UNION BUDGET Highlights of Tax Proposals

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Stuart Flowers
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1 UNION BUDGET Highlights of Tax Proposals

2 From the Editor s Desk The maiden Budget presented by the new NDA Government was clearly short of the Great Expectations that was abuzz before the Budget. The Hon ble Finance Minister adopted a cautious approach in his budget speech and abstained from making any ambitious promises as is evident when he says at the very beginning that The steps that I will announce in this Budget are only the beginning of a journey towards a sustained growth of 7-8 per cent or above in the next 3-4 years. He further concludes by saying it would not be wise to expect everything that can be done or must be done to be in the first Budget presented within forty five days of formation of this Government Having said this, the Hon ble Minister accepted the challenge of reducing the fiscal deficit to 4.1 per cent of the GDP in the current year i.e and have also promised to lay a road map for fiscal consolidation which would ultimately reduce the fiscal deficit to 3 per cent of GDP by With the above background, the Hon ble Finance Minister presented the Budget 2014 (Budget), wherein he set out proposals for economic growth, social welfare measures and tax reforms. On the economic growth front, the Budget stressed upon revival of the manufacturing sector and the infrastructure. The Budget announced the much awaited opening of the Defence manufacturing sector to the foreign investment by announcing 49 per cent FDI under the FIPB route with 100 per cent Indian management and control. There was a proposal for setting up of a National Industrial Corridor Authority for the development of industrial corridors connecting various cities across India with the view to boost the manufacturing sector. The Budget also laid emphasis on reviving the Special Economic Zone (SEZs). On the infrastructure front, the Budget highlighted the need to develop PPP models for various infrastructure projects and proposed to set up an institution to provide support to PPPs called 3P India. Budget also mentioned about developing areas of infrastructure pertaining to shipping, roads, airports, power, coal, petroleum, mining sector etc. 2 P a g e

On the Tax proposals, the Hon ble Minister, though announced his commitment to introduce the Goods & Services Tax (GST), however, he did not set a time line for the introduction of this most awaited

3 On the Tax proposals, the Hon ble Minister, though announced his commitment to introduce the Goods & Services Tax (GST), however, he did not set a time line for the introduction of this most awaited indirect tax reform. Similarly, on the Direct Tax Code (DTC), there was no firm commitment as to when the same would see the light of the day. Thus, both the major tax reforms i.e. GST and DTC continue to remain in limbo! There was also a great expectation that this Budget would do away with the draconian retrospective amendments introduced in 2012 thereby reviving confidence amongst the investors. However, the Hon ble Minister chose not to tinker with the said amendment and instead promised that all fresh cases arising out of the said retrospective amendment would be scrutinized by a High Level Committee to be constituted by the CBDT before any action is initiated. This may not help in gaining investor confidence since CBDT, which itself is a creature of statute would be bound by the aforementioned retrospective amendment. To sum up, the litigation on the issue of retrospective amendment is here to stay. There have been amendments to the current tax legislation, both direct taxes and indirect taxes, though not very significant thereby clearly indicative of the cautious approach of this Budget. To conclude, this Budget, though does not meet the high expectations of the industry, is nonetheless the first step by the new Government. It would be unreasonable to pass a verdict in favour or against the Budget. One has to wait and watch as to how the new Government goes about fulfilling the various promises made in the budget! Nand Kishore Partner-Taxation 3 P a g e

4 TABLE OF CONTENTS Contents DIRECT TAXES... 6 Rate of Taxes... 6 Exemption limit for Personal Tax... 6 Tax holiday for Power sector... 6 Proposed Legislative Amendments... 6 Transfer Pricing... 6 INDIRECT TAXES... 7 SERVICE TAX... 7 Rate of Tax... 7 Exemptions... 7 Exemptions Withdrawn... 7 Procedure for claiming exemption on services to SEZ unit/developer simplified... 8 Amendments to Service Tax Rules... 8 Valuation of Works Contract service... 8 Rate of interest for delayed payments... 8 Amendment in Point of Taxation Rules, Advance Ruling... 9 Proposed Legislative Amendments... 9 CUSTOMS Rate of Tax Change in rate of duty Coal Solar Power Steel Wind power Information technology & Telecommunication P a g e

5 Proposed Legislative amendments Proceedings before Appellate authorities CENTRAL EXCISE Rate of Tax Change in the rate of duty Printing paper Aerated water Smart Cards Petroleum products Solar Power Projects Wind power Footwear Advance Ruling Mandatory penalty on delayed duty payment Amendment to Valuation Rules Amendment to Cenvat Credit Rules Proposed Legislative Amendments Information return by specified persons Settlement Commission Proceedings before Appellate authorities P a g e

6 DIRECT TAXES Rate of Taxes Corporate taxes for both domestic companies and foreign companies remain unchanged Income tax rate for individuals remain unchanged Exemption limit for Personal Tax The exemption limit enhanced from Rs.2,00,000 to Rs.2,50,000 for Personal tax for individuals Tax holiday for Power sector Section 80IA benefit for generation, distribution and transmission of power extended till 31 st March, 2017 Proposed Legislative Amendments Income to include any advance received during the course of negotiation for transfer of asset which is forfeited and there is no transfer of asset Mutual fund held upto a period of 36 months shall be a short term capital asset Where an assessee engaged in manufacturing process acquires new assets of value in excess of Rs.25 crores, then he is entitled to a deduction of a sum equal to 15 per cent of the actual cost of the new asset Expense towards corporate social responsibility shall not be deemed to be expense for the purpose of business or profession and hence not deductible Disallowance of deduction of expense on account of default in withholding taxes restricted to 30 per cent of such expenses. Deduction under Section 80C enhanced from Rs.1,00,000 to Rs.1,50,000 Income tax officer may visit the place of business to inspect books of accounts to verify if withholding taxes have been deducted by the assessee Transfer Pricing Advance Pricing Agreement may also provide for determining Arm s Length Price in relation to the international transaction during the preceding 4 previous years. 6 P a g e

7 SERVICE TAX INDIRECT TAXES Rate of Tax Rate of service tax unchanged at per cent (including cess) Exemptions Services provided by operators of the Common Bio-medical Waste Treatment Facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto Services provided,- a) by an educational institution to its students, faculty and staff; b) to an educational institution, by way of transportation of students, faculty, catering security, house-keeping, admission etc. Services provided to Government, a local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation. Services of life insurance business provided under life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of fifty thousand rupees. Services received by the Reserve Bank of India, from outside India in relation to management of foreign exchange reserves. Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India. Exemptions Withdrawn Services by way of technical testing or analysis of newly developed drug on human participants by a clinical research organisation Services provided to Government, a local authority or governmental authority by way of repair or maintenance of a vessel or an aircraft 7 P a g e

8 Procedure for claiming exemption on services to SEZ unit/developer simplified Service provider may provide services without payment of service tax on a SEZ unit / developer on the basis for Form A1, while awaiting the issue of Form A-2 authorization by the Specified Officer of SEZ. Amendments to Service Tax Rules Recipient of service liable to pay service tax in case of services provided by a recovery agent to a bank or financial institution, NBFC Mandatory e-payment of service tax for all assesses w.e.f 1 st October, 2014 Valuation of Works Contract service Value of service in respect of contract for maintenance, repair or reconditioning or restoration or servicing of any goods or maintenance or repair or completion and finishing services such as glazing or plastering or floor and wall tiling or installation of electrical fittings of immovable property, shall be payable on 70% of the total amount charged for the works contract. Rate of interest for delayed payments The govt. has prescribed the following rate of interest for delayed payment of service tax S.No Period of delay Rate of simple interest 1. Up to six months 18 per cent 2. More than six months and up to one year 18 per cent for the first six months of delay and 24 per cent for the delay beyond six months. 3. More than one year 18 per cent for the first six months of delay; 24 per cent for the period beyond six months up to one year and 8 P a g e

9 30 per cent for any delay beyond one year. Amendment in Point of Taxation Rules, 2011 Point of taxation in cases where service tax is required to be paid by the recipient shall, if the payment is not made within 3 months, be the date immediately following the said period of 3 months In respect of invoice issued before October 1, 2014, the point of taxation would be as follows: If payments are made within a period of 6 months, the date of making such payment; Else, the date of raising of invoice Advance Ruling A resident Private limited company is entitled to approach the Authority of Advance Ruling for determination question of law. Proposed Legislative Amendments Selling of space for advertisement in print media is alone covered under the scope of negative list. Thus, other services of online advertisement, mobile advertisement would now be chargeable to service tax CBEC empowered to recover dues from the successor of the business of a tax defaulter. CBEC empowered to attach and sell the properties of the successor to recover the tax due from the predecessor. 9 P a g e

10 CUSTOMS Rate of Tax Normal rate of basic customs duty (BCD) continues at 10 per cent Change in rate of duty Coal BCD on coking coal increased from Nil to 2.5 per cent BCD on Bituminous coal increased from 2 per cent to 2.5 per cent BCD on steamed coal 2 per cent to 2.5 per cent BCD on Anthracite coal reduced from 5 per cent to 2.5 per cent Counter Veiling Duty (CVD) on Anthracite coal, coking coal and other coal reduced from 6 per cent to 2 per cent. Solar Power Exemption from BCD for import of raw material used in the manufacture of Ethylene Vinyl Acetate sheets for manufacture of solar voltaic cells or modules Flat copper wire used I the manufacture solar photo voltaic cells or modules from 5 per cent to Nil BCD and CVD on machinery and equipment required for initial setting up of solar energy production projects reduced from 5 per cent to Nil Steel BCD on flat products of stainless steel at 7.5 per cent Wind power BCD on forged steel rings reduced from 10 per cent to 5 per cent Special Additional Duty (SAD) exempted for parts and raw material used for wind operated electricity generators. 10 P a g e

11 Information technology & Telecommunication BCD on specified telecommunication products not covered under the Information technology agreement increased from Nil to 10 per cent Raw material used form the manufacture of the above telecommunication equipment shall be exempted from basic customs duty. Inputs or components for use in the manufacture of personal computers including tablets exempted SAD Proposed Legislative amendments Mineral oil produced in the continental shelf or exclusive economic zone and imported prior to February 7, 2002 shall be deemed to be exempted from the whole of duties of customs. Settlement commission proceedings may be initiated on the basis of bill of export, baggage declaration, label or declaration accompanying the goods imported or exported through post of courier. Proceedings before Appellate authorities Tribunal may now refuse to admit appeal in respect of disputes where the duty or penalty is less than Rs.2,00,000. Earlier the threshold to refusing admission was Rs.50,000 Provision pertaining to pre-deposit of duty or penalty or both in case of appeals amended to provide for mandatory pre-deposit as follows: For appeals against the order of Assistant Commissioner or officer of a rank below Commissioner, the assesse to deposit 7.5 per cent of the duty or penalty or both; For appeals against order of Commissioner, the assesse to deposit 10 per cent of the duty or penalty or both; and For appeals against the order of the Commissioner (Appeals), the assesse to deposit 10 per cent of the duty or penalty or both However, the pre-deposit shall not exceed Rs.10 crore Discretion of the Appellate authorities and Tribunal to grant complete waiver of duty and penalty done away with. This has been introduced to reduce litigation. 11 P a g e

12 CENTRAL EXCISE Rate of Tax Median rates of excise duty continues to be at per cent (including cess) Clean energy cess rates increased from Rs. 50 per tonne to Rs. 100 per tonne Change in the rate of duty Printing paper Writing or printing paper for educational books concessional rate of 2 per cent withdrawn. Now, the said commodity would attract 6 per cent with Cenvat credit. Aerated water An additional duty of excise is being levied at the rate of 5% ad valorem on waters, including aerated waters, containing added sugar. Smart Cards Concessional rate of 2 per cent (without Cenvat) and 6 per cent (with Cenvat) withdrawn for smart cards. Smart cards would attract 12 per cent duty. Petroleum products Duty on branded petrol reduced from Rs.7.50 per litres to Rs.2.35 per litre Solar Power Projects Raw material used in the manufacture of Ethyl Vinyl Acetate sheet for manufacture solar voltaic cell exempted Solar tempered glass for use in the manufacture of solar voltaic cell, solar power generating equipment or systems exempted. Flat copper wire for use in the manufacture of photo voltaic ribbon for manufacture of solar voltaic cells or modules exempted Parts consumed within the factory of production for manufacture of non-conventional energy devices including solar power devices 12 P a g e

13 Machinery, equipments etc. required for initial setting up of solar energy production projects exempted Wind power Forged steel rings for manufacture of special bearing for use in wind operated electricity generator exempted Footwear Excise duty on footwear of retail sale price exceeding Rs.500 and not exceeding Rs.1000 reduced from 12 per cent to 6 per cent Advance Ruling The benefit of advance ruling is being extended to Resident Private Limited Companies in Central Excise Mandatory penalty on delayed duty payment If duty not paid within one month of the due date, mandatory penalty at the rate of 1 per cent for each month would be imposed Amendment to Valuation Rules Transaction value can be a price lower than the manufacturing cost and profit provided there is no additional consideration flowing from the buyer to the assesse. The amendment effectively overcomes the ruling of the Supreme Court in the case of Fiat India Amendment to Cenvat Credit Rules Cenvat credit in respect of input service cannot be availed after six months from the date of issue of credit taking document / invoice. Cenvat credit in respect of input services where the service tax is fully paid by the recipient shall be allowed once the service tax is paid by the recipient. Earlier requirement that the recipient should pay the value of services to provider done away with. 13 P a g e

14 Rule 12A is amended to disallow the transfer of credit by a one registered manufacturing premises to another premises of a large tax unit. Proposed Legislative Amendments Information return by specified persons Section 15A introduced to empower the Central Government to prescribe an authority or agency to whom the information return shall be filed by the specified persons. The object is to identify tax evaders or recover confirmed dues. Further, Section 15B prescribes penalty in case the specified persons defaults in furnishing the information. Settlement Commission Settlement Commission may by way of reasoned order allow application even in cases where the applicant has not filed the returns An assessee may approach the Settlement Commission immediately upon seizure of documents by the Department. Proceedings before Appellate authorities Tribunal may now refuse to admit appeal in respect of disputes where the duty or penalty is less than Rs.2,00,000. Earlier the threshold to refusing admission was Rs.50,000 Provision pertaining to pre-deposit of duty or penalty or both in case of appeals amended to provide for mandatory pre-deposit as follows: For appeals against the order of Assistant Commissioner or officer of a rank below Commissioner, the assesse to deposit 7.5 per cent of the duty or penalty or both; For appeals against order of Commissioner, the assesse to deposit 10 per cent of the duty or penalty or both; and For appeals against the order of the Commissioner (Appeals), the assesse to deposit 10 per cent of the duty or penalty or both However, the pre-deposit shall not exceed Rs.10 crore Discretion of the Appellate authorities and Tribunal to grant complete waiver of duty and penalty done away with. This has been introduced to reduce litigation. 14 P a g e

VGGLOBAL HIGHLIGHTS OF THE FINANCE BILL VGGlobal

VGGLOBAL HIGHLIGHTS OF THE FINANCE BILL 2014 VGGlobal 2014. www.vgglobal.co.in From the Desk of: CA Ved Parkash Gupta Managing Partner Email: vedgupta@vgglobal.co.in Dear All, One word that comes to mind