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BUDGET 2009

UNION BUDGET 2009-10 WAS PRE-


SENTED BY FINANCE MINISTER, MR.
Contents:
PRANAB MUKHERJEE ON 6TH JULY 2009

Fundamentals of Budget
Refer Details Inside … … … 1

Income Tax & Wealth Tax


Refer Details Inside … … … 2
Analysis of Budget 2009 &
Proposed changes in Tax Rates, returns—Tax Holi-
Important amendments days—Transfer Pricing—Deductions—Trusts—
proposed in Finance Bill Maximum Exemption Limits—Presumptive Taxa-
tion—Partnership Remuneration—TDS Rates– PAN
2009 made compulsory-Saral Form-Others...

Presented by:
CA. SANJAY KADEL & Team

www.sanjaykadel.com

Customs, Excise, VAT &


Service Tax
Refer Details Inside … … … 6
Proposed changes in Tariffs- upwards and down-
wards revision- New services Introduced under
Service Tax- Few Exemptions granted- GST intro-
duction

Budget Estimates
Refer Details Inside … … … 8

Disclaimer: While extra care has been taken to


maintain the accuracy of the contents, some unwar-
ranted errors or discrepancies may have crept in.
The authors of this document do not accept any
responsibility for the acts done on the basis of the
subject matter mentioned herein.
Fundamentals of Budget

Though the entire Union Budget Documentation consists of plethora of information on


Analysis of forth-coming policies and strategies of the government for economic and welfare enrich-
Budget 2009 ment, the most discussed and sought after topic hovers only around Income tax and other tax
& proposals.
Important
amendments The Budget documents include the following:
proposed in
Finance Bill i. Annual Financial Statements (AFS)
2009
ii. Demands for Grants
iii. Appropriation Bill
iv. Finance Bill Budgets have an eco-
By:
CA. SANJAY
v. Memorandum Explaining the provisions of nomic, political and
KADEL & Finance Bill technical basis. Unlike
Team vi. Macro-economic Framework Statement a pure economic
vii. Fiscal Policy Strategy Statement budget, they are not
viii. Medium Term Fiscal Policy Statement entirely designed to
ix. Expenditure Budget allocate scarce re-
x. Receipts Budget sources for the best economic use.
xi. Budget at Glance They also have a political basis
xii. Highlights of Budget wherein different interests push
and pull in an attempt to obtain
For more details logon to http://indiabudget.nic.in/ benefits and avoid burdens. The
ub2009-10/keybud/keybud2009.htm technical element is the forecast of
the likely levels of revenues and
expenses.

The most important document containing tax and other related proposals is the Finance Bill.
Finance Bill deals with Income Tax, Wealth Tax, Customs, Excise and Service Tax

The BSE Sensex, one of the Nation’s Economic Indicator or Barometer, saw red during the
Budget Presentation.

14043.40 –869.65 (-5.83%) 6 Jul 3:59 PM IST

Open: 14913.05
High: 15600.30
Low: 13959.44

The following discussion is a brief and crisp analysis of the union budget 2009-2010
presented by Finance Minister, Mr. Pranab Mukherjee. Important amendments pro-
posed in the Finance Bill 2009 relating to Direct and Indirect Taxes are discussed fur-
ther.

1
Income Tax & Wealth Tax

Filing of IT Returns & Assessments:


Analysis of □ Centralized Processing Center (CPC) will be set up at Bangalore where e-filed returns will be proc-
Budget 2009 essed.
& □ A new concept of Direct Taxes Code will be introduced.
Important
amendments
proposed in
Tax Rates:
□ No Change in Corporate Tax Rates. □ Minimum Alternate Tax raised from 10% earlier to 15%
Finance Bill
now. Such tax is levied on Book Profits computed according to the provisions of the Income Tax Act.
2009
□ Maximum Exemption Limits revised upward by Rs.15,000 for Senior Citizens and Rs.10,000
for others. Revised Slabs are given below. (Applicable for Income earned during FY 2009-10)
By:
CA. SANJAY Income Slab (Rs.) Tax (Rs.)
KADEL &
Team Women Senior Citizen Others

Upto 160000 Nil Nil Nil


160001 to 190000 Nil Nil 10% of amount
exceeding 160000
190001 to 240000 10% of amount Nil 10% of amount
exceeding 190000 exceeding 190000
240001 to 300000 10% of amount 10% of amount 10% of amount
exceeding 240000 exceeding 240000 exceeding 240000
300001 to 500000 20% of amount 20% of amount 20% of amount
exceeding 300000 exceeding 300000 exceeding 300000
Above 500000 30% of amount 30% of amount 30% of amount
exceeding 500000 exceeding 500000 exceeding 500000

□ FBT (Fringe Benefit Tax) is abolished. (Applicable for FY 2009-10)

□ CTT (Commodity Transaction Tax) is abolished.

□ Surcharge of 10% removed for Remember: Surcharge still exists on Compa-


Individuals, HUF, AOP, BOI, AJP nies, where the net income exceeds Rs.1 Crore.
and Firms. (Applicable for Income
earned during FY 2009-10)

Tax Holidays:
□ Sun-set clauses for deduction in respect of export profits under sections 10A and 10B of the In-
come-tax Act being extended by one more year i.e. for 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.

2
Income Tax & Wealth Tax (contd.)

Transfer Pricing:
Analysis of □ Alternative dispute resolution mechanism to be created Safe Harbour Rules indicate a
Budget 2009 within the Income Tax Department for the resolution of sort of presumptive taxation.
& transfer pricing disputes. Such practices are already preva-
Important lent world over and now, India is
amendments □ Central Board of Direct Taxes (CBDT) to be empow- following the trend. What India, should
proposed in ered to formulate ‘safe harbour’ rules to reduce the im- also have is a “Advance Pricing Arrange-
Finance Bill pact of judgemental errors in determining transfer price in ment”. May be in the next budget!
2009 international transactions.

By: Deductions from Gross Total Income:


CA. SANJAY □ Deduction under section 80E of the Income-tax Act allowed in respect of interest on loans taken for
KADEL & pursuing higher education in specified fields of study to be extended to cover all fields of study, in-
Team cluding vocational studies, pursued after completion of schooling.

□ Deduction u/s 80DD allowed till maximum of Rs.100000 instead of earlier limit of Rs.75000
Section 80DD relates to deduction in respect of maintenance including medical treatment, of a de-
pendent who is a person with SEVERE DISABILITY.

Trusts
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.
Note: Similar provisions
already existed in the case
Presumptive Taxation of Business of Civil Con-
Scope of presumptive taxation to be extended to all small busi- struction, Exclusive Retail
nesses with a turnover upto Rs. 40 lakh. All such taxpayers to Business and Business of plying,
have option to declare their income from business at the rate leasing or hiring trucks.
of 8 percent of their turnover and simultaneously enjoy ex-
emption from the compliance burden of maintaining books For instance, in the case of Retail
of accounts. As a procedural simplification, they are also to be Business, option of 5% presump-
exempted from advance tax and allowed to pay their entire tax tive Profit on turnover is eligible
liability from business at the time of filing their return. This new for taxing (subject to turnover upto
scheme to come into effect from the Financial Year 2010-11. Rs.40 Lakh)

The NEW provision proposes 8%


Wealth Tax presumptive profits.
The maximum exemption limit for Wealth Tax is proposed to be
raised from Rs.15 Lakhs to Rs.30 Lakhs. (Applicable for FY
2009-10)

3
Income Tax & Wealth Tax (contd.)

Section 40(b) amendment:


Analysis of Earlier to calculate the allowable remuneration in a Firm, the Book Profits calculation had to be done
Budget 2009 and then based on Professional or Non-professional firm, the slabs had to be applied. There is a pro-
& posal to amend the slab.
Important
amendments Earlier Provision:
proposed in
Finance Bill In case of Professional Firm,
2009 On first 100000 or loss - 50000 or 90% of book profit (whichever is more)
On next 100000 - 60% of book profit
On Balance - 40% of book profit
By:
In case of Non-Professional Firm,
CA. SANJAY
On first 75000 or loss - 50000 or 90% of book profit (whichever is more)
KADEL &
On next 75000 - 60% of book profit
Team On Balance - 40% of book profit

NEW Provision w.e.f. 1.4.2010


In case of any Firm,
On first 300000 or loss - 150000 or 90% of book profit (whichever is more)
On Balance - 60% of book profit

Impact:
For instance, if the Book profits was Rs.3,00,000/- then in the case of Professional Firm, the allow-
able remuneration would have been Rs.190,000/-. And in the case of Non-Professional Firm, the al-
lowable remuneration would have been Rs.172,500/-

Now it would be Rs.270,000/-. A Welcome change.

Section 56(2) amendment:


Receipts without consideration is covered by 56(2) where there was a loop-hole that receipts in
KIND without consideration was out of the scope of taxability.

Now to plug the loop-hole, new provision is introduced w.e.f. Note: Still there is a loop-
1.10.2009 where even ‘in KIND’ receipts will also be covered. hole TILL 30.9.2009. So if
The new section mentions the following three - you want to take a legal
A) any sum of money exceeding 50,000 advantage of the section
B) Immovable property where value for the purpose of stamp you have approximately 3 months
duty exceeds 50,000 from now.
C) Other Properties where fair value exceeds 50,000

Section 194C: TDS on Payment to Contractor / Sub-Contractor


w.e.f. 1.10.2009
New Rates for TDS when amount paid to Individual / HUF - 1%
New Rates for TDS when amount paid to others - 2%
New Rates for Payment to a Transport Operator - NIL (2% if no PAN is quoted for payments made
upto 31.3.2010 and 20% thereafter)

Section 194I: TDS on Rent


w.e.f. 1.10.2009
New Rates for TDS when Rent is for Machinery or Plant or Equipment - 2%
New Rates for TDS when Rent is for Land / Building / Furniture and Fittings - 10%

4
Income Tax & Wealth Tax (contd.)

Requirement to Furnish PAN:


Analysis of
Budget 2009
Section 206AA w.e.f. 1.4.2010
Every person who receives payment subject to TDS should COMPULSORILY INTIMATE
&
Important
HIS P.A.N. TO THE DEDUCTOR failing which the TDS rate will be higher of the follow-
amendments ing rates:
proposed in (a) Rate specified in the relevant provision of the Act
Finance Bill (b) Rate or rates in force
2009 (c) Rate of 20%

By:
CA. SANJAY Limit for Advance Tax RAISED:
KADEL & Section 208
Team Every person shall pay advance tax if such estimated tax for the year exceeds 10,000/-. Ear-
lier the limit was 5000/-

Allotment of Document Identification Number.


Section 282B
Every income-tax authority shall allot a computer generated Document Identification Num-
ber in respect of every notice, order, letter or any correspondence issued by him to any other
income-tax authority or assessee or any other person and such number shall be quoted
thereon, without which the document will be treated invalid.

SARAL Form
The Government will re-introduce the earlier popular SARAL Form with a twist where fil-
ing of supporting enclosures may not be required as was required in SARAL of the earlier
era.

5
Customs, Excise, VAT and Service Tax

GST:
Analysis of GST will be introduced w.e.f. 1.4.2010
Budget 2009 Dual GST system is planned, Central GST & State GST.
&
Important Changes in Excise Duties
amendments Products Description Earlier Rate New Rate
proposed in
Finance Bill Specified food items including biscuits, sharbats, 4% 8% ↑
2009 cakes and pastries
Pressure cookers, Medical Equipment, Power driven 4% 8% ↑
pumps for handling water, Certain varieties of paper,
By: paperboard and articles thereof, Paraxylene, Compact
CA. SANJAY Fluorescent Lamps, Cars for physically handicapped
KADEL & Large cars / utility vehicles of engine Capacity 2000 20000 15000 ↓
Team cc per Vehicle per Vehicle
Petrol Driven truks/lorries 20% 8% ↓
Chassis of trucks /lorries 20% + 10000 8% + 10000 ↓

Petrol Intended for Sale 6% + 13 per 14.50 per Litre ↑↓


Litre
Disel Intended for Sale 6% + 3.25 per 4.75 per Litre ↑↓
Litre
Manmade fibre and yarn, Polyster Chips, Manmade 4% 8% ↑
fibre other than pure cotton
Branded Articles of Jewellery 2% 0% ↓

Changes in Customs Duties


Products Description Earlier Rate New Rate
Set Top Box 0% 5% ↑
LCD Panels for manufacture of LCD Televisions 10% 5% ↓
Unworked Coals 5% 0% ↓
Specified heart devices 7.5% 5% ↓
Permanent magnets for PM synchronous 7.5% 5% ↓

Bio Diesel 7.5% 2.5% ↓


Specified Machinery on Tea, Coffee, rubber plantation 0% 5% ↑
Mechanical Harvester for Coffee Plantation 7.5% 5% ↓
Cotton Waste, Wool Waste 15% 10% ↓
Serially Numbered Gold Bars & Gold Coins Rs.100 per 10 Rs. 200 per 10 ↑
Gm Gm
Other forms of Gold Rs. 250 per 10 Rs. 500 per 10 ↑
Gm Gm
Silver Rs. 500 per Kg Rs.1000 per Kg ↑

6
Customs, Excise, VAT and Service Tax (Contd.)

Service Tax proposed to be imposed on FOLLOWING SERVICES:


Analysis of
Budget 2009 ** Service provided in relation to transport of goods by RAIL
& ** Service provided in relation to transport of coastal cargo; and goods through inland water
Important including National Waterways
amendments ** Advice, consultancy or technical assistance provided in the Note: Individual Lawyers
proposed in field of law. providing advice, consul-
Finance Bill ** Cosmetic and plastic surgery service tancy or technical assis-
tance are not covered un-
2009
der Service Tax Liability.

By:
CA. SANJAY Service Tax proposed to be exempted for FOLLOWING
KADEL & SERVICES:
Team
** Inter-State or Intra-State transportation of passengers in a vehicle bearing ‘Contract Carriage
Permit’ with specified conditions.
** Inter-bank purchase and sale of foreign currency between scheduled banks.
** 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.
** 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.

7
Budget Estimates in Brief

□ Revenue deficit projected at 4.8% of GDP in B.E. 2009-10


Analysis of
Budget 2009 □ Fiscal deficit as a percentage of GDP is projected at 6.8%
&
Important □ Subsidies up from Rs.71,431 crore in B.E. 2008-09 to Rs.1,11,276 crore in B.E.
amendments 2009-10.
proposed in
Finance Bill
2009
Summarized Extract of Budget Estimates for 2009-10
By: Particulars Amount
CA. SANJAY (Rs. In Crores)
KADEL &
Team Revenue Receipts 614,497
Capital Receipts 406,341
Total Receipts 1020,838

Non-Plan Expenditure 695,689


Plan Expenditure 325,149
Total Expenditure 1020,838

Revenue Deficit 282,735


Fiscal Deficit 400,996
Primary Deficit 175,485

“Democracy is the art and science of mobilizing the entire physical, economic
and spiritual resources of various sections of the people in the service of the
common good of all.”
- Mahatma Gandhi

“With strong hearts, enlightened minds and willing hands, we will have to
overcome all odds and remove all obstacles to create a brave new India of our
dreams.”
- Pranab Mukherjee

Jai Hind
Note from Authors: Year-on-Year we try to bring out our technical and specific analysis of the im-
portant changes proposed in Finance Bill 2009 after going through the fine print and not going
just by the FM Speech or media reports. This year too we have done it! In case you wish to provide
feedback on our efforts, please do write us at sanjaykadel@gmail.com

Disclaimer: While extra care has been taken to maintain the accuracy of the contents, some unwarranted errors or

8 discrepancies may have crept in. The authors of this document do not accept any responsibility for the acts done
on the basis of the subject matter mentioned herein.