Key Announcements and Implications of Union Budget 2012-2013

BUDGET - 2012
Salient Proposals
33rd Meeting of CEO’s of HFCs
Presentation by Mrs. Renu S Karnad
Managing Director-HDFC
April 20, 2012
Direct Taxes – Impact on Non Corporates
Direct Taxes – Impact on Corporates
Service Tax Amendments
Proposals On Housing
Revised Schedule VI
Increase in Bank Rate
Some Suggestions
Impact on Non-Corporates
Exemption limit for the individual taxpayers enhanced from Rs 1,80,000 to
Rs 2,00,000. Also tax slabs widened (Rs. 22,660 saving for income over
Rs 10 lacs)
Interest upto Rs.10,000 on Saving Bank
individuals/HUF (Term deposits not covered)
Senior Citizens age reduced to 60 years from 65 years and need not pay
advance tax if there is no business income.
MAT to be applicable for non-corporate assesees also
Impact on Corporates
Cascading effect of Dividend Distribution tax (DDT) in multi-tier corporate
structure removed.
New chapter X-A introduced for General Anti-Avoidance Rule (GAAR)
o Onus of Proving that the arrangement is not for tax benefit on the assessee
Transfer pricing provisions extended to transactions between domestic
related parties.
Service Tax Amendments
Rate of service tax increased to 12% w.e.f. April 01, 2012.
Negative List of Services – 17 services defined and which will be excluded
from the purview of tax under Service Tax Act
Negative list covers Interest on loans, deposit or advances
Changes in CENVAT Credit Rules:
Currently 50% input tax credit allowed
Going forward the input tax credit will be based on the ratio of taxable
services to exempt services
Input tax credit will now effectively reduce instead of 50% earlier
Higher expenses for FY 13
Proposals On Housing
Allow ECBs for low cost affordable housing projects.
Set up Credit Guarantee Fund to ensure better flow of institutional credit
for housing loans.
Enhance the provisions under Rural Housing Fund from Rs 3,000 crores
to Rs. 4000 crores.
Extend the scheme of interest subvention of 1% for another year for loans
up to Rs 15 lac.
Enhance the limit of indirect finance under priority sector from Rs 5 lac to
Rs 10 lac.
NHB allowed to issue Tax Free Bonds upto Rs 5000 crores.
Proposals On Housing
Investment linked deduction of capital expenditure in the affordable
housing business at the enhanced rate of 150 per cent as against the
current rate of 100 per cent.
TDS @ 1% on transfer of immovable properties exceeding Rs. 50 lacs
(Specified areas) or Rs. 20 lacs for other areas.
o Will apply to purchase of properties from builders
TDS on ECB loans at a lower rate of 5% for approved affordable housing
Revised Schedule VI to Companies Act
Revised Schedule VI notified by MCA - applicable for accounts for year
ending March 31, 2012
Key Modifications impacting HFCs:
o Assets and Liabilities to be classified as “Current” and “Non-Current”
 Asset is classified as “current” if it is expected to be realised
within 12 months from the balance sheet date.
 Liability is classified as “current” if it is due to be settled within
12 months from the balance sheet date
o Dividend will form part of Other Income and not Operating Income
ALM guidelines of HFCs (issued by NHB)
adjustment for
rollovers/renewals/ prepayments based on historical experience for
classification of Assets and Liabilities
Without the above adjustment, Balance Sheet will present a misleading
picture – Impact on Current Ratio
Increase in Bank Rate by RBI
RBI on Feb 13, 2012 increased the Bank Rate by 350 basis points to 9.50%
p.a. from 6 p.a. with immediate effect.
Section 372A of the Companies Act, 1956 deals with limits and terms of the
inter corporate loans and investments
(Loans include debentures and
deposits - deposits with banks excluded from the definition of inter
corporate deposits)
Section 372A (3) provides that the rate of interest on inter corporate loans to
be not less than the bank rate.
Renewals and new deposits accepted by HFCs can be impacted when
interest rates in the economy decline faster than the bank rate.
Some suggestions
Bank Rate applicability
Corporates be exempted from the applicability of section 372(A) with
respect to deposits, placed with HFCs and pursue for exemption with
Ministry of Company Affairs.
Revised Schedule VI
HFCs, when preparing their balance sheets and financial statements, be
allowed to follow the classification and the principle followed by them in
their ALM statements as per the NHB guidelines for the purpose of
classification of Assets and Liabilities into “Current” and “Non-Current”.
Perpetual debt
HFCs be permitted to raise upto 15% Tier I capital by way of perpetual
Some suggestions
Housing loans qualifying as Priority Sector under indirect finance
from banks be increased to Rs. 25 lacs from the current proposed
limit of Rs. 10 lacs
Tax Saving Bonds : Housing may be accorded ‘infrastructure’
status to facilitate issue of tax savings bonds
Priority Sector lending Certificates (PSLC) :
 Revised RBI guidelines require banks to lend priority sector
loans co-terminus with the underlying home loans.
 Banks find it difficult to lend for longer term due to ALM risks.
 Nair Committee on Priority Sector Lending recommends issue
of PSLC to be subscribed by Banks
 Issue of PSLC by HFC’s will help banks to generate liquidity and
also address ALM issues
Some suggestions
Public deposits
Currently, HFCs can offer a maximum period of 84 months on public
This limit may be revised to 10 years in order to enable HFCs to attract
funds from institutional investors such as provident/pension funds, Army/air
force group insurance which invests in longer durations
External Commercial Borrowings
HFCs be allowed to access ECBs as it will open up a new source of
funding for affordable housing
Can be approved on a fully hedged basis, so that HFCs are not open to
forex fluctuation risk
Thank you
Related flashcards


58 cards

Reinsurance companies

11 cards

BNP Paribas

26 cards

Create Flashcards