F O R E W O R D The objective of this note is to inform our clients and staff of the important changes proposed in Direct Taxes and Indirect Taxes (Service Tax) by the Finance Bill, 2013 which was introduced in the Lok Sabha on 28 th February, 2013 by the Hon. Finance Minister, Mr. P. Chidambaram. The commentary has been made as brief as possible, bearing in mind the objective of this note, viz., to highlight and explain the important changes and amendments. We have taken care to ensure that the information given in this note is accurate. However, it is intended for general guidance only and it should not be relied upon in individual cases. Professional advice should also be sought before any action is taken. We trust that this presentation would be useful. If you have any suggestions for improvement, please do write to us. Further, for your convenience, the page opposite to the text page has been kept blank so that you can make your personal notes. In case you require additional copies of this note or require any clarifications of the amendments proposed, please contact your engagement partner. Mumbai, 1 st March, 2013 SHARP & TANNAN Sharp & Tannan 1 Finance Bill, 2013
Personal Notes Sharp & Tannan 2 Finance Bill, 2013
Highlights Personal Tax: 1. No revision in the slabs and rates for personal income tax. 2. The relief of Rs.2,000 has been provided for resident individuals if the total income does not exceed Rs.5 lakhs. 3. Surcharge of 10% on persons (other than companies) whose taxable income exceeds Rs.1 crore. 4. Additional deduction in respect of interest on housing loan taken by an individual assessee from a financial institution upto Rs.1,00,000, subject to conditions. Corporate Tax: 1. Increase in surcharge from 5% to 10% in the case of domestic companies and from 2% to 5% in the case of foreign companies whose taxable income exceeds Rs.10 crore. 2. Additional surcharges to be in force for only one year. 3. In case of dividend distribution tax, the current surcharge increased from 5% to 10%. 4. Investment allowance at the rate of 15% to manufacturing companies that invest more than Rs.100 crore in new plant and machinery during the period from 1st April, 2013 to 31st March, 2015, subject to conditions. 5. The 80-IA benefit for projects in the power sector has been extended by one year upto 31st March, 2014. 6. Concessional rate of tax of 15% on dividend received by an Indian company from its foreign subsidiary proposed to continue for one more year. 7. Royalty and fees for technical services paid to non-residents under agreements made after 31st March, 1976 to be taxed at uniform rate of 25%. 8. Modified provisions of GAAR will come into effect from 1st April, 2016. Sharp & Tannan 3 Finance Bill, 2013
Personal Notes Sharp & Tannan 4 Finance Bill, 2013
Service Tax: 1. No change in the service tax rate. 2. Two additional services are proposed to be included in the Negative List. 3. Exemption from service tax on certain services. 4. A one-time scheme called Service Tax Voluntary Compliance Encouragement Scheme, 2013 proposed to be introduced. General: 1. Proposal to introduce Commodity Transaction Tax (CTT) in a limited way. Agricultural commodities will be exempted. 2. TDS at the rate of 1% on the value of the transfer of immovable properties where consideration exceeds Rs.50 lakhs. Agricultural land is to be exempted. 3. The return of income shall be regarded as defective unless the tax together with interest has been paid on or before the date of furnishing of the return. This amendment will take effect from 1st June, 2013. Sharp & Tannan 5 Finance Bill, 2013
Personal Notes Sharp & Tannan 6 Finance Bill, 2013
Income Tax Proposals 1. Tax rates proposed for assessment year 2014-15 A) For every individual other than the individual referred to in items (B) and (C) below and Hindu undivided family, association of persons, body of individuals, whether incorporated or not: Where the total income does not exceed Rs.2,00,000 Where the total income exceeds Rs.2,00,000 but does not exceed Rs.5,00,000 Where the total income exceeds Rs.5,00,000 but does not exceed Rs.10,00,000 Where the total income exceeds Rs.10,00,000 Nil 10% of the amount by which the total income exceeds Rs.2,00,000 Rs.30,000 plus 20% of the amount by which the total income exceeds Rs.5,00,000 Rs.1,30,000 plus 30% of the amount by which the total income exceeds Rs.10,00,000 Surcharge at the rate of 10% is applicable where total income exceeds Rs. 1 crore. Education cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1% will apply. B) For every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time during the previous year: Where the total income does not exceed Rs.2,50,000 Where the total income exceeds Rs.2,50,000 but does not exceed Rs.5,00,000 Where the total income exceeds Rs.5,00,000 but does not exceed Rs.10,00,000 Where the total income exceeds Rs.10,00,000 Nil 10% of the amount by which the total income exceeds Rs. 2,50,000 Rs.25,000 plus 20% of the amount by which the total income exceeds Rs.5,00,000 Rs. 1,25,000 plus 30% of the amount by which the total income exceeds Rs.10,00,000 Surcharge at the rate of 10% is applicable where total income exceeds Rs. 1 crore. Education cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1% will apply. Sharp & Tannan 7 Finance Bill, 2013
Personal Notes Sharp & Tannan 8 Finance Bill, 2013
C) For every individual, being a resident in India, who is of the age of eighty years or more at any time during the previous year: Where the total income does not exceed Rs.5,00,000 Where the total income exceeds Rs.5,00,000 but does not exceed Rs.10,00,000 Where the total income exceeds Rs.10,00,000 Nil 20% of the amount by which the total income exceeds Rs.5,00,000 Rs.1,00,000 plus 30% of the amount by which the total income exceeds Rs.10,00,000 Alternate Minimum Tax shall be levied at the rate of 18.5% on adjusted total income of persons who have claimed deductions under the heading C- deductions in respect of certain incomes under Chapter VIA or Section 10AA if the adjusted total income is more than Rs. 20 lakhs Unexplained credits, money, investment, expenditure under Section 68, 69, 69A, 69B, 69C or 69D shall be taxed at the rate of 30% (plus education cess as applicable) Surcharge at the rate of 10% is applicable where total income exceeds Rs. 1 crore. Education cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1% will apply. D) In the case of every firm (including LLP): On the whole of the total income 30% of the total income other than income taxable under Sections 111A and 112. 15% of income taxable under Section 111A. 10% / 20% as the case may be under Section 112. Alternate Minimum Tax at the rate of 18.5% of adjusted total income in case of LLP. Surcharge at the rate of 10% is applicable where total income exceeds Rs. 1 crore. Education cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1% will apply. Sharp & Tannan 9 Finance Bill, 2013
Personal Notes Sharp & Tannan 10 Finance Bill, 2013
E) In the case of domestic company: On the whole of the total income 30% of the total income other than income taxable under Sections 111A and 112. 15% of income taxable under Section 111A. 10% / 20% as the case may be under Section 112. 18.5% of book profit under Section 115JB. 15% of gross dividend received from a specified foreign company (in which it has share holding of 26% or more) Surcharge will apply at the rate of 5% where total income exceeds Rs. 1 crore and at the rate of 10% where total income exceeds Rs. 10 crore. Education cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1% will apply. F) In the case of company other than domestic company: (i) on so much of the total income as consists of: (a) royalties or fees for rendering technical services received from Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 31st March, 1961 or after the 29th February, 1964 respectively, but before the 1st April,1976; and where such agreement has, in either case, been approved by the Central Government. (b) where the agreement is made after the 31st March,1976. (ii) On the balance, if any of the total income. 50% 25% 40% The amount of income-tax computed as indicated in the preceding paragraphs as also the same computed on short-term capital gain under Section 111A at rate of 15% and on long-term capital gain under Section 112 shall be chargeable at the rate of 10% / 20%, as the case may be, Surcharge at the rate of 2% will apply where total income exceeds Rs. 1 crore and at the rate of 5% where total income exceeds Rs.10 crore. Education cess at the rate of 2% and Secondary and Higher Education Cess at the rate of 1% will apply. Sharp & Tannan 11 Finance Bill, 2013
Personal Notes Sharp & Tannan 12 Finance Bill, 2013
2. TDS rate chart for payments during financial year 2013-14 Payee Nature of payments made to residents Company Firm, Individual, Society, HUF, LLP, Local AOP, BOI Authority Section - Description Threshold Rs. Rate % Rate % Rate % 193-Interest on securities Other than debentures 2,500 10 10 10 Debentures 5,000 10 10 10 194A-Interest 5,000 (Refer Note 1) 10 10 10 194B-Winning from lotteries 10,000 30 30 30 194BB-Winning from Horse races 5,000 30 30 30 194C-Payment to contractor, subcontractor or advertising contractor 30,000 (Refer Note 2) 2 2 1* 194D-Insurance commission 194H-Commision / brokerage 20,000 10 10 10 5,000 10 10 10 194-I-Rent for use of machinery or plant or equipment land or building or furniture or fittings 180,000 2 2 2 180,000 10 10 10 194J-Professional Fees etc 30,000 10 10 10 194-IA Transfer of immovable properties (other than agricultural land) (Refer Note 4) 1 1 1 * TDS is to be deducted at 2% if the payee is an AOP or BOI. Sharp & Tannan 13 Finance Bill, 2013
Personal Notes Sharp & Tannan 14 Finance Bill, 2013
1. In case of Section 194A, threshold limit where the payer is a banking company, co-operative society engaged in the business of banking or by a Post office (in case of interest on scheme specified by Central Government) is Rs.10,000. 2. In case of Section 194C: a. TDS is not required if individual contract amount does not exceed Rs.30,000 and aggregate payment to a payee does not exceed Rs.75,000. b. No TDS is required in case of payment to transporter quoting PAN. 3. In case no PAN is quoted by a payee, then tax is required to be deducted at the rate of 20% in all above cases under Section 206AA. 4. In case of Section 194-IA, no TDS is to be deducted where the consideration for the transfer of an immovable property is less than Rs. 50 lakhs. Clauses of the Bill 3 and 51 Sections Bill proposes 2(14)(iii)(b) and Proviso(ii)(B) to Section 2(1A) (c) of the Income Tax Act, 1961 and Section 2(ea)(v) of the Wealth Tax Act, 1957 Amendment in the definitions of Capital Asset w.r.t. Agricultural land, Agricultural income under Income Tax Act, 1961 and urban land under Wealth Tax Act, 1957 The existing provisions of the Income-tax Act define the term capital asset as property of any kind held by an assessee, whether or not connected with his business or profession. Certain categories of properties including agricultural land have been excluded from this definition. The existing provision states that: (a) agricultural land situated in any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand according to last preceding census, or (b) agricultural land situated in any area within such distance not exceeding eight kilometers from the local limits of any municipality or cantonment board, as notified by the Central Government having regard to the extent and scope of urbanization and other relevant factors, forms part of capital asset. Sharp & Tannan 15 Finance Bill, 2013
Personal Notes Sharp & Tannan 16 Finance Bill, 2013
The Bill seeks to amend aforesaid provision to provide that the land situated in any area within the distance, measured aerially (shortest aerial distance), (1) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (2) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakhs; or (3) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakhs shall form part of capital asset. Similar amendments are also proposed relating to the definition of agricultural income and in respect of the definition of urban land in the Wealth-tax Act, 1957. These amendments will take effect from 1st April, 2014 Assessment Year: 2014-15 Clause of the Bill 4 Section Bill proposes 10 - Explanation 1 to clause 10D Amendment in Keyman Insurance Policy The existing provisions of clause (10D) of Section 10, exempt any sum received under a life insurance policy other than a Keyman Insurance Policy. It is a prevalent practice that the policies taken as Keyman Insurance Policy are being assigned to the keyman before its maturity. The keyman pays the remaining premium on the policy and claims the sum received under the policy as exempt on the ground that the policy is no longer a keyman insurance policy. Thus, the exemption under Section 10(10D) is being claimed for policies which were originally keyman insurance policies but during the term these were assigned to some other person. Sharp & Tannan 17 Finance Bill, 2013
Personal Notes Sharp & Tannan 18 Finance Bill, 2013
With a view to plug the loophole and check such practices to avoid payment of taxes, the Bill seeks to amend the explanation to provide that a Keyman Insurance Policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a Keyman Insurance Policy. This amendment will take effect from 1st April, 2014 Assessment Year: 2014-15 Clause of the Bill 5 Section Bill proposes 32AC Incentive for acquisition and installation of new plant or machinery by manufacturing company In order to encourage substantial investment in plant or machinery, it is proposed to insert new Section 32AC which seeks to provide that where an assessee, being a company, engaged in the business of manufacture or production of any article or thing and acquires and installs new asset after 31st of March, 2013 but before 1st April, 2015 and the aggregate amount of actual cost of such new assets exceeds Rs. 100 crore, then, assessee will be allowed: (a) for assessment year 2014-15, a deduction of 15% of aggregate amount of the actual cost of new assets acquired and installed during financial year 2013-14 if cost of such new assets exceeds Rs.100 crore; and (b) for assessment year 2015-16, a deduction of 15% of aggregate amount of actual cost of new assets, acquired and installed during the period beginning on 1st April, 2013 and ending on 31st March, 2015, as reduced by the deduction allowed, if any, for assessment year 2014-15. It is also proposed to provide suitable safeguards so as to restrict the transfer of the plant or machinery for a period of 5 years. If the new asset acquired and installed by the assessee is sold or transferred, within a period of 5 years from the date of its installation, the amount of deduction allowed under sub-section (1) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head Profits and gains of business or profession of the previous year in which such new asset is sold or transferred, in addition to taxability of capital gains, arising on account of transfer of the new asset. However, this restriction shall Sharp & Tannan 19 Finance Bill, 2013
Personal Notes Sharp & Tannan 20 Finance Bill, 2013
not apply in a case of amalgamation or demerger but shall continue to apply to the amalgamated company or resulting company, as the case may be. The phrase new asset has been defined as any new plant or machinery (other than ship or aircraft) but does not include (a) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; (b) any plant or machinery installed in any office premises or any residential accommodation, including a guest house; (c) any office appliances including computers or computer software; (d) any vehicle ; (e) ship or aircraft ; and (f) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession of any previous year. This amendment will take effect from 1st April, 2014 Assessment year: 2014-15 Clause of the Bill 6 Section Bill proposes 36(1)(xvi) Commodities Transaction Tax (CTT) A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions entered into in a recognised association. The tax is proposed to be levied at 0.01% on sale of commodities derivatives to be paid by the seller from the notified date. It is also proposed to provide that an amount equal to the commodities transaction tax paid by the assessee in respect of the taxable commodities transactions entered into in the course of his business during the previous year shall be allowable as deduction, if the income arising from such taxable commodities transactions is included in the income computed under the head Profits and gains of business or profession. Sharp & Tannan 21 Finance Bill, 2013
Personal Notes Sharp & Tannan 22 Finance Bill, 2013
The Taxable commodities transaction is defined as a transaction of sale of commodity derivatives in respect of commodities, other than agricultural commodities, traded in recognised associations. This amendment will take effect from 1st April, 2014 Assessment year: 2014-15 Clause of the Bill 8 Section Bill proposes 43CA Computation of income under the head Profits and gains of business or profession for transfer of immovable property in certain cases It is proposed to insert a new Section 43CA to provide that 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 of profession. It also stipulates that where the date of an agreement fixing the value of consideration for the transfer of the property and the date of registration of the transfer if the property are not the same, the stamp duty value may be taken as the date of the agreement for transfer provided the consideration or a part thereof is received prior to the date of agreement in a mode other than cash. These amendments will take effect from 1st April, 2014 Assessment Year: 2014-15 Clause of the Bill 9 Section Bill proposes 56 (2)(vii) Taxability of immovable property received for inadequate consideration It is proposed to amend the provisions of clause (vii) of sub-section (2) of Section 56 so as to provide that where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs.50,000, the stamp duty value of such property as exceeds such consideration, shall be Sharp & Tannan 23 Finance Bill, 2013
Personal Notes Sharp & Tannan 24 Finance Bill, 2013
chargeable to tax in the hands of the individual or HUF as income from other sources. It also stipulates that where the date of an agreement fixing the value of consideration for the transfer of the property and the date of registration of the transfer if the property are not the same, the stamp duty value may be taken as the date of the agreement for transfer provided the consideration or a part thereof is received prior to the date of agreement in a mode other than cash. These amendments will take effect from 1st April, 2014 Assessment Year: 2014-15 Clause of the Bill 11 Sections Bill proposes 80CCG(1), (2), (3) and explanation Expanding the scope of deduction and its eligibility under Section 80CCG The existing provisions of Section 80CCG, inter-alia, provide that a resident individual who has acquired listed equity shares in accordance with the scheme notified by the Central Government, shall be allowed a deduction of 50% of the amount invested in such equity shares to the extent that the said deduction does not exceed Rs.25,000. The deduction is a one-time deduction and is available only in one assessment year in respect of the amount so invested. The deduction is available to a new retail investor whose gross total income does not exceed Rs. 10 lakhs. Rajiv Gandhi Equity Savings Scheme has been notified under Section 80CCG. With a view to liberalize the incentive available for investment in capital markets by the new retail investors, it is proposed to amend the provisions of Section 80CCG so as to provide that investment in listed units of an equity oriented fund shall also be eligible for deduction in accordance with the provisions of Section 80CCG. It is further proposed to provide that the deduction under this section shall be allowed for three consecutive assessment years, beginning with the assessment year relevant to the previous year in which the listed equity shares or listed units were first acquired by the new retail investor whose gross total income for the relevant assessment year does not exceed Rs.12 lakhs. This amendment will take effect from 1st April, 2014 Assessment year: 2014-15 Sharp & Tannan 25 Finance Bill, 2013
Personal Notes Sharp & Tannan 26 Finance Bill, 2013
Clause of the Bill 13 Section 80EE(1), (2), (3), (4) and (5) Bill proposes Deduction in respect of interest on loan sanctioned during financial year 2013-14 for acquiring residential house property Keeping in view the need for affordable housing, an additional benefit for first-home buyers is proposed to be provided by inserting a new Section 80EE in the Income-tax Act relating to deduction in respect of interest on loan taken for residential house property. The proposed new Section 80EE seeks to provide that in computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property. It is further provided that the deduction under the proposed section shall not exceed Rs.1 lakh and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than Rs.1 lakh, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015. It is also provided that the deduction shall be subject to the following conditions: (a) the loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014; (b) the amount of loan sanctioned for acquisition of the residential house property does not exceed Rs.25 lakhs; (c) the value of the residential house property does not exceed Rs.40 lakhs; (d) the assessee does not own any residential house property on the date of sanction of the loan. It is also provided that where a deduction under this section is allowed for any assessment year, in respect of interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Income-tax Act for the same or any other assessment year. This amendment will take effect from 1st April, 2014 Assessment year: 2014-15 Sharp & Tannan 27 Finance Bill, 2013
Personal Notes Sharp & Tannan 28 Finance Bill, 2013
Clauses of the Bill 21 and 22 Sections Bill proposes 90(5) and 90A(5) Tax Residency Certificate It is provided that the tax residency certificate obtained by a non-resident from its country of residency is necessary but not sufficient. This amendment will take effect retrospectively from 1st April, 2013 Assessment Year: 2013-14 Clauses of the Bill 21, 22, 23, 24, 34, 35, 36, 37, 38, 39, 44, 45, 46, 47 and 49 Sections 90(2A)(4)(5), 95, 96, 97, 98, 99, 100, 101, 102 and 144BA, 144C, 153(1)(viii), 153B, 153D, 245N, 245R, 246A, 253 and 295 Bill proposes General Anti-Avoidance Rule (GAAR) Chapter X-A The General Anti-Avoidance Rule (GAAR) was introduced by the Finance Act, 2012. The substantive provisions relating to GAAR are contained in Chapter X-A of the Income-tax Act. A number of representations were received against the provisions relating to GAAR. An Expert Committee was constituted by the Government with broad terms of reference including consultation with stakeholders and finalising the GAAR guidelines and a road map for implementation. The Expert Committee s recommendations included suggestions for legislative 12 amendments, formulation of rules and prescribing guidelines for implementation of GAAR. The major recommendations of the Expert Committee have been accepted by the Government, with some modifications. Some of the recommendations accepted by the Government require amendment in the provisions of Chapter X-A and Section 144BA. In order to give effect to the recommendations the following amendments have been made in GAAR provisions currently provided in the Act: (a) The provisions of Chapter X-A and Section 144BA will come into force with effect from April 1 st 2016 as against the current date of 1 st April, 2014. The provisions shall apply from the assessment year 2016-17 instead of assessment year 2014-15. Sharp & Tannan 29 Finance Bill, 2013
Personal Notes Sharp & Tannan 30 Finance Bill, 2013
(b) An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision of Section 96 has been amended to restrict the scope of impermissible avoidance arrangement to transaction where main purpose is to obtain a tax benefit and the transactions are not at arm s length or results in abuse or misuse of provision of income-tax law or lacks commercial substance or carried out in a manner not ordinarily employed for bonafide purposes. (c) The factors like, period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement, would be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. The current provisions of Section 97 which provided that these factors would not be relevant has been proposed to be amended accordingly. (d) An arrangement shall also be deemed to be lacking commercial substance, if it does not have a significant effect upon the business risks, or net cash flows of any party to the arrangement apart from any effect attributable to the tax benefit that would be obtained but for the application of Chapter X-A. The current provisions as contained in Section 97 are proposed to be amended to provide that an arrangement shall also be deemed to lack commercial substance if the condition provided above is satisfied. (e) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The current provision of Section 144BA that the Approving Panel shall consist of not less than three members being income-tax authorities and an officer of the Indian Legal Service has been proposed to be amended accordingly. (f) The directions issued by the Approving Panel shall be binding on the assessee as well as the income-tax authorities and no appeal against such directions can be made under the provisions of the Act. The current provisions of Section 144BA providing that the direction of the Approving Panel will be binding only on the Assessing Officer have been proposed to be amended accordingly. Sharp & Tannan 31 Finance Bill, 2013
Personal Notes Sharp & Tannan 32 Finance Bill, 2013
Consequential amendments in other sections relating to procedural matters are also proposed. These amendments will take effect from 1st April, 2016 Assessment Year: 2016-17 Clause of the Bill 27 Section Bill proposes 115-O, Sub-section (1A) Clause (i) Removal of the cascading effect of Dividend Distribution Tax (DDT) The existing provisions of Section 115-O of the Income-tax Act provides that any amount declared, distributed or paid by way of dividends, whether out of current or accumulated profits, shall be liable to be taxed at the rate of 15%. It further provides that the tax base for DDT is to be reduced by an amount of dividend received from its subsidiary, if such subsidiary has paid the DDT payable on such dividend. This ensures removal of cascading effect of DDT in a multi-tier structure where dividend received by a domestic company from its domestic subsidiary is distributed to its shareholders. In order to remove the cascading effect in respect of dividends received by a domestic company from a similarly placed foreign subsidiary, it is proposed to amend the section so that where the tax payable on dividend received by domestic company has been paid under Section 115BBD of the Act, any dividend distributed by the holding company in the same year, to the extent of such dividends, received from foreign subsidiary shall not be subject to Dividend Distribution Tax under Section 115-O of the Income-tax Act. This amendment will take effect from 1st June, 2013 Clauses of the Bill 4 and 28 Sections Chapter XII-DA, 115QA, 10(34A) Bill proposes Additional Income-tax on distributed income by company for buy-back of unlisted shares It is proposed to insert a new Chapter XII-DA, to provide that the consideration paid by the company for purchase of its own unlisted Sharp & Tannan 33 Finance Bill, 2013
Personal Notes Sharp & Tannan 34 Finance Bill, 2013
shares which is in excess of the sum received by the company at the time of issue of such shares will be charged to tax as distributed income and the company would be liable to pay additional income-tax @ 20% of the distributed income paid to the shareholder. The proposed additional income tax shall be in addition to the income tax chargeable in respect of the total income of such company, where income tax is payable by the company on its total income or not. 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. However, it seems presently the bill makes no proposal (as should been made) to amend or delete the provisions of Section 46A of the Act under which similar difference is presently taxed in the hands of the shareholders as capital gains. These amendments will take effect from 1st June, 2013 Clause of the Bill 29 Section Bill proposes 115R (2)(ii) Rationalisation of tax on distributed income by the Mutual Funds Under the existing provisions of Section 115R any amount of income distributed by the specified company or a Mutual Fund to its unit holders is chargeable to additional income-tax. In case of any distribution made by a fund other than equity oriented fund to a person who is not an individual and HUF, the rate of tax is 30% whereas in case of distribution to an individual or an HUF it is 12.5% or 25% depending on the nature of the fund. In order to provide uniform taxation for all types of funds, other than equity oriented fund, 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. These amendments will take effect from 1st June, 2013 Sharp & Tannan 35 Finance Bill, 2013
Personal Notes Sharp & Tannan 36 Finance Bill, 2013
Clause of the Bill 42 Section New Section 194-IA - explanation Bill proposes TDS on transfer of certain immovable properties (other than agricultural land) It is proposed to insert a new section to provide that every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1% of such sum. However, it is further proposed that no deduction of tax under this provision shall be made where the total amount of the consideration for the transfer of an immovable property is less than Rs.50 lakhs. The relevant terms such as agricultural land and immovable properties have been defined in the explanation. This amendment will take effect from 1st June, 2013 Clause of the Bill 43 Section Bill proposes 194LC, sub-section (2) proviso after sub-clause (ii) Concessional rate of withholding tax on interest to subscription in the case of certain rupee denominated long term infrastructure bonds The existing provisions of Section 194LC provide that if an Indian company borrows money in foreign currency from a source outside India either under a loan agreement or by way of issue of long-term infrastructure bonds, as approved by the Central Government, then the interest payment to a non-resident person would be subject to a concessional rate of tax @ 5%. It is proposed to amend Section 194LC 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 utilised 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. The benefit of reduced rate of tax would, be available to such non-resident in respect of the interest income arising on such subscription subject to other conditions provided in the section. This amendment will take effect from 1st June, 2013 Sharp & Tannan 37 Finance Bill, 2013
Personal Notes Sharp & Tannan 38 Finance Bill, 2013
Service Tax Proposals The following changes are proposed in the Finance Bill, 2013 to the Chapter V of the Finance Act, 1994 which contains provisions of service tax, which will come into force from the date of the enactment of Finance Bill, 2013: 1. Rate of Service tax: No change in the rate of service tax. 2. Amendments in the Finance Act, 1994: Chapter V of Finance Act, 1994 is being amended : (a) Definition of 'approved vocational education course' provided in Section 65B (11) is being amended: firstly, the words, 'or State Council of Vocational Training' is being inserted in (i), and secondly, entry at item serial number (iii) is being omitted, for NSDC is not an affiliating body. After the proposed amendment takes effect, courses in 'designated trades' offered by Industrial Training Institute or Industrial Training Center affiliated to State Council of Vocational Training will also be covered by the Negative List; (b) Definition of process amounting to manufacture or production of goods, in Section 65B(40) being amended to include processes on which duties of excise are leviable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955; (c) Explanation contained in Removal of Difficulty Order 2/2012 is being introduced as a separate Section 66BA. By the authority of this section, references to Section 66 (charging section under the Positive List approach) in Chapter V of the Finance Act, 1994 or any other act, will be construed as reference to Section 66B (charging section under the Negative List approach), with effect from the 1st July, Sharp & Tannan 39 Finance Bill, 2013
Personal Notes Sharp & Tannan 40 Finance Bill, 2013
2012. Reference to Section 66 appearing in the Finance Act, 2004 and the Finance Act, 2007, in the context of education cesses will be read as 66B, in accordance with this new section; (d) The word, 'seed' is being omitted from the expression 'seed testing' found in Section 66D(d)(i). As a result, testing activities directly related to production of any agricultural produce, like, soil testing, animal feed testing, testing of samples from plants or animals, for pests and disease causing microbes will be covered by the Negative List; (e) In Section 73, a new sub-section (2A), similar to subsection (9) of Section 11A of Central Excise Act, 1944, is being inserted to harmonize the Central Excise and Service Tax law. As a result, if a show cause notice issued under proviso to Section 73(1), is not found sustainable by an appellate authority or tribunal or court, the same will be deemed to be a notice issued for a period of eighteen months; (f) Section 77(1)(a) is being amended, in such manner that, maximum penalty impossible for failure to obtain registration will be Rs.10,000 only; (g) Section 78A is being introduced, to make provision for imposition of penalty on director, manager, secretary or other officer of the company, who is in any manner knowingly concerned with specified contraventions; (h) In Section 86(5), it is proposed to insert the expression sub-section (1) or appropriately. Therefore, in case of assessee appeal also, appellate tribunal can admit an appeal or permit the filing of memorandum of cross objections after the expiry of the relevant period; (i) Section 89 is being amended: (i) in the case of an offence specified in clauses (a), (b) and (c) of sub-section (1) where the amount exceeds Rs.50 lakhs, punishment shall be for a term which may extend to three years, but shall Sharp & Tannan 41 Finance Bill, 2013
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not, in any case, be less than six months; (ii) in the case of failure to pay service tax collected, to the credit of the Central Government within six months, an offence specified in Section 89(1)(d), if such non-payment exceeds Rs.50 lakhs, punishment shall be imprisonment for a term which may extend upto seven years but not less than six months; and (iii) in the case of any other offence, the punishment shall be imprisonment for a term which may extend to one year; (j) Section 90 is being introduced to specify and differentiate cognizable offences from non-cognizable and bailable offences; (k) Section 91 is being introduced to provide for power to arrest; Commissioner of Central Excise is empowered to authorize any officer of Central Excise not below the rank of Superintendent of Central Excise, to arrest a person for specified offences particularly non-payment of collected service tax; (l) Section 95 is being amended to empower the Central Government for removal of difficulty in respect of amendments carried out through the Finance Act, 2013. 3. Rationalization of Abatement: At present, taxable portion for service tax purpose is prescribed as 25% uniformly for constructions where value of land is included in the amount charged from the service recipient, which is being rationalized. Accordingly, where the carpet area of residential unit is upto 2000 square feet or the amount charged is less than Rs.1 crore, in the case of 'construction of complex, building or civil structure, or a part thereof, intended for sale to a buyer, wholly or partly except where the entire consideration is received after issuance of completion certificate by the competent authority', taxable portion for service tax purpose will remain as 25%; in all other cases, taxable portion Sharp & Tannan 43 Finance Bill, 2013
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for service tax purpose will be 30%. This change will come into effect from the 1st March, 2013. 4. Review of Exemptions (to take effect from 1st April, 2013): (a) The following exemptions are being rationalized: 1) Rationalization of exemption limit prescribed for charitable organizations, providing service towards any other object of general public utility. So far, the limit was Rs.25 lakhs per annum. Now, they will be covered by the threshold exemption. 2) Exemption provided to restaurants other than those having: (a) air-conditioning; and (b) license to serve liquor, is being rationalized; condition regarding 'license to serve liquor' is being omitted. Therefore, with effect from 1st April, 2013, service tax will be leviable on taxable service provided in restaurants with air-conditioning or central air heating in any part of the establishment at any time during the year. (b) The following exemptions are being withdrawn: 1) Rationalization of exemption to transport of goods by road and rail/ vessel. Services provided by an educational institution by way of renting of immovable property. 2) Temporary transfer or permitting the use or enjoyment of a copyright relating to cinematographic films was fully exempt so far; now, this exemption will be restricted to exhibition of cinematograph films in a cinema hall or a cinema theatre. 3) Services by way of vehicle parking to general public. 4) Services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft. Sharp & Tannan 45 Finance Bill, 2013
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5. Amnesty Scheme for Non-Filers and Stop-Filers: To encourage voluntary compliance and broaden the tax base, it is proposed to provide one-time amnesty by way of: a) waiver of interest and penalty; b) immunity from prosecution, to the stop filers, non-filers or non-registrants or service providers (who have not disclosed true liability in the returns filed by them during the period from October, 2007 to December, 2012) who pay the taxdues. The Chapter VI of the Finance Bill, 2013 contains the Scheme called, Service Tax Voluntary Compliance Encouragement Scheme, 2013. The Scheme will be operational from the date on which the Finance Bill, 2013 receives the assent of the President. 6. Advance Ruling: Scope of advance ruling is being extended to cover resident public limited companies; a notification is being issued for this purpose, under Section 96A (b) (iii) of the Finance Act, 1994. Sharp & Tannan 47 Finance Bill, 2013
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