ANALYSIS OF BUDGET PROPOSAL

ANALYSIS OF BUDGET PROPOSALS

 

 

FAVOURABLE POINTS OF BUDGET 2013-14 ON DIRECT TAXATION

1.                     An amendment had been made in Section 36 of the Income Tax Act providing that  the tax paid by the assessee in respect of new tax called Commodities Transaction     Tax (CTT) entered in the course of his business during previous year shall be allowable as deduction, if the Income arising from such taxable commodity transaction  is included in the income computed under the head Profit & Gains from

Business or Profession. (w.e.f. 1^st April 2014.

 

2.                  A new section 32AC is introduced in the Income Tax Act to provide that where an  assessee, being a Company-

(a)                  Is engaged in the business of manufacturing of an article or thing; and

(b)              Invests a sum of more than Rs. 100 crore in new assets (plant or machinery) during the period  beginning from 1^st April, 2013 and ending on 31st  March 2015

then the assessee shall be allowed-

(i)                for A.Y. 2014-15 a deduction of 15% of aggregate amount of  actual cost of new assets acquired and installed during the F.Y. 2013-14 if the cost of such assets exceeds Rs. 100cr.

(ii)              For A.Y. 2015-16, a deduction of 15% of aggregate amount of actual cost of new assets acquired and installed during the period beginning on 1^st April 2013 and ending on 31^st March 2015, as reduced by the deduction allowed in the A.Y. 2014-15. (w.e.f. 1^st April 2014)

 

3.                  In order to avail the tax incentive the terminal date U/s 80IA is extended by further  period of 1 year i.e. 31^st March 2014 (w.e.f. 1^st April 2014)

 

4.                  In order to provide relief to the lower income tax bracket a rebate of Rs.2000/- is provided to the residential individual having total income which does not exceed Rs. 5 Lakhs. (w.e.f. 1^st April, 2014)

 

5.                  U/s 24 of the Income Tax Act in respect of self occupied house the deduction of interest on housing loan shall not exceed Rs.1,50,000/- subject to conditions provided in the said section. However new section 80EE has been inserted in the Income Tax Act wherein an additional deduction on such housing loans can be claimed upto Rs.1,00,000/- subject to following conditions:

(i)                The loan is sanctioned by the financial institutions during the period beginning on 1^st April 2013 and ending on 31^st March, 2014;

(ii)              The amount of loan sanctioned for the acquisition of the residential house property does not exceed Rs. 25 lakhs ;

(iii)            The value of the residential house property does not exceed Rs.40,00,000/-;

(iv)            The assessee does not own any residential house property on the date of the sanction of the loan.

However if 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 respect of such interest in the A.Y. beginning on 1^st April 2015.(w.e.f. 1^st April 2014)

 

6.                  Contributions   made to schemes of Central and State Government similar to Central Government health schemes is also eligible    for Section 80D of the Income Tax Act.(w.e.f. 1^st April 2014)

 

 

7.                  Any income by the way of contribution from a depository, of the Investor Protection Fund  set up by the depository in accordance with the regulations prescribed by SEBI will also be exempted subject to the same conditions as applicable in  respect of exemption to an Investor Protection Fund set up by recognized stock exchange.

 

If any income of such depository whether wholly or partly is related to previous year then such income will be taxable in the previous year in which such amount is shared. (w.e.f. 1^st April 2014)

 

8.                  Donations made u/s 80G to National Children’s Funds is also eligible for 100% deduction.

 

9.                  The Specified Undertaking of Unit Trust of India (SUUTI) has been wounded up and is succeeded by a new company National Financial Holdings Company Limited (NFHCL) which is exempted by an amendment u/s 10 in respect of its income accruing, arising or received on or before 31^st March 2014.(retrospectively from 1^st April 2013)

 

10.              The taxability of gross dividends received by an Indian Company from a specified foreign company (in which it has share holding of 26% or more) u/s 115BBD of Income Tax Act at the rate of 15% is further extended for one more year i.e. F.Y. 2013-14 subject to the same conditions (w.e.f. 1^st April 2014)

 

11.       A section 115-O has been amended so as to remove the cascading effect in respect of dividend received by a domestic company from a similarly placed foreign subsidiary i.e. the foreign company in which the domestic company holds more than 50% of equity share capital.

The tax on dividends which is received from foreign subsidiary u/s 115BBD by the holding domestic company and if any dividend is distributed by a holding company in the same year then the amount of such dividends which is received from foreign subsidiary shall not be subjected to Dividend Distribution Tax (DDT) u/s 115O of the Income Tax Act. (w.e.f. 1^st June 2013)

12.              In order to facilitate subscription by a non-resident in the long term Infrastructural Bonds issued by an Indian Company in India, section 194LC  has been amended.

Where a non- resident deposits foreign currency in a designated bank account which is solely used for the purpose of deposit of money in foreign currency and when such money after conversion in rupees is utilized for the subscription of a long term Infrastructural Bond issued by an Indian Company then such borrowings by the company shall be deemed to be in Foreign currency and the interest will be taxed at a concessional rate of 5%.

13.              A new Chapter XII-EA has been introduced were Securitization trust to be exempt from tax. (Amendment w.e.f. 1^st June,2013.)

 

Applicable to: Securitization vehicles set up as a trust whose activities are regulated       either by SEBI or RBI. Income from such activities will be exempt from tax.

 

14.                Securities transaction tax reduced.  (Amendment w.e.f. 1^st June,2013.)

 

Delivery based purchased of units of equity oriented funds entered into in a recognized stock exchange – from 0.1% to NIL

Delivery based sale of units of equity oriented funds entered into in a recognized stock exchange- from 0.1% to 0.001%

Sale of futures in securities- from 0.017% to  0.01%

Sale of a unit of an equity oriented fund to mutual fund- from 0.25% to  0.001%

 

15.              Under the provision of the section 115R, Infrastructure Debt fund set up as Non –

Banking Finance Company the  interest payment made by fund to a non resident investor will be  taxable at a concessional rate of 5%.

(w.e.f. 1^st June 2013)

 

16.       Sections 139C & 139D of the Income Tax Act contains provisions for facilitating filing

of annexure-less returns of net wealth in electronic form by certain class of Income   Tax assessee. (w.e.f. 1^st June 2013)

 

17.           Amendment in the provisions of Section 10(10D): Keyman Insurance Poilcy.

(Amendment w.e.f. 1st April, 2014)

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.

 

18.              Exclusion of time in computing period of limitation for completion of assessment  and reassessment.

Amendment in Section 153, Explanation 1, clause (iii):

Time to be excluded is as follows:

Period commencing from the date on which the Assessing Offiicer directs the assessee to get his accounts audited and ending on the date on which the assessee furnishes the audit report.

                                                                         Or

Where such direction is challenged before the Court , ending with the date on which the order setting aside such direction is received by the Commissioner.

 

Amendment in Section 153, Explanation 1, clause (vii),

Time to be excluded is as follows:

 

Commencing from: The date on which a reference or first reference for exchange of information is made by an authority under an agreement referred to in section 90 or section 90A and

Ending on: The date on which such information requested is lat received by the Commissioner.

                                                                        Or

A period of one year, whichever is less.

 

Similar amendments are proposed in Section 153B of the income Tax Act relating to time limit for completion of search assessment. (Amendment w.e.f. 1st June, 2013)

 

19.  Penalty u/s 271FA for non filing of Annual Information Return. (Amendment w.e.f. 1^st April, 2014)

 

Section 285BA mandates furnishing of AIR by specified persons in respect of specific transactions within the time prescribed under Sub-section (2).

 

Amendment in Section 271FA : If a person who is required to furnish an annual information return, fails to do so within the specified time under Sub-section (1) of Section 285BA, then he shall be liable to pay a penalty of Rs.100 per day during which the failure continues.

 

Amendment u/s 271FA :

 

Sub-section 5 of Section 285BA: The Assessing Officer issues notice  to the assessee who has not filed the AIR before the due date.

 

If a person fails to furnish the return of income within the time specified u/s 285BA(5), he shall be liable to pay a penalty of Rs.500 for every day during which the failure continues,

Beginning from: The day immediately following the day on which the time specified in the notice for furnishing the return expires.

 

20.  Extension of time for approval of Exemption u/s 17 of Employee Provident Fund and Miscellaneous Provisions Act , 1952 (Amended retrospectively w.e.f. 1^st April, 2013)

 

It has been noticed that a number of applications are yet to be processed by the Employees’ Provident Fund Organization(EPFO) for grant of exemption under section 17 of EPF & MP Act. With a view to provide further time to the EPFO to decide on the pending applications seeking exemption under section 17 of the EPF & MP Act, it is proposed to amend the first proviso, so as to extend the time limit from 31st March, 2013 to 31st March, 2014.

UNFAVOURABLE POINTS OF BUDGET 2011 – 12 ON DIRECT  TAXATION

1.                   There is no change in the tax slab rates.

2.                  Surcharge at the rate of 10% is levied on the Individual firm, HUF, Co-operative societies and local authorities having a total income exceeding Rs. 1 Crore.

 

3.                  In case of a Domestic company if the income exceeds 1crore but does not exceed Rs.10 crore then the surcharge levied on them is at the rate of 5%. However if the Income exceeds Rs. 10 crore then the rate of surcharge to be levied is at the rate of 10%.

 

4.                  In case of a Non-Domestic company if the income exceeds 1crore but does not exceed Rs.10 crore then the surcharge levied on them is at the rate of 2%. However if the Income exceeds Rs. 10 crore then the rate of surcharge to be levied is at the rate of 5%.

5.                  A new tax called Commodity Transaction Tax is to be levied on taxable commodities transaction entered into a recognized association. As defined “Taxable Commodity Transaction” means a transaction of sale of commodity derivative in respect of commodities, other than agricultural commodities, traded in recognized associations.

 

Tax proposed to be levied at the rate, given in the table below, on taxable commodities transactions undertaken by the seller as indicated hereunder: 

 

Sr No.	Taxable commodities transaction	Rate	Payable by
(1)	(2)	(3)	(4)
1.	Sale of commodity derivative	0.01%	Seller

 

This tax is proposed to be levied from the date of the Chapter VII of the Finance Bill, 2013 comes into force by the way of notification in the Official Gazette by the Central Government.

 

6.                  The Tax rate in case of Non-Resident Tax payer for Royalty & Fees for Technical services u/s 115A is increased from the rate of 10 % to 25% and shall be applicable to any income by the way of Royalty  and fees for technical services rendered by a non-resident under an agreement entered after 31^st March 1976 which is taxable u/s 115A (w.e.f. 1^st April 2014)

 

7 .          The Permissible Premium rate u/s 10D  increased from  10% to 15% of this sum assured by relaxing eligibility conditions of Life Insurance policies for persons suffering from disability and certain ailments. (w.e.f. 1^st April 2014)

8.         A new chapter is XII-EA has been introduced for providing a special tax regime in which additional income tax shall be levied at the rate of:

(i)  25% in case of distribution made to investors who are individuals and HUF

(ii)              30% in all other cases.

Penalty in case of failure to pay additional income tax an interest @ 1% will be levied for every month or part of the month on amount of additional income tax not paid within the specified time limit

 

 

9.                  Section 194-IA introduced. (Amendment w.e.f. 1^st June,2013)

 

In order to have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time, Section 194-IA is introduced where every transferee (purchaser) shall deduct tax @ 1% of the consideration while making payment or crediting of such sum to the account of the transferor (seller) if amount of consideration is more than Rs. 50 lakhs

 

 

10.              A new Chapter XII-DA wherein additional income tax @20% on buy back of shares of unlisted companies has been introduced.  Where Consideration paid by the company for purchase of its own unlisted shares exceeds the sum received by the company at the time of issue of shares, the company is liable to pay additional income tax @ 20%of income distributed to the shareholder. Such a tax is on similar lines as DDT. Income arising to shareholders where the company is liable to pay additional income tax would be exempt.(w.e.f. 1^st June 2013).

 

11.              A new section 43CA has been inserted wherein consideration for the transfer of asset (other than capital asset), being land or building or both is less than the stamp duty value than the stamp duty will be taken as the full value of consideration    for the purpose of computing income under the head “Profits and gains of Business or Profession” and where the date of an agreement and the date of registration of the transfer of the asset are not same then the date of agreement will be taken as the date for the calculation of the stamp duty value. However this exception shaqll apply only in those cases where the amount of consideration for the transfer has been received by any mode other than cash on or before the date of agreement.  (w.e.f. 1^st April 2014).

 

12.              A new amendment has been introduced under the provisions of section 56(2)(vii) wherein Immoveable property received for an inadequate consideration.

 

And if the consideration for which the said immovable property is received is less than stamp duty value by Rs.50,000 or more, then the difference between the stamp duty value and the inadequate consideration shall be taxable in the hands of individual or HUF as Income from other sources.

 

If the  date of agreement for transfer and the  date of registration of transfer are not the same-then the stamp duty value will be taken as on the date of agreement for transfer. This exception shall apply where amount has been received by any mode other than cash on or before the date of agreement (Amendment w.e.f. 1^st April, 2014)

 

13.           Rationalization of tax on distribution of income by the mutual funds has been  introduced.

 

All types of funds (other than equity oriented funds) will be taxed at the rate of 25% where distribution is made to individual and HUF

 

Infrastructure Debt Fund set up as Mutual Fund will be taxed at the rate of 25%

 

Income distributed by Mutual Fund under Infrastructural Debt Fund Scheme to non -resident investor at the rate of 5% of income distributed. (Amendment w.e.f. 1^st June, 2013)

 

14.              Disallowance of fee, charge etc in the case of State Government Undertaking.

 

There has been an amendment in Section 40 wherein  any amount paid by way of fee, charge, etc levied on, or any amount appropriated, directly or indirectly, from a state government undertaking, by the state government shall not be allowed as a deduction for computation of income of such undertakings under the head ‘ Profits and Gains of business or profession

( w.e.f. 1^st April, 2014)

15.         No deduction u/s 80 GGB and 80GGC if contribution made in cash. (Amendment  w.e.f. 1^st April, 2014)

 

16.              “Tax due” for the purpose of recovery u/s167C the tax due will include penalty, interest and any sum payable under the Act. (Amendment w.e.f. 1st June, 2013)

 

17.              Deduction u/s 80JJA shall be available to the extent of 30% of additional wages paid to new regular workmen only to an Indian company engaged in manufacturing of goods. Further it shall not be applicable where a factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company.

 

18.              All the foreign investors will have to produce tax residency certificates (TRC) of their base nation to claim benefits under the Double Taxation Avoidance Treaty from April 1, 2013. The TRC to be obtained by an assessee, not being a resident in India, from the Government of the country or the specified territory, shall contain the name of the assessee, status as to whether it is an individual or company, its nationality and country wherein it is registered or incorporated.

 

Besides, the TRC should also have the tax identification number of the assessee, its residential status for the purposes of tax, period for which the TRC is applicable and address of the assessee during that period. (w.e.f. 1st April, 2014)

 

19.              Amendment as regards existing liability: wherein the existing liability does not include advance tax payable. (Amendment w.e.f. 1st June, 2013)

 

20.              Return of income shall be regarded as ‘defective’ if the self assessment tax together with interest, if any, has not been paid on or before the date of furnishing return of income. (Amendment w.e.f. 1st June, 2013)

 

 

21.  There is an amendment in the section 142(2A) of the Income Tax Act,

The Expression “nature and complexity” of the accounts has been made wider which is as under: “If at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit” (w.e.f.1^st June, 2013)

 

22.         Clarification of amount to be eligible for deduction as bad debts in case of   banks.   (Amendment w.e.f. 1^stApril, 2014)

 

Insertion of Explanation in clause (vii) of Section 36(1) : For the purpose of the proviso to Section 36(1)(vii) and Section 36(2) (v), only one account shall be made in respect of provision for bad and doubtful debs under Section 36(1)(viia) and such account shall relate to all types of advcanes, including advances made to rural banks.

 

Therefore, for an assessee to which clause (viia) of Section 36(1) applies, the amount of deduction in respect of bad debts actually written off under Section 36(1)(vii) shall be limited to the amount by which such bad debts exceeds the credit balance in the provision for bad and doubtful debts account , without making any distinction between rural advances and other advances.