BUDGET. Surana Maloo & Co. Direct Tax Proposals CHARTERED ACCOUNTANTS. Copyright 2015 Surana Maloo and Co. Chartered Accountants, All rights reserved.

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1 BUDGET Direct Tax Proposals Surana Maloo & Co. CHARTERED ACCOUNTANTS

E x e c u t i v e S u m m a r y The Indian Finance Minister (FM) had presented Finance Bill, 2015, as part of the Union Budget 2015-16, to Parliament on 28 February, 2015.

2 E x e c u t i v e S u m m a r y The Indian Finance Minister (FM) had presented Finance Bill, 2015, as part of the Union Budget , to Parliament on 28 February, Finance Bill, 2015 contained a number of far reaching proposals to amend the Indian Tax Laws such as better clarity in indirect transfers, abolishing of wealth tax that is technically dormant in nature, rate of corporate tax to be reduced to 25% over the next four years. Mr. Jaitely also provided certain tax exemptions to encourage the citizens to contribute for their flagship mission of Swachch Bharat and also for Girl Child Development. Further he also brought confidence for much awaited GST being implemented from April 01, The Budget Analysis summarizes the significant Direct Tax amendments proposed by Hon ble Finance Minister.

3 Table of Contents of

4 Changes in personal Income Tax Deduction limit u/s 80DDB Payment for Medical of No change in the Basic Exemption Limits Surcharge increased Income exceeding ` 1 crores - Surcharge 12% treatment of very senior citizens introduced at ` Changes made in Conditions of Section 80DDB Correspondingly the WEALTH TAX Act Abolished Now prescription to be obtained from specialist doctor instead of certificate from Government Hospital However, following benefits extended: Investment in Sukanya Samriddhi Scheme will be Deduction limit u/s 80DD Expenditure incurred for medical treatment or payments to LIC / insurer un- eligible for deduction u/s 80C AND any interest received on such investment will be exempt AND Amount Withdrawn from the scheme shall not be lia- der a scheme for dependent- In case of disability deduction increased From ` 50,000 to 75,000 & ble to tax Applicable retrospectively w.e.f. 01/04/2015 In case of Severe Disability, deduction increased From ` 1,00,000 to 1,25,000 Deduction limit u/s 80D Payment for Medi-claim increased Deduction limit u/s 80U In case of person suffers from disability deduction in- From ` to 25000; From ` to ` in case of senior citizens; The expenses incurred towards medical treatment of creased From ` 50,000 to 75,000 & In case of person suffers from Severe Disability, deduction increased From ` 1,00,000 to 1,25,000 very senior citizens would be allowed as deduction upto overall limit of ` PAGE 1

of Deduction limit u/s 80CCC increased Contribution to Pension Fund (Any annuity plan of LIC or other insurer) From ` 1,00,000 to 1,50,000 क छ त फ ल ख ल ए हमन, और क छ फ ल ख ल न ह Deduction u/s 80CCD

5 of Deduction limit u/s 80CCC increased Contribution to Pension Fund (Any annuity plan of LIC or other insurer) From ` 1,00,000 to 1,50,000 क छ त फ ल ख ल ए हमन, और क छ फ ल ख ल न ह Deduction u/s 80CCD increased म श ककल यह ह ब गम अबतक, Contribution to Pension scheme of Central Government New subsection 80CCD(1B) inserted whereby addition- क ट कई प र न ह al deduction upto ` 50,000 over and above deduction u/s 80CCD(1) allowed 80CCD(1A) omitted -Threshold limit of ` 1,00,000 re- moved Furnishing of Form 15G / 15H allowed for nondeduction of TDS from payments receivable under Life insurance policies, not covered by section 10 (10D) Applicable w.e.f. 01/06/2015 PAGE 2

of Changes in Corporate No change in Tax Rate Gentlemen proposed to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years but NOT from budget year Surcharge increased Income

6 of Changes in Corporate No change in Tax Rate Gentlemen proposed to reduce the rate of Corporate Tax from 30% to 25% over the next 4 years but NOT from budget year Surcharge increased Income exceeding ` 1 crore but not exceeding ` 10 crore Surcharge 7% Income exceeding ` 10 crores - Surcharge 12% Changes in of Co-operative Societies Surcharge increased Income exceeding ` 1 crore - Surcharge 12% Changes in of Firms Surcharge increased Income exceeding ` 1 crore - Surcharge 12% Changes in of Local Authorities Surcharge increased Income exceeding ` 1 crore - Surcharge 12% PAGE 3

100% deduction for National Fund for Control of To promote Make in India of Drug Abuse & Tax benefits for Swachh Bharat Kosh and Clean Ganga Fund Deduction u/s 80JJAA For employment of new workmen

7 100% deduction for National Fund for Control of To promote Make in India of Drug Abuse & Tax benefits for Swachh Bharat Kosh and Clean Ganga Fund Deduction u/s 80JJAA For employment of new workmen More funds included in 100% bracket for donations u/s 80G Benefit of deduction for additional wages paid to new workmen extended to ALL ASSESSEES instead of Cor- National Fund for Control of Drug Abuse Swachh Bharat Kosh - w.r.e.f from porate Assessee only. Minimum no. of workmen to be employed reduced to 50 instead of 100. Clean Ganga Fund - w.r.e.f from Deduction NOT available if Donations to Swachh Exemption to Various funds u/s 10 Bharat Kosh & Clean Ganga Fund considered as a part of CSR Activities u/s 135 of Companies Act 2013 Section 10(23C)(iiiaa) 10(23C)(iiiaaa) Name of Funds Swachh Bharat Kosh, Clean Ganga Fund 10(23EE) Core Guarantee Fund Orders passed by the prescribed authority under sec- tion sub-clauses (vi) and (via) of clause (23C) of section 10 made appealable before Income-tax Appellate Tribunal Applicable w.e.f. 01/06/2015 PAGE 4

in Section 194A To Encourage Foreign entities of Expressly proposed that TDS not applicable to interest payment by co-operative society to its members but Applicable to co-operative Banks Extension

8 in Section 194A To Encourage Foreign entities of Expressly proposed that TDS not applicable to interest payment by co-operative society to its members but Applicable to co-operative Banks Extension of concessional rate of TDS u/s 194LD Concessional rate of 5%, on interest to FIIs / QFIs, ex- Applicable w.e.f. 01/06/2015 tended till 30/06/2017. Applicable w.e.f. 01/06/2015 TDS on Transporters REINTRODUCED of Finance (No.2) Bill, 2009 intended to exempt only small transport operators (as defined in section 44AE of the Act) from the purview of TDS, however the said amendment, however the said amendment was being used as a tool for avoiding compliance by large transporters as well. Accordingly, it is proposed to amend the provisions of the Act to expressly provide that the relaxation under section 194C(6) of the Act from non-deduction of tax shall only be applicable to the payment in the nature of transport charges made to an contractor who is engaged in the business of transport AND who is eligible in TCS Revision in TCS statement cannot be made u/s 206C of the Act; TCS returns will NOW be processed in the same manner as in case of TDS returns Section 206CB Inserted; Section 234E fee to be levied for delay in filing TCS statement section 206CB of the Act proposed to be inserted Applicable w.e.f. 01/06/2015 to compute income as per the provisions of section 44AE of the Act AND who has also furnished a declaration to this effect along with his PAN. PAGE 5

in Minimum Alternate Tax Regime of Double taxation of already taxed income from AOP, NOW cured:- Capital Gains of FII to be excluded from Book Profit: Under the existing law, the share receipt of

9 in Minimum Alternate Tax Regime of Double taxation of already taxed income from AOP, NOW cured:- Capital Gains of FII to be excluded from Book Profit: Under the existing law, the share receipt of Income from AOP to the Assessee Company being a member of AOP was also taxable u/s 115JB. To remove the double taxation Section 115JB has been proposed to amend to exclude the share of the Assessee in the income of an AOP or BOI. It is proposed that the amount of income from transactions in securities, (other than short term capital gains arising on transactions on which securities transaction tax is not chargeable), accruing or arising to Foreign Institutional Investor which has invested in such securities, shall be reduced from the book profit calculation u/s 115JB It is proposed that the amount of income, being the share of income of an Assessee on which no incometax is payable in accordance with the provisions of section 86, if any such amount is credited to the profit and loss account, shall be reduced from the book profit. PAGE 6

10 of in Scheme of Change in definition of Case to include the cases of Reopening u/s 148 as well as other years also:- In existing position of law, the Assessee becomes eligible to approach only for the assessment year for which notice under section 148 has been issued. Therefore, even though there is similar issue involved in other Assessment years also, yet the Assessee was precluded from approaching the settlement commission. In order to obviate the need for issue of notice in all such assessment years for commencement of pendency, it is proposed to provide that where a notice under section 148 is issued for any assessment year, the Assessee can approach for other Criteria for commencement of proceedings changed in respect of cases other than 153A, 153C, 148, 254, 263 & 264:- In existing position of law, the proceedings for any assessment years for a case other than 153A, 153C, 148, 254, 263 & 264, the proceedings were deemed to be commenced from the 1 st day of the AY. Now the same has been proposed to be changed to commence from the date on which a return of income is furnished under section 139 or in response to notice under section 142. Seized assets u/s 132B NOW allowed to be appropriated against the liability arising on application before the u/s 245C only:- assessment years as well even if notice under section 148 for such other assessment years HAS NOT BEEN ISSUED. However, filing of return of income for such other assessment years is mandatory. All proposed amendments in the provisions related to settlement commission as mentioned above are applicable with effect from 01/06/2015. PAGE 7

11 in Scheme of of Restriction on filing Application u/s 245K Lacuna of Life after death identified & obviated:- Presently one person can approach settlement com- (ii) In case of a company, any individual who held more than 50% of the shares in such company at any time before the date of application before the by such person; mission only once in the lifetime. But people used to approach settlement commission again and again through different masks via their group entities. To curb such illicit tactics, it is now been proposed to amend section 245K of the Income-tax Act to provide that any person related to the person who has already approached the once, also cannot approach the subsequently. The related person with respect to a person means (iii) In case of a firm or AOP or BOI, any individual who was entitled to more than 50% of the profits in concern, at any time before the date of application before the by such person; (iv) In case of a HUF, the karta of that HUF. Technically once gone then bye bye forever the intention of settlement scheme enacted in statue book (i) In case of individual - any company, firm or AOP or BOI in which such person is interested for more than 50% at any time, or any HUF in which such person is a karta; Time limit for rectification by settlement commission extended: Extra period of six months provided in case of an application made by department before settlement commission for rectification. PAGE 8

Interest for defaults in payment of advance tax in Technically, the period for charging interest u/s 234B of case of Search Assessment, Re-assessment and where additional income is disclosed before

12 Interest for defaults in payment of advance tax in Technically, the period for charging interest u/s 234B of case of Search Assessment, Re-assessment and where additional income is disclosed before the under section 245C: has been increased for the purpose of Proceedings before settlement commission u/s 245C (1), 245D(4); and also As per existing provisions of section 234B of the Act in Proceedings u/s 153A, 153C and 147 of the Act case of settlement applications, the interest u/s 234B is to be calculated for the following period: Applicable w.e.f. 1 st day of June 2015 Situations In case of Assessment made u/s 143(3) In case of Intimation passed u/s 143(1) In case no Intimation passed u/s 143(1), and time limit for the same expired Starting point for the purpose of 234B Proposed Existing Law provision From the date of order u/s 143(3) From the date of From the very Intimation u/s 143 first day of the (1) Assessment year From the date of expiry of time limit of Intimation u/s 143(1) PAGE 9

13 of Levy of penalty 271(1)(c) INTRODUCED EVEN if the tax is payable under to : Supreme Court judgment in the case of CIT vs. M/S NALWA SONS INVESTMENT LTD in Special Leave Petition to Appeal (Civil) No(s).18564/2011 dated 04/05/2012 proposed to be reversed. Now even though the Assessee is liable to pay tax under to, yet the penalty u/s 271(1)(c) is applicable. Explanation 4 to section 271 substituted. Tax sought to be evaded to be calculated as under: (A-B) + (C-D), where A Tax on Assessed Income as per Act Tax on Assessed Income as per Act less Concealed B Income C Tax on Assessed Book Profits u/s 115JB or 115JC Tax on Assessed Book Profits u/s 115JB or 115JC less Concealed Income, BUT D If concealed income is considered in A also then - Tax on Assessed Book Profits u/s 115JB or 115JC Example As per return filed Particulars Income (`) Tax (`) Under Normal Provision Under Additions Made by AO Particulars Amount (`) Bogus Purchase A 100 As per Assessment Order Particulars Income (`) Tax (`) Under Normal 1200 Provision ( ) 360 Under 2100 (2000+Nil+100) Then, tax sought to be evaded working:- (A-B) + (C-D) = ( ) + ( ) = 60, where A 360 B 300 C D So, now get ready for penalty in case of to PAGE 10

of New ty sections inserted in the Finance Act,2015 Section Failure to furnish statements, information or documents leading to ty Quantum 271FAB By eligible Investment Funds ` 5000 271GA (i) By

14 of New ty sections inserted in the Finance Act,2015 Section Failure to furnish statements, information or documents leading to ty Quantum 271FAB By eligible Investment Funds ` GA (i) By Indian Concern for a specified transaction (i) 2% of the said transaction (ii) Any other case (ii) ` I Inaccurate information u/s 195 i.e. TDS compliance in case of Non-Residents ` 1,00,000 PAGE 11

15 of Residential status of Company Criteria amended Section 6 of the Act amended. Existing Provision Proposed A company is said to be resident in India in any previ- shall be said to be resident a person being a company ous year, if- in India in any previous (i) it is an Indian company; year, if- Clarity relating to Indirect transfer provisions The Finance Act, 2012 inserted Explanation 5 in section 9(1)(i) w.r.e.f It clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its val- or (ii) during that year, the control and management of its affairs is situated wholly in India (i) it is an Indian company; or (ii) its place of effective management, at any time in that year, is in India ue substantially from the assets located in India. Suggestions of Expert Committee under the Chairmanship of Dr. Parthasarathi Shome, now proposed to be incorporate in the Act. New explanation 6 to section 9 is proposed to be inserted. Fund Managers in India not to constitute business connection of offshore funds Tax liability in respect of income arising Taxable in to the Fund from investment in India irrespective of location of fund manager India Income of the fund from the investments outside India Even though Fund Not taxable in India management activity in respect of such investments have been undertaken through a fund manager located in India. Empower CBDT to notify rules for giving foreign tax credit Section 90 and 90A of the Act provides for credit of the taxes paid in foreign countries However, the method for granting such tax credit is yet to be notified by CBDT Reduced tax rate on Royalty & Fees for Technical Services ( FTS ) u/s 115A Rate of Income tax reduced from 25% to 10% PAGE 12

Only Those Chartered Accountant holding certifi- It is further proposed to provide that the person of cate of practice NOW eligible for representation before Tax Authorities convicted by a court of

conviction Now only those chartered accountants holding valid certificate of practice are eligible to represent be- Applicable with effect from 01/06/2015 Holding COP is mandatory to represent fore

16 Only Those Chartered Accountant holding certifi- It is further proposed to provide that the person of cate of practice NOW eligible for representation before Tax Authorities convicted by a court of an offence involving fraud shall not be eligible to act as authorised representative for a period of 10 years from the date of such Definition of Accountant in Section 288 proposed to amended conviction Now only those chartered accountants holding valid certificate of practice are eligible to represent be- Applicable with effect from 01/06/2015 Holding COP is mandatory to represent fore the Income Tax department. Only independent CA can issue various reports un- der the Act Under the Income Tax Act, several provisions requires a certificate or report of an accountant (e.g. section 44AB, section 80-IA, section 92E, section 115JB, etc.). Now only chartered accountants holding valid certificate of practice are eligible; AND eligible for appointment as an auditor of the said com- pany in accordance with the provisions of sub-section (3) of section 141 of the Companies Act, 2013 PAGE 13

To promote investment in Andhra Pradesh Additional Depreciation in case of Assets of and Telangana states Investment allowance u/s 32AD Additional 15% allowance u/s 32AD on investments made for

17 To promote investment in Andhra Pradesh Additional Depreciation in case of Assets of and Telangana states Investment allowance u/s 32AD Additional 15% allowance u/s 32AD on investments made for manufacturing activity beginning from used for Less Than 180 days 50% of the Additional depreciation i.e. 10% to be allowed in the year of purchase; and Remaining 50% deduction of additional depreciation 01/04/2015 to 31/03/2020 Over and above allowance u/s 32AC u/s 32(1)(iia) to be allowed in immediate subsequent year Additional 35% u/s 32(1)(iia) Enhanced rate of additional 35% as against 20% for other states Rationalisation of definition of charitable purpose in the Income-tax Act If the aggregate receipts from activities, during the previous year, exceed twenty percent of the total re- ceipts, of the trust, then same shall not be considered as charitable purpose. Threshold limit for applicability of Domestic Emphasis to promote Yoga Transfer Pricing increased Threshold limit u/s 92BA increased to ` 20 crores from ` 5 crores Yoga considered as an activity of charitable purpose defined u/s 2(15) PAGE 14

18 Ease in Assessments & Litigations The term Erroneous or prejudicial to the interest of revenue, deemed definition in- of Raising the income-limit of the cases that may be decided by single member bench of ITAT Single member bench of ITAT authorized to dispose of cases where total income assessed by AO is not more than ` 15 Lakhs. [Section 255(3)] Applicable w.e.f. 01/06/2015 Approval mechanism in case of reopening u/s 148 serted section 263 the order is passed without making inquiries or verification which, should have been made the order is passed allowing any relief without inquiring into the claim; the order has not been made in accordance with any order, direction or instruction issued by the Board un- Reopening within 4 Approval of Joint commissioner of Income Tax is to be obtained der section 119; or the order has not been passed in accordance with any years Reopening beyond 4 years Approval of Principal Chief commissioner / Chief commissioner / Principal commissioner / commissioner of Income Tax is to be obtained decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person This amendment will take effect from 1st day of June, Applicable w.e.f. 01/06/2015 PAGE 15

of Cost of acquisition of a capital asset in the hands of resulting company to be the cost for which the demerged company acquired the capital asset Cost of acquisition of a Same cost for which the

19 of Cost of acquisition of a capital asset in the hands of resulting company to be the cost for which the demerged company acquired the capital asset Cost of acquisition of a Same cost for which the capital asset in the hands demerged company acquired the capital of resulting company asset Measure to curb Black money in Real Estate industry - in 269SS / 269T Money advanced / repayment in relation to transfer of an immovable property now covered u/s 269SS / 269T and accordingly subject to penalty u/s 271D and 271E. Applicable w.e.f. 01/06/2015 Period of Holding Period should include the period for which the asset was held by the demerged company Deferment of General Anti Avoidance Rule ( GAAR ) Proposed to make GAAR applicable from FY PAGE 16

CA Vidhan SURANA CA Sunil MALOO Reader's feedback / observation are welcomed and would be appreciated. vidhansurana@suranamaloo.com, sunilmaloo@suranamaloo.

All efforts have been made to ensure the accuracy of information in this publication.

20 CA Vidhan SURANA CA Sunil MALOO Reader's feedback / observation are welcomed and would be appreciated. vidhansurana@suranamaloo.com, sunilmaloo@suranamaloo.com Disclaimer This document is intended for private circulation and knowledge sharing purpose only. All efforts have been made to ensure the accuracy of information in this publication. The information contained in this document is published for the knowledge of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. The publication is a service to our clients to provide an overview of the Direct Tax Proposals and shall not be construed as professional advice or an authoritative opinion. Whilst due care has been taken in the preparation of this publication and information contained herein, we will not be responsible for any errors that may have crept in inadvertently and do not accept any liability whatsoever, for any direct or consequential loss howsoever arising from any use of this publication or its contents or otherwise arising in connection herewith. PAGE 17

21 Surana Maloo & Co. Chartered Accountants 2nd Floor, Aakashganga Complex Parimal Under Bridge, Paldi, Ahmedabad Gujarat (India) /8 vidhansurana@suranamaloo.com, sunilmaloo@suranamaloo.com

Tax & You: Budget Direct Tax

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