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ICAIs suggestions which have been considered by the Ministry of Finance

Last updated: 28 July 2009

Suggestions with regard to Indirect Taxes given in Post Budget Memorandum accepted in the Budget 2009-10

Sr. No.






Proposals in







Category : Club

or Association

It may be clearly provided in the law that Chambers of Commerce, Trade and Industry associations are not liable to pay service tax on subscription amount, membership fees and all other services of general nature (other than commercial activities or letting out of premises) and the Cooperative Housing Societies may be liable to pay service tax on the common use facilities for which amounts are recovered from members. If the co-operative societies engage in any other activities like letting out of premises and like, service tax could be applied as it would apply to any other such service provider.


Exemption from service tax (leviable under "club or association" service) is being provided, to the Federation of Indian Export Organizations (FIEO) and specified Exportm Promotion Councils, on the membership or any other fee collected by them. This exemption is valid up to 31.03.2010[refer notification No.16/2009-ST dated 07.07.2009]



ICAI suggestion accepted partly.


Special Audit under section 14A and 14AA of Central Excise Act, 1944

Section 14A and Section 14AA provides that accounts of the


may be audited in special

circumstances by

the nominated

Cost Accounts.

Since, Chartered

Accountants have specialized

knowledge and

expertise in Auditing the

books of

accounts, it is

suggested that the provisions of

Section 14A and

14AA to be amended to

include the Chartered


within the scope

of these sections.

Sections 14A and 14AA have been amended to

provide that the Chief Commissioner may also nominate Chartered Accountants for conducting special audits under these provisions.

[Clauses 104 and 105 of the Finance (No. 2) Bill, 2009 refer].



ICAI suggestion has been accepted


Suggestions with regard to Direct Taxes given in Post Budget Memorandum accepted in the Budget 2009-10

ICAI’s suggestions which have been considered by the Ministry of Finance while amending the Finance Bill, 2009


Serial No. in the PBM

Suggestions given

Amendment proposed in respect thereof



The scope of the section 44AF should be widened to cover all businesses including small scale

manufacturing, job workers, dabas,

tailors, small restaurants, home

delivery out-lets, auto spare servicing, software ancillary units and other small business whose

sales, turnover or gross receipts

are less than Rs.40 lakhs.

Clause 20 Substitution of section 44AD

The presumptive taxation scheme, so far restricted to civil construction and retail trade, would now cover all small businesses with gross turnover/gross receipts of up to Rs.40 lakh. Individuals,\ HUFs and firms (other than LLPs) would be covered under this scheme.



The rate of tax of deduction at

source in respect of a subcontractor

should be increased from 1% to 2% to treat the subcontractor

at par with the contractor.

Clause 60 – Substitution of section 194C

The same rates of TDS would apply for both contractors and sub-contractors. The rate of TDS on payments to contractors/sub-contractors is proposed to be reduced to 1%, where the payee is an individual or HUF and would remain @2% in respect of other payees.



Removal of limit to the salary of

partners - Section 40(b)

The partners of professional firms

should be allowed to get salary on

the similar basis as are allowable

to directors in the case of the


Clause 15 – Amendment of section 40(b)

The limits for partners’ remuneration is proposed to be revised upwards and the distinction between professional firms and non-professional firms is proposed to be vremoved. On the first Rs.3 lakh of book

profit or in case of loss, the limit would be the higher of Rs.1,50,000 or 90% of book

profit and on the balance of book profit, the limit would be 60%.



Payments to small transport

operators, or drivers, towards

freight should be covered under

Rule 6DD and exempt from the

provisions of section 40A(3)

Clause 16 – Amendment of section 40A(3)

Transport operators would be now permitted to made cash payments of up to Rs.35,000 in respect of any expenditure,

without attracting disallowance, as against the general limit of Rs.20,000 in section 40A(3).



Completion time limit to be

increased for power projects

A good amount of investment on

power projects (generation and

distribution) is under planning /

execution stage. The completion

time limit needs to be increased

from 31.3.2010 to 31.3.2015 so as

to facilitate sizable investment in

this sector.

Clause 36 – Amendment of section 80-IA

The completion time limit for power projects (generation and distribution) has been extended by one year i.e., from 31.3.2010 to 31.3.2011.



80-IA benefit to cross country

natural gas distribution network

Similar benefit may be extended to

cover distribution networks in case

of all energy fuels.

Clause 13 – Insertion of new section 35AD

Investment-linked tax incentives have been proposed for certain businesses, including,

laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including

storage facilities being an integral part of such network.

100% of the capital expenditure incurredwholly and exclusively for the above businesses would be allowed as deduction

from the business income. However, expenditure incurred on acquisition of any land, goodwill or financial instrument would not be eligible for deduction.



Deductions in respect of profits

and gains from certain industrial

undertakings engaged in

exploration, excavation/

manufacture, transportation,

regassification etc. of NG/LNG

NG/LNG is the main source of

feedstock for manufacturing of

fertiliser and generation of power.

Accordingly, an undertaking, which is engaged in exploration,

excavation/ manufacture,

transportation, regassification etc

of NG/LNG should also be allowed the deductions u/s.80-IB.

Clause 37 – Amendment of section 80-IB

Deduction under section 80-IB(9) is proposed to be extended to profits arising from the commercial production or refining of natural gas from blocks which are licensed under NELP-VIII and begin commercial production of natural gas on or after 1.4.2009.



It is suggested that the rate of tax

deduction at source under section

194-I in respect of payment of rent

for use of plant, equipment etc.

may be reduced to 5%.

Clause 61 – Amendment of section 194-I

The rate of TDS under section 194-I is proposed to be reduced from 10% to 2% in respect of rent for plant, machinery or




Section 194C(3)

An individual sub-contractor with

not more than three goods

carriage at any time in the previous

year be exempted from TDS


Clause 60 – Substitution of section 194C

For all contractors and sub-contractors in transport business, TDS provisions would

not apply if they furnish their PAN to the deductor.



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