What was in Indian Union Budget 2011 for the IT-BPO companies.
UNION BUDGET 2011 - PROPOSALS SPECIFIC TO THE INDIAN IT-BPO INDUSTRY DIRECT TAXES Below information may be useful to the CFOs/CEOs of IT-BPO companies in India. It mostly deals with different kind of Tax and their implementation on different kinds of business models. The article is made based on an Analysis Report by NASSCOM.
- Reiteration that DTC would be introduced wef April 1, 2012
- No extension of income tax holiday under section 10A/10B
- MAT would be now leviable for Developers and Units of SEZ effective from April 1, 2012.
- MAT increased to 18.5 per cent to an effectio surcharge and cess).
Currently every company is liable to MAT at 18% of its book profit. An exemption is however provided in respect of income from any business carried on or services rendered by an entrepreneur having a unit in or a Developer of an SEZ. It is proposed to remove the present MAT exemption available to SEZ developers and SEZ units. It is also proposed to increase MAT from 18% to 18.5% of the book profit.
- Dividends received by Indian companies from overseas subsidiaries would be taxable at 15 per cent. Currently foreign dividends received by an Indian company are taxable at 30%.
- Surcharge reduced from 7.5 per cent to 5 per cent for domestic companies
- Dividend Distribution Tax (DDT) exemption on SEZ Developers abolished wef June 1, 2011
Currently SEZ Developers are exempt from payment of DDT in respect of dividend declared, distributed or paid out of its current total income from specified activities. Such distributed income is also exempt from tax in the hands of the recipient. The aforesaid exemption is proposed to be withdrawn in respect of dividends declared, distributed or paid on or after 1 June 2011.
- Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200 per cent
- Rationalization of provision relating to Transfer Pricing
o 5% variation is currently allowed between the actual price of the transaction and the arm‟s length price. This fixed margin of 5% across allsegments of the business activity and range of international transactions has outlived its utility. The allowable variation may be revised and notified by the Central Government.
o Effective 01 June 2011, the Transfer Pricing Officer can determine the arm‟s length price of any international transaction that comes to his notice, in addition to those referred by the Assessing Officer.
o Effective 01 June 2011, the Transfer Pricing Officer can conduct on-the-spot enquiry and verification in exercise of powers of survey under section 133A of the Act.
o Time limit for filing of tax return and transfer pricing accountants report extended to 30 November instead of 30th September, for corporate assesses having international transactions.
o With effect from 1 June 2011, provision for a set of counter measures in relation to jurisdictions with which there is a lack of effective exchange of information to be introduced.
- Transfer pricing provisions will apply to transactions with parties located in notified jurisdictional areas. The benefit of variation between actual and arm‟s length price will not apply to such transactions.
- No deduction in respect of any payment made to any financial institution located in a notified area will be allowed unless the taxpayer furnishes an authorization authorizing the CBDT or any other income tax authority acting on its behalf, to seek relevant information from the said financial institution
- No deduction in respect of any other expenditure or allowance (including depreciation) arising from the transaction with a personlocated in a notified area will be allowed under any provision of the ITA unless the taxpayer maintains such other documents and furnishes the information as may be prescribed
- If any sum is received by a taxpayer from a person located in anotified area, the onus on of any activity in the nature of trade,commerce or business, or any service relating thereto, if the aggregate value of receipts exceed Rs 1,000,000 in the financial year. It is proposed to increase this monetary limit of Rs1,000,000 to Rs 2,500,000 with effect from financial year 2011-12.
- Any payment made to a person located in the notified area shall be liable to deduction of tax at the higher of the rates specified in the relevant provision of the Act or rate of 30 percent
- Alternate Minimum Tax on Limited Liability Partnership (LLP) at the rate of 18.5% and consequential tax credit provisions proposed to be introduced.
INDIRECT TAXES
Central Sales Tax
- Constitution Amendment Bill for GST would be introduced in the Parliament in the Budget session. The IT infrastructure for GST rollout are in advanced stages of finalization and pilot GST portal to be set up by June, 2011
Central Excise Duty
- No change in rate of central excise duty – continues to be 10%; Concessional rate of Excise duty enhanced from 4 per cent to 5 per cent.
- Exemption from CVD/ excise duty on packaged software which is not covered under MRP based assessment (Packaged software exempt from declaring the retail saleprice on the package under the provisions of The Legal Metrology Act, 2009)Licenses being for a specified named user, is not a packaged product and therefore there is no MRP. Value attributable to transfer of right to use packaged or cannedsoftware which is not required to bear MRP will be exempted from payment of Excise Duty subject to specified conditions. Further these would be covered under the purview of section 4 of the Central Excise Act, 1944
- Significant changes made in CENVAT Credit Rules 2004 which are relevant to a service provider to Input means all goods used for providing any output service
- Coverage of “input services” – certain services excluded from “input services” and not eligible for CENVAT credit
- Specified services such as architect, port services, airport services, commercial or industrial construction services, construction of complex services, works contract services, General insurance services, rent a cab services, authorized services station services and supply of tangible goods services, outdoor catering services, beauty treatment services, health services, life insurance, health insurance, travel benefits extended toemployees on vacation such as leave travel concession, etc or when such services are used for personal use or consumption of any employee
- Nominal Excise Duty of 1% imposed on 130 items exempted earlier. CENVAT Credit cannot be utilized for payment of Excise Duty on such goods
- Specific categories of services excluded where linked to “personal use” of employees - Any goods such as food items, goods used in guesthouse,residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee
- Requirements to reverse CENVAT credit changed
- Services provided to SEZ developers/ units - Services can be provided, without payment of Service Tax, to a Unit in SEZ or a Developer thereof for their authorized operations. These services do not require maintenance of separate records, proportionate reversal or payment of an amount equal to 5%. This change will be effective from 1 March 2011
- Trading now defined as “exempt service” – only margin to be taken for determining reversal required
Service Tax
- Service Tax rate continues to be 10%
- Point of Taxation Rules to come into effect from April 1, 2011. A service can be said to have been provided, when the service is carried out and all the work (except invoicing) is completed. However, services being intangible, theoccurrence of such an event is usually difficult to identify. These rules determine the point in time when the services shall be deemed to be provided, namely, the provision of service, issuance of invoice or the receipt of payment.