Important Amendments
Presented by
Ameet N. Patel
16th
July, 2014
2
What the Aam Aadmi
expected from the
#ModiBudget?
Achche Din!
3
What were the most
important expectations?
Reduction in tax rates / changes in slabs
Simplification of law
Steps for reducing inflation
Introduction of GST
Changes in subsidies doled out
Spurring economic growth
No more populism
Removal of retrospective amendments of past
Push back of GAAR provisions
Clear signal to foreign investors to come to India
And what did the Finance Minister give us?
• A marathon Budget Speech with a 5 minute break thrown in
• Not too many heavy duty policy decisions
• No indication of what is being done about inflation
• No roll back on retrospective amendments
• A few changes aimed at reducing litigation
• Quite a few changes affecting stock markets
• Resolve to push GST forward
• Committee to review Expenditure of the Govt
• Resolve to reduce wastage of food grains
• And lots more
DIRECT TAX PROPOSALS
No change in rates of taxes
No abolition of / changes in Surcharge & Education Cesses
DDT to be grossed up
Tax slabs increased
For Resident senior citizens (above 60 years but below 80 years) – threshold limit increased from Rs. 2,50,000 to Rs. 3,00,000
For others – threshold limit increased from Rs. 2,00,000 to Rs. 2,50,000
Individuals above 80 years – No change. Rs 5,00,000 continues
Tax Rates
Tax Rates
Slab Rates: For persons other than Resident senior citizens (below 60 years)
Slabs Tax Rate
Up to Rs 2,50,000 NIL
Rs 2,50,001 to Rs 5,00,000 10%
Rs 5,00,001 to Rs 10,00,000 20%
Above Rs 10,00,000 30%
Tax Rates
• Slab Rates: For Resident senior citizens (60 years and above but below 80 years)
Slabs Tax Rate
Upto Rs 3,00,000 NIL
Rs 3,00,001 to Rs 5,00,000 10%
Rs 5,00,001 to Rs 10,00,000 20%
Above Rs 10,00,000 30%
Effective Tax Rates
• Individuals earning more than INR 1 crore 33.99%
• Corporate Tax – Domestic Company
– Income less than INR 1 crore 30.90%
– Income from INR 1 crore to INR 10 crore 32.445%
– Income more than INR 10 crore 33.99%
• Corporate Tax – Foreign Company
– Income less than INR 1 crore 41.20%
– Income from INR 1 crore to INR 10 crore 42.024%
– Income more than INR 10 crore 43.26%
• Firm/LLPs
– Income less than INR 1 crore 30.90%
– Income up to INR 1 crore 33.99%
DEDUCTIONS FROM INCOME
Two important changes
• The limit for deduction of interest on Self Occupied Property has been increased from 1.5 lakh to 2 lakh
• Limit of Investment under section 80C has been increased from 1 lakh to 1.5 lakh
• PPF Limit to be increased to Rs 1.5 lakh (look at past experience when limit was raised from 70,000 to 100,000)
NET IMPACT OF 3 IMPORTANT CHANGES • Increase in threshold limits
• Increase in 80C limit
• Increase in deduction for Interest on Housing Loans
As a result of the above, if you are having taxable income exceeding Rs. 10 lakh but less than Rs. 1 crore, then you will pay a lower tax and save about Rs. 36,050. Eg:
Present Amended
Gross Income 1,800,000 1,800,000
Less: Interest on Housing Loan 150,000 200,000
Less: 80C deduction 100,000 150,000
Taxable Income 1,550,000 1,450,000
Tax payable 295,000 260,000
Education Cess 8,850 7,800
Total tax payable 303,850 267,800
Net Saving 36,050
CHANGES AFFECTING CAPITAL GAINS
Exemptions From Long Term Capital Gains by investing in Residential House
Property – Sections 54 / 54F
• When a residential house or any other long term capital asset is sold, exemption is available if a new residential house is purchased or constructed within the specified time limit and subject to conditions
• Controversy on whether exemption is available if 2 residential
houses are constructed/purchased • Amendment : Exemption available only in respect of one
residential house purchased / constructed • Additional condition now laid down: The new house should
be in India
Exemptions From Long Term Capital Gains by investing in Specified Bonds –
Section 54EC
• If any long-term capital asset is sold, an exemption is available if the amount of Capital Gains is invested within 6 months in o REC Bonds o NHAI Bonds
• Maximum deduction was prescribed as Rs. 50 Lakh per financial year
• Tax planning : To pace 6 months in such a way that 2 financial years fall within the period - exemption claimed : Rs. 1 Crore
• Amendment: Rs. 50 Lakh is maximum exemption that can be claimed over both years (what about exemption for gain earned in next year?)
• Period of holding for qualifying as long-term capital asset increased from 12 months to 36 months – This will immediately impact FMPs
• Tax rate of 20% applicable in case of debt fund - 10%
tax without indexation has been done away with – This will also immediately impact FMPs
• Does this amount to retrospective amendment?
• What about the redemptions that have already taken place post 1st April, 2014 ?
Unlisted Securities & Units of Debt Funds
Advance Money Forfeited
• Money received as an advance in the course of negotiation for transfer of a capital asset is taxable if the negotiation does not result in transfer of such capital asset in the same year
• Earlier, the same effectively became taxable as part of capital gains when the asset for which negotiation was unsuccessful was actually sold
• Now, it will be treated as income from other sources. Hence exemptions available for capital assets shall not be available
DIVIDENDS WILL BECOME DEARER FOR
COMPANIES AND MUTUAL FUNDS
DDT to be Grossed Up
After Amendment
• Dividend Distributed : 85
• Increased by Rs 15 [85*0.15)/(1-0.15)]
• Increased amount : Rs 100
• DDT @ 15% of Rs 100 = Rs 15
• Total outgo for company: Rs.
100
(Sur charge and EC not considered above)
Before Amendment Dividend Distributed : 85
DDT Rate : 15%
DDT @ 15% paid by company on Rs 85 = 85*15% = 12.75%
Total outgo for company : Rs. 97.75
(Sur charge and EC not
considered above)
DDT to be Grossed Up The impact is even more dramatic and disastrous for income distributed on units of mutual fund Mutual fund industry is shaken up
Present Amended
DDT – Companies 15% 17.65%
DDT – Mutual Funds – Individuals
and HUF
25% 33.33%
DDT – Mutual Funds – Others 30% 42.86%
Plus applicable surcharge and cess. The provisions is effective from 1st October, 2014.
Are there any positives out of this amendment ?
• Possibility of getting out of the web of Section 14A
• Possibility of getting a credit for the tax in another country (in case of Non Residents from a DTAA country)
BUSINESS RELATED CHANGES
Disallowance of expenses in case of non- withholding of tax
• Payments to non residents brought at par with payments to residents - eligible to claim deduction of expenses if withholding taxes paid upto due date of filing of Return.
• In case of payment made to a resident, disallowance of expenses on account of non-deduction/non-payment of taxes restricted to 30% instead of 100%
• Disallowance of salary payments if default in withholding tax payments
– Corporate Social Responsibility (CSR) Expenses – not an allowable business expenditure
– Sec 32AC (1A):- Investment Allowance – Special provision introduced providing deduction on investment in
plant and machinery for manufacturing companies
– Introduced to promote investments in medium size entities
– Eligible for investment in new plant and machinery of more than INR 25 crore for each year
– Benefit available between April 2014 to March 2017
– Investment allowance of 15% of the actual cost of machinery allowed
Other Amendments
Other Amendments
• Returns no longer required to be signed?
• Amendment in section 140
• Does this mean that ITR-V is now not required to be sent to CPC?
• If yes, this is a big change
FOR FOREIGN INSTITUTIONAL INVESTORS
Achche Din
Are here!
• Ambiguity in case of Foreign Institutional Investors (FII) of characterization of income from transfer of securities (business income or capital gains) has been removed
• Definition of ‘capital asset’ includes security held by FII in
accordance with the regulations of SEBI • Transfer by Foreign Institutional Investors (FII) of such
security would be taxable as capital gains Question for FM: What about domestic investors? Why can they not have the same clarity?
Characterisation of Income in case of FIIs
RETROSPECTIVE AMENDMENTS
• Every time the Government lost an important case in the Supreme Court, the law was amended
• Post Vodafone defeat in the Supreme Court, a major retrospective amendment was made
• There was an expectation that the amendment would be removed by Mr Jaitley
• However, he has not touched the amendment
• But, he has said that in principle, he is not very much in favour of making such amendments in future
• He has also said that any action sought to be taken on the basis of the retrospective amendments made 2 years ago will be scrutinised by a High Level Committee to be constituted by the CBDT
Retrospective Amendments
Loans given/ received through use of Electronic Clearance System (ECS) not subject to provisions of sections 269SS & 269T (in future, hopefully, even book entries will be excluded)
New provisions introduced for REITs and INVITs
APA - Roll back mechanism introduced • ALP or method determined in APA can be applied to the past years
• Can go up to four preceding years from the first year of APA
• Detailed rules procedure and conditions to be prescribed
• Substantial relief to taxpayer and great boost to APA program
• Would result in significant reduction in litigation
• Effective from 1 October 2014
Maturity of LIC policies – TDS to be deducted by Insurance companies in some cases – good move to curb tax evasion
Other Amendments
INDIRECT TAX PROPOSALS
Service Tax • Service Tax rate remains unchanged at 12.36%
• Tax base widened to include following
(Effective from a date to be notified after Presidential assent)
– Sale of space or time for advertisements through online and mobile advertising
– Services provided by radio taxis or radio cabs, whether or not air-conditioned
Exemption withdrawn with 11 July 2014 -
– Services of Clinical research on human participants
– Services rendered by Air-conditioned contract carriages like buses
– Meaning of auxiliary educational service narrowed to grant exemption only to specified services rendered to educational institutions
• Exemption available to renting of immovable property given to educational institutions withdrawn
Service Tax
– Ambit of exemptions widened to include the following
Effective 11 July 2014 –
• Transport of organic manure by vessel, rail or road (by GTA)
• Loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton, ginned or baled
• Specialized financial services received by RBI from global financial institutions in the course of management of foreign exchange reserves
• Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India
Other Changes • Color picture tubes exempted from Basic Custom Duty
to make cathode ray TV cheaper and more affordable to weaker sections
• To encourage production of LCD and LED TVs below 19 inches, Basic custom duty reduced from 10% to NIL
• Specific rates of excise duty increased on cigarettes in the range of 11% to 72%
• Additional excise duty of 5% on aerated waters containing added sugar
Customs Duty
Baggage rules amended to increase the limit for duty-free baggage allowance (effective 11 July 2014)
Passengers Old Limit New Limit
Passengers of and above 10 years of age and returning from stay abroad of > 3 days
INR 35,000
INR 45,000
Passengers of and above 10 years of age and returning from stay abroad of < 3 days
INR 15,000
INR 17,500
GST • Finance Minister assured the House that debate on GST should
come to end and before year end the Government would endeavour to approve legislative scheme
– Though no firm commitment on proposed date of introduction of GST
• It appears that the Government would considered step-by-step approach to introduce GST
– First, CenGST (CGST) would be introduced at Central level and then SGST will be introduced to replace the State level indirect taxes
– In particular, CGST would consolidate the following indirect taxes viz; Central Excise Duty, Service Tax, additional Excise Duties, etc
– GST may streamline the tax administration, avoid harassment of the business and may result in higher revenue collection both for the Centre and the States
– The above approach seems simple, but could pose a challenge to the industries as it will involve two level consolidations namely; Introduction of CGST and later, SGST introduction
BIG TAKE AWAYS
• Several moves to reduce litigation – INDIRECT TAXES:
• Scheme of Advance Rulings is being extended to resident private limited companies
• Amendments proposed in the appeal procedures by making mandatory fixed pre-deposit for appeals to be entertained by the Commissioner (Appeals) and Tribunals.
– DIRECT TAXES: • CBDT has issued circular increasing limit for non filing of
appeals to ITAT by the department
• Assurance on retrospective amendments
• AAR & Settlement Commission related changes mentioned but not enacted
BIG TAKE AWAYS
• Clarity / stability being brought in
– Several sunset clauses extended either indefinitely or for few more years – eg:
• 80IA
• 32AC
– Classification of income for FIIs
– REITs & INVITs – new Chapter brought in
– Amendments to sections 54, 54F, 54EC
Achche Din
So,
Coming Soon!
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