Union Budget 2012-13:
Direct Tax amendments
Impact on the Real Estate sector
© Walker, Chandiok & Co. All rights reserved.
Union Budget 2012-13 | Impact on the Real Estate sector
2
Tax rates - Personal
• Personal income-tax slabs proposed to be revised as under:
Existing Slab
(Rs)
Revised Slab
(Rs)
Tax rate (%)
Upto 180,000
Upto 200,000
NIL
180,001 to 500,000
200,001 to 500,000
10
500,001 to 800,000
500,001 to 1,000,000
20
Above 800,000
Above 1,000,000
30
• 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
Union Budget 2012-13 | Impact on the Real Estate sector
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)
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Union Budget 2012-13 | Impact on the Real Estate sector
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:
1. Maintenance and keeping of information and document
2. Certificate from CA in Form 3CEB
4
Union Budget 2012-13 | Impact on the Real Estate sector
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
5
Union Budget 2012-13 | Impact on the Real Estate sector
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
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Union Budget 2012-13 | Impact on the Real Estate sector
7
Amendment to Section 35AD – Investment based
deduction
Affordable Housing Project
Hotel owners/ operators
• Amendment to section 35AD where
weighted deduction of 150% of
capital expenditure is proposed in
affordable housing
• Currently deduction under section
35AD available to hotel owners
only if such owner himself
operates the same
• Proposed to be effective from
FY 2012-13
• 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 1
April 2011
Union Budget 2012-13 | Impact on the Real Estate sector
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
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Union Budget 2012-13 | Impact on the Real Estate sector
9
Direct tax proposals – Interplay of section 47 and 49
Firm merges with company
Third Party
Company records Capital
Asset in its books - Rs. 150
Sale of Capital asset @ 175
Company
Transfer between Firm to
Company – Not taxable
vide 47(v).
Firm
COA of Capital Asset is
books of Firm - Rs. 100
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
Union Budget 2012-13 | Impact on the Real Estate sector
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
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Union Budget 2012-13 | Impact on the Real Estate sector
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
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Union Budget 2012-13 | Impact on the Real Estate sector
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 multitier corporate structure
• The condition of being “ultimate holding” removed for computing DDT to be
paid
• Amendment effective from 1 July 2012
• However for claiming the benefit the holding company is required to hold more
than 50% equity share in subsidiary company
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Union Budget 2012-13 | Impact on the Real Estate sector
13
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.
Subsidiary co.
Dividend – Rs. 100
DDT – Rs. 16.225
Subsidiary co.
DDT cost for the Group
– Rs. 32.45
DDT cost for the Group
– Rs. 16.225
Dividend – Rs. 100
DDT – NIL
Dividend – Rs. 100
DDT – Rs. 16.225
Union Budget 2012-13 | Impact on the Real Estate sector
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