BUDGET 2014 HIGHLIGHTS

Transcription

1 BUDGET 2014 HIGHLIGHTS

2 Table of Contents Direct Tax es Individual Taxation Corporate Taxation International Taxation Indirect Taxes Service Tax Excise Duty Customs Duty

3 Direct Tax Individual Taxation Income Tax Rates for the year ending March 31, 2015, effective upon the enactment by the parliament: Individuals (resident as well as non residents): Surcharge and education cess rates are the same as was in previous year. The investment limit for deduction under section 80C has been increased from Rs. 100,000 to Rs. 150,000. The deduction on account of interest paid on housing loan for self-occupied property has been increased from Rs. 150,000 to Rs. 200,000. Total income Rate Not exceeding Rs 250,000 Nil Over Rs 250,000 but not exceeding Rs 500,000 10% Over Rs 500,000 but not exceeding Rs 1,000,000 20% Over Rs 1,000,000 30% Earlier, in case, an individual or a HUF was not be liable to capital gain tax if he/it invested the gain arising from transfer of resident property or any other capital assets, in a residential house. Now it has been proposed that investment can be made only in one resident and that only in India. Corporate Taxation: There is no change in the corporate tax rates. Residents above the age of sixty years but less than eighty years: Total income Not exceeding Rs 300,000 Rate Over Rs 300,000 but not exceeding Rs 500,000 10% Over Rs 500,000 but not exceeding Rs 1,000,000 20% Over Rs 1,000,000 30% Residents above the age of eighty years: Total income Not exceeding Rs 500,000 Nil Rate Over Rs 500,000 but not exceeding Rs 1,000,000 20% Over Rs 1,000,000 30% Nil It has been clarified that expenditure incurred by the assessee for corporate social responsibility clause of the Companies Act, 2013 shall not be allowed as deduction from business income. Relief to FIIs: Any security held by FIIs in accordance with SEBI regulations shall be treated as capital assets and therefore, any gain arising from transfer of such securities shall be liable to capital gain tax. So the profit shall be categorised as capital gain or business income has now been resolved. Business Income Deduction in respect of Investment in new plant or machinery: In order to boost the manufacturing sector, it has been proposed to allowed additional deduction of 15% to a manufacturing company, on the amount of actual cost of new plant & machinery, if the investment in such new assets exceeds Rs. twenty five crores (Indian rupees 250 million). Earlier the limit was Rs one hundred crore (Indian rupees one billion). The deduction is available only in the year when the new assets have been acquired. Further, this deduction shall be available only up to Financial Year

4 Section 35AD allows deduction in respect of the whole of capital expenditure incurred wholly or exclusively, for the purpose of specified business. Now the business in the nature of laying and operating a slurry pipeline for the transportation of iron ore and setting up and operating a semi-conductor wafer fabrication manufacturing unit have also been proposed to be included in the category of specified business. Besides an additional condition regarding use of such capital assets for a minimum period of eight years has also been proposed. It has been proposed that the deduction under section 80IA shall be available to an undertaking, which (i) is setup for generation or generation and distribution of power, (ii) starts transmission or distribution lines, or (iii) undertakes substantial renovation and modernization of existing network of transmission or distribution lines, on or before 31st March Earlier the dead line was 31st March MAT: It has also been proposed that In case of MAT (as applicable to an assessee other than a company), the deduction allowed under Section 35AD (after reducing the amount of allowable depreciation) shall be added back in total income for the purpose of calculating MAT. The money (including the bonus) to be received under a life insurance policy, if not exempt from tax shall be liable to withholding of tax at the rate of 2%. However, no withholding shall be made if the money does not exceed Rs. one (1) lakh (Indian rupees hundred thousand) The Indian company is liable to withholding tax at the rate of 5% on the interest payable in respect of money borrowed in foreign currency, under a loan agreement or long-term infrastructure bonds, on or before 1st July Now the benefit of lower tax has been extended to loan or long term bonds (including infrastructure bonds) taken on or before 1st July Capital Gain Earlier any transfer of shares, listed securities or units etc., which is held by the assessee for less than twelve (12) months were treated as short term capital assets. Now, only the listed securities and the units of equity oriented fund, which is held for less than twelve (12) months were treated as short term capital assets. In all other cases, the time period shall be thirty six (36) months. Transfer Pricing It has been proposed that the advance pricing agreement entered between the CBDT and assessee may provide for the conditions, procedure and manner, so that it can also apply for determining the arm s length price during any period not exceeding four previous years preceding the first previous year for which the agreement is being effective. Withholding Tax Earlier, no deduction of expense was allowable while calculating business profit, in case the assesse fails to withhold tax while making payment of such expenses or fails to deposit the tax so withheld. Now, it has been proposed that in case of payment to non-resident, the payment can be made on or before the due date for filing the income tax return. Further, in case of payment to a resident, only 30% of such expense shall be disallowed as deduction instead of 100% of the expense provided earlier. Earlier the long term capital gain in case of listed securities or units or zero coupon bonds was liable to 10% capital gain tax in case the benefit of indexation is not availed. Now, this benefit is restricted only to listed securities (other than units) or zero coupon bonds. It means that units (mutual funds units) shall be liable to capital gain tax at normal rate i.e. 20%. The transfer of capital asset, being government security carrying periodic interest, by a non-resident to a non-resident outside India, shall not be treated as transfer and therefore, shall not be liable to capital gain tax. Other Provisions Dividend From a Foreign Company: The dividend income received by an Indian company, up to Financial Year , from a foreign company in which the Indian company holds 26% or more shares was chargeable to tax at the rate of 15% in the hands of Indian company. Now it has been proposed to done away with this sunset date.

5 Dividend Distribution Tax: It has been proposed that for the purpose of calculating DDT or the tax on distributed income to the unit holders by a mutual fund, the tax shall be grossed up for the purpose of calculating tax. Forfeited Advance Money: Any money, taken as advance for transfer of capital assets, in case forfeited, shall be treated as income from other source. Now, this advance so forfeited shall not be deducted from the cost of acquisition for the purpose of calculating capital gain. It has been proposed that every mutual fund, securitization trust, venture capital company or venture capital fund shall be liable to file its return of income, if its income exceeds maximum amount which is not chargeable to tax without giving effect to the exemption under Section 10 of the Income Tax Act. the short term capital gain shall be liable to normal rate of tax (and not he reduced rate of 15%) The income to be distributed by the Business Trust to the unit holder shall have the pass through status. That means: Interest Income shall be exempt in the hands of Business Trust, but shall be liable to tax in the hands of unit holder. The capital gain shall be chargeable in the hands of Business Trust at the maximum marginal rate, however the portion of capital gain (as distributed to the unit holders) shall be exempt in the hands of unit holders. The interest income to be distributed to unit holder by the Business Trust shall be liable to withholding of tax at the rate of: Business Trust A trust registered as an infrastructure investment trust or a real estate investment trust under the SEBI regulations and whose units are listed on a recognized stock exchange shall be termed as Business Trust. Such trust shall acquire the income bearing assets by acquiring controlling or other specified assets in an Indian SPV from the sponsor. The units of Business Trust to be allotted to the sponsor in exchange of shares of SPV shall not be regarded as transfer and therefore, shall not be liable to capital gain tax. 5% - where the interest is distributed to a non-resident; or 10% - where the interest is distributed to a resident. The Business Trust shall be liable to file income tax return. The transfer of units of Business Trust by the unit holder shall be liable to capital gain tax in the same manner as are listed securities. For the purpose of calculating capital gain, at the time of transfer of units of Business Trust by the sponsor, the time period of holding the shares in the SPV shall be added in the time period of holding the units in the Business Trust. Similarly, the cost of acquisition of the Units in the Business Trust, shall be the cost at which the shares in the SPV were acquired by the sponsor. In case of transfer of units of the Business Trust by the sponsor is liable to security transaction tax (STT): the long term capital gain shall not be exempt from tax

6 Indirect Tax Service Tax Rate of Service Tax has not been changed. The basic threshold limit has not been changed. Legislative changes Amendments in Exemption Notification No. 25/2012 dated (w.e.f ): Services provided by operators of the common Bio Medical Waste Treatment Facility to a clinical establishment are now exempted. Services provided by Indian tour operator to a foreign tourist in relation to tour conducted wholly outside India are included in the exemption notification. Services provided by way of technical testing or analysis of newly developed drugs by a clinical research institute approved by Drug Controller General of India is made taxable. Services provided to RBI from outside India in relation to management of foreign exchange services. Exemption is extended to services of accommodation for residential purpose by any non-commercial dharamshalas etc. which have declared tariff less than Rs. One thousand per day. Changes in Negative List (w.e.f. notification after assent of president): Service provided by radio taxis is included in the service tax net. Service tax will be charged on abated value of 40%. Selling of space for advertisement in any form other than print media is brought under the service tax net. (Print media does not include business directories, yellow pages and trade catalogues meant for commercial purpose) Service Tax Rule (w.e.f ) Every Service Tax assessee has to pay service tax through internet banking. Reverse Charge (w.e.f ) Services by a non-executive director to any company were under reverse charge. Now the scope has been widened to include non-executive directors of Body Corporate. Services provided by recovery agents to banks and NBFC are covered under reversed charge to the extent of 100%. In respect of non-abated renting of motor vehicle for transporting passenger, the ratio of payment of service tax has been made 50% by service provider and 50 % by service receiver. Rate of Interest on Delayed Payment of Service Tax (w.e.f ) The rate of interest on delayed payment of Service Tax has been revised as under: Sr. No. Period Of delay Rate of simple interest 1. Upto 6 months 18 % 2. More than 6 months and upto 1 year 18 % for the first six months and 24 % for the delay beyond 6 months. 3. More than one year 18 % for the first six months and 24 % for the delay beyond 6 months and 30% for any delay beyond 1 year.

7 All pending dues (whether in litigation or not) will be applied new interest rates after Thus, any dues which are pending payment since one year as on will attract 30% interest rate. 3% concession to small scale service providers is retained. Point of Taxation (w.e.f ) The point of taxation in respect of reverse charge will be payment date or the first day after a period of three months from the date of invoice, whichever is earlier. (Applicable to invoices issued after only) For the invoices issued prior to , if payment is made in 6 months, the point of taxation shall be date of payment. Otherwise, the date of invoice shall be the point of taxation. Place of Provision of Service Rules (w.e.f ) Amendments in Act (w.e.f. notification after assent of president):- Under Section 80 of the Finance Act, 1994 benefit of waiver of penalty under Section 78 has been withdrawn. The definition of Private Limited Company has been adopted for Service tax from Companies Act, Similarly definition of resident has been adopted from Income Tax Act, Input Service Distribution Rule 7 of the CENVAT Credit Rules has been clarified to state that the accumulated credit can be distributed to all the units of the assessee irrespective of fact that the service was not used in any particular unit, subject to compliance of other conditions. Central Excise Under Rule 4, a machine temporarily imported for repair in India continues to enjoy exemption and the procedure is further simplified. Rate of Duty Peak rate of Excise Duty has been not been changed. In Rule 9(c), changes have been made to include intermediary of goods. Thereby, commission agent or consignment agent will now be covered under Rule 9(c) and the place of provision of service shall be location of such commission or consignment agent. Services consisting of hiring of vessels & aircrafts (excluding yachts) will be covered under general rule 3 and place of provision shall be location of service receiver. Determination of Value Rules, 2006 (w.e.f ) Legislative changes Section 15A has been inserted in the Act so as to empower the Central Government to create a Nodal Agency to seek information regarding an assessee from any other specified Government agency/office like Income Tax Authority, VAT Authorities, Electricity Board, Registrar of Companies etc. in a specified time limit. It is also proposed to insert Section 15B, which provides for imposition of penalty to the extent of Rs. 100 for each day of default, if desired information is not submitted. In Rule 2A, value of service portion in works contract of repair maintenance of movable and immovable property OR any other works contract (other than original works contract) has been reconciled and the same shall be 70% of the total amount. Section 23A of the Act has been amended so as to include the resident private limited company to apply for advance ruling before the Advance Ruling Authority. Earlier the said facility was available to the non-residents.

8 Similar amendments have been carried out in the corresponding provisions of Customs Act. Section 32E has been amended to allow filing of applications before Settlement Commission subject to its satisfaction in cases where applicant has not filed the return. Earlier it was prohibited under the Act. Section 35B has been amended so as to increase the discretionary powers of the tribunal to refuse to hear the appeal involving duty amount less than Rs. 2 Lakhs. Earlier, the prescribed amount was Rs. 50,000. Similar amendments have been carried out in the corresponding provisions of Customs Act. New Section 35F has been inserted whereby, a requirement of mandatory pre-deposit of 7.5% of the duty demanded or penalty imposed or both have been made for the purpose of filing of appeal before the first appellate authority and a deposit of 10% of the aforesaid amount for filing before the 2nd appellate authority has been made. A cap of Rs.10 crores has been placed on such pre-deposit. As a result of this amendment, mechanism of filing stay applications before Commissioner (Appeals) and Tribunal has been done away with. Similar amendments have been carried out in the corresponding provisions of Customs Act. An amendment has been made in Section 35L which relates to filing of appeal before the Supreme Court of India. Now it has been clarified that determination of disputes related to taxability or excisablity of goods is covered under the term determination of any-question having a relation to rate of duty. The said amendment would help in avoiding uncalled for litigation before the High Courts on the issue related to excisability. Other Amendments to pay duty electronically through internet banking w.e.f October 1, The Assistant Commissioner upon satisfaction may allow payment through any other mode. Further amendment has been made in Rule 8(3A) to make provisions for imposition of penalty at the rate of 1% on duty not paid for each month or part thereof during the default period, which has been declared as payable in the returns. Amendment is made in Rule 6 of Central Excise Valuation Rules. It has been provided that in cases where the excisable goods are sold at a price less than the manufacturing cost and profit and no additional consideration is flowing, the value of such goods will be treated as the transaction value for the purpose of payment of excise duty. Primarily, this amendment has been made effective to get over the ruling of Supreme Court of India in the case of Fiat India. Rule 2 (qa) has been inserted in the CENVAT Credit Rule, 2004, in order to define place of removal. Rule 4 of the said rules has been amended w.e.f. September 1, 2014, so as to provide that the manufacturer or the output service provider shall not take the CENVAT Credit after 6 Months of the date of issue of invoice/ document. Henceforth, there will be a limitation of 6 months to avail the credit, which was not present prior to the amendment. Rule 4 has been further amended so as to provide that in case of services where service recipient is liable to pay service tax, credit shall be allowed after the service tax is paid. Further, in cases where service tax liability is partially on the provider and partially on the recipient, credit in respect of such services shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable. Amendment has been made in Rule 8(1B) of Central Excise Rules, 2002, so as to make it mandatory for every assesse

9 Impact on Industry Automobiles Excise duty is being exempted on parts of tractors removed from factories of a tractor manufacturer to another factory of the same manufacturer. Tobacco Products Renewable Energy Full exemption from excise duty has been granted in respect of machinery/ equipment, etc. required for setting up solar energy production projects. Exemption from excise duty has also been provided on machinery, equipment etc., required for setting up of compressed biogas plant (Bio-CNG). 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. Agriculture/ Agro- Processing Basic excise duty is being reduced from 10% to 6% on machinery for the preparation of meat, poultry, fruits, nuts and vegetables and on similar machinery used in the manufacture of wine, cider, fruit juices and similar beverages, etc. Textile Excise duty on polyester staple fibre and polyester filament yarn manufactured from plastic waste and scrap is being exempted retrospectively w.e.f. June 29, 2010 to May, 5, 2012 and intermediate product Toe w.e.f. June 29, 2010 to July 10, Further, excise duty at the rate of 2% (without CENVAT) or 6% (with CENVAT) has been imposed on PSF and PFY manufactured from plastic waste and scrap w.e.f. July 11, Electronics Excise duty on recorded smart cards has been increased to 12%. Excise duty on Metal Core PCB and LED Driver used in the manufacture of LED Lights has been reduced from 12% to 6%. Miscellaneous Optional excise duty of 2% (without CENVAT) on writing and printing paper for printing of educational textbooks has been withdrawn and instead a uniform excise duty of 6% has been levied. The scope of excise duty exemption, all goods supplied against International Competitive Bidding has been clarified, so as to state that the said exemption is also available to the sub-contractors for manufacture and supply of goods to the main contractor for the execution of said product. Full exemption from education cess and secondary & higher education cess/ customs component is being exempted on goods cleared by an EOU into the DTA Customs Rate of Duty Peak rate of Basic Customs Duty has been not been changed. Legislative Changes Section 8B of the Customs Tariff Act, 1975 has been 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, which are cleared into DTA.

10 Baggage rules have been amended to raise the free baggage allowance to Rs to Rs Further, duty free allowance has been reduced on cigarettes from 200 to 100, of cigars from and of tobacco from 250 gms. to 125 gms. Renewable Energy Full exemption from Special Additional Duty has been provided on parts and components required for the manufacture of wind operated electricity generators. Impact on Industry Textile Industry BCD on machinery, equipment, etc., required for setting up of solar energy production project has been reduced to 5%. The BCD on raw materials for manufacture of spandex yarn has been done away with. The list of specified goods required by handicraft manufacturer-exporter has been expanded to include wire rolls. Steel Industry BCD on stainless steel flat products has been increased from 5%-7.5%. BCD on ships imported for breaking up has been reduced from 10% to 5%. Concessional Custom Duty of 5% has been provided on machinery, equipment, etc., required for setting up of compressed biogas plant (Bio-CNG). Infrastructure State governments concerned are being notified as sponsoring authority for Metro Rail Projects covered under the Project Import Regulations, The requirement of certification Ministry of Road Transport or National Highway Authority of India for availing custom duty exemption on specified goods required for construction of roads has been done away with. Electronics BCD on LCD and LED TV panels of below 19 inches has been done away with. Further, BCD on specified parts of LCD and LED Panels of TVs has also been exempted. BCD on specified telecommunication products not covered under the Information Technology Agreement has been increased to 10%. Special Additional Duty on all inputs/ components used in the manufacture of personal computer (laptops/ desktops) and tablet computers has been exempted subject to actual user components.

11 Contact Details: Mumbai Office 1203, One Indiabulls Centre, Tower 2, Floor 12B, 841, Senapati Bapat Marg Elphinstone Road Mumbai India Tel: (91-22) Fax: (91-22) Mumbai Office (Litigation) C-16, Dhanraj Mahal, 3rd Floor, Apollo Bunder, Colaba, Mumbai India Tel: (91-22) Fax: (91-22) Delhi Office 4 Aradhna Enclave, R.K. Puram Sector 13 Opposite Hotel Hyatt, New Delhi India Phone : Fax : Disclaimer The update is intended for your general information only. The information and opinions contained in this document are derived from public sources which we believe to be reliable and accurate but which, without further investigation, cannot be warranted as to their accuracy, completeness or correctness. It is not intended to be nor should be regarded as legal advice and no one should act on such information without appropriate professional advice. DSK Legal accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material.