KPMG Budget 2010

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TAX Highlights 2010 Budget india
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  Union   Budget   2010   Highlights KPMG   IN   INDIATAX  TheHonourableFinanceMinisterhaspresentedtheUnionBudgetamidstapprehensionsthathemightincreasetaxestocountertheriseinthefiscaldeficit.Theriseinthefiscaldeficitwasofcourse,broughtaboutlargelybecauseoftheneedtogivealargefiscalstimulitorevivetheeconomywhichhadsloweddownamidsttheglobalfinancialcrisis.TheEconomicSurvey2009-10identifiedthefollowingchallenges: 1 1.Fiscalconsolidationtoputthecountryonthepathoffiscalrectitude2.QuickreverttothehighGrossDomesticProduct(GDP)growthrateof9percentandthenfindapathtocrossthe‘doubledigitgrowthbarrier’3.Makinggrowthmoreinclusiveandalleviatepoverty4.Managinginflation,especiallythatoffoodpricesTheGrowthRateoftheIndianeconomymarginallyimprovedin2009-10to7.2percentfrom6.7percentin2008-09butwasstilllowerthanitsaveragegrowthrateof8.8percentoverthelastfiveyears(2003-04to2007-08).TheGovernmenthoweverwassuccessfulinwardingoffasustainedeconomicslowdownbyincreasingdisposableincomeinthehandsofthepeople,forinstancebyeffectingreductionsinindirecttaxesandbyincreasingexpenditureonprogrammeslikeNationalRuralEmploymentGuaranteeAct(NREGA)andonruralinfrastructure.TheimplementationoftheSixthPayCommissionrecommendationsandthedebtrelieftofarmersalsocontributedtothisend.Thenetresultoftheabovemeasureswasanincreaseinfiscaldeficitfrom2.6percentoftheGDPin2007-08to6.8percentofGDP.TheGrossFiscalDeficit(includingtheStates’share)thereforetouched10percentofGDP.Inshapingthefiscalpolicyfor2010-11andbeyond,therecommendationsoftheThirteenthFinanceCommission(FC-XIII)havebeentakenonboard.TheFC-XIIIhasrecommendedacalibratedexitfromtheexpansionaryfiscalstanceof2008-09and2009-10,asthemainagendaoftheCentralGovernment.FurtherithassuggestedthattherevenuedeficitoftheCentreneedstobeprogressivelyreducedandeliminated,followedbyanemergenceoftherevenuesurplusby2014-15. Foreword 1indiabudget.nic.in ©2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative(“KPMGInternational”),aSwissentity.Allrightsreserved.  Whatisreassuringisthedirectionalstanceinre-iteratingtheGovernment’scommitmenttobringinginauniformGoodsandServicesTaxregimeandtheNewDirectTaxesCodeby1April,2011.Atfirstglance,theDirectTaxesProposalsarerelativelybenign,savetheincreaseinMinimumAlternateTaxto18percentfrom15percent,andseekto:ã Lowertaxburdenonindividualtaxpayersbywideningthetaxslabsã Allowsmallcompaniestoconverttolimitedliabilitypartnershipswithoutattractingcapitalgainstaxliabilityã Increaseturnoverlimitsforapplicabilityofcompulsorytaxauditã Promoteinvestmentinresearchanddevelopmenttoenhancecompetitivenessã Encouragesavingstobechanneledintoinfrastructurebyprovidingataxdeductiononinvestmentinlong-terminfrastructurebondsã SimplifyandrationaliseprovisionsrelatingtotaxdeductionatsourceOntheIndirecttaxesfront,asexpected,thefiscalstimuluswaspartlywithdrawnbyacrosstheboardincreaseinexcisedutyratefrom8to10percent.Theincreaseofexcisedutyonpetrolanddieselwassomewhatsurprising,giventheconcernaroundinflation.Servicetaxandcustomsdutyrateswereleftatthesamelevels.However,theambitofservicetaxisproposedtobeincreasedsignificantlybycoveringaviation,realestate,railtransportandspecifiedhealthservices.ThisappearstobeasteptowardstheimplementationofGST,whichrevolvesaroundaconceptofmoderatetaxratewithalargertaxbase.Exportofservicesruleshavebeensimplifiedandcertainproceduralrelaxationshavebeenprovidedtoserviceexporters.Overall,iftheimmediatepositivereactionfromthestockmarketsisanyindication,thecorporatesectorandinvestingcommunityseemselatedathavingbeensparedanincreaseinheadlinedirecttaxrates;however,onewillneedcarefullyassesstheimpactoftheprovisionsbyanalysingthefineprintintheFinanceBill.TheBudgetseemstobewellintendedtowardsreturningtothepathtofiscalrectitude.Individualtaxpayersmayfindthatthemoneythattheyhavesavedduetothewidenedtaxslabsmayjustaboutmeetincreasedexpendituresduetohigherindirecttaxesbeingleviedonalmostallgoodsandservices,CorporatesingeneraldonotseemtohavemuchtocheeraboutespeciallyastheincreaseintheMinimumAlternateTaxislikelytoresultinanimmediatecashoutflow.ThesummarythatfollowshighlightsthesalientfeaturesoftheFinanceBill2010,intermsofdirectandindirecttaxes.Unlessotherwiseindicated,theproposedamendmentsrelatingtodirecttaxesaretoapplyfromtheassessmentyear2011-12andunlessotherwiseindicated,thechangesrelatingtoCentralExciseandCustomsDutiescomeintoeffectimmediately.ChangesinServicetaxaretocomeintoeffectfromadatetobenotified,aftertheenactmentoftheFinanceBill,2010. ©2010KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternationalCooperative(“KPMGInternational”),aSwissentity.Allrightsreserved.  Direct Tax1 Corporate tax1Tax holidays3Non-resident related provisions4Withholding tax provisions5Personal taxation6Conversion of a company into an LLP7Other direct tax provision9 Indirect Tax11 Central excise11Service tax15Customs duty 20Goods and services tax22Central sales tax22 Glossary23 Table of Contents
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