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Amendments to Finance Bill 2008

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AMENDMENTS TO FINANCE BILL, 2008

The Indian Finance Minister, Mr P Chidambaram, announced a series of amendments to the Finance Bill, 2008 before the Bill was passed by the lower house of Parliament (Lok Sabha). The Bill will now be passed by the upper house (Rajya Sabha) and become law once the President of India gives her assent.

We have summarised some of the key amendments to the Finance Bill, 2008

AMENDMENTS TO FINANCE BILL, 2008
Background
The Indian Finance Minister, Mr P Chidambaram, announced a series of amendments to the Finance Bill, 2008 before the Bill was passed by the lower house of Parliament (Lok Sabha). The Bill will now be passed by the upper house (Rajya Sabha) and become law once the President of India gives her assent.

We have summarised some of the key amendments to the Finance Bill, 2008.

Extension of tax holiday for STPs and EOUs
The tax holiday available under Sections 10 A / 10 B to units in STPI, EHTP, FTZ and EOU's was set to expire on March 31, 2009. The amendment to the Finance Bill, 2008 extends the sunset date of the tax holiday by one year. Consequently, the tax holiday shall now be available to eligible units (which have not completed ten years of their tax holiday period) upto March 31, 2010.

Extension of tax holiday available to public sector undertakings engaged in refining of mineral oil
The Finance Bill, 2008 had proposed a new sunset clause in the tax holiday provisions applicable to undertakings engaged in refining of mineral oil, restricting the benefit to commencement of refining activities upto March 31, 2009.
However, the amendment, with a view to extend the benefit to public sector refineries, provides that an undertaking may continue to claim such deduction even if the refining activity commences after April 1, 2009, provided the following conditions are satisfied:
o The undertaking is owned by a public sector company or any other company in which a public sector company or companies hold at least 49 percent of the voting rights
o It is notified by the Central Government before June 1, 2008
o It begins refining during April 1, 2009 and March 31, 2012

Amendment in scheme of disallowance for withholding tax defaults
Section 40(a)(ia) of the Act presently provides for an disallowance of an expense, if the tax to be withheld on such expense has either not been withheld or is withheld but not deposited (or belatedly deposited) with the Government.
The proposed amendment seeks to provide relief from the scheme of disallowance under section 40(a)(ia) in cases of payments relating to the last month (March) of a financial year. Accordingly, in respect of tax to be withheld during the month of march, as long as the tax is deposited on or before the due date of submission of return of income (now September 30 of the immediately following financial year), there would be no disallowance. This change is with retrospective effect from April 1, 2004.
For all other payments, there is no change and where tax to be withheld has not been withheld or tax that is withheld has not been deposited into the Government account before the end of the financial year, no deduction shall be allowed and the deduction shall be allowed only in the year in which tax withheld is actually deposited with the Government.

Clarification regarding treatment of deferred tax for calculation of book profits for levy of Minimum Alternate Tax (MAT)
The Finance Bill, 2008 inserted a clause under Explanation 1 to Section 115JB to provide that while computing the book profits of a company for the purposes of MAT, no deduction shall be allowed for a deferred tax liability or provision, if the same is debited to the profit and loss account. However, there was no corresponding provision for reducing the credit to the profit and loss account by way of a deferred tax liability written back or creation of a deferred tax asset.
The amendment to the Finance Bill, 2008 has corrected the anomaly and inserted a new clause under Explanation 1 to provide that the amount of deferred tax credited to the profit and loss account on account of a write back of a liability or creation of a deferred tax asset shall be reduced from the net profit to arrive at book profits. This amendment shall also apply retrospectively from April 1, 2000.

Re-alignment of date for obtaining Tax Audit Report for businesses
With a view to realign the due date of filing income tax return with the date of obtaining tax audit report, the amendment to Finance Bill 2008 provides that from Financial Year 2007-08 onwards, the tax audit report under Section 44AB of the Act must be obtained on or before September 30 of the immediately following financial Year.

Pre-ponement of time limit for service of scrutiny notice in FBT assessments
The amendment to Finance Bill, 2008 seeks to prepone the time limit for service of scrutiny notices for FBT assessments from the present limit of 12 months to 6 months from the end of the financial year in which return is furnished. The proposed amendment shall be applicable from financial year 2007-08 onwards.

Association of Persons to withhold tax on contractual payments
The amendment to Finance Bill, 2008 seeks to impose withholding tax obligations on contractual payments on an Associations of Persons and Body of Individuals with effect from June 1, 2008.

Powers of Commissioner (Appeals)
A Commissioner (Appeals) presently has powers to confirm, reduce, enhance or annul an assessment. Such powers have been extended by the proposed amendment to matters which have been rejected in proceedings before the Settlement Commission, after taking into consideration the following:
o The material and other information produced by the taxpayer before the Settlement Commission.
o The results of the inquiry held by the Settlement Commission.
o The evidence recorded by the Settlement Commission in the course of proceedings before it and other material brought on record.

Belated service of notice to be valid in certain circumstances
The Finance Bill, 2008 inserted Section 292BB with effect from April 1, 2008 to provide that where a taxpayer has appeared in any proceeding or co-operated in any inquiry related to an assessment or reassessment, it shall be deemed that any notice under any provision of the Act has been duly served upon him in time in accordance with the relevant provision of the Act. Such taxpayer shall be precluded from taking any objection as regards non service of notice in any subsequent proceeding or inquiry.
The proposed amendment seeks to clarify that this new provision shall not be applicable in cases where a taxpayer has raised these objections before completion of such assessment or reassessment proceedings.

EVENTS

Conference & Interactive Workshop on "Successful EPC Contracting - Fiscal and Legal Challenges

BMR, in collaboration with InfralineEnergy Research Services, hosted the 3rd Annual Conference & Interactive Workshop on "Successful EPC Contracting - Fiscal and Legal Challenges" at The Imperial Hotel, New Delhi, from April 17-19, 2008. The workshop facilitated EPC contractors and Project Owners to update and gain a deeper and concise knowledge of the current and evolving tax and legal issues surrounding it. This workshop provided an update and enriched the knowledge base of Financial, Legal and Commercial teams of Contractors and Project Owners. The workshop will also captured all important announcements and developments of India Budget 2008.

For more details, please click here.

International Tax Review to organise annual Asia Tax Forum 2008, in Singapore on June 5-6, 2008
International Tax Review, a Euromoney Legal Media Group publication, will host its third annual Asia Tax Forum on June 5-6, 2008, in Singapore. Leading Asian Taxand member Firms, BMR Advisors, India; KhattarWong, Singapore; and Kojima Law from Japan are supporting the annual event.

The annual Tax forum attracts participants comprising heads and regional heads of tax of leading companies in Singapore, Japan, North America and Europe. This event also brings together tax executives, officials and advisers from the Asian continent to discuss and debate the latest developments and issues in tax, including transfer pricing, financing structures and cross border tax structuring.

For more details, please click here

BMR Advisors expands partnership

Three tax professionals joined the partnership at BMR Advisors on April 1. Malini Mallikarjun specialises in a range of indirect taxes including service tax, value added tax, sales tax and customs regulations. Russell Gaitonde is a specialist in direct tax in the financial services industry. Amod Khare's practice focuses on direct corporate and international tax.

For more details, please click here
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