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Union Budget 2012-13: Direct Tax amendments Impact on the Real Estate sector. Tax rates - Personal. Personal income-tax slabs proposed to be revised as under:

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Union Budget 2012-13:

Direct Tax amendments

Impact on the Real Estate sector


Tax rates - Personal

  • Personal income-tax slabs proposed to be revised as under:
  • Minimum exemption limit for women changed from Rs 190,000 to Rs 200,000 (the category of women below the age of 60 years has been removed)
  • Limits remain unchanged for senior citizens (age of 60 years and above but less than 80 years) at Rs 250,000
  • Limits remain unchanged for very senior citizen (age of 80 years and above) at Rs 500,000
  • Education Cess and Secondary and Higher Education Cess at 2% and 1% respectively to continue

Corporate Tax rates & GAAR

  • No change in corporate tax rate
  • No change in Minimum Alternate Tax ('MAT') rate (18.5%)
  • No change in surcharge for domestic companies (5%)
  • No change in surcharge on foreign companies (2%)
  • Education Cess and Secondary and Higher Education Cess at 2% and 1%, respectively to continue
  • Concessional rate of 15% for dividend received from foreign subsidiary has been extended by 1 more year
  • General Anti-Avoidance Rule (GAAR) introduced
  • 'Impermissible avoidance arrangement' whose main purpose is to obtain a tax benefit
  • Onus lies with the tax payer to prove that the main purpose of the arrangement was not to obtain tax benefit
  • This will take effect from AY 2013-14 (FY 2012-13)

Transfer Pricing provisions on domestic transactions

  • Transfer Pricing guidelines proposed on "specified domestic transaction"
  • Concept of "specified domestic transaction" proposed vide section 92BA
  • Transfer Pricing applicable only when aggregate of "specified domestic transactions" exceeds Rs 5 crores in the previous year
  • Specified domestic transactions will be required to adhere to arms length price
  • Following additional compliance will be required:
    • Maintenance and keeping of information and document
    • Certificate from CA in Form 3CEB

Fair Market Value to be considered as “full value of consideration”

  • A new section 50D proposed to be inserted under capital gains provision
  • Transactions where sales consideration is not ascertainable/indeterminate – Fair Market Value (FMV) of capital asset on the date of transfer considered as “full value of consideration”
  • Transactions that may be effected
    • Exchange
    • Collaboration with land owners

Transfer of certain immovable properties under Tax Deducted at Source (TDS) net

  • New section 194LAA is proposed – To deduct tax by way of TDS @ 1% on consideration for transfer of immovable property (other than agricultural land)
  • Provision applicable (from 1 Oct 12) to any person transacting with resident transferor
  • Higher of actual consideration paid or stamp duty valuation would form the basis for TDS
  • TDS would get triggered where the consideration exceeds-
    • Rs 50 lakhs if the property is situated in specified areas
    • Rs 20 lakhs in case of other areas

Amendment to Section 35AD – Investment based deduction

  • Affordable Housing Project
  • Amendment to section 35AD where weighted deduction of 150% of capital expenditure is proposed in affordable housing
  • Proposed to be effective from
  • FY 2012-13
  • Hotel owners/ operators
  • Currently deduction under section 35AD available to hotel owners only if such owner himself operates the same
  • Now proposed that hotel owners of two star and above categories, will get deduction of capital expenditure even if such hotel owner transfers the operations of hotel to franchisee/hotel operator
  • Amendment inserted retrospectively with effect from 1April 2011

Clarification in connection with 'cost to previous owner'

  • Amendment in Section 49 to define the cost of assets (“COA”)
    • COA to company will be the cost to previous owner in the following cases:
        • Conversion of sole proprietor into company
        • Conversion of Firm into company
  • Amendment to take effect retrospectively from assessment year 1999- 2000

Direct tax proposals – Interplay of section 47 and 49

Firm merges with company

Third Party

Sale of Capital asset @ 175

Company records Capital Asset in its books - Rs. 150


Capital Gain computation in the hands of Company for sale of Capital Asset

Sale consideration – Rs. 175

Less: COA (section 49) – Rs. 100

Capital Gain Rs. 75

Transfer between Firm to Company – Not taxable vide 47(v).


COA of Capital Asset is books of Firm - Rs. 100


Beneficial tax rate for funding affordable housing projects

  • Foreign currency loan to an Indian company
    • in the business of developing and building a notified affordable housing project
    • loan taken between 1 July of 2012 and 2015
  • TDS on interest at the beneficial rate of 5% (plus applicable surcharge and cess)
  • ECB to be allowed for funding notified affordable housing projects

Clarification in relation to amalgamation and demerger involving subsidiary

  • Merger of subsidiary company into holding company - For tax neutrality, consideration shares have to be issued to shareholders of the amalgamating company
  • Demerger of subsidiary company into holding company - Similarly for demerger to be tax neutral, resultant entity has to issue shares to the shareholders of the demerging entity
  • The above conditions are impossible to achieve as the holding company could not issue shares to itself
  • The condition to issue shares in the above circumstances have been dispensed with amendments proposed in Finance Bill 2012

Removal of cascading effect of Dividend Distribution Tax (DDT) in multi-tier structure

  • Amendment to Section 115-O to remove the cascading effect of DDT in multi-tier corporate structure
  • The condition of being “ultimate holding” removed for computing DDT to be paid
  • Amendment effective from 1July 2012
  • However for claiming the benefit the holding company is required to hold more than 50% equity share in subsidiary company

Removal of cascading effect of DDT in multi-tier structure

Present situation

Proposed situation

Holding co.

Holding co.

Intermediate co.

Dividend – Rs. 100

DDT – Rs. 16.225

Intermediate co.

Dividend – Rs. 100


Subsidiary co.

Subsidiary co.

Dividend – Rs. 100

DDT – Rs. 16.225

Dividend – Rs. 100

DDT – Rs. 16.225

DDT cost for the Group – Rs. 32.45

DDT cost for the Group – Rs. 16.225


Thank you

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