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 after listening to Finance Minister Arun Jaitley s maiden budget presentation for FY2015 in the Parliament is Pragmatic. The budget clearly demonstrates that the present government stays committed to the fiscal roadmap from last year with a target of 3% fiscal deficit by 2017. While it was expected that the government would use its mandate to bring about radical changes, the same, however, is not visible in this budget. But what this budget does provide is a sense of the roadmap, which this government has adopted. During the election campaign Prime Minister Modi espoused the principle of minimum government, maximum governance and had said his government would focus on Actions over Acts (Laws). To that extent, we believe to days actions do provide a framework for growth and development as compared to the inclusive growth focus of the previous government. Those looking for something more dramatic should also remember that the time was too short for the government to do all it may have wanted to. So, we may have to wait for the next Budget in Feb 2015 for more strategic vision and direction. We are pleased to present our analyses on Finance Bill 2014. For individuals and companies, there is no major change in tax rates. But the increase in the income tax exemption limit, an increase in savings limits and enhanced limits on deductible mortgage interest payments provides relief for individuals. The clarification on applicability of the 2012 retrospective taxation clause and the setting up of a committee to look into the pending cases falls short of hopes for a complete reversal of this vexatious issue. Hopefully, however, this should allow for closure of the existing cases. Further, an advance ruling mechanism is also proposed to be set up so that resident tax payers can obtain advance rulings for both direct and indirect taxes this is expected to reduce the burden of tax litigation at later stages. Thank you. CA Ved Parkash Gupta Page 2 of 9
TABLE OF CONTENTS A. DIRECT PROPOSALS... 4 1. Rate of tax... 4 2. Personal Taxation... 5 3. Corporate Taxation... 5 4. International Taxation... 6 B. INDIRECT TAX PROPOSALS... 8 1. Service Tax... 8 2. Excise... 8 3. Customs... 8 C. OTHER PROPOSALS... 9 Page 3 of 9
A. DIRECT TAX PROPOSALS 1. Rates of Taxes Personal Income tax exemption limit raised by Rs. 50,000 per annum. For individuals, other than senior citizens, the new exemption limit set at Rs. 2.5 lakh from the present limit of Rs. 2 lakh. For senior citizens, the same has been raised to Rs. 3 lakh from present limit of 2.5 lakh. Subsequently, the new tax slab structure for individuals stands as: Individual (Other than Senior Citizen) Senior Citizens (aged 60 years & above but below 80 years) Very Senior Citizen (aged 80 years & above) Income upto Rs. 250,000 Nil tax Income upto Rs. 300,000 Nil tax Income upto Rs. 500,000 Nil tax Income from Rs. 250,001 to Rs. Income from Rs. 300,001 to Rs. Income from Rs. 500,000 to Rs. 500,000 10% tax 500,000 10% tax 10,00,000 20% tax Income from Rs. 500,0001 to Rs. Income from Rs. 500,0001 to Rs. Income above Rs. 10,00,000 30% 10,00,000 20% tax 10,00,000 20% tax tax Income above Rs. 10,00,000 30% Income above Rs. 10,00,000 30% tax tax There is No change in tax rates for companies, firms and other assesses. Page 4 of 9
2. Personal Taxation Section 80C::Investment limit eligible for deduction under section 80C raised to Rs. 1.5 lakh from the present limit of Rs. 1 lakh. Section 24: Deduction limit on interest on housing loan for self occupied property raised to Rs. 2 lakh from the present limit of Rs. 1.5 lakh. Section 45: Under compulsory acquisition of a capital asset, any enhanced compensation received pursuant to an interim order of any authority, will be liable to tax under the head Capital Gains in the previous year in which the final order of such authority is made and not on receipt. Section 56: Any Advance received and forfeited in relation to a transfer of capital asset now taxable immediately under the head income from other sources and not to be reduced from the cost or written down value or the fair market value, as the case may be, in computing the cost of acquisition of such asset. Income from sale of unlisted shares and units of non-equity oriented mutual fund, not held for more than 36 months to be taxable as STCG; the earlier threshold was 12 months. 3. Corporate taxation Section 32AC: To boost small scale manufacturing, an investment allowance of 15% p.a. to manufacturing companies that invests more than Rs. 25 crore in any year in new plant and machinery. This benefit to available for 3 years i.e. for investments upto March 31, 2017. Further, a manufacturing company which invests more than crore during the period FY 2013-14 and FY 2014-15 shall be allowed a deduction of 15% of the cost for the aforesaid years. Section 80-IA: Extension of 10-year tax holiday to undertaking which begin generation, distribution and transmission of power by March 31, 2017. Section 115-O & 115R: Dividend declared by a domestic company must be grossed up for applying DDT resulting in an effective rate increase from 16.99 per cent to 20.47 per cent (including surcharge and cess). This amendment shall take effect from 1 October 2014. Section 40(a)(i): In respect of disallowance for nonpayment of tax from payment to non-resident, the time limit of payment of withholding tax into the government treasury has been extended till date of filing of return of income similar to the time limit available for payment of withholding taxes in respect of payments to resident. Section 40a(ia): Disallowance of expenditure due to non-withholding of tax on payments made to resident taxpayers is restricted to 30 per cent instead of 100 per cent under existing provisions. Further, the disallowance
under this category has been extended to all payments made to resident taxpayers which are subject to withholding tax (e.g. salary, director s fees, etc.) Section 115JC: The adjusted total income for AMT shall be computed by adding investment linked deduction on capital expenditure for specified business (Section 35AD) net of depreciation. REITs and Infrastructure Investment Trusts shall enjoy tax pass through status. Section 112: Concessional rate of 10% has been proposed to withdrawn for debt oriented mutual funds. Section 220: Liability of assessee to pay interest on amounts specified in the notice of demand extended upto the disposal of appeal by the last appellate authority or disposal of proceedings. In cases where tax payable was reduced due to orders of the settlement commission, etc. but was restored to earlier levels, interest under Section 220 of the Act shall be payable from the date of first notice of demand upto the date when the demand is paid. Section 200A: The deductor was permitted to make corrections in the statement pursuant to Centralized Processing of Statements of Tax Deducted at Source Scheme, 2013. However, there was no provision in the Act enabling filing of the correction statement. The act of correction and processing the statement has now been codified and shall came into effect from 1 October 2014. Section 201: The period for passing an order deeming a person to be an assessee in default for failure to deduct the whole or any part of tax on payment to a resident has been extended to seven years from the end of the FY in which payment is made or credit is given w.e.f. 1 October 2014 4. International taxation Rule 10B: One year data is used for comparable analysis with some exception as per the current regulation. It is proposed to amend regulations to allow the use of multiple year data for comparability analysis. TPO would now have the authority to levy penalty under section 271G of two per cent of the value of international transactions or specified domestic transactions for failure to furnish prescribed information or documentation w.ef.1 October 2014 Section 92CC: Roll back mechanism in the APA Scheme for a period of four years preceeding the first previous year for which the APA is applied, subject to prescribed conditions. Section 194LC: Rate of tax of 5 per cent (plus applicable surcharge and cess) on interest on borrowings in foreign currency extended to all types Page 6 of 9
of bonds. Time limit for availing such borrowings extended from 30 June 2015 to 30 June 2017 B. INDIRECT TAX PROPOSALS 1. Service Tax The Following services have been removed from the Negative List and would now be taxable: (i) Sale of advertisement space/ time on a media platform other than sale of space in print media (sale of space on television and radio was already taxable, now, sale of space on media like internet, out-ofhome, films, etc. will also be taxable) (ii) Radio taxi services. The services provided by directors to body corporate and services provided by recovery agents to banks, financial institutions and NBFCs w.e.f. 11 July 2014 shall be covered under reverse charge mechanism. Variable slabs has been provided for interest rate under section 75 on delayed payments ranging from 18 per cent to 30 per cent as against the current rate of 18 per cent (effective from 1 October 2014). Upto six months: 18% <6 months <= 1 year : 24% <1 Year : 30% Exemptions introduced (i) 2. Excise Rate changes: (i) Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India are being exempted. Additional duty of excise at 5% to be levied on aerated (ii) (iii) waters containing sugar (soft drinks); Excise duty increased on pan masala to 16% from present 12%; on unmanufactured tobacco to 55% from present 50% and on gutkha and chewing tobacco to 70% fro present 60%; Specific rates of excise duty raised on cigarettes in the range of 11% - 72%. Other amendments: (i) (ii) (iii) E-payment of excise duty becomes mandatory. Excisable goods sold at a price below manufacturing cost and profit to be accepted as transaction value for excise duty if no additional consideration flow directly or indirectly to the seller. Delayed payment of excise duty beyond one month Page 7 of 9
3. Customs subject to penalty of 1% of unpaid duty per month. General Amendments: (v) unrecorded and recorded smartcards, printed circuits, ATM, cellular phones. Increase in free baggage allowance for inbound travelers from INR 35,000 to INR45,000. retrospective amendments of 2012 in respect of indirect transfers to be scrutinized by a High Level Committee to be constituted by the Central Board of Direct. (i) (ii) Increase in Basic Custom Duty (BCD) on specified stainless steel flat products covered from 5% to 7.5%; Exemption from BCD on LCD/ LED panel (below 19 inches), colour television picture tube used in the manufacture of cathode ray televisions, specified parts of LCD/ LED panels. (iii) Exemption from BCD on e- book readers. (iv) Exemption from education cess and secondary and higher education cess leviable on Countervailing Duty (CVD) withdrawn on specified electronic goods such as computers, C. OTHER PROPOSALS The composite cap of foreign direct investment (FDI) in Defence sector to be raised to 49% from the existing 26% with full Indian management and control through the Foreign Investment Promotion Board (FIPB) route. The composite cap of FDI in Insurance sector to be raised to 49% from the present 26% with full Indian management and control through FIPB route. Retrospective Legislation to be exercised with extreme caution and judiciousness. All fresh cases arising out of Page 8 of 9
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