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India: Proposed Budget Includes Tax Changes

(Mar. 3, 2010) Both direct and indirect tax regimes will be amended under the 2010/2011 budget presented by the Indian government on February 26, 2010. The direct tax amendments will become effective when ratified by the Parliament. While the corporate income tax rates would not be changed under the proposal, individual income tax brackets would be modified as follows:

Annual taxable income (INR) – proposed

Annual taxable income (INR) – current

Marginal tax rate (%)

first 160,000

first 160,000


160,000 – 500,000

160,000 – 300,000


500,000 – 800,000

300,000 – 500,000


over 800,000

over 500,000


(Kamesh Susarla, India: Budgets for 2010/11, TAX NEWS SERVICE, Feb. 26, 2010, subscription newsletter from [email protected].)

Note that the basic exemption limit in the case of resident women taxpayers remains at INR190,000 (about US$4,100), and all resident taxpayers above the age of 65 are eligible for an INR240,000 (about US$5,180) exemption. (Id.)

Other changes include:

  • allowing an additional INR20,000 (about US$435) deduction for investment in long-term infrastructure bonds;
  • permitting deductions for contributions to the Central Government Health Scheme;
  • reducing the surcharge on domestic companies from 10% to 7.5%;
  • increasing the rate of Minimum Alternateive Tax from 15% to 18% of book profits;
  • increasing the weighted deduction on payments made for scientific research from 125% to 175%, whether that research is performed in a National Laboratory, a research association, an academic institution, or elsewhere, and similar payments for social science or statistical research are eligible for 125% weighted deduction;
  • allowing investment-linked tax benefits for investment in new hotels in India of at least two-star quality;
  • increasing the threshold for account audits to INR6 million (about US$130,354) for businesses and INR1.5 million for professions;
  • increasing the threshold of presumptive taxation for small businesses to INR6 million;
  • increasing the interest charged on taxes deducted but not deposited by the deadline from 12% to18% per annum;
  • exempting from capital gains tax the transfer of assets from conversions of small companies into limited liability partnerships;
  • defining as a “charitable purpose” any act that advances “any other object of general public utility,” so long as the amount received is not over INR1 million per annum. (Id.)

The changes that impact indirect taxes include:

  • increasing the standard excise duty on non-petroleum products from 8% to 10%;
  • increasing the ad valorem excise duty on large cars, multi-utility vehicles, and sports utility vehicles to 22%;
  • increasing central excise duty on petroleum and diesel fuel by INR1 per liter;
  • exempting 1) mechanized handling systems and pallet racking systems for warehouses for food grains and sugars and 2) cold storage systems for agricultural products from service tax on installation and commissioning, plus giving such systems “project import status” and a concessional import duty of 5%;
  • exempting refrigeration units needed for making refrigerated vans or trucks from customs duties;
  • exempting from service tax 1) the testing and certification of agricultural seeds, 2) road transportation of cereals and pulses (a kind of legume), and 3) news agencies that provide online feeds;
  • granting project import status and a customs rate of 5% to monorail projects designed for urban transport; and
  • adding some new services to the list of those liable for service tax. (Id.)