Budget India 2012: Devil in the fine print

Here are some googlies Pranabda has bowled… Caring and sharing will now come with riders!! Cash donations above Rs 10,000 towards scientific research or rural development or to certain funds, charitable institutions will not be eligible for tax benefits under section 80G and 80GGA of the Act.

The new mantra:

“Everyone should contribute to the exchequer even if there is no taxable income” !! – Alternate Minimum Tax (‘ AMT’ ) @ 18.5% would be applicable to all persons (eg partnership firms, sole proprietorships, association of persons, etc). The only silver lining is that AMT would apply only if adjusted total income exceeds Rs 20 lakh. India Inc is already on the MAT, now others join the party. An independent director in a company ? Watch-out ! Director fees would now be subject to TDS! The taxman is also interested in any asset (including financial interest in any entity) owned by you outside India. Now, you need to file a return of income if you own any asset outside India or even if you are a mere signatory for any off shore account!!

This, even if you do not have any taxable income. In case you earned any income from such assets, the taxman has power to reassess such income for a period of 16 years. Happy that you can now invest long term capital gains from sale of house property in a company that qualifies as small and medium enterprise (‘ SME’ ) to save tax, hold on. You should own at least 50% (share capital or voting power) in such newly set up SME which should be engaged in manufacturing and the investments must be made in the prescribed manner. The taxman does not find any distinction between intentional or unintentional mistakes: furnishing of incorrect information in TDS statements (even unintentional) could result in levy of penalty ranging from Rs 10,000 to Rs 100,000! Domestic transactions are now international transactions.

Confused? Transfer pricing provisions will now also apply to specified domestic transactions with related parties if the aggregate value of specified domestic transactions exceeds Rs 5 crores. The taxman is superior to the Courts! A plethora of amendments (many of them applicable with retrospective effect) have been introduced to overrule judicial precedents in favor of tax payers: Consideration for right to use or right to use computer software is now royalty income , subject to withholding tax in India. This puts to rest the ongoing litigation in case of import of shrink wrapped software.

Consideration for transmission services by satellite, cable, optic fibre or any other similar technology shall be regarded as royalty subject to tax withholding. Transfer now also includes indirect transfer: any share or interest in a company or any entity registered or incorporated outside India shall be deemed to have been situated in India if substantial assets related to such share or interest are located in India.

Tax residency certificate may not be enough to access tax treaty benefits. Non-residents may henceforth be liable to pay advance tax even if the income was subject to tax deduction at source if the payer has failed to deduct TDS. Readymade garments may be cheaper with the effective excise duty coming down from 4.6% to 3.7%. But tailoring now attracts a service tax of 12.36%. The cost of parts for hybrid cars has come down with excise duty down from 10.3% to 6.18%, but ironically the excise duty on the car itself is up.