BUDGET HIGHLIGHTS-TAXATION 2014-15

BUDGET HIGHLIGHTS-TAXATION 2014-15

Hello friends finally the most awaited budget by Modi’s government is out. The chant of “acche din aa gye” sounds clearer now. I must appreciate the efforts of NDA government. This is the best budget in last 4 years. Lets begin with Key highlights of Budget from the point of view of taxation. Around 71 amendments in Income Tax & various in Indirect taxes also. Due to this incentives government will lose Rs.22000 Crores from Direct taxes. I have thoroughly covered direct taxes below & key points of indirect taxes. This is my first budget analysis so readers are requested to correct me in case I interpret law wrongly. All the comments are most welcome on article.

DIRECT TAXES PROPOSALS

1). Change in Slab: Personal Income-tax exemption limit raised by Rs. 50,000/- that is, from Rs. 2 lakh to Rs.2.5 lakh in the case of individual taxpayers, below the age of 60 years. Exemption limit raised from Rs. 2.5 lakh to Rs. 3 lakh in the case of senior citizens.
(Finally after getting relief of Rs.20000 from last 3 budgets, this year FM relaxes slab by Rs.50000)

2) Amendment of Section 80C: Investment limit under section 80C of the Income-tax Act raised from Rs. 1 lakh to Rs. 1.5lakh.
(It is already predicted at my end, it will increase investments.)

3)  Amendment of Section-2:
 (i) Section 2(13A) “Business Trust”. It is not used commonly so i have ignored to describe here.
(ii) Section 2(14) “Capital Assets” amended to includes “any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992” other than a Stock in Trade.
(iii) Numerous definition added Section 2(15A) “Chief Commissioner”, 2(16) “Commissioner”, & so on. Not relevant to discuss here.
(iv)  Proviso to Section 2(42A) “ Short Term Capital Assets” a major amendment comes in it that. Previously for the condition of 12 months holding period it includes
Old: “a share held in a company or any other security listed in a recognized stock exchange in India or a unit of a Mutual Fund specified under clause(23D) of section 10 ”
New: “a security (other than a unit) listed in a recognised stock exchange in India or a unit of an equity oriented fund”
Effect: That means from now onwards only equity oriented mutual funds will count for 12 months holding period to get classify in short term capital assets. In case of remaining mutual funds it will be treated as short term capital assets if it is holding for less than 36 months. Most of the peoples who were taking indexation benefits by selling debt funds after 12 months will not do this practice any more.

4) Amendment of section-10 (Exempt Income)
Section 10(23FC) introduced to exempt income of a business trust by way of interest received or receivable from a special purpose vehicle
Section 10(23FD) introduced to exempt any distributed income, referred to in section 115UA, received by a unit holder from the business trust
Section 10(38) Long term gain from sale of units of Business trust is exempt.

5) Amendment of Section 24(b): Deduction limit on account of interest on loan in respect of self occupied house property raised from Rs..1.5 lakh to Rs.2 lakh.
(Very good efforts made to increase this slab, however one loophole still there by using which one may claim unlimited interest as a deduction in case of other than self occupied property.)

6) Conducive tax regime to Infrastructure Investment Trusts and Real Estate Investment Trusts to be set up in accordance with regulations of the Securities and Exchange Board of India.

7) Amendment of Section 32AC: By Clause (1A) Investment allowance to be given at the rate of 15 % to a manufacturing company that invests more than Rs. 25 crore in any year in new plant and machinery. The benefit to be available for three years i.e. for investments upto 31.03.2017. But this benefit is not available on existing assets on which allowance is already claiming under clause(1).
( Thank god FM reduces limits to 25 crores from 100 crores & increase period too from 2 years to 3 years. It is a corrective action made to provide benefit to SME’s. Last year Chidambaram brought section 32AC but with 100 crores limit it was totally unreachable for a medium class entrepreneurs. Hopefully now corporates will take advantage of it)

8)  Amendment of Section 35AD: Following amendments made in the draconian 35AD
(i) Investment linked deduction extended to two new sectors, namely, slurry pipelines for the transportation of iron ore, and semi-conductor wafer fabrication manufacturing

units.

9) Amendment of Section 37: A very cruel amendment brought in this section by DISALLOWING the expenses incurred by assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013.
(This clause applies to company only as companies act referred. But on a serious end it is still questionable that what government wants. By introducing companies act 2013 they mandates the condition to do specified percentage of expenses on CSR activities & on other end disallowing all those expenditure. It was never expected from Modi’s Govt.)

10) Amendment of Section 40(a)(i): This amendment was expected from many years but finally FM does it. FM replaces reference of Section 200 with section 139 & provided huge relief.
Old: If TDS is not deducted or deducted but not deposited on NRI interest income & other income before 30^th April of assessment year (as per Section 200) than this expense gets disallowed to assessee.
New: Now this 30^th april is aligned with all other sub clauses by replacing reference with Sec-139. Now If assessee deposit TDS before due date of filing of return u/s 139 than also this expense will allow to assessee.
(Aligned with 40(a)(ia))

10) Amendment of Section 40(a)(ia): Another one of the relaxing amendment for assesses who were lazy in deducting TDS.
Old: Whole expense disallowed if you have not deducted TDS on interest, commission or brokerage, rent, royalty, fees for technical service.
New: From now onwards only 30% of expense will be disallowed. But one more thing to be noted here, now all expenses are covered to disallow on which TDS is deductible under chapter XVIIB . Interest, commission, etc words are deleted now.

11) Amendment of Section 44AE: Finally tax is increased on assesses carrying business of plying, hiring or leasing goods carriages. Income limits are increased now from Rs.5000 to Rs.7500 in case of heavy vehicles.

12) Amendment of Section 45(5):
Old: Enhanced  Compensation on compulsory acquisition by order of court/tribunal was taxable in the year which such amount is received by assessee.
New: Now it is provided that if any compensation received due to interim order  of court/tribunal than it would be taxable in the year in which final order would pass.

13) Amendment of Section 47: Following items will not be treated as TRANSFER for the purpose of capital gains hence no capital gain tax will be levied on that:
(i) 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
(ii) any transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor.

14) Amendment of Section 51 (Advance money received):
Old: Advance money received & forfeited was reduced from cost of assets for calculation of capital gains.
New: Now It would not reduced from cost if in the year it is received shown taxable income under section 56.

15) Amendment of Section 54 & 54F (Profit on sale of property used for residence):
Old: constructed, a residential house
New: constructed, one residential house in India
(That means now scope of 54 is narrowed by inserting India word to section)

16) Insertion of  Proviso to Section 54EC (Capital gain not to be charged on investment to certain bonds) : Given proviso is inserted
“Provided further that the investment made by an assessee in the long-term specified asset, from

capital gains arising from transfer of one or more original assets, 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.”
(Again scope is narrowed)

17) Amendment of Section 56: Now another income brings into premises to tax under section 56 i.e.
any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if

 (a) such sum is forfeited; and

 (b) the negotiations do not result in transfer of such capital asset.

18) Amendment of Section 80(IA): 10 year tax holiday extended to the undertakings which begin generation, distribution and transmission of power by 31.03.2017.

19) Numerous amendments made in Section 92B, 92CC, 111A not relevant to discuss here.
(i) Introduction of a “Roll Back” provision in the Advanced Pricing Agreement (APA) scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in previous four years in specified circumstances.
(ii)Introduction of range concept for determination of arm’s length price in transfer pricing regulations. (iii) To allow use of multiple year data for comparability analysis under transfer pricing regulations.

20) Income arising to foreign portfolio investors from transaction in securities to be treated

as capital gains.

21) Section 115BBD: Concessional rate of 15 percent on foreign dividends without any sunset date to be

continued.

22) Numerous amendments in Section 115JC, 115JEE, 115O, 115R, 115TA made not relevant to discuss here. Income and dividend distribution tax to be levied on gross amount instead of amount

paid net of taxes.

23) Insertion of New Chapter XII-FA “SPECIAL PROVISIONS RELATING TO BUSINESS TRUSTS”.

24) Amendment in Section 133A: Power of survey by IT authorities are broaden this year. Now they can do survey for the purpose of verifying that tax has been deducted or collected at source in accordance with the provisions under sub-heading B of Chapter XVII or under sub-heading BB of Chapter XVII. Another secondary amendment made is that now they can impound books for 15 days instead of 10 days without approval.

25) Insertion of Section 133C: Although they have powers under 142 & 133B still they have now inserted 133C to take power to issue notice to person for the purposes of verification of information in its possession relating to any person, issue a notice to such person requiring him, on or before a

date to be specified therein, to furnish information or documents for the purpose of acts.

26) Misc. amendments in 139(4C) & 140 not relevant.

‰ The eligible date of borrowing in foreign currency extended from 30.06.2015 to

30.06.2017 for a concessional tax rate of 5 percent on interest payments. Tax incentive

extended to all types of bonds instead of only infrastructure bonds.

27) Substitution of new section for section 142A
For section 142A of the Income-tax Act, the following section shall be substituted with effect

from the 1st day of October, 2014, namely:––

‘142A. (1) The Assessing Officer may, for the purposes of assessment or reassessment, make a

reference to a Valuation Officer to estimate the value, including fair market value, of any asset,

property or investment and submit a copy of report to him.

(2) The Assessing Officer may make a reference to the Valuation Officer under sub-section (1)

whether or not he is satisfied about the correctness or completeness of the accounts of the assessee.

(3) The Valuation Officer, on a reference made under sub-section (1), shall, for the purpose of

estimating the value of the asset, property or investment, have all the powers that he has under

section 38A of the Wealth-tax Act, 1957.

(4) The Valuation Officer shall, estimate the value of the asset, property or investment after

taking into account such evidence as the assessee may produce and any other evidence in his

possession gathered, after giving an opportunity of being heard to the assessee.

(5) The Valuation Officer may estimate the value of the asset, property or investment to the best

of his judgment, if the assessee does not co-operate or comply with his directions.

(6) The Valuation Officer shall send a copy of the report of the estimate made under sub-section

(4) or sub-section (5), as the case may be, to the Assessing Officer and the assessee, within a

period of six months from the end of the month in which a reference is made under sub-section (1).

(7) The Assessing Officer may, on receipt of the report from the Valuation Officer, and after giving

the assessee an opportunity of being heard, take into account such report in making the assessment

or reassessment.

28) Amendment in section 112: To remove tax arbitrage, rate of tax on long term capital gains increased from 10 percent to 20 percent on transfer of units of Mutual Funds, other than equity oriented

funds.

29) Insertion of Section 194DA: TDS on Payment in respect of life insurance policy other than sum exempt under Section 10(10D) @ 2% exceeding Rs.1000.

30) Insertion of Section 194LBA: Certain income from units of a business trust @ 10%.

31) Some amendments also made in Section 285BA annual information return not relevant to discuss here.

INDIRECT TAXES PROPOSALS
Service Tax

1). To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media, extended to cover such sales on other segments like online and mobile advertising. Sale of space for advertisements in print media however would remain excluded from service tax. Service provided by radio-taxis brought under service tax.

2).  Services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants brought under service tax.

3) Provision of services rules to be amended and tax incidence to be reduced on transport of goods through coastal vessels to promote Indian Shipping industry.

4)  Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India to be taken out of the tax net and Cenvat credit for services of rent-a-cab and tour operators to be allowed to promote tourism.

5) Service tax exempted on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled.

6) Services provided by the Employees’ State Insurance Corporation for the period prior to 1st July 2012 exempted, from service tax.

7) Exemption available for specified micro insurance schemes expanded to cover all life micro-insurance schemes where the sum assured does not exceed Rs..50, 000 per life insured.

Customs

1) 24X7 customs clearance facility extended to 13 more airports in respect of all export goods and to 14 more sea ports in respect of specified import and export goods to facilitate cargo clearance.

2) ‘Indian Customs Single Window Project’ to facilitate trade, to be implemented.

3) The scheme of Advance Ruling in indirect taxes to be expanded to cover resident private limited companies. The scope of Settlement Commission to be enlarged to facilitate quick dispute resolution.

4) Customs and Central Excise Acts to be amended to expedite the process of disposal of appeals

5) For Safe disposal of medical & clinical wastes, services provided by common biomedical waste treatment facilities exempted.

Excise

1) To boost domestic manufacture and to address the issue of inverted duties, basic customs duty (BCD) reduced on certain items.

2) To encourage new investment and capacity addition in the chemicals and petrochemicals sector, basic customs duty reduced on certain items.

3) Steps taken to boost domestic production of electronic items and reduce our dependence on imports. These include imposition of basic customs duty on certain items falling outside the purview of IT Agreement, exemption from SAD on inputs/components for PC manufacturing, imposition of education cess on imported electronic products for parity etc.

4) Colour picture tubes exempted from basic customs duty to make cathode ray TVs cheaper and more affordable to weaker sections.

5) To develop renewable energy, various items exempted from excise duty.

6) Exemption to PSF and PFY manufactured from plastic waste and scrap including PET bottles from excise duty with effect from 29th June, 2010 to 7th May, 2012.

7) Prospective levy of a nominal duty of 2 percent without Cenvat benefit and 6 percent with Cenvat benefit on such PSF and PFY.

8) Concessional excise duty of 2 percent without Cenvat benefit and 6 percent with Cenvat benefit on sports gloves.

9) Specific rates of excise duty increased on cigrettes in the range of 11 per cent to 72 per cent.

10) Excise duty increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutkha and chewing tobacco.

11) Levy of an additional duty of excise at 5 percent on aerated waters containing added sugar.

12) To finance Clean Environment initiatives, Clean Energy Cess increased from Rs..50 per tonne to Rs..100 per tonne.