Union Budget 2012: Income Tax amendments and its implications

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As part of his Union Budget 2012 proposals, the Finance Minister, Shri Pranab Mukherjee announced a number of amendments to the Income Tax Act. Let us try to understand a few of these amendments and its implications which impact the common man and / or the small scale business men:

Corporate Tax:

1. Minimum Alternative Tax (MAT) levied on partnership firms, Association of Persons (AOP) and Sole proprietory concerns claiming profit linked deduction, being tax holidays etc., under Chapter VIA: A GOOD MOVE TO BRING ALL ENTITIES AT PAR, THESE ENTITIES WOULD ALSO NOW BE REQUIRED TO PAY MAT @ 20.01% EVEN IN CASE OF NO TAXABLE PROFITS UNDER NORMAL COMPUTATION WHICH WAS HITHERTO APPLICABLE ONLY FOR CORPORATES.

2. Share capital / share premium credits in Private Companies to be taxed in the hands of the recipient unless the source of the funds of the investors are explained – A GOOD MOVE SINCE MANY CLOSELY HELD COMPANIES RESORT TO ONE TIME ENTRY TO ENHANCE THEIR EQUITY HOLDING IN THE BOOKS WHICH WILL NOW BE CURBED.

3. Share premium received in excess of the fair market value of the shares to be taxable as income in the hands of Private Companies: A GOOD MOVE AGAIN AIMED AT MITIGATING THE ONE TIME ENTRY MENACE, IT WILL ALSO CURB PROMOTERS BRINGING IN FUNDS WITHOUT ENHANCING THE AUTHORISED CAPITAL. THE ONUS WILL NOW BE ON THE RECEIPIENT TO PROVE THE FMV OF THEIR SHARES.

4. Undisclosed Income to be subject to tax at max. marginal rate of 30% and penalty of 10% to 90% to be levied – A RISKY MOVE, DURING SEARCH PROCEDURES, UNDISCLOSED INCOME IS SUBJECT TO TAX AT 30% EVEN IF IT FALLS BELOW THE BASIC EXEMPTION LIMIT. EARLIER, ONLY TAX AND INTEREST WAS LEVIED, NOW PENALTY AT 10%-90% ALSO TO BE LEVIED.

5. Exemption limit for compulsory tax audit for SMEs increased to INR 1 crore and INR 25 lakhs for professionals – A GOOD MOVE, RESULTING IN LESSER COMPLIANCE FOR SMALLER FIRMS AND PROFESSIONALS.

6. Time limit for claiming exemption u/s 80IA extended to 31.3.2012 for power sector – A GOOD MOVE, WILL  CERTAINLY AUGMENT INVESTMENT IN POWER SECTOR

7.  The weighted average deduction of 200% for in-house R&D extended by another 5 years – A GOOD MOVE, WILL AUGMENT AND ENCOURAGE COMPANIES TO SPEND ON INHOUSE R&D.

Personal Tax:

1. Basic threshold limit for chargeability of Income Tax increased from INR 1.80 lakhs to INR 2.00 Lakhs – A GOOD MOVE, WILL RESULT IN REDUCING THE TAX BURDEN BY INR 2,060/- FOR GENERAL TAX PAYERS. LESSER BENEFIT FOR WOMEN ASSESSEES SINCE THEY BENEFIT BY WAY OF ENHANCEMENT OF THE LIMIT BY ONLY INR 10,000/- AND CONSEQUENT TAX SAVING OF INR 1030/-, THE HIGHER EXEMPTION LIMIT FOR WOMEN ASSESSEES SINCE LAST MANY YEARS HAS NOW BEEN DONE AWAY WITH.

2. The higher ceiling in the tax slab for the 20% tax has been increased from INR 8.00 lakhs to INR 10.00 Lakhs – A GOOD MOVE, THIS WILL RESULT IN REDUCING THE TAX LIABILITY FOR PEOPLE HAVING INCOME ABOVE RS.8 LACS WITH A MAXIMUM BENEFIT OF INR 20,060/- FOR ASSESSEES HAVING INCOME OF INR 10 LAKHS AND ABOVE.

3. Additional deduction of upto INR 5,000/- provided for preventive medical checkup in the total ambit of INR 15000/- deduction u/s  80D – A GOOD MOVE, THIS WILL CERTAINLY ENCOURAGE PEOPLE TO GO FOR ANNUAL MEDICAL CHECKUP AND CLAIM DEDUCTION FOR THESE EXPENSES.

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