BUDGET - 2012 Salient Proposals

1. BUDGET - 2012Salient Proposals 33rd Meeting of CEO’s of HFCs Presentation by Mrs. Renu S Karnad Managing Director-HDFC April 20, 2012

2. Synopsis • 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

3. 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 accounts exempt for 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

4. 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) • Onus of Proving that the arrangement is not for tax benefit on the assessee • Transfer pricing provisions extended to transactions between domestic related parties. …….contd

5. 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

6. 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. …….contd

7. 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. • Will apply to purchase of properties from builders • TDS on ECB loans at a lower rate of 5% for approved affordable housing projects …….contd

8. 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: • 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 • Dividend will form part of Other Income and not Operating Income • ALM guidelines of HFCs (issued by NHB) permit 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

9. 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.

10. 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 debt

11. 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 ……..contd

12. Some suggestions Public deposits • Currently, HFCs can offer a maximum period of 84 months on public deposits • 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

13. Thank you