Budget Presented For: Klaus Vogel Group Presented By: Mr. Kuntal Dave Date: March 8, 2013

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1 Budget 2013 Presented For: Klaus Vogel Group Presented By: Mr. Kuntal Dave Date: March 8, 2013

2 Index Direct Tax Proposals Implications of amendments proposed in the Finance Bill,

3 Direct Tax Proposals Personal Tax Corporate Tax International Tax 3

4 Personal Tax The proposals in the Finance Bill shall become applicable from Assessment Year (i.e. the financial year to end on March 31, 2014), unless otherwise specifically stated. Tax Slab There is no revision in either the tax slab or rates of personal Income Tax. 4

5 Direct Tax Proposals.(Cont d) Surcharge The Finance Minister has proposed to levy a 10 percent (other than Companies) for one year on taxpayers whose taxable income exceeds Rs. 1 crore. It will be applicable only for A.Y Education Cess Education Cess to remain the 3 percent. Relief for Tax payers Introduced for the tax payers in the first bracket of Rs. 2 lakhs to Rs. 5 lakhs. Tax credit/ rebate of Rs. 2,000/- will be provided to every tax payer whose total income does not exceed Rs. 5 lakhs 5

6 Direct Tax Proposals.(Cont d) Deduction Chapter VI A Permissible premium rate increased from 10 percent to 15 percent of the sum assured by relaxing eligibility conditions of life insurance policies for persons suffering from disability and certain ailments. Accordingly, Section 10 (10D) & Section 80C(3A) are amended to give effect to the above. Contributions made to health schemes as may be notified by the central and state government, shall be eligible for deduction under Section 80D of the Income Tax Act,

7 Direct Tax Proposals.(Cont d) Benefits of Rajiv Gandhi Equity Scheme extended to investments in listed units of equity oriented funds. Further threshold of gross total income for eligibility increased from Rs. 10 lakhs to 12 lakhs. The benefit would now be available for three consecutive assessment years. 7

8 Direct Tax Proposals.(Cont d) Additional one-time interest deduction of Rs. 1 lakh will be available to first time home buyers if the loan amount does not exceed Rs. 25 lakhs and the value of the property does not exceed Rs. 40 lakhs. Deduction for donations made under National Children Fund is proposed to increase from 50 per cent to 100 per cent in computing the total income of an assessee. Mode of donation to electoral trust and political parties should be other than cash to qualify for deduction under section 80GGC. 8

9 Direct Tax Proposals.(Cont d) Immovable property received without adequate consideration Where an individual and HUF are in receipt of immovable property for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration, shall be chargeable to tax in their hands as income from other sources. Rationalization of tax on distributed income by the Mutual Funds It is proposed to increase the rate of tax on distributed income from 12.5% to 25% in all cases where distribution is made to an individual or a HUF. The rate of 30% continues to remain same for payments made to persons other than individual and HUF. 9

10 Direct Tax Proposals.(Cont d) Withholding Tax A new section 194-IA providing for withholding 1 per cent by the resident transferee while making payment as consideration for the transfer of immovable property (other than agricultural land) exceeding Rs. 50 lakhs to a resident transferor. This amendment will take effect from 1st June,

11 Direct Tax Proposals.(Cont d) Corporate Tax Tax Rates The tax rates for Domestic Companies continues to remain same as prevailing for A.Y percent Surcharge For Domestic Companies, Surcharge is increased from 5 per cent to 10 per cent if taxable income exceeds Rs. 10 crore. Further, surcharge is increased from 5 per cent to 10 per cent on Dividend Distribution Tax and distribution of income by way of buyback of shares by the unlisted company; income distributed by mutual funds and securitization trust. The additional surcharge introduced will be applicable only for one year i.e. A.Y

12 Direct Tax Proposals.(Cont d) Education Cess There is no change in the rate of Education cess. It continues to remain 3 per cent. Dividend received from Foreign Companies Section 115BBD proposed to be amended to extend the Concessional rate of tax of 15 percent on dividend received by an Indian company from its foreign subsidiary to continue for one more year i.e. upto Financial Year

13 Direct Tax Proposals.(Cont d) Dividends received from Foreign Subsidiaries Dividend received from Foreign Subsidiaries shall be excluded while computing Dividend Distribution Tax payable by Domestic Company. In order to bring parity in taxation of income from investment made by a non-resident Investor in an IDF whether set up as a IDF-NBFC or IDF-MF, section 115R is proposed to be amended to provide that 5% on income distributed shall be payable in respect of income distributed by a Mutual Fund under an IDF scheme to a nonresident Investor. This amendment will take effect from 1st June,

14 Direct Tax Proposals.(Cont d) Additional Income-tax on distributed income by company for buy-back of unlisted shares It is proposed to amend the Act, by insertion of new Chapter XII-DA, w.e.f. 1st June 2013 to provide that the consideration paid by the company for purchase of its own unlisted shares which is in excess of the sum received by the company at the time of issue of such shares (distributed income) will be charged to tax and the company would be liable to pay additional 20% of the distributed income paid to the shareholder. The income arising to the shareholders in respect of such buy back by the company would be exempt where the company is liable to pay the additional income-tax on the buy-back of shares. 14

15 Direct Tax Proposals.(Cont d) Securities Transaction Tax (STT) Section 98 of the Finance (No.2) Act, 2004 is proposed to be amended to reduce STT rates in Sr no. the taxable securities transactions as indicated hereunder:- Nature of taxable securities transaction Payable by Existing Rates (%) Proposed Rates (%) 1. Delivery based purchase of units of an equity oriented fund entered into in a recognized stock exchange Purchaser 0.1 Nil 2 Delivery based sale of units of an equity oriented fund entered into in a recognized Seller stock exchange 3. Sale of a futures in securities Seller Sale of a unit of an equity oriented fund to the mutual fund Seller

16 Direct Tax Proposals.(Cont d) The proposed amendments will be effective from 1st June, 2013 and will accordingly apply to any transaction made on or after that date. Commodities Transaction Tax (CTT) Proposed to be levied on taxable commodities transactions entered into in a recognised association at the rate of 0.01% on the value of taxable commodities transactions being sale of commodity derivative and the said tax would be payable by Seller. Amount paid as CTT shall be allowed as deduction under section 36 where income arising from such taxable commodities transactions is included in the income computed under the head Profits and gains of business or profession. 16

17 Direct Tax Proposals.(Cont d) Transfer of immovable property held as stock-in trade Where the consideration for the transfer of an asset (other than capital asset), being land or building or both, is less than the stamp duty value, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration for the purposes of computing income under the head Profits and gains of business or profession. 17

18 Direct Tax Proposals.(Cont d) International Tax Tax Rates Continue to remain same as prevailing for A.Y per cent. Surcharge In case of Foreign Companies, Surcharge is increased from 2 per cent to 5 per cent if taxable income exceeds Rs. 10 crore. Education Cess There is no change in the rate of Education cess. It continues to remain 3 per cent. 18

19 Direct Tax Proposals.(Cont d) GAAR The modified provisions of GAAR as recommended by Shome Committee Report to come into effect from Tax Residency Certificate (TRC) A Foreign Company shall be required to produce Tax Residency Certificate (TRC) in the prescribed format and in the prescribed manner to claim Tax Treaty benefits. It has been proposed to amend the law to provide that a Foreign Company securing TRC shall not be a sufficient condition for claiming any relief under the Tax Treaty. 19

20 Direct Tax Proposals.(Cont d) Royalty and Fees for Technical Services (RFTS) Tax rates on payment for Royalties and Fees for Technical Services to non residents proposed to be increased from 10 percent to 25 percent. However, the rate of tax under the Income Tax Act visa-vis the Tax Treaty, whichever is beneficial, would apply. Withholding Tax It is proposed to amend section 194LC of the Incometax Act so as to provide that where a non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilized for subscription to a long-term infrastructure bond issue of an Indian company, then, for the purpose of this section, the borrowing by the company shall be deemed to be in foreign currency thus giving them benefit of reduced rate of tax on the interest income arising on such subscription subject to other conditions provided in the section. 20

21 Implications of amendments proposed in the Finance Bill, 2013 (FB) Analysis of select proposals Additional income tax on distributed income for Buy Back of unlisted shares (Section 115QA, Chap XII DA) Taxation of income by way of Royalty or Fees for technical services Implications of newly inserted section 43CA Implications of newly inserted section 194-IA Implications of amendment in section 56(vii)(b) Implications of amendment in section 80EE Tax Residency Certificate for treaty benefits Investment allowance on plant & machinery for manufacturing sector new section 32AC 21

22 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Additional income tax on distributed income for Buy Back of unlisted shares (Section 115QA, Chap XII DA) Company buying back the shares liable to pay additional income tax Share issue price Secondary market transaction Issue price for conversion of shares Buyback only u/s 77A covered 22

23 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Additional income tax on distributed income for buy back of unlisted shares (Section 115QA, Chap XII DA). (contd.) Additional income tax vis-à-vis Section 14A implications No indexation Implications if shares held by the transferor as stock in trade Whether amendment to section 46A required? Availability of Underlying Tax Credit to the shareholder Suggestion: should be applied only to foreign companies 23

24 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Taxation of income by way of Royalty or Fees for technical services (RFTS) Proposal to increase the tax rate on RFTS to 25% Indian treaty practice (withholding tax rates - 5%, 10%, 15%,25%,30%) Impact not only for non tax treaty countries but also for treaty countries with treaty rate above 10% Additional burden of tax to be borne by Indian companies since most RFTS agreements are net of taxes or cost protected contracts Will result in increase in tax burden on R&D cess 24

25 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Implications of newly inserted section 43CA as a result of the transfer by the assessee Stamp Duty valuation regarded as full value of consideration for transfer of Land or Building held as stock in trade In case date of agreement and date of registration are different Relevant date would be date of agreement Whether bearer cheque will be considered in mode other than cash? Whether income deemed in this section can be deferred over the period of the project? 25

26 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Implications of newly inserted section 43CA.. (contd.) Builder selling to individual (section 50C not covered, new section 56 shall apply) Builder to company (new section 56 shall not apply) Builder booking the flat before construction V/s Builder selling the flat after construction Double taxation? Unexplained expenditure for purchaser and unaccounted income for seller 26

27 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Implication of newly inserted section 43CA.. (contd.) TDR / FSI Methods of accounting Completed Contract Method Percentage Completion Method Extension of such absurd rule For eg: FMCG companies (application of MRP) Some safeguards Adjudication Threshold limit / Safe Harbour 27

28 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Implications of newly inserted section 194-IA On purchase of immovable property - TDS to be deducted, if purchase consideration exceeds Rs. 50 lacs at the time of purchase Purchase consideration whether on value of stamp duty or value of agreement Applicability of this section to all persons subject to tax audit In case income of seller exempt from tax whether liability to deduct TDS? No section dealing with NIL withholding tax In case of cancellation of sale/purchase transaction - treatment of TDS deducted and deposited 28

29 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Implications of amendment in section 56(vii)(b) Taxability of income where transfer of immovable property for inadequate consideration and stamp duty valuation exceeds Rs. 50,000/- Whether taxability of such income will lead to double taxation? 29

30 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Implications of amendment in section 80EE Additional deduction of payment of interest on housing loan to the extent of Rs.100,000/- Deduction can be claimed either fully in AY and balance, if any, in AY Absurd provision Some suggestions: Deduction should be permanent Deduction u/s 24 Existing limit of Rs. 1.5 lacs introduced by Finance Act 2001 HUF should be included within the ambit of this section Restriction on cost of residential property and on amount of loan sanctioned should be removed 30

31 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Tax Residency Certificate (TRC) for treaty benefits Finance Act, 2012 had introduced section 90(4) which provided that a non-resident assessee can claim benefits under the tax treaty after obtaining TRC from the country in which it was a Resident. A format of TRC was prescribed later on vide notification dated Finance Bill 2013 proposed that a TRC shall be necessary but not a sufficient condition to claim treaty benefits by non-residents Such position shall be applicable retrospectively from AY

32 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Tax Residency Certificate (TRC) for treaty benefits..(contd.) In the past, Courts have accepted TRC to be sufficient in order to claim the treaty benefits. Whether the new proposal will overrule decisions in UOI vs. Azadi Bachao Andolan [ Taxman 373 (SC)] and E-Trade Mauritius [ Taxmann 232 (AAR)] The proposed amendment appears ambiguous 32

33 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Investment Allowance On Plant & Machinery For Manufacturing Sector In order to encourage the manufacturing sector, an investment allowance is proposed by way of insertion of new section 32AC A company engaged in manufacture of any article or thing is eligible for the investment allowance of 15% of the fresh investment in plant & machinery within to Cost of such plant & machinery should exceed Rs 100 crores during FY

34 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Investment Allowance On Plant & Machinery For Manufacturing Sector.. (Contd.) Such plant & machinery should be ready to use by financial year ending 31 March 2014 acquires or installs new asset. Earlier Section 32A: acquired, installed or put to use V/S Proposed law [refer 32 (iia)] Foreign Assets 34

35 Implications of amendments proposed in the Finance Bill, 2013 (FB).(Cont d) Investment Allowance On Plant & Machinery For Manufacturing Sector.. (Contd.) WIP Excludes factory buildings from its purview Use for own purpose V/s Given out on lease Only companies covered (other taxpayers like LLP firms excluded) Installing Plant & Machinery by FY seems to be non-pragmatic. 35

FB.COM/SUPERWHIZZ4U Income Tax Amendment for the Assessment

FB.COM/SUPERWHIZZ4U Income Tax Amendment for the Assessment Year 2014-15 - SIPOY SATISH Highlights of Change in Direct Taxes in the Union Budget 2013 1. Rate of Income Tax for Individual a) Slab Rate Assessment