28-11-2012, 02:25 PM
DIRECT TAXES AND INDIRECT TAXES UPDATES
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Definition of Charitable Purpose [Section 2(15)]
“Charitable Purpose” has been defined in section 2(15) which, among others, include “the advancement of any other object of general public utility”. However, “the advancement of any other object of general public utility” is not a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity and receipts from such activities is ten lakh rupees or more in the previous year.
Section 2(15) has been amended to enhance the current monetary limit in respect of receipts from such activities from ten lakhs rupees to twenty-five lakhs rupees.
Infrastructure Debt Fund
In order to augment long-term, low cost funds from abroad for the infrastructure sector, it is made to facilitate setting up of dedicated debt funds.
Section 10 of the Income-tax Act has been amended so as to provide enabling power to the Central Government to notify any infrastructure debt fund which is set up in accordance with the prescribed guidelines. Once notified, the income of such debt fund would be exempt from tax.
It will, however, be required to file a return of income. Section 115A of the Income-tax Act has also amended to provide that any interest received by a non-resident from such notified infrastructure debt fund shall be taxable at the rate of five per cent on the gross amount of such interest income.
A new section 194LB has also insertedto provide that tax shall be deducted at the rate of five per cent by such notified infrastructure debt fund on any interest paid by it to a non-resident.
These amendments are effective from 1st June 2011.
Taxation of certain foreign dividends at a reduced rate
Under the existing provisions of the Income-tax Act, dividend received from foreign companies is taxable in the hands of the resident shareholder at his applicable marginal rate of tax. Therefore, in case of Indian companies which receive foreign dividend, such dividend is taxable at the rate of thirty per cent plus applicable surcharge and cess.
A new section 115BBD is inserted to provide that where total income of an Indian company for the previous year relevant to the assessment year 2012-13 includes any income by way of dividends received from a foreign subsidiary company, then such dividends shall be taxable at the rate of fifteen per cent (plus applicable surcharge and cess) on the gross amount of dividends. No expenditure in respect of such dividends shall be allowed under the Act.
Minimum Alternate Tax
Under the existing provisions of section 115JB(1), a company is required to pay a minimum alternate tax (MAT) on its book profit, if the income-tax payable on the total income, as computed under the Act in respect of any previous year relevant to the assessment year commencing on or after 1st April, 2011, is less than the MAT. The amount of tax paid under the said section is allowed to be carried forward and set off against tax payable up to the tenth assessment year immediately succeeding the assessment year in which the tax credit becomes allowable under the provisions of section 115JAA. The rate of MAT is increased from 18% to 18.5% of such book profit.