TAX

Budget2009Highlights

KPM G I N I N D I A
 Foreword
TheHonorableFinanceMinisterpresentedtheUnion
Budget,amidstgreatexpectationsthathewouldsignala
progressivewayforward,despitemajorchallengesoriginat-
inginIndia’sexternalsector.
TheEconomicSurvey2008–09identifiedthefollowingchal-
lenges:
1.Surgeincapitalinflowsinthelastquarterof2007-08
2.Inflationaryexplosioninglobalcommodityprices
3.Globalfinancialmeltdownandcollapseofinternational
tradeplungingtheworldintoafinancialcrisisreminiscent
ofthe1930s’GreatDepression.
ThesechallengesadverselyimpactedtheIndianeconomy
whosegrowthratedeceleratedin2008–09to6.7percent
fromitsaveragegrowthrateof8.8percentoverthelast5
years(2003–04to2007–08).TheEconomicSurveyalsohigh-
lightedtheneedtoreturntoafiscaldeficittargetof3per-
centoftheGDP--asenvisagedbytheFRBMAct--atthe
earliest.
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TheclearmandategiventotheUnitedProgressiveAlliance
GovernmentledbytheIndianNationalCongress(INC)had
alsoraisedhopesthatthisGovernmentwould:
1. Maintainthepathofhighgrowthwithfiscalprudence
andlowinflation
2. RaiseForeignDirectInvestmentlimitsinsectorssuchas
insuranceanddefense
3. Usheringreatertransparencyintaxes,bringinaunified
GoodsandServicesTaxbyApril1,2010;simplifyandra-
tionalizethetaxstructurebyphasingoutsurcharges,
cessesandtransactiontaxesandoverhaultheregimeof
DividendDistributionTaxtoensurefullsingletaxationin
thehandsofthereceiver
4. AcceleratetheGovernment’sPublicSectorUnits’disin-
vestmentprogramtomeetthegoalofaminimumofINR
25,000croresannually,toberaisedthroughthedisin-
vestmentprocess
5. Createasecondarymarketintheproposedauctioningof
the3GSpectrumwithcapitalgainsarisingfromafreely-
tradedspectrumbeingseparatelytaxed
 6. Focusoninclusivegrowthmeasurestostimulatede- employeeincreasesthetaxburdenonthem.TheServiceTax
mandinthedomesticeconomyandtoensurethatthere basetoohasbeenbroadenedbyincludingmostlegalserv-
ismorepurchasingpowerinthehandsofthepeople icesandcosmeticandplasticsurgeryservices.

7. Guaranteemaximumpossiblesecuritytocitizens,ensure
thehighestlevelofdefensepreparednesspossible,ac-
celeratepolicereforms,buildonNationalRuralEmploy-
mentGuaranteeAct,enactanationalFoodSecurityAct,
guaranteehealthsecurityforall,ensureenergysecurity
tothecountryandmakequalityeducationaffordablefor
all.
TheFinanceMinisterhastriedtomeettheseexpectations
byexpendinghugeamounts,suchthattheoverallsizeofthe
BudgethasexceededINR10lakhcrores–anincreaseof36
percentovertheBudgetEstimatesfor2008-09.Substantial
increasesinallocationshavebeenmadetovariousschemes
providingwelfaremeasurestothecommonman.Thetax
proposalshaveremainedlargelyrevenueneutral.
Whatisreassuringisthedirectionalstanceinre-iteratingthe
Government’scommitmenttobringinginauniformGoods
andServicesTaxregimeby1April,2010andanewDirect
TaxesCode,mergingtheAuthoritiesforAdvanceRulingon
DirectandIndirecttaxes,thepromisetosetupanAlterna-
tiveDisputeResolutionMechanismintheIncome-taxDe-
partmentforTransferPricingcasesandempowermentofthe
CentralBoardofDirectTaxestoformulatesafeharborrules
forTransferPricingininternationaltransactions.
Overall,iftheimmediatenegativereactionfromthestock
marketsisanyindication,thecorporatesectorandinvesting
communityseemdisappointed,thisdevelopmentcould
partlybeaconsequenceofunrealisticexpectations.The
Budgetseemstobewellintendedtoaddressthecon-
stituencyofthe“commonman”,butdoeslittletorevertto
thepathtofiscalrectitude,whichcouldhavenegativeeco-
nomicconsequencesfortheeconomyinthelongterm.Cor-
poratesingeneraldonotseemtohavemuchtocheerabout
especiallyastheMinimumAlternateTaxwouldresultinan
immediatecashoutflow.
Thesummarythatfollowshighlightsthesalientfeaturesof
theFinance(No.2)Bill2009,intermsofdirectandindirect
taxes.Unlessotherwiseindicated,theproposedamend-
mentsrelatingtodirecttaxeswillapplyfromtheassess-
mentyear2010-11andunlessotherwiseindicated,the
changesrelatingtoCentralExciseandCustomsDuties
comeintoeffectimmediately.ChangesinServicetaxwill
comeintoeffectfromadatetobenotified,aftertheenact-
mentoftheFinance(No2)Bill,2009.

TheremovalofFringeBenefitstaxinthehandsofcorpo-
ratesisapositivestepandreducesthecomplianceburden
butre-introducingESOPsasaperquisiteinthehandsofthe

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TableofContents

DirectTax 1
Corporatetax 1

Taxholidays 3

Non-residentrelatedprovisions 5

Capitalgains 5

Personaltaxation 6

Otherdirecttaxprovisions 7

IndirectTax 10
Customsduty 10

Centralexcise 12

Servicetax 14

Goodsandservicestax 18

Glossary 19
 1

DirectTax

CorporateTax

• TheCorporateTaxrateremainsunchanged

• TheFBTisabolished

• TheMATrateisraisedto15percentfrom10percent.Thecarryforwardand
set-offofcreditforMATisextendedto10fromsevenyears.Further,forthe
purposeofcomputingMAT,‘Bookprofit’istobeincreasedbyprovisionfor
diminutioninthevalueofanyassetifdebitedtotheprofitandlossaccount.
ThelatteramendmentisproposedretrospectivelyfromAY1998-99

• Weighteddeductionattherateof150percentavailabletospecificindustries
inrespectofapprovedin-housescientificresearchanddevelopmentfacilityis
extendedtoallcompaniesengagedinthebusinessofmanufactureor
productionofanyarticleorthingfallingoutsidethenegativelist

• Deductioniseligibleinrespectofentirecapitalexpenditure(otherthanthe
acquisitionofanylandorgoodwillorfinancialinstrument)incurredbythe
taxpayerengagedinthefollowingbusinesses:

- settingupandoperatingcoldchainfacilitiesforspecifiedproducts

- warehousingfacilitiesforstorageofagriculturalproduce

- laying/operatingcross-countrynaturalgasorcrudeorpetroleumoilpipeline
networkfordistribution/storageasspecified.

Consequentialchangeshavebeenmadeinprovisionsforcomputingcapitalgains
onsaleofsuchcapitalassets,carryforwardofsuchlosses,etc.

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 2

• Inthecaseofnon-lifeinsurancecompanies,anyamountcreditedonaccount
ofappreciation/gainsontherealizationofinvestmentsshallbetaxedas
income,andanyamountwrittenofforprovidedfordiminutionorlosson
realizationofinvestmentsshallbeallowedasadeduction.Thisamendment
willapplyfromAY2011-12

• Deductioninrespectofamounttransferredtospecialreservebyspecified
entitiesnowextendedtoentitiesengagedinthebusinessofprovidinglong
termfinance(includingrefinance)forthedevelopmentofhousinginIndia

• Incomputingtheincomeofacompositebusinesscomprisingpartlyfrom
agricultureandpartlyfromincomechargeabletotax,thetaxWDVofassetsis
tobecomputedbydeductingthetotaldepreciationattributabletothe
compositebusiness,includingthatforanagriculturalbusinessasifitwerea
taxablebusiness

• CashpaymentsasspecifiedexceedingINR35,000inadayforplying,hiringor
leasinggoodscarriagestobedisallowedfortransactionseffectedonorafter
October1,2009asagainstthecurrentceilingofINR20,000inaday

• A100percentdeductionforcontributionstoapprovedElectoralTrusts.

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 3

TaxHolidays

• A100percenttaxholidayisextendedfor1moreyearuptoMarch31,2011to
undertakingslocatedinafreetradezoneunderSection10AandforEOU
underSection10B

• Thestartdateofthespecifiedactivityisextendedfor1moreyearupto
March31,2011forthoseengagedinthefollowingundertakings:

- engagedinthegenerationoforgenerationanddistributionofpower

- forthetransmissionanddistributionofpowerbylayinganetworkofnew
transmissionordistributionlines

- carryingoutsubstantialrenovationandmodernizationoftheexisting
networkoftransmissionordistributionlines.

• A100percentdeductionofprofitsincaseofunitslocatedinSEZistobe
computedwithreferencetothetotalturnoveroftheundertakinginsteadof
thetotalturnoverofthecompany

• InrespectofataxpayerwhoisengagedinsoftwaredevelopmentinanSTP
unitorexportofanarticle/thinginanEOUorfromaspecialeconomiczone
ortheenterprisewhichiseligiblefordeductionorclaimsdeductionunderits
respectivesection,thennofurtherdeductioninrespectofthesameamount
shallbeallowedunderanyotherprovisionsinthesameassessmentyear

Further,theaggregateofthedeductionsundertheaforesaidprovisionsshall
notexceedtheprofitsorgainsoftheundertakingorunitorenterpriseofthe
business.Deductionsundertheaforesaidprovisionsshallbeallowedonlyif
thedeductionhasbeenclaimedinthereturnofincome.Theseamendments
areretrospectivefromtheAY2003-2004

• Whilecomputingprofitsandgainsoftheeligibleundertakingorunitor
enterprise,transferpriceinrespectoftransactionsenteredintowithanyother
undertakingorunitorenterpriseofthetaxpayershallbeconsideredatthe
marketvalueasdefined.ThisamendmentisapplicablefromtheAY2009-2010

• Thestartdateofthespecifiedactivityisextendedfor3moreyearsupto
March31,2011forundertakingsset-upforthereconstructionorrevivalofa
powergeneratingplant

• Startdateofrefiningofmineraloilextendedfor3moreyearsuptoMarch31,
2012forprivatesectorundertakings

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 4

• Taxholidaydiscontinuedforundertakingscarryingonthebusinessoflaying
andoperatingacrosscountrynaturalgasdistributionnetwork.Instead,all
capitalexpenditure(otherthanexpenditureonland,goodwillandfinancial
instruments)willbefullyallowedasadeductionwhilecomputingbusiness
income

• Taxholidayinrespectofspecifiedinfrastructurefacilityshallnotbeavailableto
anyundertakingorenterprisewhichhasbeenawardedaworkscontractby
anyperson(includingCentral/StateGovernment)andexecutedbythe
undertakingorenterprise.ThisamendmentisretrospectivefromtheAY2000-
2001

• A100percenttaxholidayfor7yearsisallowedforundertakingsengagedin
thecommercialproductionofnaturalgasonorafterApril1,2009inblocks
licensedundertheNELP-VIII

• AllblockslicensedunderasinglecontractawardedunderNELP-VIIIorin
pursuanceofanylaworbytheCentralorStateGovernmentinanymanner,
shallbetreatedasa‘singleundertaking’forthepurposeofataxholiday
availabletoanundertakingengagedinthebusinessofcommercialproduction
orrefiningofmineraloilandnaturalgas.Thisamendmentisretrospectivefrom
AY2000-2001

• Adeveloperwillnotbeentitledtoataxholidayinrespectofahousingproject,
ifmorethanoneresidentialunitisallottedtoanypersonotherthanan
individualandincaseofanindividualtohisspouseorminorchildrenorakarta
ofHUForanypersonrepresentingsuchspecifiedpersons

Further,thetaxholidaywillnotbeavailabletoanyundertakingwhichexecutes
housingprojectsasaworkscontractawardedtoanyentity(includingthe
CentralorStateGovernment).ThisamendmentisretrospectivefromAY2001-
2002

• Anynewundertakingengagedintheproductionormanufactureofitemsin
thepaperindustrylocatedinHimachalPradeshandUttaranchalwillnotbe
eligibleforataxholiday

• Taxexemptionhasbeenextendedtothemutualfundset-upbyanyother
publicsectorbankspecifiedbytheRBI.

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 5

Non-residentrelatedprovisions

• TheCentralGovernmenthasbeenempoweredtoenterintoagreementwith
theGovernmentofanyspecifiedterritoryoutsideIndiaforthepurposeof
doubletaxreliefandspecifiedpurposesinthesamemanneraswiththe
GovernmentofanycountryoutsideIndia

• Inaninternationaltransaction,wheremorethanonepriceisdeterminedby
themostappropriatemethod,thearm’slengthpriceisthearithmeticalmean
ofsuchprices.Incaseswherethevariationbetweenthepricesodetermined
andpriceatwhichthetransactionhasbeenundertakendoesnotexceed5
percentofthelatter,thetransactionpricewillbedeemedtobethearm’s
lengthprice

• TheCBDThasbeenempoweredtomakeSafeHarborRulestominimize
disputesrelatingtotransferpricingmatters

• AnAlternateDisputeResolutionMechanismwillbeformulatedtofacilitatethe
expeditiousresolutionoftransferpricingmattersandothermattersofforeign
companies.Underthismechanism,theAOisrequiredtoforwardthedraft
assessmentordertothetaxpayerforacceptanceorlodginganobjection
within30daystotheDisputeResolutionPanel(DRP)[acollegiumcomprising
ofthreeCommissionersofIncome-tax].Afterhearingfrombothsides,within
ninemonths,theDRPwillissuenecessarydirectionswhichshallbebinding
ontheAObutcanbechallengedbythetaxpayerinanappealtotheIncome
TaxAppellateTribunal.

CapitalGains

• ThevalueassessedorassessablebyanyStampDutyAuthoritydeemedtobe
thefullvalueofconsiderationforcomputingcapitalgainsontransferofland
and/orbuildings.

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 6

PersonalTaxation

• BasicExemptionLimitshavebeenincreased:

Limits for: To (INR): From (INR):

ResidentWomenbelow65years 190,000 180,000

ResidentIndividualsof65yearsandabove 240,000 225,000

OtherIndividuals 160,000 150,000

• Surchargeof10percentabolishedforallnon-corporatetaxpayers

• PursuanttoabolitionofFBT,EmployeeStockOptions(ESOPs)onexercise
date,contributiontoSuperannuationFund(inexcessofINR100,000)and
otherfringebenefits/amenitiesaretaxableinthehandsofemployeesas
perquisites

• Deductionformedicaltreatmentofadependentsufferingfromsevere
prescribeddisabilityincreasedtoINR100,000fromINR75,000

• Deductioninrespectofinterestonloantakenforhighereducationextended
toallfieldsofstudies(includingvocationalstudies)afterpassingtheSenior
SecondaryExaminationoritsequivalent,fromanyrecognizedSchool,Boardor
University

• AnysumofmoneyreceivedincashorkindexceedingINR50,000byan
individualorHUFwithoutanyorinadequateconsiderationshallbetaxableas
otherincome.Propertyincludesimmovableproperty,land,buildings,shares&
securities,jewellery,archaeologicalcollections,drawings,paintings,sculptures
oranyworkofart.ThisamendmentwillapplyfromOctober1,2009

• Taxrelieftobeeligibleonvoluntaryretirementcompensationonlyifemployee
hasnotclaimedtaxexemptiononthesame

• TaxbenefitinrespectofinvestmentinNewPensionScheme(NPS)iscurrently
availabletosalariedemployeesonly.Thesameisproposedtobeextendedto
allindividualsfromAY2009-10

• TimelimitforcompliancebyprivateProvidentFundTrusttoreceiveorretain
recognitionextendedfromMarch31,2009toDecember31,2010.

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 7

Otherdirecttaxprovisions

• WealthtaxexemptionlimitincreasedtoINR3millionfromINR1.5million

• Themeaningof‘partnership’and‘partner’expandedtoincludelimitedliability
partnershipandlimitedliabilitypartnersasdefinedintheLimitedLiability
PartnershipAct2008.Accordinglytheincome-taxtreatmentofpartnership
firmsandpartnersistoextendtolimitedliabilitypartnershipsandtheir
partners

• TheCTThasbeenabolished

• Themeaningof‘manufacture’hasbeenintroducedinthestatutewiththe
purposeofeliminatingdisputesandconflictsamongstjudicialcases.
Manufacturehasbeennowdefinedtomeanachangeinanynon-living
physicalobjectorarticleorthingresultinginitstransformationorbringinginto
existenceanewanddistinctobjectorarticleorthingwithdifferentname/
character/useorchemicalcompositionorintegralstructure

• ZeroCouponBondscheme/provisionsextendedtoscheduledbanks

• Interestreceivedoncompensationorenhancedcompensationisdeemedto
beincomeunderthehead‘IncomefromOtherSources’oftheyearinwhichit
isreceived,irrespectiveofthemethodofaccountingregularlyfollowedbythe
taxpayer,andwillqualifyforadeductionof50percentthereon

• FromOctober1,2009,thescopeoftheprovisionfortaxwithholdingon
paymentstocontractorshasbeenexpandedtoincludeacontractfor
manufacturingorsupplyingaproducttotherequirement/specificationofa
customerbyusingmaterialpurchasedfromsuchcustomer.Ifthecredits/
paymentsaremadetoIndividuals/HUF,thetaxesaretobewithheldat1
percentand2percentforallotherentities.Further,incaseofspecifieda
manufacturing/supplycontract,ifthematerialcomponenthasnotbeen
separatelymentionedontheinvoice,thetaxshallbewithheldonthefull
invoicevalue.Paymentstotransportcontractorwouldbenotbeliablefor
withholdingprovidedthetransportcontractorfurnisheshisPAN.The
withholdingtaxobligationsunderthisnewsectionareextendedevento
foreigngovernment/entitiesestablishedoutsideIndia

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 8

• Theratesforwithholdingtaxonrentalpaymentsareproposedtobereduced
witheffectfrom1October2009.Theproposedratesareasfollows:

Proposed rate
Particulars Existing rate
(w. e. f. October 1, 2009)

Rentofplant,machineryorequipment 2percent 10percent

Rentofland,buildingorfurnituretoan
10percent 15percent
individualandHUF

Rentofland,buildingorfurnituretoa
personotherthananindividualor 10percent 20percent
HUFservice

• SurchargeandEducationCessnotapplicableforwithholdingtaxonnon-salary
paymentstoresidenttaxpayers

• ThethresholdlimitforpaymentofadvancetaxincreasedtoINR10,000from
INR5,000

• SimpleanduserfriendlySaralformstobeintroduced

• Variousamendmentsmadetoproceduralaspectsoffurnishingofquarterly
returnsforwithholdingtax,issuingcertificatesfortaxeswithheld,timelimits
forassessmentofwithholdingtax,etc

• IncasethePANisnotquoted,taxwouldbewithheldatwhicheverrateis
highestfromamongstthefollowing:

- aspecifiedrate

- theratesinforce

- arateof20percent

• Scopeofreassessmenthasbeenwidenedtoincludeanyincomewhichmay
cometotheattentionoftheAOduringreassessmentproceedings,
irrespectiveofwhetherornotanyreasonhasbeenrecordedforthesame
whilereopeningtheassessment.Thisamendmentiseffectiveretrospectively
fromApril1,1989

• Inconcealmentpenaltyproceedings,incomepertainingtotheperiodpriorto
searchforwhichthereturnofincomehasbeenfiledbythetaxpayerbut
wheresuchincomehasnotbeendisclosedthereintobeliableforlevyofthe
penalty.TheamendmentiseffectiveretrospectivelyfromJune1,2007

• ServiceofNoticebyapprovedcourierorelectronictransmissiontobe
consideredasvalid.Further,CBDTtomakerulesregardingaddresses
(includingelectronicmailorelectronicmailmessages)towhichsuch
communicationmaybedeliveredortransmitted

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 9

• Everydocument,notice,order,letteroranyothercorrespondenceissuedor
receivedbytheIncomeTaxAuthorityonorafterOctober1,2010tobeara
computer-generatedDocumentIdentificationNumberwithoutwhichitwillbe
treatedasinvalid

• Therevisedlimitsforallowingexpenditureonaccountofsalary,bonus,
commissionorremunerationtoaworkingpartnerofallpartnershipfirmsare
asunder:

Book-profit / Losses Amount allowed as deduction

Inthecaseoflossorbook-profituptoINR HigherofINR150,000or90percentofthe
300,000 book-profit

Book-profitaboveINR300,000 60percentofbook-profit

• Theschemeofpresumptivetaxationmadeapplicabletoallbusinesses(except
forthebusinessofplying,hiringorleasinggoodscarriagesorthoseclaiming
specifiedtaxbenefits)havingtotalturnoverorgrossreceiptoflessthanINR4
million.Theschemeappliestoindividuals,HinduUndividedFamiliesand
partnershipfirms(excludingLimitedLiabilityPartnerships).Underthis
Scheme,8percentoftotalturnover/grossreceiptswillbedeemedtobethe
taxableincomeofthetaxpayeronwhichentireincome-taxcanbepaidasself-
assessmenttax.ThisschemewillapplyfromAY2011-12.Incasethetaxpayer
claimslowertaxableincomethenhewillberequiredtomaintainaccountsand
getthemaudited

• Themeaningof‘Charitablepurpose’forthepurposeoftaxregistrationand
exemptionisexpandedtoincludethepreservationoftheenvironment
(includingwatersheds,forestsandwildlife)andpreservationofmonuments,or
placesorobjectsofartisticorhistoricinterest

• AggregateanonymousdonationsreceivedbyRegisteredCharitableTrusts/
EntitiesnottaxabletotheextenttheydonotexceedINR100,000or5percent
oftheirtotalincome,whicheverishigher

• VoluntarycontributionsreceivedbyApprovedElectoralTrustfunctioningasper
itsrulesistobeexemptifitdistributes95percentthereoftospecifiedpolitical
parties

• IncomeoftheNewPensionSchemeTrustistobetaxexempt.Theprovisions
oftheDDTwillnotapplytodividendsreceivedbysuchaTrust.Nowithholding
taxwouldapplyonanyincomepaidtothem.Securitiessold/purchasedby
suchaTrustwillnotattractSTT.

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 10

IndirectTax

CustomsDuty

General amendments

• Thegeneralratesofcustomsdutyunchanged

• RetrospectiveamendmentwitheffectfromJuly1,2003hasbeenmade
empoweringHighCourtstocondoneadelayinfilingofappealsbeyondthe
prescribedperiod.Similaramendmentshavebeenmadeforapplications/
crossobjectionswitheffectfromJuly1,1999.Similaramendmentmadein
centralexciselaw.

• TheofficersofDirectorateGeneralofCentralExciseIntelligence(DGCEI)have
beenempoweredasofficersofCustomswithallIndiajurisdictionwith
retrospectiveeffectfromMay9,2000.

New exemption notifications (effective from July 7, 2009)

• ExemptionfromCVDtosuchvalueofpackagedsoftwareattributableto
transferofrighttouseforcommercialexploitation

• Currentnotificationexemptingpaymentofcustomsdutyonspecifiedgoods
importedbymanufacturer-exportersofsportsgoodsandmanufacturer-
exportersofleathergoods,textileproductsandfootwearindustryextendedto
covercertainotherrawmaterials/inputs/equipment.

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 11

Amendments (effective from July 7, 2009)

IllustrativeChangesinBCDrates:

With Effect From

Items Prior to July 6, 2009
July 6, 2009

SpecifiedLifesavingdrugs/vaccine 10% 5%

Artificialheartdevices(leftventricular
7.5% 5%
assistdevice)

Goldbars,otherthantolabars,bearing
manufacturer’sorrefiner’sengravedserial
numbersandweightexpressedinmetric INR100per10gram INR 200per10gram
units,andgoldcoins(subjecttospecified
conditions)

Goldinanyform,otherthanthose
specifiedabove,includingliquidgoldand INR 250per10gram INR 500per10gram
tolabars(subjecttospecifiedconditions)

Silverinanyform(subjecttospecified
INR 500perKg INR 1000perKg
conditions)

Permanentmagnetsforuseinwind
7.5% 5%
operatedelectricitygenerators

Set-topboxes Nil 5%

LCDpanelsformanufactureofLCDTV’s 10% 5%

Parts,componentsandaccessoriesof
mobilehandsetsincludingcellphones
4%(ADC) Nil
(ADC)(subjecttotheprocedure
prescribed)

Proposed amendments (effective from enactment of the

Finance (No.2) Bill, 2009)

Customs Act, 1962

• Refundofcustomsdutypaidonunused,identifiableimportedgoodsifthey
arefoundtobedefectiveornotconformingtothespecificationsagreedupon
betweentheimporterandtheseller,subjecttocertainconditionslike:

- Goodsshouldbere-exportedor

- Importerrelinquisheshistitleandabandonstothecustomsor

- Goodsaredestroyedorrenderedcommerciallyvalueless,within30daysor
extendedperiodasmaybepermitted.

Customs Tariff Act, 1975

• ForthepurposeofcalculationofCVD,theTariffvaluefixedunderthecentral
exciselawshouldbeadoptedforsimilarimportedarticles.

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 12

CentralExcise

General

• Thegeneralrateofexcisedutyof8percentisunchanged.

Amendments (effective from July 7, 2009)

• Theexistingrateof4percentincreasedto8percenttoalignwiththemean
rate.Certainitemslikefood,drugs,pharmaceuticalsetc.havebeenspared

• Cenvatcreditoncement,steelandothermetalitemsetc.usedforthe
constructionofafactoryshed,buildingorsupportstructureofcapitalgoods
excludedfromthedefinitionof‘inputs’andhenceCenvatcreditisnot
available

• Manufacturerofbothdutiableandexemptedgoodsoptingnottomaintain
separateaccountsofcommoninputs,topayanamountequalto5percentof
thevalueofexemptedgoodsinsteadof10percent

• Exemptionfromexcisedutytosuchvalueofpackagedsoftwareattributableto
transferofrighttouseforcommercialexploitation

• Processofaddingormixingcardamom,copra,menthol,spices,etc.other
thanlime,kathaortobaccotobetelnutshallamounttomanufacture

• SSIexemptionbenefitextendedtoprintedlaminatedrollsbearingthebrand
nameofanotherperson

• BooksofaccountsorotherdocumentsseizedbytheCentralexciseofficerand
notreliedforissueofnotice,tobereturnedwithin30daysoftheissueofthe
notice.

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 13

Reduction in excise duty (effective from July 7, 2009)

With effect from

Item Upto July 6, 2009
July 7, 2009

Naphtha,specialboilingpoint
14%+INR15perlitre 14%
spirits

Brandedjewellery(brandname
ortradenameindeliblyaffixed 2% NIL
orembossed)

MotorVehicles–Engine 20%+INR20,000
20%+INR15,000perunit
capacityexceeding1999cc perunit

Petroldrivenmotorvehiclesfor
transportofgoods,except 20% 8%
dumpersofspecificcategories
Motorchassisforpetroldriven
20%+INR10,000
vehiclesfittedwithengines 8%+INR10,000perchassis
perchassis
whetherornotwithcab

Increase in Excise Duty (effective from July 7, 2009)

With effect from
Item Upto July 6, 2009
July 7, 2009

PolyesterChips 4% 8%

Articlesofwood 4% 8%

ManmadeFilamentYarn/Fibres
4% 8%
(towandstaplefibre)

MRP-based Rate Changes (effective from July 7, 2009)

With effect from
Upto July 6, 2009
July 7, 2009
Item
Central Excise Central Excise
Abatement Abatement
duty rate duty rate

CeramicTiles,
manufacturedina
factorynotusing 4% 43% 8% 45%
electricityforfiringthe
kiln

LPGGasStoves 4% 33% 8% 35%

MP3/MP4orMPEG4
Playerswithorwithout
4% 33% 8% 35%
radio/videoreception
facility

Proposed amendments (effective from enactment of Finance

(No.2) Bill, 2009)
• CharteredAccountantscanbenominatedbyChiefCommissionerofcentral
exciseforconductingspecialaudits.

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 14

ServiceTax

• Rateofservicetaxremainsunchanged

• AuthorityforAdvanceRulingsnotifiedforITA,toactastheAuthorityforthe
purposesofcustoms,centralexciseandservicetaxfromadatetobenotified.

Introduction of new taxable services (effective from a

date to be notified upon enactment of Finance (No.2) Bill,
2009):

• Legalconsultancyservicesexcludingservicesprovided/receivedby
individualsandservicesofappearancebeforeanycourt,tribunalorauthority

• Servicesprovidedinrelationtotransportofcoastalgoods,goodsthrough
nationalwaterwayorinlandwater

• Cosmeticandplasticsurgeryservicesexcludingsurgeryundertakendueto
specifiedreasons.

Amendments (expansion / modification) in scope of

existing taxable services (effective from a date to be
notified upon enactment of Finance (No.2) Bill, 2009):

Service category Amendments

Toincludeservicesprovidedbygovernmentrailways
Transportofgoodsbyrailservice andtransportofgoodswhetherincontainersor
otherwise
Toexcludeonlythoseactivitiesthatresultin
Businessauxiliaryservice manufactureofexcisablegoods.Earliertheconditionof
excisablegoodswasnotprescribed

Stock-broker’sservice Toexcludeservicesofsub-broker

RetrospectiveamendmentwitheffectfromMay16,
2008tosubstitutetheterm‘acquiring’with‘providing’
Informationtechnologysoftware
inclauses(v)and(vi)whichapplyforrighttouseIT
services
softwareforcommercialexploitation/supplied
electronically

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 15

Exemptions from service tax (effective from July 7, 2009):

• Touroperator’sservices:Toexemptinter-stateorintra-statetransportationof
passengersinvehiclewithcontractcarriagepermitexcludingservices
providedinrelationtotourism,conductedtoursandcharterorhireservices.

• Bankingandotherfinancialservices:Toexemptinter-banktransactionsof
purchaseandsaleofforeigncurrencybetweenscheduledbanks.

• Cluborassociationservices:Toexemptservicesprovidedbyspecifiedexport
promotioncouncilsincludingFederationofIndianExportOrganizations(FIEO),
GemandJewelleryExportPromotionCouncil(GJEPC),ExportPromotion
CouncilforExportOrientedUnitsandSpecialEconomicZones,etc.upto
March31,2010.

Amendment in Works Contract (Composition Scheme for

Payment of Service Tax) Rules, 2007 (effective from 7 July
2009)

Therulesaremodifiedtorestrictbenefitofoptionalcompositionschemeonlyto
suchworkscontractswhere‘grossamountcharged’foraworkscontractinclude:

• Valueofallgoodsusedinorinrelationtoexecutionofworkscontractwhether
suppliedunderanyothercontractforconsiderationorotherwise;
• Valueofallservices(includinghirechargesformachineryandtools)tobe
providedfortheexecutionofaworkscontract.

The‘grossamountcharged’excludes:

• Valueaddedtaxorsalestaxontransferofpropertyingoodsinvolved;
• Costofmachineryandtoolsusedinexecutionofworkscontract.

Theamendmentisnotapplicabletothoseworkscontractswhichhave
commencedorforwhichanypaymenthasbeenmade(otherthancreditordebit
toanyaccount)onorbefore7July2009.

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 16

Extension in territorial jurisdiction of service tax (effective

from July 7, 2009)

• Levyofservicetaxextendedtoinstallations,structuresandvesselsinthe
continentalshelfofIndiaandtheexclusiveeconomiczonesofIndia.The
definitionof‘India’hasbeensimilarlyamendedintheImportRules.

New scheme for refund of service tax to exporters of

goods (effective from July 7, 2009)

• Newschemeintroducedforrefundofservicetaxtoexportersofgoods.New
schemeisinsupersessionofearlierschemeunderNotificationNo.41/2007
datedOctober6,2007.

• Keyfeaturesofthenewschemeinclude:

- Exporterstofilerefundclaimforeachexportshipment.

- Selfcertificationofdocumentsbyexporterswherethetotalamountof
refundclaimdoesnotexceed0.25percentofFOBvalueofexports.

- CertificationofdocumentsbyauditorundertheCompaniesAct/ITAwhere
thetotalamountofrefundclaimexceed0.25percentofFOBvalueof
exports.

- Timeperiodforfilingtherefundclaimextendedtooneyearfromtheexport
ofgoods.

- Exemptionfromservicetaxunderreversechargetoexportersfor‘transport
ofgoodsbyroadservice’andcommissionpaidtoforeignagents(exemption
restrictedtoservicetaxamountupto1percentofF.O.B.valuefor
commission).

Amendments under Cenvat Credit Rules, 2004 (effective

from July 7, 2009)

• Serviceproviderofbothtaxableandexemptedservicesoptingnottomaintain
separateaccountsofcommoninputservices,topayanamountequalto6
percentofthevalueofexemptedservicesinsteadof8percent.

• Requirementofcreditreversalincaseofinputs/capitalgoodsfullywrittenoff
inbooksofaccount,extendedtoserviceproviders

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 17

Other Proposals (effective date of enactment of Finance

(No.2) Bill, 2009):

• PowertoCentralgovernmenttoformulaterulestodeterminetherelevantdate
forrateofservicetaxandplaceofprovisionoftaxableservice.

• RetrospectiveeffectgivenfromJanuary1,2005tothenotificationexempting
certaintaxableservicesprovidedtothe‘goodstransportagency’.Refund
applicationsforthepastperiodwillbeallowedwithin6monthsfromthedate
whenFinance(No.2)Bill,2009receivestheassentofthePresidentsubjectto
unjustenrichment.

• RevisionarypoweroftheCommissionerofCentralExciseunderSection84is
replacedwiththeprocedureoffilingdepartmentalappealsbeforethe
CommissionerofCentralExcise(Appeal)tobringtheprocedureinlinewith
theCentralExciselaw.

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 18

GoodsandServicesTax

• GSTtransitiontimelineof2010reaffirmed

• GSTstructurebasedonprinciplesoffiscalfederalism,comprisingofaCentral
GSTandaStateGST

• TheCentreandtheStateswilleachlegislate,levyandadministertheCentral
GSTandStateGST,respectively.

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 19

GlossaryofContents

AO - AssessingOfficer

BCD - BasicCustomDuty

CBDT - CentralBoardofDirectTaxes

CENVAT - CentralValueAddedTax

CTT - CommoditiesTransactionTax

CVD - CountervailingDuty

DDT - DividendDistributionTax

EOU - ExportOrientedUnit

FBT - FringeBenefitTax

FDI - ForeignDirectInvestment

FOB - Freeonboard

GST - GoodsandServicesTax

HUF - HinduUndividedFamily

ITA - IncomeTaxAct

MAT - MinimumAlternateTax

MRP - MaximumRetailPrice

PAN - PermanentAccountNumber

RBI - ReserveBankofIndia

SEZ - SpecialEconomicZone

SSI - SmallScaleIndustries

STP - SoftwareTechnologyPark

STT - SecuritiesTransactionTax

WDV - WrittenDownValue
 in.kpmg.com

KPMGinIndia KPMGContacts
Mumbai Hyderabad Pradip Kanakia
KPMG House, Kamala Mills Compound 8-2-618/2 Executive Director
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Mumbai 400 013 Hyderabad - 500 034 Tel: +91 80 3980 6100
Tel: +91 22 3989 6000 Tel: +91 40 6630 5000
Uday Ved
Fax: +91 22 3983 6000 Fax: +91 40 6630 5299
Executive Director
Head - Tax
Delhi Kolkata e-Mail: uved@kpmg.com
DLF Building No. 10, Infinity Benchmark, Plot No. G-1 Tel: +91 22 3983 5933
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Theinformationcontainedhereinisofageneralnatureandisnotintendedtoaddressthecircumstancesofanyparticularindividual theKPMGnetworkofindependentmemberfirms
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