First Edition – March 2011
Second Edition – March 2012
Third Edition – March 2013
Fourth Edition – July 2014
Conceptualized and Prepared by the Direct and Indirect Tax team of DVS Advisors LLP
(formerly Divakar Vijayasarathy & Associates)
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Indian Flag
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© Copyright 2014, DVS Advisors LLP (formerly Divakar Vijayasarathy & Associates).
All Rights Reserved
Union Budget 2014
Foreword
It gives us immense pride and pleasure in bringing you this Fourth Edition of our Union Budget series.
Union Budget 2014, one of the most anticipated events of this calendar year after the election results,
proved to be a very mature and calm attempt rather than a big-bang budget. The budget has attempted to
stabilise a sinking ship through sensible allocations and rationalisation of subsidies. Linking railway fares
to fuel rates is a master stroke to avoid annual chaos during Rail budget sessions. Taxes have largely
remained unchanged except for an additional exemption of Rs 50,000 for individual assessees. Impetus for
SMEs to invest in capital expenditure has been given with additional deduction. The much awaited relief for
SEZs from MAT and DDT still remains elusive. Conversely, distribution taxes are to be grossed for
corporate and mutual fund dividends which would significantly reduce the amount of distributable surplus.
Increase in the period of holding to 3 years for debt fund units and unlisted shares is seen as a move to
avoid tax arbitrage by corporate and bring in more inflows into the long term debt market. Assurance from
the Hon’ble Finance Minister towards forming a committee for any future retrospective amendments is a
positive step however the absence of clarity on past deeds seems to be a dampener.
Transfer pricing provisions have been rationalised to permit multi-year data for comparison and the usage
of interquartile range for determining arm's length price. The facility to make the advance pricing
agreement option available for domestic transactions is a welcome step towards providing certainty on tax
consequences. However we still await the rules pertaining to the actual implications of transfer pricing
changes proposed. Changes in indirect taxes have largely been towards the rate structure to align the taxes
with the expectation of the Government. The decision to facilitate domestic sourcing of solar panels vis-avis imports is extremely practical and welcome given the surplus domestic capacity. Opening up FDI in
defence is likely to have a favourable impact on the rupee given the fact that India is the largest importer of
defence equipments in the world. Strangely, many of the budget proposals mentioned in the speech and the
memorandum do not find place in the Finance Bill. We hope this would be rectified before the Bill is passed.
This and many more proposals have been discussed at length and our thoughts wherever relevant have
been provided with illustrations. As always, we request you to feel free to share any of your thoughts and
suggestion on the publication with us at [email protected].
Divakar Vijayasarathy
15th July 2014
Union Budget 2014
About Us
DVS Advisors LLP, formerly Divakar Vijayasarathy & Associates (the Firm),
is a contemporary tax, legal and financial solutions provider with a specific
focus on Direct, International and Indirect taxation. We deliver research
based, value added and customized solutions to our diverse clientele
spanning from software to mining industry. We bring together a
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Risk Management for Banks and Financial Institutions
Trust and Estate Taxation
Handling complete, end to end International Tax and
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Union Budget 2014
OUR CLIENTELE
Over the past 7 years of our existence, we have successfully engaged with medium to large enterprises
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Union Budget 2014
Contents
Key Indian Ratios .................................................................................................................................................. 1
What Some Numbers Can Reveal ....................................................................................................................... 4
Rates of Taxation .................................................................................................................................................... 6
Corporate Taxation ................................................................................................................................................. 9
Capital gains .......................................................................................................................................................... 16
Real Estate Investment Trust (REIT) ................................................................................................................ 19
Personal Taxation ................................................................................................................................................. 22
International Taxation ......................................................................................................................................... 23
Widening of tax base and anti- tax avoidance measures .............................................................................. 26
Taxation of Charitable trusts and institutions ................................................................................................ 27
Procedural Provisions and Assessment ........................................................................................................... 30
Indirect Tax Amendments .................................................................................................................................. 35
Union Budget 2014
K
ey Indian Ratios
CURRENT ACCOUNT DEFICIT (CAD) TO GDP AT MARKET PRICES
India
(%)
BRICS Nations
Years 2013-14 2012-13 2011-12
India
-1.7
-4.7
-4.2
Particulars
India
OECD (Average)
BRICS (Average)
Countries
CAD/GDP (%)(Year 2013)
Brazil
-3.7
Russia
1.6
India
-1.7
China
2.0
South Africa
-5.8
Average
-1.5
CAD/GDP (%) Year 2013-14
-1.7
1.8
-1.5
(Note: CAD for all BRICS and OECD Countries is based on Calendar year. India’s Ratio alone is based on
fiscal year. –ve figure denotes Current Account Deficit and +ve figure denotes Current Account Surplus.)
Tax Payer Category
No of
Assessees
(as at 10th
Dec 2012)
In lakhs
310
Individuals
HUFs
7.61
Firms
12.29
Trusts
1.19
Company
4.96
Others
0.96
Total
337
Total population in employment
4749
Employed population not filing returns or paying taxes
4439
Source: The Minister of State for Labour & Employment Shri K. Suresh
gave this information in reply to a written question in the Lok Sabha
About 93.47 % of the
population in employment are
not filing returns or paying
taxes.
India holds the 3rd position among the BRICS Nations in
respect of Current Account Deficit compared with GDP
which is 1.7 %. It is to be noted that OECD Countries on an
average is having Current Account Surplus and not Current
Account Deficit.
1|Page
Union Budget 2014
FISCAL DEFICIT AS A % OF GDP
REVENUE DEFICIT AS A % OF GDP
Years 2013-14 2012-13 2011-12
India
4.5
4.9
5.7
Years
India
2013-14
3.2
2012-13
3.6
2011-12
4.4
PRIMARY DEFICIT AS A % OF GDP
Years 2013-14 2012-13 2011-12
India
1.2
1.8
2.7
GOVERNMENT DEFICIT (SURPLUS) AS A % OF GDP
BRICS NATIONS
Countries
Government deficit as a
% of GDP for 2013
Brazil
-3.3
Russia
-0.5
India
-7.1
China
-0.7
South Africa
-6.1
Average
-3.5
Particulars
Government deficit as a
% of GDP for 2013
India
-7.1
OECD (Average)
-3.1
BRICS (Average)
-3.5
India is having the highest budget deficit among the BRICS nations
CAPITAL EXPENDITURE AS A % OF TOTAL EXPENDITURE
EXTERNAL DEBT AS A % OF TOTAL DEBT
Years 2013-14 2012-13 2011-12
India
12.02
11.83
Years 2013-14 2012-13 2011-12
12.16
India
3.27
SHORT TERM DEBT AS A % OF TOTAL DEBT
Years 2013-14 2012-13 2011-12
India
31.40
27.69
25.69
(Indicators for FY 2013-14 are based on Provisional Actuals).
2|Page
3.49
3.92
Union Budget 2014
CORPORATE INCOME TAX REVENUE AS A % OF TOTAL DIRECT TAX COLLECTIONS
Years
2014-15
(Budgeted)
India
61.26
2013-14
(Revised
Estimate)
61.87
2012-13
(Actuals)
2011-12
(Actuals)
63.78
65.35
PERSONAL INCOME TAX REVENUE AS A % OF TOTAL DIRECT TAX COLLECTIONS
Years
2014-15
(Budgeted)
India
38.61
2013-14
(Revised
Estimate)
37.98
2012-13
(Actuals)
2011-12
(Actuals)
36.07
34.49
WEALTH TAX REVENUE AS A % OF TOTAL DIRECT TAX COLLECTIONS
Years
2014-15
(Budgeted)
India
0.13
2013-14
(Revised
Estimate)
0.14
2012-13
(Actuals)
2011-12
(Actuals)
0.15
0.16
SERVICE TAX REVENUE AS A % OF TOTAL INDIRECT TAX COLLECTIONS
Years
2014-15
(Budgeted)
India
34.56
2013-14
(Revised
Estimate)
26.13
2012-13
(Actuals)
2011-12
(Actuals)
27.95
24.85
INDIRECT TAX REVENUE AS A % OF TOTAL TAX COLLECTIONS
Years
2014-15
(Budgeted)
India
45.80
2013-14
(Revised
Estimate)
44.83
2012-13
(Actuals)
2011-12
(Actuals)
45.79
44.13
(Indicators for FY 2013-14 are based on Provisional Actuals.)
In Direct taxes, there is a marginal reduction in corporate and wealth tax
revenue, matched by a marginal increase in personal income tax.
In Indirect taxes, share of service tax increased by about 10 % from 201112 to 2014-15. There is a marginal increase in indirect taxes as compared
to total tax collections.
3|Page
Union Budget 2014
W
hat Some Numbers Can Reveal
TAX COLLECTIONS
Year
Budgeted Collections
(in crores)
Direct Taxes
Indirect Taxes
Actual Collections
(in crores)
Direct Taxes
Indirect Taxes
2014-15
736,221
625,152
-
-
2013-14
636,318*
519,770*
633,473
496,231
2012-13
570,257
505,294
558,658
474,709
2011-12
532,651
398,065
493,947
392,664
2010-11
430,000
315,000
445,962
345,364
2009-10
370,000
269,477
377,545
245,368
2008-09
365,000
321,264
333,827
269,982
2007-08
267,490
279,190
312,202
279,610
2006-07
210,684
230,566
230,183
242,066
2005-06
177,077
192,215
165,208
199,818
2004-05
139,510
177,599
132,761
171,378
2003-04
95,714
155,256
105,082
148,608
AVERAGE TAX PAID PER CITIZEN
Year
2013-14
Population (in crores)
2012-13
2011-12
123PE
122 RE
120 E
633,473
558,658
493,947
5,150
4,579
4,116
12.47%
11.25%
11.68%
Inflation Average (CPI) (IW)
9.70%
10.40%
8.40%
Effective increase in tax collection adjusted
for inflation
2.77%
0.85%
3.28%
Direct tax collection at the end of: (in
crores)
Tax paid per citizen( in Rs)
Absolute increase in tax paid per citizen
PE
RE Revised estimate
E – 2nd estimate
Provisional estimate
CPI Consumer Price Index
IW Industrial Worker
Though there is an increase in tax paid per citizen, inflation at around 9-10% almost nullifies
the same
4|Page
Union Budget 2014
VALUE OF GOLD CONSUMED IN INDIA
Gold
consumption
(in tonnes)
Year
Gold rates ( standard 24
carats ) (per 10 gms)
in Rs(as at 31st of March)
Annual Value of Gold
Consumed
( Rs in Crores)
2009
442.37
15,105
66,819.99
2010
745.70
16,320
1,21,698.24
2011
986.30
20,775
2,04,903.83
2012
894.00
28,040
2,50,677.60
2013
975.00
29,610
2,88,697.50
SALE OF LUXURY CARS
Year
2010
2011
2012
2013
Audi
BMW
3,003
5,511
9,003
10,002
Benz
6,246
9,371
9,375
7,327
Jaguar
5,819
7,430
7,138
9,003
Total
891
2,288
2,383
2,913
Average
Price
(Rs. In
crores)
15,959
24,600
27,899
29,245
0.35
0.35
0.35
0.35
Total
Sale
Revenue
(Rs. In
crores)
5,585.65
8,610.00
9,764.65
10,235.75
WEALTH TAX COLLECTIONS
Year
Wealth Tax
(in crores)
Taxable Wealth
(Rs. In Crores)
2009-10
504.93
50,493
2010-11
686.83
68,683
2011-12
786.67
78,667
2012-13
884.12
84,412
2013-14
950.00
95,000
Though gold and luxury cars are taxable as per wealth tax act, their combined total does not
reflect in true sense the wealth tax potential of India.
5|Page
Union Budget 2014
R
ates of Taxation
INCOME TAX RATE – F Y 2014-15
Tax Rates
Resident
Senior Citizen
aged between
60 to 79 years
Assessee/Income Slab (Rs. In lakhs)
Resident
Any other
Artificial
Super Senior
Individual,
Juridical
Citizen – 80
HUF, AOP &
Person
years or more BOI
Cooperative
Society
Nil
Upto 3
Upto 5
Upto 2.5
Upto 2.5
Nil
10%
3 to 5
Nil
2.5 to 5
2.5 to 5
Upto 0.10
20%
5 to 10
5 to 10
5 to 10
5 to 10
0.10 to 0.20
30%
Education &
Higher
education cess
Particulars
Above 10
Above 10
Above 10
Above 10
Above 0.20
Tax Rate
Education &
Higher
education cess
30%
2% and 1% respectively on the amount paid
Firms
Domestic
Companies
30%
Foreign
Companies
40%
Local Authority
30%
2% and 1% respectively on the amount paid
SURCHARGE RATE
Type of Assessee
Any Individual, HUF, AOP, BOI and Artificial
Juridical Person
Non-Resident, other than a Company
Domestic Company
Foreign company
Income level
Exceeds Rs 1Crore
Surcharge
10%
Exceeds Rs 1Crore
Exceeds Rs 1Crore
upto Rs. 10 Crores
10%
5%
Exceeds Rs 10 Crores
Exceeds Rs 1Crore
upto Rs. 10 Crores
10%
2%
Exceeds Rs 10 Crores
5%
Note: for all other distributions ,i.e. Section 115O, 115QA, 115R and 115TA, the surcharge
shall be levied at 10%
Although, the slab rates for individuals have
increased in the current budget, there are no
changes in the rate of surcharge and cess for
individuals as well as corporates.
6|Page
Union Budget 2014
RATES FOR DEDUCTION OF TAX AT SOURCE IN CERTAIN CASES
In every case in which under the provisions of sections 193, 194, 194A, 194B, 194BB, 194D and 195 of the
Income-tax Act, tax is to be deducted at the rates in force, deduction shall be made from the income subject
to the deduction at the following rates:–
Particulars
Rates of Income Tax
(%)
1. In the case of a person other than a company—
(a) where the person is resident in India—
(i) on income by way of interest other than “Interest on securities”
(ii) on income by way of winnings from lotteries, crossword puzzles,
card games and other games of any sort
(iii) on income by way of winnings from horse races
(iv) on income by way of insurance commission
(v) on income by way of interest
(vi) on any other income
(b) where the person is not resident in India—
(i) in the case of a non-resident Indian—
(A) on any investment income
(B) on income by way of long-term capital gains referred to in
section 115E or sub-clause (iii) of clause (c) of sub-section (1) of
section 112
(C) on income by way of short-term capital gains referred to in
section 111A
(D) on other income by way of long-term capital gains [not being
long-term capital gains referred to in clauses (33), (36) and (38)
of section 10]
(E) on income by way of interest (not being income by way of
interest referred to in section 194LB or section 194LC)
(F) on income by way of royalty (other than 44DA)and fees for
technical services
(G) on income by way of winnings from lotteries, crossword
puzzles, card games, horse races and other games of any sort
(H) on the whole of the other income
(ii) in the case of any other person—
(A) on income by way of interest (other than interest referred to
in section 194LB or section 194LC)
(B) on income by way of royalty (other than royalty referred in
section 44DA) and fees for technical services
(C) on income by way of winnings from lotteries, crossword
puzzles, card games, horse races and other games of any sort
(D) on income by way of short-term capital gains referred to in
section 111A
(E) on income by way of long-term capital gains referred to in
sub-clause (iii) of clause (c) of sub-section (1) of section 112
(F) on income by way of other long-term capital gains [not being
long-term capital gains referred to in clauses (33), (36) and (38)
7|Page
10
30
30
10
10
10
20
10
15
20
20
25
30
30
20
25
30
15
10
20
Union Budget 2014
of section 10]
(G) on the whole of the other income
2. In the case of a company—
(a) where the company is a domestic company—
(i) on income by way of interest other than “Interest on securities”
(ii) on income by way of winnings from lotteries, crossword puzzles,
card games, horse races and other games of any sort
(iii) on any other income
(b) where the company is not a domestic company—
(i) on income by way of winnings from lotteries, crossword puzzles,
card games, horse race and other games of any sort
(ii) on income by way of interest (other than interest referred to in
section 194LB or section 194LC)
(iii) on income by way of royalty (other than 44DA)and fees for
technical services
(iv) on income by way of short-term capital gains referred to in
section 111A
(v) on income by way of long-term capital gains referred to in subclause (vii) of clause (c) of sub-section (1) of section 112
(vi) on income by way of other long-term capital gains [not being
long-term capital gains referred to in clauses (33), (36) and (38) of
section 10]
(vii) on any other income
8|Page
30
10
30
10
30
20
25
15
10
20
40
Union Budget 2014
C
orporate Taxation
GROSS UP DIVIDEND AND INCOME DISTRIBUTION TAX – SEC 115 O AND SEC 115R
It is perceived by the Government that distribution tax (DDT and IDT) represent taxes paid by the
shareholder on the amount of dividends received by them. Currently, Corporates and Funds pay
distribution tax at the rates prescribed on the amount of dividends distributed to the shareholders.
However, to ensure that the distribution tax paid is in tune with the intention of the levy, it has been
proposed to gross up the amount of dividends received by the shareholder in the following manner:
Add
Add
Dividend Distribution Tax
Particulars
Present Scenario
DDT u/s 115O
15%
Surcharge
10%
Cess
3%
Effective DDT rate
16.995%
Dividend
100
distributed (Rs.)
DDT(Rs.)
16.995
Effective DDT rate
16.995%
Proposed Scenario
15%
10%
3%
16.995%
100
20.475
20.475%
Thus there is an effective increase of 3.48% in the case of DDT. Similar effect on IDT is demonstrated as
follows:
Particulars
Present Scenario
Proposed Scenario
NonIndividuals
Any
NonIndividuals
Any
resident
and HUF
other
resident
and HUF
other
person
person
IDT u/s 115R
5%
25%
30%
5%
25%
30%
Add Surcharge
10%
10%
10%
10%
10%
10%
Add Cess
3%
3%
3%
3%
3%
3%
Effective IDT rate
5.665%
28.325%
33.990%
5.665%
28.325%
33.990%
Income distributed(Rs.)
100
100
100
100
100
100
IDT(Rs.)
5.665
28.325
33.99
6.005
39.519
51.492
Effective IDT rate
5.665%
28.325% 33.990% 6.005%
39.519%
51.492%
Effective increase in
0.340%
11.194%
17.502%
IDT rate
These amendments will be effective from 1st October, 2014.
INVESTMENT ALLOWANCE TO A MANUFACTURING COMPANY
Finance Act, 2013 inserted section 32AC in the Act to provide
that where an assessee, being a company, is engaged in the
business of manufacture of an article or thing and invests a sum
9|Page
Thus the above interpretation of applicability of
grossing up provisions as compared to tax on
distributed income, is highly taxing and based
on the above illustration it could be observed
that resident individuals and HUF investing in a
fund are most affected as they suffer a tax rate
of 25% to 30%, as compared to a non-residents
who suffer a tax rate of 5%.
Union Budget 2014
of more than Rs.100 crores in new assets (plant and machinery)
during the period beginning from 1st April, 2013 and ending on 31st March, 2015, then the assessee shall be
allowed a deduction of 15% of cost of new assets for assessment years 2014-15 and 2015-16.
To enhance the ambit of benefit under this section, it is proposed:
to extend the deduction available under section 32AC of the Act for investment made in plant and
machinery up to 31.03.2017 and
the deduction under section 32AC of the Act shall be allowed if the company, on or after 1st April
2014, invests more than Rs.25 crores in plant and machinery in a previous year.
that the assessee who is eligible to claim deduction under the existing combined threshold limit of
Rs.100 crores for investment made in previous years 2013-14 and 2014-15 shall continue to be
eligible to claim deduction under the existing provisions contained in sub-section (1) of section
32AC even if its investment in the year 2014-15 is below the proposed new threshold limit of
investment of Rs. 25 crores during the previous year.
The deduction allowable under this section after the proposed amendment in different scenario of
investment is given by way of illustration in the following table:
(Rs. in crores)
Sl.
Particulars
P.Y.
P.Y.
P.Y.
P.Y.
Remarks
No.
2013-14 2014-15 2015-16 2016-17
1.
Amount of investment
Deduction allowable
20
Nil
90
16.5
-
-
Under the existing section
32AC(1)
2..
Amount of investment
Deduction allowable
30
Nil
40
6
-
-
Under the proposed
section 32AC(1A)
3.
Amount of investment
Deduction allowable
150
22.5
10
1.5
-
-
Under the existing section
32AC(1)
4.
Amount of investment
Deduction allowable
60
Nil
20
Nil
-
-
No deduction either u/s
32AC(1) or 32AC(1A)
5.
Amount of investment
Deduction allowable
30
Nil
30
4.5
30
4.5
40
6
Under the proposed
section 32AC(1A)
6.
Amount of investment
Deduction allowable
150
22.5
20
3
70
10.5
20
Nil
Deduction both u/s
32AC(1) & 32AC(1A)
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent years.
EXTENSION OF THE SUNSET DATE UNDER SECTION 80-IA FOR THE POWER SECTOR
The benefit of profit linked deduction for assesses engaged in
(a) generation and distribution of power
(b) transmission or distribution by laying a network of new transmission or distribution lines
(c) undertaking substantial renovation and modernization of existing network of transmission or
distribution lines
can be availed by the power sector for a period of ten years, if they commence the eligible activity by 31st
March 2014. At present the terminal date is extended from 31st March 2014 till 31st March 2017.
10 | P a g e
Union Budget 2014
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
DEDUCTION IN RESPECT OF CAPITAL EXPENDITURE ON SPECIFIED BUSINESS
Expansion of scope: Scope of investment linked deduction u/s 35AD has been expanded to include:
laying and operating a slurry pipeline for the transportation of iron ore;
setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is
notified by the Board in accordance with the prescribed guidelines.
It has been proposed that the date of commencement of operations for availing investment linked
deduction in respect of the two new specified businesses shall be on or after 1st April, 2014.
Utilisation of investments: With a view to ensure that the capital asset on which investment linked
deduction has been claimed is used for the purposes of the specified business, it is proposed that the asset
shall be used only for the specified business for a period of eight years beginning with the previous year in
which such asset is acquired or constructed.
Non utilisation of investments: It has been proposed that if the capital asset is used for any purpose
other than the specified business, the total amount of deduction so claimed and allowed in any previous
year in respect of such asset, as reduced by the amount of depreciation allowable in accordance with the
provisions of section 32 as if no deduction had been allowed under section 35AD, shall be deemed to be
income of the assessee chargeable under the head “Profits and gains of business or profession” of the
previous year in which the asset is so used.
Deduction claimed under section 35AD on a capital
asset
:
Depreciation eligible on such asset under section 32 :
Profit chargeable to tax in accordance with the
proposed sub-section (7B) of section 35AD
:
Rs. 10
Rs. 2
Rs. 8
It has been proposed that where any deduction has been availed of by the assessee on account of capital
expenditure incurred for the purposes of specified business in any assessment year, no deduction under
section 10AA shall be available to the assessee in the same or any other assessment year in respect of such
specified business.
M Ltd is engaged in the business of setting up and operating a warehousing facility for
storage of agricultural produce. In the year 2014-15 it has incurred a capital expenditure of
Rs. 50 lakhs for its business. Determine the tax implications under the following situations.
1. The asset for which capital expenditure is incurred is transferred in the same year
for Rs. 35 lakhs
2. The asset is used for the purpose other than for the specified business. Depreciation
chargeable as per regular provisions is Rs.10 lakhs.
Case 1
Since the asset is transferred, the amount received from the transfer .i.e. Rs. 35 lakhs would be subject to taxation u/s
28(vii).
Case 2
Since the asset is used for the purpose other than the specified business, the amount of deduction of Rs. 40 lakhs (Rs.50
lakhs less Rs.10 lakhs) shall be deemed to be the income of M Ltd chargeable under Profits and gains of business or
profession and subject to taxation.
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Consequential amendment has also been proposed in Section 10AA.
It is observed that sale of an asset, within the period of 8 years is not regarded as an event of violation. Hence the
provisions of Section 35AD (7B) shall not be applicable
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
CORPORATE SOCIAL RESPONSIBILITY (CSR) NOT AN ALLOWABLE DEDUCTION
According to Sec 135 of the Companies Act, 2013,
Every company having a:
net worth of rupees five hundred crores or more, or
turnover of rupees one thousand crores or more or
net profit of rupees five crores or more
during any financial year shall, spend at least two per cent of the average net profits of the company made
during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility
Policy.
It is perceived by the Government that if such expenses are allowed as tax deduction, it would result in
subsidizing of around one-third of such expenses by the Government by way of tax expenditure.
Therefore CSR expenditure is expressly not allowed under the existing provisions of section 37 of the
Income-tax Act. However, the CSR expenditure which is of the nature described in section 30 to section 36
of the Act shall be allowed deduction under those sections subject to fulfilment of conditions, if any,
specified therein.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent years.
This provision may dissuade corporate from spending. As per CSR policy, the activities to be
undertaken could pertain to those prescribed under schedule VII. One of the activities pertain
to contribution to Prime Minister’s National Relief Fund, which shall actually result in
obtaining 100% deduction under section 80G and shall benefit the company. Thus companies
may explore the provisions under Schedule VII and try to obtain full deduction for the amount
spent.
EXTENSION OF TIME LIMIT FOR PAYMENT OF TDS TO NON RESIDENTS- SEC 40(a) (i)
In the case of payments made to non-residents or payments made outside India, it is proposed to extend
the time limit for payment of TDS from, the end of the previous year to the due date for filing return of
income u/s 139(1).
In the previous year X Ltd paid a sum of Rs. 5,00,000 as royalty to Mr. K who is a nonresident. The due date for filing return of income of X Ltd is 30th September. As per the old
provisions, X Ltd should make payment of TDS before the end of previous year.
However, as per the new provisions, X Ltd can make payment of TDS on or before 30th
September.
REDUCTION IN QUANTUM OF DISALLOWANCE U/S 40(a) (ia)
In case of non-deduction or non-payment of tax deducted at source (TDS) from certain payments made to
residents, the entire amount of expenditure on which tax was deductible is disallowed under section
40(a)(ia) for the purposes of computing income under the head “Profits and gains of business or
profession". The disallowance of whole of the amount of expenditure results into undue hardship.
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In order to reduce the hardship, it has been proposed that in case of non-deduction or nonpayment of TDS on payments made to residents as specified in section 40(a) (ia) of the Act, the
disallowance shall be restricted to 30% of the amount of expenditure claimed.
Thus in the above illustration, if tax is not deducted
or not paid before 30th September, only Rs.1.5 lakhs
shall be disallowed as compared to Rs.5 lakhs as
per earlier provision.
EXPANSION IN SCOPE FOR DISALLOWANCE U/S 40(a) (ia)
In order to improve the TDS compliance in respect of payments
to residents which are currently not specified in section 40(a) (ia),
it has been proposed that the disallowance under section 40(a) (ia) Currently, the provisions of Sec 40(a)(ia) are
of the Act shall extend to all expenditure, including resident
not applicable to payments for resident
director’s remuneration, salary to resident employees and
Independent Director’s remuneration, salary
non-compete fees, on which tax is deductible under Chapter XVII-B to resident employees and non-compete fees.
of the Act.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent years.
TDS RETURNS
Correction of returns
In order to bring clarity in the matter relating to filing of correction statement, it has been proposed to
amend section 200 of the Act to allow the deductor to file correction statements. Consequently, it is also
proposed to amend provisions of section 200A of the Act for enabling processing of correction statement
filed.
Time limit for passing of order
The existing provisions of section 201(1) of the Act provide for passing of an order deeming a payer as
assessee in default if he does not deduct or does not pay or after deduction fails to pay the whole or part of
the tax as per the provisions of Chapter XVII-B of the Act. Section 201(3) of the Act provides for time limit
for passing of order under section 201(1) of the Act for deeming a payer as assessee in default for failure to
deduct tax from payments made to a resident.
Clause (i) of section 201(3) of the Act provides that no order under section 201(1) of the Act shall be
passed after expiry of two years from the end of the financial year in which the TDS statement has been
filed. Currently, the processing of TDS statement is done in the computerised environment and mainly
focuses on the transactions reported in the TDS statement filed by the deductor.
Therefore, there will be no rationale for not treating the deductor as assessee in default in respect of the
TDS default after two years only on the basis that the deductor has filed TDS statement as TDS defaults are
generally in respect of the transaction not reported in the TDS statement. It has therefore been proposed
to omit clause (i) of sub-section (3) of section 201 of the Act which provides time limit of two years for
passing order under section 201(1) of the Act for cases in which TDS statement have been filed.
J Ltd paid a sum of Rs. 2,70,000 after deduction of TDS of Rs. 30,000 to Mr. H. However the
company fails to remit the amount deducted to the government. An order was passed
deeming J Ltd as assessee in default after 3 years from the end of previous year in which
statement was filed. Determine the applicability of order passed in the following 2 situations.
1. The assessee had not filed the TDS statement
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2. The assessee had filed the TDS statement
Case 1:
The assessee has not filed the TDS statement and the order is passed after 3 years from the end of previous year.
Currently as per the amended Section 201(3)(ii), the order can be passed till the expiry of seven years(instead of six years)
from the end of the financial year in which payment is made.
Case 2:
The assessee has filed the statement but as per the amendment in the provision of Section 201(3) clause (i) has been
removed which gives the time period of 2 years from the end of the previous year in which the statement is filed, for
passing an order. Thus the order is valid.
Currently, clause (ii) of section 201(3) of the Act provides a time limit of six years from the end of the
financial year in which payment/credit is made for passing of order under section 201(1) of the Act for
cases in which TDS statement has not been filed. However, notice under section 148 of the Act may be
issued for reassessment up to 6 years from the end of the assessment year for which the income has
escaped assessment.
Section 148 of the Act allows reopening of cases of one more preceding previous year than specified under
section 201(3)(ii) of the Act. Due to this, order under section 201(1) of the Act cannot be passed in respect
of defaults relating to TDS which comes to the notice during search/reassessment proceeding in respect of
previous year which is not covered under section 201(3)(ii) of the Act but covered under section 148 of the
Act. In order to align the time limit provided under section 201(3)(ii) and section 148 of the Act, it has been
proposed that time limit provided under section 201(3)(ii) of the Act for passing order under section
201(1) of the Act shall be extended by one more year.
Notice u/s 148 was sent to Mr. A on 31.03.2015 for income escaping assessment for financial year 2007Subsequently, it came to notice of the Assessing officer that the assessee has failed to furnish TDS
returns for the year. Can he be treated as assessee in default for non-filing of TDS returns?
2008.
As per the old provision, Mr. A cannot be treated as an assessee in default for non-filling of TDS
returns as the time period of 6 years to issue notice gets lapsed on 31.03.14. However, as per
the amended provision, the assessee can be treated as an assessee in default because of
extension of one more year i.e. the due date for issuing notice shall be 31.03.15.
The existing provisions of section 271H of the Act provides for levy of penalty for failure to furnish
TDS/TCS statements in certain cases or furnishing of incorrect information in TDS/TCS statements. The
existing provisions of section 271H of the Act do not specify the authority which would be competent to
levy the penalty under the said section. Therefore, provisions of section 271H have been amended to
provide that the penalty under section 271H of the Act shall be levied by the Assessing officer.
These amendments will take effect from 1st October, 2014.
INCREASE IN PRESUMPTIVE INCOME - BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES
The existing provisions of section 44AE of the Act provides for presumptive taxation in the case of an
assessee who is engaged in the business of plying, hiring or leasing goods carriages and not owning more
than ten goods carriages at any time during the previous year.
Presumptive income from the said business has been amended as under:
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Particulars
Presumptive
u/s 44AE
Present Scenario
Proposed
Scenario
Income Rs 5000 per month or part of a month of ownership for each Rs 7500 per
heavy goods vehicle
month or part
of a month of
Rs 4500 per month or part of a month of ownership for any ownership for
other vehicle
each vehicle
This amendment will take effect from 1st April, 2015 and will, accordingly,
apply in relation to the assessment year 2015-16 and subsequent years.
Mr. X is into the business of leasing trucks. In the previous year he had 8 trucks of
which 2 are heavy vehicles. Compute his taxable income.
Particulars
For 2 trucks (heavy vehicles) 5000*2*12
For 6 trucks (other vehicles) 4500*6*12
Total Taxable Income
Amount (in Rs.)
120000
324000
444000
existing provisions - taxable income of Mr. X
Particulars
For 8 trucks 7500*8*12
Total Taxable Income
provisions - taxable income of Mr. X
new
Amount (in Rs.)
720000
720000
INCOME COMPUTATION AND DISCLOSURE STANDARDS
It has been proposed that the Central Government may notify in the Official Gazette from time to time
income computation and disclosure standards to be followed by any class of or in respect of any class of
income.
It has further been proposed that the Assessing Officer may make an assessment in the manner provided in
section 144 of the Act, if the income has not been computed in accordance with the standards notified
under section 145(2) of the Act.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
This appears to be an additional burden wherein it needs to be ensured that
computation is prepared as per the Tax Accounting Standards which are yet to be
notified till date and are effective from financial year 2014-15 and if not complied
shall result in the Assessing Officer making an assessment under section 144 of the
Act, effectively deeming that return of income has not been filed at all by the
assessee.
SPECULATIVE TRANSACTION IN RESPECT OF COMMODITY DERIVATIVES
It has been proposed that eligible transaction in respect of trading in commodity derivatives carried out in
a recognised association and chargeable to commodities transaction tax under Chapter VII of the Finance
Act, 2013 shall not be considered to be a speculative transaction.
This amendment will take effect retrospectively from 1st April, 2014 and will accordingly apply, in
relation to the assessment year 2014-15 and subsequent assessment years.
LOSSES IN SPECULATION BUSINESS
It has been proposed that the income of a company, the principal business of which is the business of
trading in shares, shall not be regarded as speculative income.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to
assessment year 2015-16 and subsequent assessment years.
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C
apital gains
LONG-TERM CAPITAL GAINS ON DEBT ORIENTED MUTUAL FUND AND ITS QUALIFICATION AS SHORT-TERM
CAPITAL ASSET
The benefit of shorter period of holding for qualification as long term capital asset has been removed in the
case of the following assets:
Shares in unlisted company
Debt oriented mutual fund units
In other words the above mentioned assets shall be regarded as long term capital assets only if they are
held for more than 36 months.
Fixed Maturity Plans (FMPs)
Fixed Maturity Plans (FMP) are debt funds which thrived on tax arbitrage. In the case of bank deposits, interest is taxed
at the highest rate of 30%, while in the case of debt funds, the benefit of period and indexation are available. Debt funds
held for more than one year are considered as long term capital asset and hence capital gains @ 20% with indexation or
10% without indexation, whichever is beneficial was available. This could be better explained with an example.
Description
Amount invested
Period
Rate of interest
Amount of income
Type of income
Indexation benefit
Amount of tax
Tax Savings
Bank deposit
1,00,000
1 year one day
11%
11,000
Other sources
Nil
3,300
Nil
FMP
1,00,000
1 year one day
11%
11,000
Capital gain
Available
Long term capital gain(with indexation) = 789
Tax @ 20% = 158
(or) Amount invested with interest = 1,11,000
Cost = 1,00,000
Long term capital gain(without indexation) = 11,000
Tax @ 10% = 1,100
Hence 158 opted
3,142
These amendments will take effect from 1st April, 2015 and will accordingly apply, in relation to the
assessment year 2015-16 and subsequent assessment years.
TAXABILITY OF ADVANCE FOR TRANSFER OF A CAPITAL ASSET
It is proposed that any sum of money, received as an advance or otherwise in the course of negotiations for
transfer of a capital asset shall be chargeable to income-tax under the head ‘income from other sources’ if
such sum is forfeited and the negotiations do not result in transfer of such capital asset.
Consequently, Sec 51 is also proposed to be amended to provide that where any sum of money received as
an advance or otherwise in the course of negotiations for transfer of a capital asset , has been taxed under
the head “income from other sources” such amount shall not be deducted from the cost for which the asset
was acquired or the written down value or the fair market value, as the case may be, in computing the cost
of acquisition.
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These amendments will take effect from 1st April, 2015 and will, accordingly, apply in
relation to the assessment year 2015-16 and subsequent years.
TAX ON LONG-TERM CAPITAL GAINS ON UNITS
It has been proposed to amend the provisions of section 112 so as to allow the concessional rate of tax of
ten per cent on long term capital gain to listed securities (other than non-equity oriented units) and zero
coupon bonds.
This amendment will take effect from 1st April, 2015 and will accordingly apply, in relation to the
assessment year 2015-16 and subsequent assessment years.
Mr. K bought 500 debt mutual fund units of Rs.110 each on 01/05/2011. He sold
these units on 01/06/2013 for Rs. 150 /unit. Compute his capital gain.
As per the existing provisions, since the units are held for more than 12 months, it
shall be considered as long term capital asset and capital gains shall be computed
as follows.
Sale Consideration(500*150)
Less: Indexed Cost of Acquisition
(500*110)*939/785
Long term capital gains
20% on the gains
Rs.
75000
65790
9210
1842
Rs.
75000
55000
20000
2000
Sale Consideration (500*150)
Less: Cost of Acquisition (500*110)
Long term capital gains
10% on the gains
Least of the above two computations (Rs. 1842) shall be considered.
As per the new provisions, since the units are not held for more than 36 months, it shall be considered as short term
capital asset and capital gains shall be computed as follows.
Rs.
Sale Consideration (500*150)
75000
Less: Cost of Acquisition (500*110)
55000
Short term capital gains
20000
Slab rate (considering maximum
6000
marginal rate i.e. 30% on the gains)
Thus, because of the change in the provision, units shall now taxed at slab rate as against the earlier option of tax at 20%
with indexation or 10% in case of non indexation, whichever is beneficial.
The character of the asset, in our opinion, is required to be determined at the time of transfer
and not at the time of investment. Hence, where investment is made in an unlisted entity
and exit is made post listing, the asset shall be regarded as long term if it is held for more
than 12 months. This interpretation should be heartening for venture capital and PE exits.
However, it shall be reverse in the case of debt funds, which shall now be classified as long
term capital asset only if held for more than three years. As per the old provision, a debt fund
invested for thirteen months at the time of investment would have been classified as long term
capital asset, while now, since it is held for less than three years, it shall be considered as a short
term capital asset at the end of maturity of the debt fund.
CAPITAL GAINS ARISING FROM TRANSFER OF AN ASSET BY WAY OF COMPULSORY ACQUISITION
It is proposed to provide that the amount of compensation received in pursuance of an interim order of the
court, Tribunal or other authority shall be deemed to be income chargeable under the head ‘Capital gains’
in the previous year in which the final order of such court, Tribunal or other authority is made.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
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However according to Sec 155(16), where such order is subsequently reduced/enhanced by the order of a
court, tribunal and other authority, the AO shall amend the order of assessment within expiry of four
years from end of previous year in which order reducing the compensation was passed by the court,
Tribunal or other authority.
CAPITAL GAINS EXEMPTION IN CASE OF INVESTMENT IN A RESIDENTIAL HOUSE PROPERTY
It has now been proposed amend Sec 54 and Sec 54F to provide that the exemption shall
be available for:
- Investment in only one residential house and
- Such house must be situated in India
These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to
assessment year 2015-16 and subsequent assessment years. The above amendments put to rest a huge
amount of litigation in this area and are a welcome step in the right direction.
This section was interpreted in various forms in various cases which provided exemption for property purchased
outside India and “a residential house” could not be restricted to one residential house. Where non-resident Indian
sold property in India and purchased residential property in U.K. and claimed deduction under Section 54, it was
held that it was not necessary that residential property should be purchased in India itself. [Mrs.
Prema P. Shah, Sanjiv P. Shah vs. ITO (2006) 282 ITR (AT) 211 (Mumbai)].
Where for the purpose of claiming exemption under section 54, the assessee
purchased property from two different persons, by virtue of four different sale
instances in the shape of four different parcels which constituted one single
residential unit or house, it was held that the execution of four different sale deeds in
respect of four different portions of the property does not materially affect the nature of
transaction or nature of property acquired, the investment so made in the purchase of
the same was eligible for deduction under section 54. [CIT vs. Smt. Sunita Aggarwal (2006) 284 ITR 20(Del)].
The expression ‘a residential house’ in section 54 necessarily has to include buildings or lands appurtenant thereto,
it cannot be construed as one residential house - CIT vs. Smt. K.G.Rukminiamma [2011] 196 TAXMAN 87
(KAR.).
CAPITAL GAINS EXEMPTION ON INVESTMENT IN SPECIFIED BONDS
It is proposed to provide that the investment made by an assessee in the long-term specified asset, out of
capital gains arising from transfer of one or more original asset, during the financial year in which the
original asset or assets are transferred and in the subsequent financial year does not exceed fifty lakh
rupees.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to
assessment year 2015-16 and subsequent assessment years.
The above amendment puts to rest a huge amount of litigation in this area and is a welcome step in the
right direction.
In this scenario there have been conflicting decisions in the past...
In the case of Coromandel Industries (P.) Ltd. vs. Assistant Commissioner of
Income-tax, Company Circle I(3), Chennai [2013] 36 taxmann.com 6 (Chennai Trib.)/[2013] 145 ITD 171 (Chennai - Trib.) it was held that where assessee was able
to place investment of Rs. 50 lakhs each in specified assets in two different financial year
within six months from date of transfer of capital asset, restrictive proviso to section 54EC
would not limit claim to Rs. 50 lakhs only. In the case of Assistant Commissioner of Incometax, Circle-2, Ajmer vs. Shri Raj Kumar Jain & Sons (HUF) [2012] 19 taxmann.com 27
(Jaipur)/[2012] 20 ITR(T) 212 (Jaipur)/[2012] 50 SOT 213 (Jaipur), it was held that as
per section 54EC, investment within 6 months is investment for that particular financial year in
which transfer has taken place and said period of six months would not include some part of
subsequent financial year.
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R
eal Estate Investment Trust (REIT)
A real estate investment trust is a company that owns, and in most cases, operates income- producing real
estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to
warehouses, hospitals, shopping centres, hotels and even timberlands. Some REITs also engage in financing
real estate. The REIT is a very similar to mutual funds, conceptually, fundamentally as well as functionally.
REASONS THAT LURE INVESTORS GLOBALLY:
Superior liquidity
Lower minimum investment (comparatively)
Limited liability
Active professional management
Greater potential for diversification
High yield
REASONS WHY INVESTORS HAVE 2ND THOUGHTS
Lack of control
Costs of publicly traded corporate structure
Forced equity issuance
Structural conflicts of interest
India issued draft regulations for the listing of REITs in 2008, but was forced to shelve the plans after the
global financial crisis dried up investor interest and an economic downturn dimmed the outlook for real
estate investments.
A new set of draft guidelines were introduced by the markets regulator in October 2013 and the final
regulation will be drafted once the government clears the tax measures proposed in the Union budget on
10th July 2014.
DRAFT SEBI REGULATIONS RELEASED ON OCTOBER IS TABULATED AS FOLLOWS:
Basics
Particulars
Legal constitution of an REIT
Parties to the trust
Registration with SEBI mandatory
Proposed Regulations
Trust
Trustee, sponsor & manager
Yes
Public Listing and Investor Guidelines
Particulars
Proposed Regulations
Fund raising
Through IPO’s & FPO’s listing
Tenure to issue IPO from
18 months
the date of registration
Minimum Assets under
Rs.1000 crores at the time of listing and not prior to the offer
management held by REIT
Minimum IPO size
25% of AUM (effectively Rs.250 crores)
Minimum No of investors
20 (excluding related parties)
Proposed eligible investors Initially till the market develops REIT’s may be offered to High Net worth
and minimum ticket size.
Individuals/ Institutions until the market develops. However investors can be
anybody, whether resident (or) foreign.
SEBI has prescribed the minimum ticket size of a REIT unit at Rs. 100,000
and further by requiring each applicant to purchase at least two units (i.e.
minimum investment of Rs. 200,000).
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Eligibility Criteria- Sponsor
Particulars
Provision
Net worth
Rs.20 crores on a consolidated basis
Percentage share in
25% share in REIT prior to the offer
REIT
Lock-in period once
The sponsor will have a minimum lock-in of 3 years during which the minimum
listed
holding will be 25% of the REIT, holding in excess of 25% will be locked in for a
period of one year.( for example, sponsor has 35% holding in the REIT. Here for
10% holding 1 year lock-in and for the balance 3 years lock-in)
Minimum holding at
Hold not less than 15% of the outstanding units of the REIT at all time
all times
If minimum holding is The sponsor shall arrange for another person/entity to act as the re-designated
less than 15% after 3
sponsor.
years of listing
Minimum experience
Atleast 5 years of experience in the real estate industry on a standalone basis.
of the sponsor
Eligibility Criteria- Manager
Particulars
Provision
Net worth
Rs.5 crores
Constitution &
Not less than 2 key personnel in its investment committee who each have not
constituents of the
less than 5 years experience in fund management/advisory services/ property
investment committee
management in the real estate industry or in development of real estate
Experience of the
Atleast 5 years
manager
Investment Guidelines
Particulars
Investment permitted in
properties and securities in India
Provision
(a) Min. 90% of the REIT value shall be in completed and rent
generating properties (i.e. 75% rented/leased out)
(b) Balance can be invested in specified assets, subject to
specified conditions.
Investment in Special Purpose Vehicle (SPV) is permitted provided the SPV holds 90% of their assets
directly in specified real estate properties and they exercise control over SPV(s).
Prohibited investments
Investment in other REIT’s
Vacant land, agricultural land (or) mortgage exceeding MBS
Dividend Policy
Particulars
Revenue receipts
constituents
Distribution of revenue
Provision
At all times atleast 75% of the revenues shall be from rental, leasing and
letting real estate assets.
90% of net distributable income after tax of the REIT’s should be distributed
to unit holders.
Leverage and Deferred Payments
Particulars
Provisions
Maximum limit
Aggregate consolidated borrowings and deferred payments of the REIT have
been capped at 50% of the value of the REIT assets
On breaching half of the
In excess of 25%, credit rating by an agency registered with SEBI and unit
capped limit
holder(s) approval shall be required.
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TAX EDGE:
The much awaited budget that was announced on the 10th of July, 2014 did manage to fulfill the
expectations of the masses with regard to a number of sectors in general and the realty sector in particular
by providing clarity on the issue of REITs.
Status
Nature of Income Tax Effect
SPV
Any income
On income received, income tax as well as dividend distribution tax shall be
receipt
paid at the SPV level.
REIT
Income excluding REIT’s have been given a pass through status. Also there is no withholding
capital gains
tax at the level of SPV
Capital gains
Taxed in the hands of the REIT. In event of distribution of the capital gain
proceeds, capital gain shall be exempt in the hands of the investor
Dividend Income
Tax free as DDT suffered by SPV
Any other income Taxed at the maximum marginal rate
Sponsor Capital gains
In case of capital gains arising to the sponsor at the time of exchange of
shares in SPVs with units of the business trust, the taxation of gains shall be
deferred and taxed at the time of disposal of units by the sponsor. However,
the preferential capital gains regime (consequential to levy of STT)
available in respect of units of business trust will not be available to the
sponsor in respect of these units at the time of disposal. Further, for the
purpose of computing capital gain, the cost of these units shall be
considered as cost of the shares to the sponsor. The holding period of
shares shall also be included in the holding period of such units.
Investor Dividend
Tax free, as DDT suffered in the hands of SPV.
Capital gains
Units of REIT will be taxed in the same manner as listed equity shares i.e.,
long-term capital gains will be exempt from tax and short-term gains will be
taxed at the rate of 15%
Interest –
10% withholding tax
resident
Interest- non
5% withholding tax
resident
REIT needs to furnish its return of income.
Incentive on External Commercial Borrowing: In case of borrowings by business trust in the form of
ECB, benefit of reduced rate of 5% on interest paid to non-resident lenders shall be availed u/s 194LC.
Impact of REITs in Realty:Real estate experts have welcomed the move. Once it is in place it will provide an additional exit
route for investors and enable retail money to be channelized into the realty sector via a regulated
network.
The introduction of REITs in the long term would help to attain capital inflows which in turn will
enable institutional credibility.
If this move is implemented it would be immensely beneficial as developers are currently faced
with liquidity crunch as large amounts of capital is locked in illiquid assets which could be resolved.
Investments by REITs in these and other assets would indirectly reduce the exposure of banks to
risky assets as they finance many construction projects.
The area of concern is with regard to achieving a strong legal framework surrounding real estate in
India, which is a pre-requisite for REITs to thrive in India. Keeping this in mind the Real Estate
Regulatory Bill is a move in the right path. However this path has to be laid.
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P
ersonal Taxation
RAISING THE LIMIT OF DEDUCTION UNDER SECTION 80C
The limit for investment u/s 80C, 80CCD and 80CCE has been enhanced from the existing Rs. 1 lakh to
Rs.1.5 lakh.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
DEDUCTION FROM INCOME FROM HOUSE PROPERTY
Limit for deduction on interest on borrowed capital for self occupied house property has been increased
from Rs 1.5 lakhs to Rs. 2 lakhs
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
TDS ON NON-EXEMPT PAYMENTS MADE UNDER LIFE INSURANCE POLICY
Amount received under a Life Insurance Policy – Sec 10(10D): Any sum received
under a life insurance policy, including the sum allocated by way of bonus on such
policy, shall be fully exempt.
However the following sums received are not exempt from tax:
a. Any sum received u/s 80DD (3) or 80DDA (3)
b. Any sum received under a Keyman insurance policy; or
c. Any sum received under an insurance policy issued on or after 01-04-2003 but before
31st of
March 2012, in respect of which the premium payable for any of the years during the term of the policy
exceeds 20% of the actual capital sum assured.
d. Any sum received under an insurance policy issued on or after the 1st day of April, 2012 in respect of which the
premium payable for any of the years during the term of the policy exceeds 10% of the actual capital sum assured.
e. Any sum including the sum allocated by way of bonus received under an insurance policy issued on or after 01.04.2013
for the insurance on the life of any person who is
(i) a person with disability or a person with severe disability as referred to in section 80U, or
(ii) suffering from disease or ailment as specified in the rules made under section 80DDB, shall not be exempt if
the premium payable for any of the years during the term of the policy is 15% or more of the actual capital sum assured.
It has been proposed to provide for deduction of tax at the rate of 2 per cent on sum paid under a life
insurance policy, including the sum allocated by way of bonus, which are not exempt under section
10(10D) of the Act. It has also been proposed that no deduction under this provision shall be made if the
aggregate sum paid in a financial year to an assessee is less than Rs.1,00,000. This amendment will take
effect from 1st October, 2014.
EXTENSION OF TAX BENEFITS UNDER SECTION 80CCD TO PRIVATE SECTOR EMPLOYEES
Considering the fact that for employees in the private sector, the date of joining the service is not relevant
for joining the New Pension Scheme (NPS), it has been proposed to amend the provisions of section 80CCD
to provide that the condition of the date of joining the service on or after 1.1.2004 is not applicable to them
for the purposes of deduction under the said section. This amendment will take effect from 1st April,
2015 and will, accordingly, apply in relation to assessment year 2015-16 and thereafter.
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I
nternational Taxation
CONCESSIONAL RATE OF TAX ON OVERSEAS BORROWING
It has been proposed to extend by two years the period of borrowing for which, the concessional
withholding of 5% shall apply. The concessional rate of withholding tax will now be available in respect of
borrowings made before 1st day of July, 2017.
Consequential amendment is also proposed in section 206AA to ensure that this benefit of exemption is
extended to payment of interest on any long-term bond referred to in section 194LC.
These amendments will take effect from 1st October, 2014.
Compare rates of TDS as per DTAA
Concessional Rate of TDS in India is 5 % whereas withholding rate in comparison to
other countries in DTAA are as follows. :
Country
UAE
Syria
Armenia, Austria, Botswana, France, Hungary, Iceland, Japan, Kuwait, Kyrgyz Republic,
Malaysia, Portuguese Republic, Saudi Arabia, Serbia and Montenegro, Slovenia, Sudan and
Uganda.
Bangladesh, Belarus, China, Cyprus, Czech Republic, Germany, Finland, Indonesia, Ireland, Israel,
Jordan, Kazakstan, Malta, Morocco, Namibia, New Zealand, Oman, Qatar, Russian Federation,
South Africa, Sri Lanka, Sweden, Turkmenistan, Ukraine Vietnam, Zambia, Netherlands,
Trinidad and Tobago And Swiss
Thailand
Korea, UK, Nepal, Denmark, Turkey and Belgium.
Philippines, Singapore and US
Tanzania
Australia, Brazil, Canada, Italy, Kenya, Mangolia, Norway, Poland, Romania, Spain, Uzbekistan,
Bulgaria.
Greece, Libyan Arab Jamahiriya, United Arab Republic.
Mauritius
Withholding tax rate in DTAA
5% if loan is granted by a
bank/similar financial institution;
12.5% for others
7.5%
10 %
10 % (Interest earned by Govt &
RBI are exempt in the country of
source)
10% for financial institutions and
insurance company; 20% for others
10% if interest is paid to a bank;
15% for others
10% if interest is received by a
financial institution or insurance
company; 15% in other cases
12.5%
15 %
20 %
20% and Nil in some cases
REDUCTION IN TAX RATE ON CERTAIN DIVIDENDS RECEIVED FROM FOREIGN COMPANIES
Section 115BBD provides for taxation of gross dividends received by an Indian company from a specified
foreign company at the concessional rate of 15 per cent. This section, however, was valid only till 31st of
March 2014.
With a view to encourage Indian companies to repatriate foreign dividends into the country, it has been
proposed to amend the Act to extend the benefit of lower rate of taxation without limiting it to a particular
assessment year. Thus, such foreign dividends received in financial year 2014-15 and subsequent financial
years shall continue to be taxed at the lower rate of 15%.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
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ROLL BACK PROVISION IN ADVANCE PRICING AGREEMENT SCHEME
In an effort to reduce large scale litigation, it has been proposed to provide roll back mechanism in the APA
scheme. The APA may, subject to such prescribed conditions, provide for determining the arm’s length
price or for specifying the manner of such determination in relation to an international transaction entered
into by a person during any period not exceeding four previous years preceding the first of the previous
years for which the advance pricing agreement applies in respect of the
international
transaction to be undertaken in future.
This amendment will take effect from 1st October, 2014.
There are various case laws in this regard. Merely because assessee liquidates
its investments within a short span of time, we cannot conclude that he did not
intend to keep the funds as investor in equity shares. Gain earned on sale of
investment was capital gains and not to be treated as business income. DCIT v.
E-Cap Partners [2014] 45 taxmann.com 342 (Mumbai - Trib.)
Income arising from transactions of derivatives to assessee, a FII,
could not be treated as business profit rather same had to be
assessed under head capital gain. DDIT Vs Platinum Asset
Management Ltd [2014] 44 taxmann.com 208 (Mumbai - Trib.)
As per Clause 46(1) of Direct Tax Code, 2013
“The income or deemed income from the transfer of any investment asset shall
be computed under the head “Capital gains”.
As per Clause 320(130) of Direct Tax Code, 2013 “investment asset” means—
(c) any security held by a foreign institutional investor which has invested in such
security, whether listed or unlisted, with the prior permission of the Competent
authority in accordance with the Securities and Exchange Board of India (Foreign
Institutional Investor) Regulations, 1995 and such other regulations as may be
applicable;
(d) any security held by a qualified foreign investor;
(e) any undertaking or division of a business.
The above amendment had already been part of the Direct Tax Code and now brought in as an amendment in Finance
Act.
CHARACTERISATION OF INCOME IN CASE OF FOREIGN INSTITUTIONAL INVESTORS
It has been proposed to provide that any security held by foreign institutional investor which has invested
in such security in accordance with the regulations made under the Securities and Exchange Board of India
Act, 1992 would be treated as capital asset only so that any income arising from transfer of such security by
a Foreign Portfolio Investor (FPI) would be in the nature of capital gain.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
TRANSFER PRICING
Rationalisation of the Definition of International Transaction
It is proposed to amend section 92B of the Act to provide that where, in respect of a transaction entered
into by an enterprise with a person other than an associated enterprise, there exists a prior agreement in
relation to the relevant transaction between the other person and the associated enterprise or, where the
terms of the relevant transaction are determined in substance between such other person and the
associated enterprise, and either the enterprise or the associated enterprise or both of them are nonresident, then such transaction shall be deemed to be an international transaction entered into between
two associated enterprises, whether or not such other person is a non-resident.
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McDonalds India is a subsidiary of McDonalds US. McDonalds India purchases raw materials
and vegetables from Indian Farmers. Prices at which the raw materials and vegetables
shall be purchased by McDonalds India is fixed by a prior agreement between McDonalds
US and Indian Farmers. Whether transaction between McDonalds India and Indian farmer
for purchase of raw materials and vegetables be treated as International transaction?
As per the current amendment, McDonalds India and Indian Farmers shall be associated
enterprises and the transaction between them shall be deemed to be an International Transaction
even though none of the party to the transaction is a non-resident.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
Levy of Penalty under section 271G by Transfer Pricing Officers (TPO)
It has been proposed to amend section 271G of the Act to include TPO, as referred to in Section 92CA, as an
authority competent to levy the penalty under section 271G in addition to the Assessing Officer and the
Commissioner (Appeals).
This amendment will take effect from 1st October, 2014.
TRANSFER OF GOVERNMENT SECURITY BY ONE NON-RESIDENT TO ANOTHER NON-RESIDENT
It has been proposed that any transfer of a capital asset, being a Government Security carrying a periodic
payment of interest, made outside India through an intermediary dealing in settlement of securities, by a
non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital
gains.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to
assessment year 2015-16 and subsequent assessment years.
MISSES IN THE FINANCE BILL, 2014
The following points were mentioned in the speech of the Finance Minister but were not covered in the
Memorandum or Finance Bill:Interquartile Range for determining arm's length price: The Finance Minister proposed to introduce
the range concept for determination of arm’s length price. However it was mentioned that the arithmetic
mean concept will continue to apply where number of comparable is inadequate.
Use of multiyear data: As per existing Transfer Pricing Regulations, only one year data is allowed to be
used for comparable analysis with some exception. The Finance Minister proposed to amend the
regulations to allow use of multiple year data.
In the budget speech, the Finance Minister mentioned that advance ruling facility which is currently
available to non-resident shall now be made available to resident taxpayers too. A threshold in the income
tax liability shall be announced. To this extent, the Finance Minister announced that additional benches
shall be constituted to strengthen the Authority for Advance Rulings.
It is anticipated that the above provisions shall be notified in the relevant rules at the earliest.
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W
idening of tax base and anti- tax avoidance measures
ALTERNATE MINIMUM TAX
With a view to include the investment linked deduction claimed under section 35AD in computing adjusted
total income for the purpose of calculating alternate minimum tax, it has been proposed to amend the
section so as to provide that total income shall be increased by the deduction claimed under section 35AD
for purpose of computation of adjusted total income. The amount of depreciation allowable under section
32 shall, however, be reduced in computing the adjusted total income.
Total Income
Deduction claimed under Chapter VI-A
Deduction claimed under section 35AD on a capital asset
Computation of adjusted total income for the purposes of AMT
Total Income
Addition:
(i) deduction under Chapter VI-A (on non-specified business)
(ii) deduction under section 35AD (on specified business)
Rs.10,00,000
Less: Depreciation u/s 32
Rs. (1,50,000)
Adjusted total income under section 115JC
: Rs. 6,00,000
: Rs. 4,00,000
: Rs. 10,00,000
: Rs. 6,00,000
: Rs. 4,00,000
: Rs. 8,50,000
: Rs. 18,50,000
MAT also applies to Sec 35AD since companies do not generally claim 100% deduction on plant and machinery, building
etc. Gradually, the difference between MAT u/s 115JB and AMT u/s 115JC is reducing each financial year.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
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T
axation of Charitable trusts and institutions
BENEFIT OF SEC 13 (READ WITH SEC 11 AND 12) AND SEC 10 CANNOT BE CLAIMED IN TANDEM.
Where a trust or an institution has been granted registration for purposes of availing exemption under
section 11, and the registration is in force for a previous year, then such trust or institution cannot claim
any exemption under any provision of section 10 [other than that relating to exemption of agricultural
income and income exempt under section 10(23C)]. Similarly, entities which have been approved or
notified for claiming benefit of exemption under section 10(23C) would not be entitled to claim any benefit
of exemption under other provisions of section 10 (except the exemption in respect of
agricultural income).
XYZ Charitable Society having donation of Rs. 15 lakhs and dividend from an Indian
company Rs. 2 lakhs. Since the trust is already claiming exemption u/s. 11, it cannot
claim a separate claim of exemption of dividend of Rs. 2 lakhs under Section 10 (34)
of the Act. Thus, it needs to apply 85% of Rs.17 lakhs (Rs.15 lakhs plus Rs. 2 lakhs)
to avail the exemption under section 11.
APPLICATION OF FUNDS – CAPITAL INVESTMENT VIS-A-VIS DEPRECIATION
It has been proposed that under section 11 and section 10(23C), income for the purposes of application
shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of
any asset, acquisition of which has been claimed as an application of income under these sections in the
same or any other previous year.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
Clarification in respect of section 10(23C) of the Act
In the case of Visveswaraya Technological University vs. Assistant
Commissioner of Income-tax, Circle -1, Belgaum [2014] 42 taxmann.com 360
(Panaji - Trib.), it was held that funds should directly flow from Government and,
thus, receipts of University by way of fees and other charges collected from students
cannot be considered as finance or grant received from Government merely because same
are as per guidelines prescribed by Government.
It has been proposed that if the Government grant to a university or other educational institution, hospital
or other institution during the relevant previous year exceeds a percentage (to be prescribed) of the total
receipts (including any voluntary contributions), of such institution, as the case may be, then such
institution shall be considered as being substantially financed by the Government for that previous year.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
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ADDITIONAL CONDITIONS FOR CANCELLATION OF REGISTRATION OF THE TRUST OR INSTITUTION
IN CERTAIN CASES
There had been circumstances wherein the Trust had been providing benefit to particular religion
community, but whether registration can be cancelled on this ground was a question to be answered.
In the case of CIT, Ujjain vs. Dawoodi Bohara Jamat [2014] 43 taxmann.com 243
(SC)/[2014] 222 Taxman 228 (SC)(MAG)/[2014] 364 ITR 31 (SC)/[2014] 268
CTR 1 (SC) it was held that where assessee trust is formed with both religious and
charitable objects, in terms of section 13(1)(b), its claim for registration under
section 12AA can be denied only in a case when such objects are carried out for
benefit of a particular religious community or caste.
In the case of Agrawal Sabha vs. Commissioner of Income-tax -I [2014] 45
taxmann.com 273 (Allahabad)/[2014] 223 Taxman 353 (Allahabad) it
was held that where dominant object underlying constitution of trust was for
benefit of only Agrawal community, application for registration under section
12AA should be dismissed.
In order to rationalise the provisions relating to cancellation of registration of a trust, it has been proposed
that where a trust or an institution has been granted registration, and subsequently it is noticed that its
activities are being carried out in such a manner that,—
(i) its income does not enure for the benefit of general public;
(ii) it is for benefit of any particular religious community or caste (in case it is established after
commencement of the Act);
(iii) any income or property of the trust is applied for benefit of specified persons like author of trust,
trustees etc.; or
(iv) its funds are invested in prohibited modes,
then the Principal Commissioner or the Commissioner may cancel the registration if such trust or
institution does not prove that there was a reasonable cause for the activities to be carried out in the above
manner.
This amendment will take effect from 1st October, 2014.
The above amendment, including additional grounds for
cancellation
can have a serious impact on various religious institutions which
have, as one of its objects, the promotion of religion.
APPLICABILITY TO EARLIER YEARS OF THE REGISTRATION GRANTED TO A TRUST OR INSTITUTION
It has been proposed that in case where a trust or institution has been granted registration under section
12AA, the benefit of sections 11 and 12 shall be available in respect of any income derived from property
held under trust in any assessment proceeding for an earlier assessment year which is pending before the
Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution
are the same as those on the basis of which such registration has been granted.
No action for reopening of an assessment u/s 147 shall be taken by the Assessing Officer in the case of such
trust or institution for any assessment year preceding the first assessment year for which the registration
applies, merely for the reason that such trust or institution has not obtained the registration under section
12AA for the said assessment year.
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However, the above benefits would not be available in case of any trust or institution which at any time had
applied for registration and the same was refused under section 12AA or a registration once granted was
cancelled.
These amendments will take effect from 1st October, 2014.
ANONYMOUS DONATIONS UNDER SECTION 115BBC
It has been proposed to amend section 115BBC to provide that the income-tax payable shall be:
a. 30% of (Amount of anonymous donations received less (5% of total donations or Rs 1 lakh
whichever is higher) and
b. Tax as per regular provisions on (total donations received less amount on which tax was paid @
30% under clause a above)
Rs in lakhs
Particulars
Present Scenario
Proposed Scenario
Total Donations received (A)
100
100
Anonymous Donations received(B)
30
30
Exempted anonymous donations (5% of total donations or Rs 1 lakh whichever is higher)
5
5
Taxable anonymous donations (C)
25
70
(A-B)
25
75
(A-C)
Amount of regular donations on which tax is payable, if any
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
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P
rocedural Provisions and Assessment
SIGNING AND VERIFICATION OF RETURN OF INCOME/ E-RETURN
With a view to enable the verification of returns either by a sign in manuscript or by any electronic mode, it
has been proposed to amend section 140 of the Act so as to provide that the return shall be verified by the
persons specified therein.
The amendment will take effect from 1st October, 2014.
INCOME-TAX AUTHORITIES – INTRODUCTION OF ADDITIONAL LEVELS
In view of the creation of new income-tax authorities, it has been proposed to include the newly created
income-tax authorities namely:
- Principal Chief Commissioner of Income-tax
- Principal Commissioner of Income-tax
- Principal Director General of Income-tax and
- Principal Director of Income-tax
These amendments will take effect retrospectively from 1st June, 2013.
POWER OF SURVEY- HARMONISATION OF TIME LIMITS
With a view to align the time period u/s 133A and Sec 131 and the authority for approval beyond the
specified time period, it has been proposed to provide that an income-tax authority under section 133A
shall not retain in his custody any such books of account or other documents for a period exceeding fifteen
days (exclusive of holidays) without obtaining the approval of the specified authority.
POWER OF SURVEY- EXTENDED TO TDS OFFICERS
The powers enumerated in section 133A shall be equally given to such income-tax authority. However,
while acting under the specified authority, the income-tax authority shall not impound and retain in his
custody any books of account or documents inspected by him or make an inventory of any cash, stock or
other valuables.
These amendments will take effect from 1st October, 2014.
MUTUAL FUNDS, SECURITISATION TRUSTS AND VENTURE CAPITAL COMPANIES(VCC) OR VENTURE CAPITAL
FUNDS(VCF) TO FILE RETURN OF INCOME
It has been proposed to amend Sec 139(4C) to provide that the following entities shall also file their return
of income:
- Mutual Fund referred u/s 10(23)
- Securitization trust referred u/s 10(23DA) and
- VCC or VCF referred u/s 10(23FB)
if the total income in respect of which such fund, trust or company is assessable, without giving effect to the
provisions of section 10, exceeds the basic exemption limit.
Further, in the case of the Mutual Funds and Securitisation Trusts referred to above, the requirement of
filing of statements before an income-tax authority is proposed to be dispensed with by omitting sub30 | P a g e
Union Budget 2014
section (3A) of section 115R and sub-section (3) of section 115TA.
These amendments will take effect from 1st April, 2015.
INQUIRY BY PRESCRIBED INCOME-TAX AUTHORITY- SEC 133C
It has been proposed to provide that for the purposes of verification of information in its possession
relating to any person, prescribed income-tax authority, may, issue a notice to such person requiring him,
on or before a date to be therein specified, to furnish information or documents, verified in the manner
specified therein which may be useful for, or relevant to, any enquiry or proceeding under this Act.
This amendment will take effect from 1st October, 2014.
ESTIMATE OF VALUE OF ASSETS BY VALUATION OFFICER
Accordingly, it has been proposed to amend the said section 142A so as to provide
that the Assessing Officer may make a reference whether or not he is satisfied about
the correctness or completeness of the accounts of the assessee.
It has also been proposed to provide that the Valuation Officer shall send a copy of
his estimate to the Assessing Officer and the assessee within a period of six
Assessing authority cannot
months from the end of the month in which the reference is made.
refer
any
matter
to
It is further proposed to amend sections 153 and 153B of the Act so as to provide Departmental
Valuation
that the time period beginning with the date on which the reference is made to Officer without books of
being
rejected.
the Valuation Officer and ending with the date on which his report is received by account
Sargam Cinema vs. CIT
the Assessing Officer shall be excluded from the time limit provided under the [2011] 197 Taxman 203 (SC)
aforesaid section for completion of assessment or reassessment.
These amendments will take effect from 1st October, 2014.
INTEREST PAYABLE BY THE ASSESSEE UNDER SECTION 220
It has been proposed that where any notice of demand has been served upon an assessee and any appeal or
other proceeding, is filed or initiated in respect of the amount specified in the said notice of demand, then
such demand shall be deemed to be valid till the disposal of appeal by the last appellate authority or
disposal of proceedings, as the case may be and such notice of demand shall have effect as provided in
section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964.
Where as a result of an order under sections specified in the first proviso, the amount on which interest
was payable under this section had been reduced and subsequently as a result of an order under said
sections or section 263, the amount on which interest was payable under section 220 is increased, the
assessee shall be liable to pay interest on the amount payable as a result of such order, from the day
immediately following the end of the period mentioned in the first notice of demand referred to in sub
section (1) of the said section and ending with the day on which the amount is paid.
These amendments will take effect from the 1st day of October, 2014.
Assessee has been served notice under section 156 to pay a sum of Rs. 1,00,000 on 31st August, 2012.
Assessee delayed in paying the said sum for 2 months after 30 days from the date of
notice. Thus, interest shall be chargeable under section 220 at the rate of 1% for 2
months i.e. Rs. 2,000. An appeal was filed by the assessee under section 264 and the order
was passed reducing the amount of sum payable from Rs. 1,00,000 to Rs. 80,000 on 15th
June, 2013. Thus, resultantly, the excess interest paid on Rs. 20,000 was refunded i.e. Rs.
1,800(for 9 months).
Subsequently, an order was passed under section 263, favouring the revenue and the demand was
raised from Rs. 80,000 to Rs. 1,20,000 on 28th February, 2014 and the said demand was paid on 05th March, 2014. Now, as
per the amended provision, the interest under section 220, on the amount of Rs. 40,000, shall be payable from the period
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of end of 30 days from the date of notice served under section 156 to the date of payment of revised
amount of Rs. 40,000.Thus, interest shall be payable on Rs.40,000 @ 1% for each month from 1st October, 2012 i.e.
Rs.7200 (for 18 months).
ELECTRONIC MODE OF ACCEPTANCE OR REPAYMENT OF LOANS AND DEPOSITS- SEC 269SS AND SEC 269T
It is proposed to provide that any acceptance or repayment of any loan or deposit by use of electronic
clearing system through a bank account shall not be prohibited under the said sections if the other
conditions regarding the quantum etc. are satisfied.
These amendments will take effect from 1st April, 2015 and will, accordingly, apply in relation to
assessment year 2015-16 and subsequent assessment years.
FAILURE TO PRODUCE ACCOUNTS AND DOCUMENTS
It has been proposed that if a person wilfully fails to produce accounts and documents as required in any
notice issued u/s.142(1) or wilfully fails to comply with a direction issued to him u/s. 142(2A), he shall be
punishable with rigorous imprisonment for a term which may extend to one year and with fine.
This amendment will take effect from 1st October, 2014.
PROVISIONAL ATTACHMENT UNDER SECTION 281B
It has been proposed that the Chief Commissioner, Commissioner, Director General or Director may extend
the period of provisional attachment so that the total period of extension does not exceed two years or upto
sixty days after the date of assessment or reassessment, whichever is later.
This amendment will take effect from 1st October, 2014.
The assessment proceeding is pending for an assessee. The Assessing Officer attached a
property of the assessee provisionally with the prior approval of Chief Commissioner
as on 01.01.2013. The AO completed the assessment as on 30.11.2015.
As per the present provisions, the provisional attachment shall cease to have
effect on 31.12.2015, subject to the extension provided by the Chief Commissioner
or Commissioner. However, as per the proposed provisions, the provisional
attachment shall cease to have effect till 31.12.2015 or 60 days from 30.11.2015, being 29.01.2016, whichever is
later. Thus, it would be 29.01.2016 in the given case.
OBLIGATION TO FURNISH STATEMENT OF INFORMATION
Expansion of intermediaries: It has been proposed for furnishing of statement by a prescribed reporting
financial institution in respect of a specified financial transaction or reportable account to the prescribed
income-tax authority. It is further proposed that the statement of information shall be furnished within
such time, in the form and manner as may be prescribed.
Furnishing incorrect information: It is further proposed to provide that where any person, who has
furnished a statement of information, comes to know or discovers any inaccuracy in the information
provided in the statement, then, he shall, within a period of ten days, inform the such authority the
inaccuracy in such statement and furnish the correct information.
It is also proposed to insert a new section 271FAA to provide that if a person who is required to furnish a
statement of financial transaction or reportable account, provides inaccurate information then, the
prescribed income-tax authority may direct that such person shall pay, by way of penalty, a sum of fifty
thousand rupees.
These amendments will take effect from 1st April, 2015.
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ASSESSMENT OF INCOME OF A PERSON OTHER THAN THE PERSON WHO HAS BEEN SEARCHED
It is proposed to provide, where the Assessing Officer is satisfied that any money, bullion, jewellery or
other valuable article or thing or books of account or documents seized or requisitioned belongs or belong
to any person, other than the person referred u/s 153A, then they shall be handed over to the Assessing
Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each
such other person and issue such other person notice and assess or reassess income of such other person
in accordance with the provisions of section 153A if he is satisfied that the books of account or documents
or assets seized or requisitioned have a bearing on the determination of the total income of such other
person for the relevant assessment year or years referred to in sub-section (1) of section 153A .
Thus proceedings shall be initiated only when the Assessing Officer is satisfied that those books seized have a bearing on
the determination of the total income of such other person for the relevant years.
The amendment will take effect from 1st October, 2014.
Unlike section 158BD, for transferring file under section 153C, there is no need to
examine as to whether evidence or materials seized in course of search of an
assessee represents or proves undisclosed income of another assessee; and all that
is required to be considered is whether such materials or evidence relates to another
assessee or not, which may or may not lead to an assessment against that other person.
Dr. K.M. Mehaboob vs. DCIT [2012] 26 taxmann.com 54 (Kerala)/ [2012] 211
Taxman 52 (Kerala)
In view of provisions of section 153C, satisfaction should be given by the Assessing Officer having jurisdiction
over searched person is that valuable article or books of account or documents seized during search belong to a
person other than searched person. However, there is no requirement in section 153C (1) that Assessing Officer
should also be satisfied that such valuable articles or books of account or documents belonging to other person
must conclusively reflect or disclose any undisclosed income. SSP Aviation Ltd. vs. DCIT [2012] 20
taxmann.com 214 (Delhi)
CREDIT OF ALTERNATE MINIMUM TAX
It has been proposed to provide that the credit for tax paid under section 115JC shall be allowed in
accordance with the provisions of section 115JD, and not withstanding conditions of sec 115JEE deduction
under part C of Chapter VI-A or claimed a deduction u/s 10AA or adjusted total income not exceed Rs.20
lakhs.
This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the
assessment year 2015-16 and subsequent assessment years.
The assessee, who is an individual, has Alternate Minimum Tax Credit of Rs. 1,00,000 of
previous years. In the financial year 2015-2016, his adjusted gross total income does not
exceed Rs. 20,00,000. As per the existing provisions, the assessee cannot claim credit of
Rs. 1,00,000, in case any amount is payable, as adjusted gross total income does not
exceed Rs. 20,00,000. As per the proposed provisions, he can claim the credit of the
same.
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Union Budget 2014
RETROSPECTIVE AMENDMENTS
It shall be noted that even though the Finance Minister says the retrospective amendments shall be done
away with henceforth, there are 3 retrospective amendments in the current budget of 2014. They are as
follows:Extension of income tax exemption to SUUTI with retrospective effect from 01.04.2014
Amendment in the definition of Speculative transactions in respect of commodity derivatives with
retrospective effect from 01.04.2014
Increase in the hierarchy of the Income Tax Authorities with retrospective effect from 01.06.2013
To certain extent the provision of categorising debit oriented mutual funds as long term capital asset only
on completion of 36 months as against 12 months from 1st April 2014 shall be considered as retrospective,
investors would have already locked their funds in such funds based on the favourable tax positions at the
time of investment, which is now removed suddenly.
SECTION 234E
As per section 234E, where the assessee has failed to furnish his TDS/TCS returns within the
specified due date, it shall be liable a fee of Rs. 200 per day till the failure continues. It shall be noted that
the fee shall not exceed the amount deducted or collected and it shall be paid before filing the TDS/TCS
returns.
In the case of Narath Mapila LP School vs. UOI (Kerala HC). WP (C).No. 31498/2013(J)., Hon’ble High
Court grants interim stay on levy of fee for failure to file TDS statement u/s 234E of the Income-tax Act,
1961 which was inserted by the Finance Act, 2012. As the constitutional validity of section 234E has been
challenged in the Hon’ble Kerala High Court vide an interim order dated 18.12.2013, the High Court has
admitted the Petition and granted a stay of proceedings for a period of two months.
Considering that the current budget had provided various clarifications, it is disappointing that no
clarifications have been provided on section 234E where the constitutional validity of the section is
questionable.
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Union Budget 2014
I
ndirect Tax Amendments
CUSTOMS
Amendments to the Customs Act
Section
3
Amendments
inclusion of the Principal Chief Commissioner of Customs and Principal Commissioner of
Customs in the class of officers of customs
15(1)
to provide for determination of rate of duty and tariff valuation for imports through a vehicle in
cases where the Bill of Entry is filed prior to the filing of Import Report (as the Manifest is
called in case of imports by land).
25
to provide that the customs duties on mineral oils including petroleum & natural gas extracted
or produced in the continental shelf of India or the exclusive economic zone of India shall not
be recovered for the period prior to 7th February, 2002
46(3)
amended to allow the filing of a Bill of Entry prior to the filing of Import Report (as the
Manifest is called in case of imports by land) for imports through land route
127A
to change the name of the ‘Customs and Central Excise Settlement Commission’ to the
‘Customs, Central Excise and Service Tax Settlement Commission’ since the scope of the
functioning of the Customs and Central Excise Settlement Commission was expanded in the
year 2012 so as to include settlement of Service Tax matters as well.
127B(1)
to replace the reference to section 28AB with a reference to section 28AA since section 28AB
has been omitted by the Finance Act, 2011 and to provide that an application for settlement of
cases can also be filed in cases where a Bill of Export, Baggage Declaration, Label or Declaration
accompanying the goods effected through Post or Courier have been filed
127L
Explanation inserted ; that the concealment of particulars of duty liability relates to any such
concealment made from the officer of customs and not from the Settlement Commission
129A(1)
amended so as to increase the discretionary powers of the Tribunal to refuse admission of
appeal from the existing Rs.50,000 to Rs.2 lakhs
129A(1B) amended to substitute the words “by notification in the official gazette” with the words “by
order” so as to enable the Board to constitute a Review Committee by way of an order instead
of by way of a notification.
129D
is being amended to insert a proviso in sub-section (3) so as to vest the Board with powers to
condone delay for a period of upto 30 days, for review by the Committee of Chief Commissioners
of the orders in original passed by the Commissioner of Customs.
129E
substituted with a new section to prescribe a mandatory fixed pre-deposit of 7.5% of the duty
demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or the
Tribunal at the first stage and 10% of the duty demanded or penalty imposed or both for filing
second stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to
a ceiling of Rs. 10 crores.
131BA
amended so as to enable the Commissioner (Appeal) to take into consideration the fact that a
particular order being cited as a precedent decision on the issue has not been appealed against
for reasons of low amount.
Amendments to the Customs Tariff Act, 1975
8B
amended so as to provide for levy of safeguard duty on inputs/raw materials imported by an
EOU and cleared into DTA as such or are used in the manufacture of final products & cleared
into DTA.
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Union Budget 2014
CHANGES IN RATES OF DUTY
Particulars
Changes made in the Budget
Agriculture/Agro Processing/Plantation Sector
“sun dried dark seedless raisins” which attracts
is being changed to “dark seedless raisins”.
concessional BCD of 30%
de-oiled soya extract, groundnut oil cake/oil
Full exemption upto 31-12-2014
cake meal, sunflower oil cake/oil cake meal,
canola oil cake/oil cake meal, mustard oil
cake/oil cake meal, rice bran/rice bran oil cake
and palm kernel cake
Chemicals and Petrochemicals
BCD on reformate
Reduced from 10% to 2.5%
BCD on propane, ethane, ethylene, propylene, Reduced from 5% to 2.5%
butadiene, ortho-xylene
BCD on denatured ethyl alcohol and methyl Reduced from 7.5% to 5%
alcohol
BCD on crude naphthalene
Reduced from 10% to 5%
BCD on fatty acids, crude palm stearin, RBD and reduced from 7.5% to Nil
other palm stearin and specified industrial for manufacture of soaps and oleochemicals subject
grade crude oils
to actual user condition
• from 12.5% to 7.5% in general
BCD on crude glycerine
• 12.5% to Nil for manufacture of soaps subject
to actual user condition.
Energy Sector
non-agglomerated coal of various types
The duty structure is being rationalized at 2.5% BCD
and 2% CVD
BCD on metallurgical coke
BCD on re-gasified LNG
Increased from NIL to 2.5%
Exemption granted for supply to Pakistan
Liquefied Propane and Butane mixture, fully exempted retrospectively w.e.f. 08.02.2013 for
Liquefied Propane, Liquefied Butane and supply to Non-Domestic Exempted Category (NDEC)
Liquefied Petroleum Gases (LPG) imported by customers
the Indian Oil Corporation Limited, Hindustan
Petroleum Corporation Limited or Bharat
Petroleum Corporation Limited
Textiles
BCD on raw materials for manufacture of Reduced from 5% to NIL
spandex yarn viz. Polytetramethylene ether
glycol (PT MEG) and Diphenylmethane 4,4 diisocyanate (MDI)
Fusible embroidery motifs or prints, anti-theft included in the list of items eligible to be imported
devices, pin bullets for packing, plastic tag duty free for manufacture of handloom made ups or
bullets, metal tabs, bows, ring and slider hand cotton made ups or manmade made ups for export
rings
wire rolls included in The list of specified goods To be eligible for Customs Duty exemption on import
required by handicraft manufacturer-exporters by handicraft manufacturer-exporters
Non-fusible embroidery motifs or prints
included in the list of items eligible to be imported
duty free for manufacture of garments for export.
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Union Budget 2014
import of trimmings & embellishments used by duty free entitlement increased from 3% to 5%
the readymade textile garment sector for
manufacture of garments for export
Specified goods imported for use in the Fully exempt from BCD and CVD provided that the
manufacture of textile garments for export
manufacturer produces an entitlement certificate
from the Apparel Export Promotion Council.
Indian Silk Export Promotion Council (ISEPC) is
being authorised to issue entitlement certificate.
Metals
BCD on stainless steel flat products (CTH 7219 Increased from 5% to 7.5%
and 7220)
BCD on ships imported for breaking up
Reduced from 5% to 2.5%
Export duty on bauxite
Increased from 10% to 20%
BCD on coal tar pitch and on battery waste and Reduced from 10% to 5%
battery scrap
BCD on steel grade limestone and steel grade 5% to 2.5%
dolomite
Precious Metals
BCD on half-cut or broken diamonds
Increased from NIL to 2.5%
BCD on cut & polished diamonds and colored Increased from 2% to 2.5%
gemstones
pre-forms of precious and semi-precious stones Full exemption from BCD
Electronics/Hardware
BCD on LCD and LED TV panels of below 19 Reduced from 10% to NIL
inches
specified parts of LCD and LED panels for TVs
Exempted from BCD
BCD on colour picture tubes for manufacture of Reduced from 10% to NIL
cathode ray TVs
BCD on specified telecommunication products Increased from NIL to 10%
not covered under the ITA (Information
Technology Agreement)
SAD on all inputs/components used in the Exempted subject to actual user condition
manufacture of Personal Computers (laptops/
desktops) and tablet computers
imported electronic products
Subject to Education cess and Secondary and Higher
Education (SHE) cess
SAD on specified inputs (PVC sheet & Ribbon) Fully exempt
used in the manufacture of smart cards.
BCD on E-Book readers
Reduced from 7.5% to NIL
CVD on portable X-ray machine / system
Exemption withdrawn
Renewable Energy
BCD ON forged steel rings used in the reduced from 10% to 5%
manufacture of bearings of wind operated
electricity generators
SAD on parts and components required for the Full exemption
manufacture of wind operated electricity
generators.
BCD on machinery, equipments, etc. required Reduced to 5%
for setting up of solar energy production
projects
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Union Budget 2014
BCD on specified raw materials used in the Full exemption
manufacture of solar backsheet and EVA sheet
BCD on flat copper wire used in the Full exemption
manufacture of PV ribbons (tinned copper
interconnect) for solar PV cells/modules
machinery, equipments, etc. required for setting Concessional customs duty of 5%
up of compressed biogas plant (Bio-CNG).
Health
HIV/AIDS drugs and diagnostic kits imported Full exemption from customs duty
under National AIDS Control Programme
(NACP) funded by the Global Fund to Fight AIDS,
TB and Malaria (GFATM).
Security and Strategic Purposes
BCD on goods imported by National Technical
Research Organisation (NTRO).
Customs duty on security fibre, security threads
and M-feature imported by Bank Note Paper
Mill India Private Limited (BNPMIPL), Mysore
BCD and CVD on raw materials required for
manufacture of security threads and security
fibre subject to actual user condition.
The scope of exemption notification No.39/96Customs dated 23.07.1996 [S.No.7] granting full
exemption from BCD and CVD on goods
imported for use in the manufacture of aircrafts
for the Ministry of Defence
Full exemption
Full exemption
Full exemption
clarified to the effect that the exemption is available
to all materials in any form and articles thereof,
subject to the overall condition that they conform to
aeronautical specification accompanied with
certificate
of
conformance/release
note/airworthiness certificate for development.
Miscellaneous
BCD on Polystyrene (other than moulding Increased from 1.15% to 7.5%
powder)
BCD on electrolysers and their parts/spares Reduced from 5% to 2.5%
required by caustic soda or caustic potash units
and membranes and their parts/spares required
by industrial plants based on membrane cell
technology
The BCD on other spares (other than Reduced from 7.5% to 2.5%
membranes and parts thereof)
The following goods have become cheaper:
LCD and LED TVs below 19”
Conventional TVs used by lower
income groups
HIV drugs
Solar Power units
Smart cards
Diamonds and semi-precious stones
Soaps
Steel
Footwear
Computers and mobile phones
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Baggage Rules are being amended to,raise the free baggage allowance from
Rs.35,000 to Rs.45,000.
reduce the duty free allowance of cigarettes
from 200 to 100, of cigars from 50 to 25 and of
tobacco from 250 gms to 125
gms.
Union Budget 2014
EXCISE
Section
2(b)
15A
15B
31(g) and
32(1)
32E(1)
32O(1)
35B(1)
35B(1B)
35E
35F
35L
35R
Amendments to the Central Excise Act
Amendments
amended so as to provide for inclusion of Principal Chief Commissioner of Central Excise and
Principal Commissioner of Central Excise in the definition of the Central Excise Officer.
inserted so as to empower the Central Government to prescribe an authority or agency to
which the information return shall be filed by the specified persons such as Income Tax
Authorities, State Electricity Boards, VAT or Sales Tax Authorities, Registrar of Companies.
Information can be collected for the purposes of the Act, such as, to identify tax evaders or
recover confirmed dues.
Proposed to be inserted for imposition of penalty if the information return is not submitted.
amended to change the name of the ‘Customs and Central Excise Settlement Commission’ to
the ‘Customs, Central Excise and Service Tax Settlement Commission’ as the scope of the
functioning of the Customs and Central Excise Settlement Commission was expanded in the
year 2012 so as to include settlement of Service Tax matters as well
amended to allow filing of applications of settlement before the Settlement Commission in
cases where the applicant has not filed the returns after recording reasons for the same
amended so as to insert an Explanation that the concealment of particulars of duty liability
relates to any such concealment made from the officer of central excise and not from the
Settlement Commission
amended so as to increase the discretionary powers of the Tribunal to refuse admission of
appeal from the existing Rs.50,000 to Rs.2 lakh
amended to substitute the words “by notification in the official gazette” with “by order” so as
to enable the Board to constitute a Review Committee by way of an order instead of by way of
a notification
amended to insert a proviso in sub-section (3) to vest the Board with powers to condone delay
for a period upto 30 days for review by the Committee of Chief Commissioners of the orders in
original passed by the
Commissioner of Central Excise
substituted with a new section to prescribe a mandatory fixed pre-deposit of 7.5% of the duty
demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or
the Tribunal at the first stage and 10% of the duty demanded or penalty imposed or both for
filing second stage appeal before the Tribunal. The amount of pre-deposit payable would be
subject to a ceiling of Rs. 10 crores
amended so as to clarify that determination of disputes relating to taxability or excisability of
goods is covered under the term ‘determination of any question having a relation to rate of
duty’ and hence, appeal against
Tribunal orders in such matters would lie before the Supreme Court
amended so as to enable the Commissioner (Appeal) to take into consideration the fact that a
particular order being cited as a precedent decision on the issue has not been appealed against
for reasons of low amount.
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Union Budget 2014
Particulars
Excise duty on cigarettes of length not exceeding 65mm
Excise duty on cigarettes of other lengths
Basic excise duty on pan masala
Basic excise duty on unmanufactured tobacco
Basic excise duty on jarda scented tobacco, gutkha and
chewing tobacco
Excise duty on Un-branded articles of precious metals
Excise duty on Polyester Staple Fiber (PSF) and Polyester
Filament Yarn (PFY) manufactured from plastic waste or
scrap or plastic waste including waste polyethylene
terephthalate (PET) bottles
Intermediate product ‘Tow’ arising during the course of
manufacture of such PSF/PFY
Excise Duty on Liquefied Propane and Butane mixture,
Liquefied Propane, Liquefied Butane and Liquefied
Petroleum Gases (LPG) for supply to Non-Domestic
Exempted Category (NDEC) customers by the Indian Oil
Corporation Limited, Hindustan Petroleum Corporation
Limited or Bharat Petroleum Corporation Limited
Changes made in the budget
Increased by 72%
Increased by 11% to 21%
Increased from 12% to 16%
Increased from 50% to 55%
Increased from 60% to 70%
exempted for the period 01.03.2011 to
16.03.2012
exempted retrospectively w.e.f. 29.06.2010 to
07.05.2012
exempted retrospectively w.e.f. 29.06.2010 to
10.07.2014
Full
exemption
retrospectively
from
08.02.2013
CHANGE IN RATES OF DUTY
Particulars
Changes made in the Budget
Agriculture/Agro Processing/Plantation Sector
Excise Duty on machinery for the preparation of meat, poultry, Reduced from 10% to 6%
fruits, nuts or vegetables, and on presses, crushers and similar
machinery used in the manufacture of wine, cider, fruit juices or
similar beverages and on packaging machinery
Automobiles
Excise Duty on parts of tractors removed from one or more Exempted
factories of a tractor manufacturer to another factory of the same
manufacturer for manufacture of tractors
Precious Metals
Un-branded articles of precious metals
exempted from excise duty for
the period 01.03.2011 to
16.03.2012.
Textiles
Excise Duty on Polyester Staple Fiber and Polyester Filament At the rate of 2%(without
Yarn manufactured from plastic waste or scrap or plastic waste CENVAT) or 6%(with
including waste polyethylene terephthalate (PET) bottles
CENVAT) w.e.f 11 July 2014
Health
DDT manufactured by Hindustan Insecticides Limited for supply Fully exempt from excise duty
to the National Vector Borne Diseases Control Programme
(NVBDCP) of the Ministry of Health & Family Welfare
HIV/AIDS drugs and diagnostic kits supplied under National AIDS Fully exempt from excise duty
Control Programme (NACP) funded by the Global Fund to Fight
AIDS, TB and Malaria (GFATM).
Electronics/Hardware
recorded smart cards
Excise duty increased at the
rate of 2%(without CENVAT)
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Union Budget 2014
or 6%(with CENVAT) to a
uniform rate of 12%
Excise duty on reverse osmosis (RO) membrane element used in Full exemption
water filtration or purification equipment (other than household
type filter).
Excise duty on RO membrane element used in household type
reduced from 12%/10% to
filters
6%.
Excise duty on Metal Core PCB and LED driver for use in the
manufacture of LED lights and fixtures and LED lamps
Renewable Energy
Excise Duty on forged steel rings used in the manufacture of
bearings of wind operated electricity generators.
solar tempered glass used in the manufacture of solar
photovoltaic
cells/modules,
solar
power
generating
equipment/system, and flat plate solar collectors
machinery, equipments, etc. required for setting up of solar
energy production projects.
backsheet and EVA sheet used in the manufacture of photovoltaic
cells/modules and specified raw materials used in their
manufacture
parts consumed within the factory of production for the
manufacture of non-conventional energy devices
flat copper wire used in the manufacture of PV ribbons (tinned
copper interconnect) for use in the manufacture of solar
cells/modules
machinery, equipments, etc. required for setting up of
compressed biogas plant (Bio-CNG).
Consumer Goods
Excise duty on footwear of retail price exceeding Rs.500 per pair
but not exceeding Rs.1,000 per pair.
excise duty on sewing machines other than those operated with
electric motors (whether in-built or attachable to the body)
gloves specially designed for use in sports.
aerated waters containing added sugar.
reduced from 12%/10% to
6%.
reduced from 12% to Nil
Full Exemption
Full Exemption
Full Exemption
Full Exemption
Full Exemption
Full Exemption
Reduced from 12% to 6%
concessional excise duty
Concessional excise duty of 2%
without CENVAT credit and
6% with CENVAT credit
additional duty of excise is
being levied at the rate of 5%
ad valorem
Energy Sector
Excise duty on Branded Petrol
reduced from Rs.7.50 per litre
to Rs. 2.35 per litre.
Liquefied Propane and Butane mixture, Liquefied Propane, Full exemption
Liquefied Butane and Liquefied Petroleum Gases (LPG) for supply
to Non-Domestic Exempted Category (NDEC) customers by the
Indian Oil Corporation Limited, Hindustan Petroleum
Corporation Limited or Bharat Petroleum Corporation Limited
retrospectively from 08.02.2013.
rate of Clean Energy Cess levied on coal, lignite and peat
increased from Rs.50 per
tonne to Rs. 100 per tonne.
Security and Strategic Purposes
to goods supplied to National Technical Research Organisation Full exemption
(NTRO).
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Union Budget 2014
security threads and security fibre supplied to Security Paper Mill Full exemption
Corporation of India Limited (SPMCIL) and Bank Note Paper Mill
India Private Limited (BNPMIPL).
Miscellaneous
writing and printing paper for printing of educational textbooks
Optional excise duty of 2%
(without CENVAT)/6% (with
CENVAT)
on
is
being
withdrawn and a uniform rate
excise duty of 6% with
CENVAT is levied
Intermediate goods manufactured and consumed captively for Full exemption
further manufacture of matches
plastic materials reprocessed out of the scrap or waste and Full exemption
cleared into the DTA by an EOU.
goods cleared by an EOU into the DTA.
Exempted from Education cess
and secondary & higher
education
cess
(customs
component)
The following things have become
dearer after the budget:
The followings have become
cheaper post-budget:-
Cigarettes
Branded clothes
Pan masala
Footwear
Aerated drinks
domestic households
Packaged food
Tobacco products
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Union Budget 2014
SERVICE TAX
Amendments to the Negative List
Service
Amendment
sale of space or time for has been extended to cover such sales on other segments like online and
advertisements in broadcast mobile advertising
media, namely radio or
television
Sale of space for advertisements in print media, however, would remain
excluded from service tax
Radio taxi service
services provided by radio taxis or radio cabs, whether or not airconditioned shall be subject to service tax and the abatement available to
rent-a-cab service is proposed to b made available to radio taxis.
General exemption vide (notification 6/2014) dated July 11, 2014
Omission of entry 7
Exemption extended to clinical research on human participants is being
withdrawn.
Entry 23(b)
Exemption extended to air-conditioned contract carriages like buses is
being withdrawn
Entry 25
Exemption in respect of services provided to Government or local authority
or governmental authority, will be limited to services by way of water
supply, public health, sanitation conservancy, solid waste management or
slum improvement and upgradation
Entry 9
Auxiliary education services omitted and in respect of services received by
an eligible educational institution: (i) transportation of students, faculty and
staff; (ii) catering service including any mid-day meals scheme sponsored
by the Government; (iii)
security or cleaning or house-keeping
services in such educational institutions; and (iv) services relating to
admission to such institution or conduct of examination, are being
exempted from service tax
exemption extended so far in respect of renting of immovable property
service received by educational institutions, stands withdrawn.
Entry 18
Exemption available to accommodation services provided by hotels,
dharamshalas or ashrams when they provide rooms for less than Rupees
One Thousand per day, is being re-worded to bring out the intent clearly
New Exemptions
Entry 26A
Life micro-insurance schemes for the poor, approved by IRDA, where sum
assured does not exceed Rupees Fifty Thousand to be exempted
Entry 20 (j) and 21(e)
Transport of organic manure by vessel, rail or road (by GTA) is being
exempted
Entry 20(k) and 21(i)
Loading, unloading, packing, storage or warehousing, transport by vessel,
rail or road (GTA), of cotton, ginned or baled, is being exempted
Entry 2B
Services provided by common bio-medical waste treatment facility
operators to clinical establishments are being exempted
Entry 41
Specialized financial services received by RBI from global financial
institutions in the course of management of foreign exchange reserves, e.g.,
external asset management, custodial services, securities lending services,
etc. are being exempted.
Entry 42
Services provided by Indian tour operators to foreign tourists in relation to
a tour wholly conducted outside India are being exempted.
Other Amendments effective from the date to be notified later
Section 67A
Rules for determination of rate of exchange
Section 73
prescribe time limit for completion of adjudications
Section 78 and Section 80
Waiver of penalty not to be made available
Section 82(1)
To be amended in lines of section 12F (1) of the Central Excise Act, so that
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Union Budget 2014
Section 83
Section 83
Section 86(6A)
Section 87
Section 94
Joint Commissioner or Additional Commissioner or any other officer
notified by the Board can authorize any Central Excise Officer to search and
seize
Amendment to make reference to sections 5A (2A), 15A and 15B of the
Central Excise Act for information returns.
Amended provisions of Section 35F of the Central Excise Act shall apply
mutatis mutandis
For the omission of word ”for grant of stay or”
power to recover dues of a predecessor from the assets of a successor
purchased from the predecessor, is to be provided, as it is available in
section 11 of the Central Excise Act.
to obtain rule making power (a) to impose upon assessees, inter alia, the
duty of furnishing information, keeping records and making returns and
specify the manner in which they shall be verified;
(b) for withdrawal of facilities or imposition of restrictions (including
restrictions on utilization of CENVAT credit) on a service provider or
exporter, to check evasion of duty or misuse of CENVAT credit; and (c) to
issue instructions in supplemental or incidental matters
SEZ Provisions (Notification No. 7/2014 dated 11th July, 2014)
To be provided that the Central Excise Officer would issue Form A-2, within fifteen days from the
date of receipt of Form A-1.
Exemption would be available from the date when list of service on which SEZ is entitled to upfront
exemption is endorsed by the authorised officer of SEZ in Form A-1, provided Form A-1 is furnished
to the jurisdictional Central Excise Officer within fifteen days of its verification. If furnished later,
exemption would be available from the date on which Form A-1 is so furnished.
Pending issuance of Form A-2, exemption will be available subject to condition that authorization
issued by the Central Excise officer will be furnished to service provider within a period of three
months from provision of service.
As regards services covered under reverse charge, the requirement of furnishing service tax
registration number of service provider shall be dispensed with.
A service shall be treated as exclusively used for SEZ operations if the recipient of service is a
SEZ unit or developer, invoice is in the name of such unit/developer and the service is used
exclusively for furtherance of authorized operations in the SEZ.
44 | P a g e
Union Budget 2014
Amendments with immediate effect
Section 75
Extent
of Simple interest
Notification no 12/2014 dated July 11, 2014
delay
rate per annum
Up to six
months
18%
From
six
months and
upto
one
year
24%
More than
one year
30%
Simple interest rates per annum payable
under section 75, to vary on the basis of
extent of delay in payment of service tax. This
will come into force on 1st October 2014.
Reverse Charge mechanism (Notification No. 10/2014)
Service provided by a Director to a body corporate
service receiver, who is a body corporate, will
be the person liable to pay service tax.
Services provided by Recovery Agents to Banks, Financial service receiver will be the person liable to
Institutions and NBFC
pay service tax
in respect of services provided or agreed to be Tax payable is 50% each by the service
provided by way of renting of a motor vehicle designed to provider and service receiver instead of 60%
carry passengers on non abated value to any person who and 40% respectively. To be effective from
is not engaged in the similar line of business
October 1, 2014
Cenvat Credit (Notification No. 08/2014 dated 11th July, 2014)
Service tax paid under full reverse charge
the condition to pay invoice value to the
service provider for availing credit of tax paid,
to be omitted
Re-credit of Cenvat credit reversed on account of non- to be allowed, if such export proceeds are
receipt of export proceeds within the specified period
received within one year from the specified
period on the basis of documentary evidence
of receipt of payment
Rent-a-cab operator and tour operator
service tax paid by sub-contractor in the same
line of business would be allowed as eligible
credit to the main service provider to avoid
double taxation, subject to certain conditions
[with effect from 1st October 2014]
GTA service
service receiver may avail abatement, without
having to obtain non-availment of Cenvat
Credit certificate from service provider
[change to have immediate effect
Time limit for taking credit on input and input services
credit shall be taken within six months from
the date of the invoice or challans or other
documents specified [change to have effect
from 1st September, 2014]
Place of Provision of Services Rules (Notification No. 14/2014 dated 11th July, 2014) to be effective
from 1st October, 2014
Repair service carried out on temporarily imported goods determination of place of provision rule
rule 4(a) Proviso II
omitted
Intermediary of goods Rule 2(f)
given the same treatment as is given to
intermediary of services
Vessels (excluding yachts) and aircraft
excluded from Rule 9(d) hiring of vessels or
45 | P a g e
Rule 9(d)
aircrafts, irrespective of whether short term
Union Budget 2014
or long term, will be covered by the general
rule, which is place of location of the service
receiver
Point of Taxation Rules (Notification No. 13/2014 dated 11th July , 2014) to be effective from 1st
October, 2014
Reverse charge services
point of taxation will be the payment date or
first day after three months from the date of
invoice, whichever is earlier
Works contract Determination of Value Rules (Notification No. 11/2014 dated 11th July, 2014) to be
effective from 1st October, 2014
Rule 2A clause ii
(B) and (C) are merged and the service tax is
payable on 70% of the total amount charged
for works contract
•
•
•
•
•
Inter-departmental responsibility fixed and penal
provisions are provided for inaction with respect to
sharing of information
Radio taxis are considered on par with rent-a cab
Advertisements in print media alone exempt
Availment of CENVAT Credit restricted to six months and
therefore pending and decided cases pertaining to the
same may be affected.
Stringent provisions for delay in payment of service
prescribing interest rates upto 30%
46 | P a g e

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Ignoring judicial discipline and recording

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279/2014 - the Official Website of Central Excise Mumbai

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Per Vijay Pal Rao, JM

IN THE INCOME TAX APPELLATE TRIBUNAL