Budget effects on Business Income - Companies & LLP

Tax Rates
Tax rate for firms, LLP and companies remain the same as per last year's budget.
• However surcharge in the case of domestic company gets reduced from existing 10% to 7.50%
for the Financial Year 2010-2011.
• Similarly surcharge in the case of dividend distribution tax and minimum alternate tax gets
reduced to 7.50 %.

MAT
• Minimum Alternate Tax (MAT) rate has been increased from 15 % to 18 %. Rate of MAT for the
company on the basis of profit will be as under:-
- Book Profit exceeds Rs. 1.00 crore - 19.93%
- Book Profit upto Rs. 1.00 Crore - 18.54%

Deemed Gift
• Taxation of deemed gift has been introduced. If a company/ firm acquires shares of other unlisted
company for inadequate consideration or without consideration and aggregate fair market value
exceeds Rs. 50,000/. This provision will apply w.e.f. 1 June 2010.st

Non Residents
• It is proposed to expand the scope of taxation of non residents.
• If a non resident earns interest , royalty or technical fees, it will be deemed to accrue or arise in India,
whether or not services are rendered in India or outside India.
• This amendment is introduced to nullify the impact of judicial ruling in favour of assesee and is to be
applied retrospectively from FY 1976-77.
• This provision will also have implication in case of TDS on payment to non resident

Depreciation
• It is proposed that the company and LLP will apportion the depreciation allowable under the Act
in the ratio of number of days for which assets were used by them in case of conversion of private
limited or public unlisted company to LLP as per the amended provisions of Act.
• Further WDV of assets in case of such LLP will be WDV of assets of company before such conversion.
• LLP can claim the benefit of unabsorbed brought forward loss and depreciation in case of conversion
of company.
• However MAT credit gets lapsed in the hand of LLP in case of conversion of company.

Research
• Deduction of amount paid to research association is proposed to be enhanced to one and three
fourth time of sum paid as against existing of one and one fourth time of sum paid.
• For specified businesses i.e. pharmaceutical, chemical computers, who incur expenditure on
scientific research, the weighted deduction to the extent of two time of the amount spent will be
allowed as against existing one and one half time of amount spent.

Hotel
• A person will be allowed to claim deduction of expenditure of capital nature incurred on a new
hotel of two star and above category.
• The expenditure will be allowed in the year in which hotel commence the operation and entire capital
expenditure incurred prior to commencement of hotel will be eligible for deduction.
• However the assessee will not be able to claim any other deduction in any other assessment year.

Capital gain on conversion to LLP
• It is proposed that conversion of private limited or public unlisted company to limited liability
partnership will not result into transfer and capital gain on such conversion will not attract tax.
• However this clause is non starter since condition attached with such exemption is rigorous i.e. sales
of company in preceding three year should not exceed 60 lacs, partners can not withdraw any
money out of balance of accumulated profit standing in the accounts on the day of conversion,
partners can not receive any consideration / benefit directly or indirectly from LLP after conversion
during the existence of LLP etc.

Tax Audit
• It is proposed to increase the threshold limit for the requirement of Tax Audit.
• Now Professionals are required to get the tax audit done if gross receipts exceeds Rs. 15. 00 Lacs and
other business entity requires to get the tax audit done if turnover exceeds Rs. 60 Lacs.
• However penalty for non compliance of tax audit provision will attract maximum penalty of Rs. 1.50
Lacs in place of existing penalty of Rs. 1.00 lacs.

Housing Project
• Deduction for housing project approved after 1 April 2005 will be allowed in case project getsst
completed within five year from the end of financial year in which first approval was granted after
1/4/2005 .
• However commercial area is now restricted to 3% of total built up area in place of existing 5% of built
up area or 5000 Sq. ft which ever is higher is specified for claim of deduction u/s 80IB (10) of the
Act.

Valuation of Property
• Now department can refer the valuation of property for determination of value of gift in case of transfer
of property without consideration or inadequate consideration to valuation officer during the course
of scrutiny assessment proceeding.