continue to be subjected to the Exempt-Exempt-
Taxed (EET) method of tax treatment of savings. Income of the NPS Trust to be
exempted from income tax and any dividend paid to this Trust from Dividend
Distribution Tax. All purchase and sale of equity shares and derivatives by the
NPS Trust also to be exempt from the Securities Transaction Tax. Self employed
persons to be enabled to participate in the NPS and to avail of the tax benefits
available thereto.
* Alternative dispute resolution mechanism to be created within the Income Tax
Department for the resolution of transfer pricing disputes. Central Board of Direct
Taxes (CBDT) to be empowered to formulate ‘safe harbour’ rules to reduce the
impact of judgemental errors in determining transfer price in international
transactions.
* Commodity Transaction Tax (CTT) to be abolished.
* Donations to electoral trusts to be allowed as a 100 percent deduction in the
computation of the income of the donor.
* Deduction under section 80E of the Income-tax Act allowed in respect of interest
on loans taken for pursuing higher education in specified fields of study to be
extended to cover all fields of study, including vocational studies, pursued after
completion of schooling.
* To mitigate the practical difficulties faced by charitable organisations, anonymous
donations received by charitable organisations to the extent of 5 percent of their
total income or a sum of Rs.1 lakh, whichever is higher, not to be taxed.
* Scope of presumptive taxation to be extended to all small businesses with a turnover
upto Rs. 40 lakh. All such taxpayers to have option to declare their income from
business at the rate of 8 percent of their turnover and simultaneously enjoy exemption
from the compliance burden of maintaining books of accounts. As a procedural
simplification, they are also to be exempted from advance tax and allowed to pay
their entire tax liability from business at the time of filing their return. This new
scheme to come into effect from the financial year 2010-11.
* Tax holiday under section 80-IB(9) of the Income Tax Act, which was hitherto
available in respect of profits arising from the commercial production or refining
of mineral oil, to be extended to natural gas. This tax benefit to be available to
undertakings in respect of profits derived from the commercial production of mineral
oil and natural gas from oil and gas blocks which are awarded under the
NELP-VIII round of bidding. The section to be retrospectively amended to provide
that “undertaking” for the purposes of section 80-IB(9) will mean all blocks awarded
in any single contract.
Indirect Taxes
* Proposals on indirect taxes to seek to achieve stable framework by maintaining the
overall rate structure for customs and central excise duties as well as service tax.
Customs duties
* Customs duty of 5% to be imposed on Set Top Box for television broadcasting.
* Customs duty on LCD Panels for manufacture of LCD televisions to be reduced
from 10% to 5%.
* Full exemption from 4% special CVD on parts for manufacture of mobile phones
and accessories to be reintroduced for one year.
* List of specified raw materials/inputs imported by manufacturer-exporters of sports
goods which are exempt from customs duty, subject to specified conditions, to be
expanded by including five additional items.
* List of specified raw materials and equipment imported by manufacturer-exporters
of leather goods, textile products and footwear industry which are fully exempt
from customs duty, subject to specified conditions, to be expanded.
* Customs duty on unworked corals to be reduced from 5% to Nil.
* Customs duty on 10 specified life saving drugs/vaccine and their bulk drugs to be
reduced from 10% to 5% with Nil CVD (by way of excise duty exemption).
* Customs duty on specified heart devices, namely artificial heart and PDA/ASD
occlusion device, to be reduced from 7.5% to 5% with Nil CVD (by way of excise
duty exemption).
* Customs duty on permanent magnets for PM synchronous generator above 500
KW used in wind operated electricity generators to be reduced from 7.5% to 5%.
* Customs duty on bio-diesel to be reduced from 7.5% to 2.5%.
* Concessional customs duty of 5% on specified machinery for tea, coffee and rubber
plantations to be reintroduced for one year, upto 06.07.2010.
* Customs duty on ‘mechanical harvester’ for coffee plantation to be reduced from
7.5% to 5%. CVD on such harvesters has also been reduced from 8% to nil, by
way of excise duty exemption.
* Customs duty on serially numbered gold bars (other than tola bars) and gold coins
to be increased from Rs.100 per 10 gram to Rs.200 per 10 gram. Customs duty on
other forms of gold to be increased from Rs.250 per 10 gram to Rs.500 per 10
gram. Customs duty on silver to be increased from Rs.500 per Kg. to Rs.1000 per
Kg. These increases also to be applicable when gold and silver (including ornaments)
are imported as personal baggage.
* Customs duty on cotton waste to be reduced from 15% to 10%.
* Customs duty on wool waste to be reduced from 15% to 10%.
* Customs duty on rock phosphate to be reduced from 5% to 2%.
* CVD exemption on Aerial Passenger Ropeway Projects to be withdrawn. Such
projects will now attract applicable CVD.
* Customs duty exemption on concrete batching plants of capacity 50 cum per hour
or more to be withdrawn. Such plants will now attract customs duty of 7.5%.
* On packaged or canned software, CVD exemption to be provided on the portion of
the value which represents the consideration for transfer of the right to use such
software, subject to specified conditions.
* Customs duty on inflatable rafts, snow-skis, water skis, surf-boats, sail-boards and
other water sports equipment to be fully exempted.
Central excise duties
* Excise duty rate on items currently attracting 4% to be raised to 8% with following
major exceptions:
• Specified food items including biscuits, sharbats, cakes and pastries
• Drugs and pharmaceutical products falling under Chapter 30
• Medical equipment
• Certain varieties of paper, paperboard and articles thereof
• Paraxylene
• Power driven pumps for handling water
• Footwear of RSP exceeding Rs.250 but not exceeding Rs.750 per pair
• Pressure cookers
• Vacuum and gas filled bulbs of RSP not exceeding Rs.20 per bulb
• Compact Fluorescent Lamps
• Cars for physically handicapped
* Specific component of excise duty applicable to large cars/utility vehicles of engine
capacity 2000 cc and above to be reduced from Rs. 20,000/- per vehicle to Rs.15,000
per vehicle.
* Excise duty on petrol driven trucks/lorries to be reduced from 20% to 8%. Excise
duty on chassis of such trucks/lorries to be reduced from ‘20% + Rs.10000’ to
‘8% + Rs.10000’.
* Excise duty on Special Boiling Point spirits to be reduced to 14%.
* Excise duty on naphtha to be reduced to 14%.
* Duty paid High Speed Diesel blended with upto 20% bio-diesel to be fully exempted
from excise duties.
* The ad valorem component of excise duty of 6% on petrol intended for sale with a
brand name to be converted into a specific rate. Consequently, such petrol would
now attract total excise duty of Rs.14.50 per litre instead of ‘6% + Rs.13 per litre’.
* The ad valorem component of excise duty of 6% on diesel intended for sale with a
brand name to be converted into a specific rate. Consequently, such diesel would
now attract total excise duty of Rs.4.75 per litre instead of ‘6% + Rs.3.25 per litre’.
* Excise duty on manmade fibre and yarn to be increased from 4% to 8%.
* Excise duty on PTA and DMT to be increased from 4% to 8%.
* Excise duty on polyester chips to be increased from 4% to 8%.
* Excise duty on acrylonitrile to be increased from 4% to 8%.
* The scheme of optional excise duty of 4% for pure cotton to be restored.
* Excise duty for man-made and natural fibres other than pure cotton, beyond the
fibre and yarn stage, to be increased from 4% to 8% under the existing optional
scheme.
* An optional excise duty exemption to be provided to tops of manmade fibre
manufactured from duty paid tow at par with tops manufactured from duty paid
staple fibre.
* Suitable adjustments to be made in the rates of duty applicable to DTA clearances
of textile goods made by Export Oriented Units using indigenous raw materials/
inputs for manufacture of such goods.
* Full exemption from excise duty to be provided on goods of Chapter 68 of Central
Excise Tariff manufactured at the site of construction for use in construction work
at such site.
* Excise duty exemption on ‘recorded smart cards’ and ‘recorded proximity cards
and tags’ to be made optional. Manufacturers have the option to pay the applicable
excise duty and avail the credit of duty paid on inputs.
* EVA compound manufactured on job work for further use in manufacture of
footwear to be exempted from excise duty.
* Benefit of SSI exemption scheme to be extended to printed laminated rolls bearing
the brand name of others by excluding this item from the purview of the brand
name restriction.
* On packaged or canned software, excise duty exemption to be provided on the
portion of the value which represents the consideration for transfer of the right to
use such software, subject to specified conditions.
* Excise duty on branded articles of jewellery to be reduced from 2% to Nil.
Service tax
* Service Tax to be imposed on the following services:
• Service provided in relation to transport of goods by rail
• Service provided in relation to transport of coastal cargo; and goods through
inland water including National Waterways
• Advice, consultancy or technical assistance provided in the field of law (this
tax would not be applicable in case the service provider or service receiver is
an individual).
• Cosmetic and plastic surgery service
* Exemption from service tax being provided to inter-State or intra-State transportation
of passengers in a vehicle bearing ‘Contract Carriage Permit’ with specified
conditions.
* Exemption from service tax (leviable under Banking and other financial services
or under Foreign exchange broking service) being provided to inter-bank purchase
and sale of foreign currency between scheduled banks.
* Two taxable services, namely, ‘Transport of goods through road’ and ‘Commission
paid to foreign agents’ to be exempted from the levy of service tax, if the exporter
is liable to pay service tax on reverse charge basis. However, present cap of 10%
on commission agency charges is retained. Thus there would be no need for the
exporter to first pay the tax and later claim refund in respect of these services.
* For other services received by exporters, service tax exemption to be operated
through the existing refund mechanism based on self-certification of the documents
where such refund is below 0.25 per cent of FOB value, and certification of
documents by a Chartered Accountant for value of refund exceeding the above
limit.
* Export Promotion Councils and the Federation of Indian Export Organizations
(FIEO) to be exempt from service tax on the membership and other fees collected
by them till 31st March 2010.
Tax proposals on direct taxes to be revenue neutral. On indirect taxes, estimated net gain
to be Rs.2,000 crore for a full year.
