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Budget Live Blog: Tax and corporate lawyers’ analysis and reactions to 2011-12 Union Budget

Indian Rupee currency bills (XL)
Indian Rupee currency bills (XL)
11:00am The Finance Minister (FM) Pranab Mukherjee’s 2011 India Union budget has just started after having been approved by cabinet. This blog will begin in earnest once the budget is over and we can get reactions from lawyers. In the meantime, IBN Live has a nice live blog page with a fast video and text updates. Please post your comments and thoughts on the budget below in the meantime.

If you are a corporate or tax lawyer and have any thought, please call us on 0900 405 6651 or send us an email on or anytime.

11:15 The Act all indirect tax lawyers been waiting for: Good and Services Tax (GST) to be rolled out from 1 April 2012, says FM.

11:21 Double growth for services sector @ 9.6% (that should include lawyers - those who pay service tax anyway.)

11:23 Additional banking licences: Inviting feedback from public but RBI has proposed amendments to Banking Act and proposed legislative amendments: will issue guidelines for banking licences before close of this FY, says FM.

11:25 IBN writes that Pranab wants to raise another Rs 40,000 crore via disinvestment, to keep up tempo of process.

11:26 PSU banks to be recapitalised with Rs 6000 cr to shore up capital adequacy ratios. Are Indian banks facing aftershocks of global credit crunch?

11:35 Microfinance equity fund of Rs 100 crores alongside SIDBI, says Eco Times on its Live Blog.

11:35 Something interesting was said on SARFAESI Act, we think it sounded like amending Sarfaesi to allow banks to recover bad loans more easily (see more background here)… Anyone catch what he said exactly?

11:43 Anyone noticed FM PM speaks in a bit of a monotone when delivering the budget? Quite soothing…

11:48 Further FDI liberalisation on horizon…

11:54 Amendment in Money Laundering legislation has raised 50 cases between 2005-2008 to 1200 cases this year

11:55 India infra growth story to continue, unsurprisingly: total spending on infrastructure to be hiked by 23%. More foreign law firm finance infrastructure practices will be milling about looking for work no doubt.

11:59 Pranab mentioned a couple of IIMs and IITs to get extra funds – we listened out but no national law schools were mentioned. Looks like Moily’s pleas for improved legal education really got through to the top…

12:09 Long-awaited Direct Tax Code, which was supposed to be rolled out this year, delayed for another year… Sigh.

12:11 Budget for judiciary/Department of Justice increased three-fold to 1000 crores. Looks like Moily’s pleas did not all fall on deaf ears… Money to be spent on e-court projects and infrastructure development.

12:14 Central Board of Direct Taxes (CBDT) to commission 8 new centres…

12:15 Read some background and analysis on the Direct Tax Code by Legally India’s legal pulse here.

12:18 More for Moily! Govt plans to lower tax disputes pursued in higher courts in line with the National Litigation Policy. Read more about Moily’s National Litigation Policy here.

12:31 Pranab has gone through his direct tax programme, including raising the income-tax exemption limit to 1.8 from Rs 1.6 lakh. MAT (minimum alternative tax) is also to be levied on SEZ (special economic zone) developers, and to be raised overall to 18.5% from 18%. Dividends paid by foreign company subsidiaries to be reduced to 15%.

12:39 Service tax on international travel hiked by Rs 250. Now, with the average Indian law firm managing partner travelling abroad roughly 100 times a year (maybe), that could add up to… Rs 25,000. Shouldn’t hurt too badly…

12:44 Pranab talks about services falling under service tax. Mentions that “actual collections don’t reflect the sector”. Are lawyers paying the service tax, with which they were hit in the 2009-10 budget? Let’s see if the SILF and law firm lobbying will get him to exempt lawyers from service tax.

12:47 Bad news! Pranab expands the lawyer service tax, which applied just to those providing legal services to businesses, to also apply to individuals now. So effectively lots of sole practitioners law firms rending services to individuals will be caught too now (correction, there was an exemption for individuals providing to other individuals – thanks for commenter for pointing out!). This could cause a riot.

12:50 Also, arbitration services to individuals and entities are both to fall within the service tax net now. Not a good day for legal services (then again, if some of this will go to the courts as per the earlier 3-fold hike in spending, maybe not all bad).

12:57 Budget speech finished around 10 hours ago – MintLive said at 1 hour 50 minutes it could be a record. Full Finance Bill not yet uploaded on Budget site, but if you’re bored have a look at the Economic Survey for 2010-11 in the meantime.

13:14 The budget docs are uploaded to the Government’s budget site.

13:18 From FM’s speech: “I propose to expand the scope of legal services to include services provided by business entities to individuals as well as representational and arbitration services by individuals to business entities. There shall, however, be no tax on services provided by individuals to other individuals.”

13:27 Tax lawyers have started downloading and sifting through the docs.

In the meantime, JSA senior adviser tax practice Jogendra Sharma tells us: “On the service tax-side another important change, that till now it was on the cash-basis – when you receive the payment you were liable to pay service, but now it will be on actual basis, then again we have to see the actual notification.”

“This means that in case you have raised the invoice but have not received the payment you will need to pay the service tax. I think that is another important change,” he adds.

This sounds like it could affect the time time when service tax is paid by lawyers – as soon as they raise a bill, rather than when the client takes their sweet time paying it.

13:50 Jogendra Sharma added: “We have yet to receive the notification and fine print in that and the language used therein, so its very difficult to comment with some amount of certainty, but what appears from the speech of the finance minister is that there have been some changes in the service tax for instance till now in the case of legal services, actually the services rendered to individuals were exempted but i think it would not be anymore. We need to see the actual wording there. That is one important change.”

“On GST the only indication that they will be moving the constitutional amendment bill during the budget session. IT infrastructure, which is very important for GST is also under development. But no firm date has been given as to when it will be implemented unlike in the case of direct tax code which they said would be implemented from 1 April 2012.”

14:24 Full news story on the new regime here: Budget now hits advocates, arbitrators, and law firm services to individuals with service tax - the Government really seems to have it in for the lawyers and is insisting lawyers provide a service. Who knew?

14:31 The jurisprudential upside of the service tax now applying to individual advocates, arbitrators and seemingly everyone else under the sun doing legal work of some sort is that at least it is fair. A major previous criticism was that it made no sense to distinguish individual practitioners from law firms. The unintended consequence of the protest seems to be that litigators are now also caught.

Judging by the protests that litigators went through even in 2009 in apparently altruistic solidarity with their law firm brethren it is not unreasonable to expect more strikes, protests or agitation by lawyers.

14:40 Indirect Tax: Vaish Associates indirect tax head Shilpa Sharma tells us that the Government is now phasing out and rationalising existing taxes in preparation for the GST.

15:01 As far as capital costs for mega projects is concerned – capital goods exemption for power projects that they have introduced.

“They are going to introduce GST and trying to rationalise things,” says Shilpa Sharma, adding that there were 130-odd exemptions which were slowly being phased out.

15:43 Am sitting in on a webinar by Economic Laws Practice (ELP) on the Budget. Just starting now (15 minutes late – last minute Analysis?). Impressive speed though.

15:45 ELP managing partner Rohan Shah says we are now a year away from two ground-breaking changes in the tax regime: GTC and the DTC. This could really be the last budget exercise as we know it, he says, because if DTC and GTC comes in in 2012 much in relation to current budget process will no longer exist because we move into Direct Tax Code and GTC regimes.

15:47 Shah: There are still question marks in relation to GST – We still have a significant distance to cover. All GST: there are some critical milestones still to be reached. Depending how we shape into those, we have to see whether it’s a reality or not whether can be implemented by 2012.

15:49 The headline issues according to Shah, are: No change in standard rate of service tax, customs & excise duty. A reduction in exemptions & levy of 1% on 130 items, plus an increase in lower rate of excise from 4% to 5% to bring it in line with the VAT rate.

  • Also: Introduction of two new taxing entries & amendments/modification.
  • Substantion changes in CENVAT Credit Rules
  • DTC from 1 April 2012
  • MAT from 18 – 18.5%

15:52 ELP partner Pranay Bhatia on DTC – moving towards certainty. There are legislative changes on SEZ, transfer pricing, dividends received from foreign subsidiaries, LLPs, liaison offices and on tax rates.

A handy chart shows that in terms of amendments affecting SEZ developers, now MAT and DDT are taxable for both SEZ Developers and Units – this brings the Budget proposals in line with the provisions of the DTC.

15:59 Under the new section 115BBD, dividends from foreign subsidiaries to Indian companies will be taxed at 15% instead of 30% plus applicable surcharge. No deduction of any expenditure is allowed.

16:03 LLPs subject to Alternate Minimum Tax (AMT) at 18.5% from 1 April 2012, which is payable when regular income is less than AMT, says Bhatia.

This AMT will be calculated on Adjusted Total Income, which equals to total income less SEZ deductions under Section 10AA and Chapter VI-A deductions. Tax credits are available where AMT exceeds income tax payable, which can be carried forward for 10 accounting years.

Still not clear whether can carry forward and set-off AMT credit on conversion of an LLP into a company and vice-versa, Bhatia says.

16:10 Rohan Shah back again on the constitutional amendment of GST. Various provisions sought to be brought in to articles of the constitution – authorisation of centre and states to make legislation. Article 279A has really been the focus of one issue – focus in relation to the Council. The Council now would becomes a fountainhead in relation to GST changes. And now also the settlement authority/dispute resolution panel would have come into place, which is vital to settle disputes between states.We certainly need to know more, beyond a ruling of a settlement authority. Is it appealable, etc.

This is going to dictate to a large measure to pace that we will go forward, says Shah. If the constitutional amendments do not go through by the winter session of parliament, then April 2012 date will take a very big setback in the implementation of the GST.

16:13 Shah on service tax: new services will be included, such as A/C liquor-serving restaurants, short term accommodation in hotels, clubs or guest houses. Plus: life insurance services, commercial training and coaching services to cover all services except courses recognised by law. Also included or updated, club or association services, business support services, legal services (as reported), and healthcare services.

16:15 Shah: Export of Services Rules moving towards a destination-based levy for Business-to-business services and origin-based model for business-to-customer services.

16:24 ELP seminar has now moved onto Central Excise Duty – missed the last 10 minutes due to a phone chat with Lalit Bhasin of SILF – he is not happy at all with the new service tax changes, we will post update shortly.

16:34 Presentation now in the Q&A phase – was a great seminar, as last year too, shame we were unable to cover all parts due to a few distractions at our end.

17:04 SILF’s Bhasin has said that SILF would file a second writ against the new service tax, although the first first writ is still stuck in court.

18:09 We’ve slowed down a bit on the coverage – we will update as soon as we receive some written assessments and more detailed papers from lawyers.

22:09 Vaish Associates’ indirect tax head Shilpa Sharma has compiled a detailed bullet-point list of the headline issues and outcomes of the Union Budget. Download it here.

J Sagar Associates (JSA) tax team has also prepared an article on the roadmap of GST implementation. Download this here.

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