Important changes brought in by the Budget 2011

Income Tax

All the provisions given below are applicable for Financial Year 2011-12 (Assessment
Year 2012-13) unless otherwise mentioned.

1. Categories and Deduction

Category Financial Year 2010-11 Financial Year 2011-12

Male Individual
Female Individual
Male Individuals Above 60
Years
Female Individuals Above
60 Years
Individuals Above 65 Years
Individuals Above 80 Years
Exemption Limit =
Rs. 1,60,000 /-
Exemption Limit =
Rs. 1,90,000 /-
Exemption Limit =
Rs. 1,60,000 /-
Exemption Limit =
Rs. 1,90,000 /-
Exemption Limit =
Rs. 2,40,000 /-
Exemption Limit =
Rs. 2,40,000 /-
Exemption Limit =
Rs. 1,80,000 /-
Exemption Limit =
Rs. 1,90,000 /-
Exemption Limit =
Rs. 2,50,000 /-
Exemption Limit =
Rs. 2,50,000 /-
Exemption Limit =
Rs. 2,50,000 /-
Exemption Limit =
Rs. 5,00,000 /-

2. Income Tax Slabs remain same for all categories. Surcharge for Companies having
total income of more that Rs. 1 crore is reduced from 7.5 % to 5 %.

3. Minimum Alternate Tax for companies having less that 18.5 % tax on profit will be
18.5% of Adjusted Net Profit.

4. Minimum Alternate Tax for Limited Liability Partnerships introduced and is same as
for domestic companies.

5. Definition of ‘Charitable Purpose’ changed. ‘The advancement of general or public

utility’ is NOT a charitable purpose if the receipts from commercial activities are more
than Rs. 25,00,000 /-. Earlier this limit was Rs. 10,00,000 /-.

6. Interest received by a non-resident from notified infrastructure debt fund will be

taxable @ 5% of gross receipts.

7. Deduction under Section 35 (2AA) for donation to notified scientific research activity
increased from 175% to 200%.

8. Presently both employer’s and employees share to New Pension Scheme under section
80CCD is eligible for deduction to employee under section 80CCD. Employer did not get
any deduction. Now, employer will get deduction from his business income under section
36, and employee will get deduction only for employee share. The New Pension Scheme
is announced vide Notification No. F.N. 5/7/2003-ECB & PR, dated 22-12- 2003.

9. Tax rate on foreign dividend received from subsidiaries of India companies is reduced
from 30% to 15 %.

10. Levy of additional income tax of 30% on income distributed by debt funds to persons
other than individuals or HUF. Now the additional income tax payable by the mutual
fund will be as under:

Recipient Type of Fund Rate up to 31.5.2011 Rate after 1.6.2011

Individual or HUF Money Market 25 % 25%
Fund, Liquid Fund
Other than Money Market 25% 30%
Individual or HUF Fund, Liquid Fund
Individual or HUF Debt Fund Other 12.5% 12.5%
than Money Market
Fund or Liquid
Fund
Other than Debt Fund Other 20% 30%
Individual or HUF than Money Market
Fund or Liquid
Fund

11. Exemption to a Class of Persons from Filing I.T. Returns: The Central Govt. may
exempt, by notification in the official gazette, any class of persons as may be specified.
This amendment will take effect from 1.6.2011

12. Earlier it was decided that every income tax authority will give a unique computer
generated Document Identification Number for each notice or order or letter or any
correspondence. This provision is deleted with effect from 1st April, 2011.

13. For obtaining recognition of a Provident Fund Scheme, the approval of Employees
Provident Fund Organisation Commissioner and also of Commissioner of Income Tax
was required. In order to give more time to employers to get the approval of EPFO
Commissioner, the date is extended to 31st March, 2012.

Service Tax

The provisions will come into effect on a specific notification after passing of budget
unless specified otherwise.

1. Service Tax Rate remains @ 10%. General Central Excise Rate is also 10%.

2. Services Brought under the Net:

 a. Services provided air-conditioned restaurants having license to serve alcoholic
beverages in relation to serving food / beverages.
b. Short Term Accommodation provided for less than three months by any hotel,
inn, guesthouse, club or campsite or any other similar establishment.

3. Scope of Services Changed.

a. ‘Life Insurance Service’ to include ‘all’ services provided by an insurer. Also,

composition scheme rate increased from 1% to 1.5%.
b. ‘Club or Association Service’ expanded to include service provided to non-
members also.
c. ‘Authorised Service Station Services’ expanded to service provided ‘by any
person’ and ‘for all vehicles except goods carriers and auto rickshaws. Also
‘decoration to vehicle services’ included.
d. ‘Business Support Service’ to include services provided by way of operational or
administrative assistance in any manner.
e. ‘Legal Consultancy Service’ to include service by business entity to an
individual, representative services by any person to a business entity and
arbitration services.
f. ‘Commercial Training or Coaching Centre’ services to include all unrecognized
courses also.
g. ‘Health Services’ to include all services including diagnostic services in a
centrally or partially air-conditioned hospital of 25 bed or more, all diagnostic
services by clinical establishment with aid of laboratory and by any doctor –
whether employee or not – from a clinical establishment.

4. Exemptions Granted

a. Provided by an organizer in connection with business exhibition held outside

India. To come into effect from 1.3.2011.
b. Abatement of 25% from taxable goods through costal and inland shipping.
c. Works Contract in relation to ‘Jawaharala Nehru National Urban Renewal
Mission’ and ‘Rajeev Awaas Yojna’
d. ‘Rashtriya Swasthya Bima Yojna’ To come into effect from 1.3.2011.
e. Value of air freight included in assessable value for Customs Duty. To come into
effect from 1.4.2011
f. Services related to transportation of goods outside India. To come into effect from
1.4.2011
g. Modified Scheme is introduced for refund of Service Tax in SEZ. To come into
effect from 1.3.2011.

5. Withdrawal of Exemptions

Service Tax on Air Travel. To come into effect from 1.4.2011

Travel Class Earlier Rates New Rates
Domestic Travel Economy Class Rs. 100 /- Rs. 150 /-
Domestic Travel Other than 10%
Economy Class
International Travel Economy Class 500 /- 750 /-

6. Amendment to Act, Rules or Notification:

a. Limit of Adjustment of Excess tax paid earlier is raised to Rs. 2,00,000 /- from
Rs. 1,00,000 /-
b. If any amount of service tax is self assessed and not paid, there is no requirement
to send notice and follow the due procedure under Section 73 but the same can be
recovered from any other dues payable to the assessee or through bank attachment
without any enquiry under Section 87..
c. With effect from 1.3.2011, credit of tax on input services will be restricted to 40%
of tax paid in case of works contract in ‘Erection, Commissioning & Installation’,
‘Commercial or Industrial Construction’ and ‘Construction of Complex’ services.
d. Section 73 (1A) and provisions to Section 73(2) have been omitted, thereby
benefit of reduction of penalty on payment of part of tax will not be available to
tax evaders.
e. New Subsection 4A is added to Section 73. As per this subsection, penalty of 1%
per month of default (subject to maximum of 25%) will be levied for service tax
accepted by the assesses who have evaded the tax.
f. Penalty for delayed payment reduced from 2% to 1% per month or Rs. 100 /- per
day of default whichever is higher.
g. Maximum penalty is reduced to 50% from 100%.
h. Maximum penalty from contravension of rules is increased to Rs. 10,000 /- from
Rs. 5,000 /-.
i. Penalty under section 78 for suppressing value of taxable service will be
mandatory and is 100% of evaded tax. But penalty is reduced to up to 25% if tax
dues and interest is paid within one month (90 days in case of assessees having
turnover up to Rs. 60,00,000 /-) of determination.
j. Interest rate for tax collected in excess and for delayed payment is rduced by 3%
for assessees having turnover up to Rs. 60,00,000 /-.
k. Maximim penalty for delay in filing returns increased to Rs. 20,000 /- from Rs.
2,000 /-. However, for first 15 days, the penalty will be Rs. 500 /-, for next 15
days will be Rs. 1,000 /- and Rs. 100 /- per day beyond that.
l. Power to waive penalty is amended. Penalties under section 76 (for failure to pay
tax) and under section 77 (for contravension of rules where no penalty is
provided) are being retained. Penalty under section 78 (for suppressing value of
taxable service) can be waived only if transaction os captured in specified.
records.
m. Power to issue search warrant is given to joint commissioner.
n. New Section 88 introduced to create first charge on property for recovery of
Service Tax.
 o. Reintroduction of Provisions relating to prosecution under section 89 for:
aa. Provision of service without invoice.
bb. Utilize CENVAT Credit without receipt of inputs / input service.
cc. Submitting false information.
dd. Non-payment of collected amount of Service Tax for a period of more
than six months.
6. Point of Taxation Rules have been framed and will be effective from 1.4.2011