Budget 2014 15 - An analysis

BUDGET 2014-2015 01

INDEX

FOREWORD ....................................................................................2

BUDGET FLASH .............................................................................. 3

DIRECT TAX PROPOSALS ............................................................... 5

TRANSFER PRICING ...................................................................... 12

INTERNATIONAL TAX PROPOSALS ............................................... 15

INDIRECT TAX PROPOSALS .......................................................... 15

U.S. Gandhi & Co. | Chartered Accountant

BUDGET 2014-2015 02

FOREWORD

Over the past few years, the Indian economy has witnessed sluggish

growth with relative moderation in all three sectors: agriculture, industry

and services. The economy is in need of a fillip to pull itself out of this

slump and be redirected to a path of continued and sustained growth. A

strong and stable government at the center does instill hope. In this

regard, the first Budget of the newly formed government is of paramount

importance, particularly as it signifies the path as well as long term vision

of things to come. While the government has a number of issues to focus

on, three key areas are of particular importance to the economy i.e. fiscal

prudence, sectoral growth and containment of inflation.

Targeting a GDP growth rate of 7 – 8% for FY 2014 – 2015, the honorable

Finance Minister Shri Arun Jaitley vowed to reign in the budget deficit to

within 4.1% of GDP by laying special emphasis on infrastructure

development and administrative reforms. The budget has provided

various SOP's to the power generation companies in the form of extended

Tax holidays and for renewable energy equipment manufacturers in the

form of exemption from duties thus pushing for investment in the sector.

'Aiming at minimum Government maximum governance' aptly

summarizes the direction the Finance minister is planning.

Revenue Drill


BUDGET 2014-2015 03

BUDGET FLASH

Direct Tax

· No change in the rates of taxes, surcharge and education cess for

all Individual & Corporate taxpayers.

· Basic exemption limit of tax for individuals below 60 years of age

enhanced from INR 2,00,000 to INR 2,50,000 per financial year.

· Basic exemption limit for senior citizens above 60 years of age


· Deduction towards the specified investments under section 80C is


· Public Provident Fund contribution limit enhanced from INR

1,00,000 to INR 1,50,000 per financial year

· Deduction for interest on housing loan for self-occupied property

is enhanced from INR 1,50,000 to INR 2,00,000 per financial year.

· Investment allowance at 15% for 3 years to manufacturing company

which invest more than Rs. 25 crores in plant and machinery.

· Unlisted security and a unit of a mutual fund (other than an equity

oriented mutual fund) shall be a short-term capital asset if it is

held for not more than thirty-six months.

· Concessional rate of tax of 5% on interest on borrowings in

foreign currency extended to all types of bonds.

· Foreign dividend tax to continue @15% with no sunset clause

would assist remittances of overseas earnings back to India.

· Lower withholding tax rate of 5% on interest payable on long

term funds borrowed from abroad to continue till 30 June, 2017.

· Disallowance of expenditure on Non-deduction/Payment of T.D.S.

on resident payments restricted to 30% of such expenditure

instead of 100% disallowance earlier.


BUDGET 2014-2015 04

Indirect Tax

Service Tax

· Base rate of duty is unchanged

· Service tax proposed to be levied on radio-taxis and sale of space

other than print media

· Exemption withdrawn on services provided by air-conditioned

contract carriages and technical testing of newly developed drugs

on human participants · Exemption granted

a. to services provided by Indian tour operators to foreign

tourists in relation to a tour wholly conducted outside India

b. to loading, unloading, storage, warehousing and

transportation of rice, cotton, whether ginned or baled

c. to life micro-insurance schemes where sum assured does

not exceed INR 50,000/- per life insured

d. to services provided by common bio-medical waste

treatment facilities

· Service of recovery agent to bank, financial institution or NBFC

under full reverse charge · Valuation of Works contract service increased to 70% from 60%.

· Mandatory e-payment for all assessees from 1st October 2014

subject to certain exceptions

· Higher Interest rate on delayed payment revised from 1st

October 2014 a. 18% upto six months b. 24% from six months to one year c. 30% for more than one year

Central Excise

· Base rate of duty is unchanged

· Excise duty on footwear with retail price between INR 500 to INR

1,000 per pair reduced to 6% from 12% · Specific rates of excise duty increased on cigarettes in the range

of 11% to 72% · Additional duty of excise at 5% levied on aerated waters

containing added sugar


BUDGET 2014-2015 05

Cenvat Credit

· CENVAT Credit can be availed within six months from the date of

invoice or challan as against indefinite period available earlier -

Effective from 1st

September, 2014

· CENVAT Credit Rules amended to disallow transfer of credit by a

large taxpayer from one unit to another

Customs

· Coloured picture tubes and LCD and LED TV panels of below 19

inches exempted from basic customs duty.

· Basic customs duty on semi-processed, half cut or broken

diamonds, cut and polished diamonds and coloured gemstones

rationalized at a higher uniform rate of 2.5%

· Export duty on bauxite increased from 10% to 20%

· Free baggage allowance increased from INR 35,000 to INR 45,000

Others

· The Hon'ble Finance Minister has pegged the FY15 fiscal deficit

target at 4.5 percent, but added that he will try to meet the 4.1

percent fiscal deficit target set by his predecessor. He pegged the

FY16 fiscal deficit target at 3.6 percent, while for FY17 the target

he is working on is 3 percent.

· The composite cap of FDI in defence has been raised to 49%.

Further the composite cap of FDI in insurance has been increased

to 49% from the current levels of 26%.

· To Liberalize ADR, GDR regime for all permissible securities.

· Uniform KYC Norms to be introduced for the Entire Financial Sector.


BUDGET 2014-2015 06

DIRECT TAX PROPOSALS

A) Personal Tax Rates

(Individual or H.U.F or A.O.P or B.O.I)

The income tax rates for individuals and corporate tax payers continues

to be the same. Also the surcharge and education cess rates have been

kept intact.

I. In case of persons other than those specified in II and III below the rates

of income-tax on total income shall be as follows: -

Income 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%

II. In case of senior citizens (60 yrs – 80 yrs) the rates of income-tax on

total income shall be as follows: -

Income Tax Rate

Up to 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%

Education Cess and Secondary & Higher Education Cess continues to be at

2% and 1% respectively.

(B) Firms

A Firm including Limited Liability Partnership will be taxed at the

same rate of 30% of Net Income. Surcharge* at 10% is Applicable.

Education Cess is 3% of Income tax.

(C) Local authorities

The local authority continues to be taxed at the same rate of 30% of net

income. Surcharge* at 10% is applicable. Education Cess is 3% of Income

tax.


BUDGET 2014-2015 07

(D) Companies

Domestic Company Taxable Income Tax Rate Surcharge Edu. Cess Effective Rate

Domestic Company > than 1 Crore and

30%

5%

3%

32.44%

Upto 10 Crores

Domestic Company > than 10 Crores 30% 10% 3% 33.99%

Other than domestic > than 1 Crore and 40%

2%

3%

42.02%

Company

Upto 10 Crores

Other than domestic

> than 10 Crores

40%

5%

3%

43.26%

Company

Adjusted Book

MAT for Companies Profits > than 1

18.5%

5%

3%

20.01%

Crore and Upto 10

Crores

Adjusted Book

MAT for Companies Profits > than 10 18.5% 10% 3% 20.96%

Crores

Business & Profession

Investment Allowance to Manufacturing Concerns

Investment Allowance under section 32AC of the Act shall be allowed if the

company on or after 1st April, 2014 invests an aggregate of more than Rs.25

crore in plant and machinery in a previous year. It is also proposed that the

assessee who is eligible to claim deduction under the existing combined

threshold limit of Rs.100 crore for investment made in previous years 2013-

14 and 2014-15 shall continue to be eligible to claim deduction under the

existing provisions contained in sub-section (1) of section 32AC even if its

investment in the year 2014-15 is below the proposed new threshold limit of

investment of Rs. 25 crore during the previous year. The deduction allowable

under this section after the proposed amendment in different scenarios of

investment is given by way of illustration in the following table:-


BUDGET 2014-2015 08

Sr.

PARTICULARS F.Y. F.Y. F.Y. 2015- F.Y. 2016 -

OBSERVATIONS

No.

2013-14

2014-15

2016

2017

Amount of 30 30 30

40

investment

Under the proposed section

1

Investment

NIL 4.5 4.5

6

32AC(1A)

allowance

Amount of 150 20 70

20

investment

Deduction both u/s 32AC(1) &

2

Investment

22.5 3 10.5

NIL

32AC(1A).

allowance

Deduction in respect of capital expenditure on specified businesses u/s

35AD.

Under the existing list of specified businesses the following two new

businesses have been included for the purpose of deduction under this

section:-

(a) Laying and operating a slurry pipeline for the

transportation of iron ore. (b) setting up and operating a semi-conductor wafer

fabrication manufacturing unit notified

The date of commencement of operations for availing investment linked

deduction in respect of the above two new specified businesses shall be

on or after 1st

April, 2014.

Units established in SEZ not eligible to claim deduction under Section 35AD

· Section 35AD allows investment linked deduction in

respect of profits of certain specified businesses

· Budget proposes that units located in SEZ and claiming

deduction under Section 10AA, are ineligible to claim

deduction under Section 35AD for such specified business


BUDGET 2014-2015 09

Amendment in calculation of Adjusted Total income for AMT (Alternate

Minimum Tax) u/s 115JC.

Henceforth the calculation of adjusted total income for AMT, the

investment linked deduction claimed u/s 35AD will also be added back to

the total income after giving effect to depreciation u/s 32.

Restriction in disallowances with regard to Non-Deduction/Payment of

T.D.S.

The following changes have been proposed in the finance bill:-

(a) It is now proposed that no disallowances of expenditure will be made

u/s 40(a)(i), if TDS on the same is paid on or before due date of filing of

return of income prescribed u/s 139(1) of the Income Tax ACT, 1961 even

in respect of such payments made to non-resident. (b) The scope of payment specified u/s 40(a)(ia) has been widened to

include “any payments made to a resident”. Hence, disallowances u/s

40(a)(ia) for non-deductions/payments of TDS in respect of payment for

salaries, director fees, etc. will be applicable. (c) The expenditure disallowance u/s 40(a)(ia) has now been restricted to

30% of the respective expenditure instead of 100% disallowance earlier.

However, it is important to note that this benefit of 30% disallowance is

not available for payments made to non-residents. Hence, disallowance

of 100% on expenditure will continue on payments made to Non-

residents on which T.D.S. has not been deducted/paid.


BUDGET 2014-2015 10

Presumptive based income for specified business.

Sr. Type of

Goods

Existing amount of presumptive income

Amended amount of presumptive income

No.

carriage

Heavy goods Rs.5,000 for every month (or part of a

1

month) during which the goods carriage is

vehicle (HGV)

Rs.7,500 for every month (or part of a

owned by the taxpayer.



Vehicle other Rs.4,500 for every month (or part of a

2


than HGV


Speculative transaction in respect of commodity derivatives.

The transaction with respect to commodity derivatives where Commodity

Transaction Tax has been paid will not be considered as a speculative

transaction as per clause (e) of Proviso to section 43(5). The same will be

considered as normal business income if held as stock in trade.

Allowability of Corporate Social Responsibility (C.S.R.) contribution

It is expressly clarified that any expenditure incurred by the assessee on

the activities relating to corporate social responsibility as referred under

section 135 of Companies Act, 2013 shall not be allowed as a deduction

under section 37(1) of the Act.

However, the C.S.R. expenditure which is of the nature described u/s 30 to

36 of the Act shall be allowable deduction as business expenditure.

Loss in case of business of trading in shares

It is proposed to amend the explanation to section 73 of the Act, thereby

clarifying that in case of a company whose principal business is that of

trading in shares, any loss arising on such trading shall not be

characterized as a speculative loss. Such loss shall be now set-off or

carried forward as a business loss.

Concessional tax rate on repatriation of foreign dividends earned by

Indian companies on investments abroad.

With a view to encourage Indian companies to repatriate foreign

dividends into India, it is proposed to extend concessional rates of tax at

15% to be continued in respect of Indian companies repatriating dividends

received from investments abroad.


BUDGET 2014-2015 11

Withholding of Taxes (T.D.S.)

TDS applicability under newly inserted section 194DA on sum

received under Life Insurance Policy.

TDS @ 2% is applicable u/s 194DA on the sums received under certain

Life Insurance Policy which does not fulfill the conditions specified u/s

10(10D). T.D.S. is applicable only if the aggregate sum paid in the financial

year is more than Rs. 1,00,000.

This amendment is w.e.f. 1st

October, 2014.

Authority assigned to levy penalty for failure to furnish TDS/TCS

statements

The assessing officer now has the power to levy penalty u/s 271H in cases of

failure to furnish TDS/TCS returns.


October, 2014.

Concessional rate of withholding tax on interest payments on foreign

borrowings.

Presently, the rate of withholding tax under section 194LC of the Act, for

interest payments by an Indian company to non-residents for monies

borrowed in foreign currency is 5%. The concessional rate of withholding

tax is only limited to long term infrastructure bonds.

It is now proposed that the lower withholding tax rate of 5% shall be

extended to any long term foreign currency bonds. It is further proposed

that the concessional rate shall be applicable in respect of borrowings

made before 01st

July, 2017.

Exceptions from applicability of Section 206AA shall be extended to such

payments. The amendments shall take effect from 01st

October, 2014.

Power of survey by TDS wing

It is proposed to amend section 133A of the Act, so as to empower the

tax authorities to enter and survey any premise for the purpose of

verifying the tax deducted or collected at source are in accordance with

the provisions of the Act.


BUDGET 2014-2015 12

The tax authorities may place identification marks on the books of

accounts, take extracts/copies, record statements but shall not impound

or retain any books of accounts or make inventory of any cash, stock or

any other valuables.

This amendment will take effect from 1st

October, 2014.

Tax withholding on specified interest income earned by a business

trust [Section 194LBA]

· Interest received by a business trust from an Indian company in

which such trust holds controlling interest and specified

percentage shareholding is not subject to tax withholding by the

borrower. Corresponding income is not liable to tax in the hands

of business trust

· However, at the time of distributing such interest income to its unit

holders, business trusts to withhold tax at the following rates:

(a) for resident unit holders - 10%

(b) for non-resident unit holders - 5%

(c) These provisions will take effect from 1 October 2014

Additional time limit for issue of order deeming person as "assessee in

default"

Time limit for passing an order deeming a person as "assessee in

default" is extended to seven years from the end of the financial year in

which payment is made or credit is given as against the current timelines

of two years (where withholding tax statement is filed) / six years (in any

other case)


BUDGET 2014-2015 13

Capital Gains

Transfer of Government securities from one non-resident to another

non-resident

Under the new clause (viib) inserted u/s 47 a transfer of government

security carrying a periodic payment of interest, from one non-resident to

another non-resident will not be considered as a transfer for the purpose

of charging capital gains.

Capital gain arising from transfer of an asset by way of compulsory

acquisition

The income chargeable under the head “capital gains” on transfer of asset

by way of compulsory acquisition on enhanced compensation will be

taxed in the previous year in which final order of the court, tribunal or

other authorities is made.

Clarification in respect of Capital gain re-investment in a Residential

House Property

Exemption u/s 54 and u/s 54F will be allowed if investment is made only

in one residential house situated in India.

Capital gains exemption in case of investment in specified bonds u/s 54EC

A clarification through a proviso under sub-section 1 of section 54EC has

been inserted stating that the investment in REC or NHAI bonds during

the financial year in which the original asset or assets are transferred and

in the subsequent financial year shall not exceed Rs. 50,00,000. Under no

circumstances, now aggregate investment can exceed Rs. 50,00,000 even

though investment is spread over two financial years.


BUDGET 2014-2015 14

Taxability of advance on transfer of capital assets

It is proposed to insert Section 56(2)(ix) to the Act in order to tax any

sums forfeited, due to non-materialization of transfer of a capital asset.

Such sums received on forfeiture shall be taxed under the head “Income

from Other Sources”.

Accordingly, such amounts received shall not be deducted from the

cost of acquisition of the capital asset at the time of sale, which is as

per the existing provisions of section 51 of the Act.

Period of holding to qualify for Long Term Capital Asset

It is proposed to amend clause (42A) of section 2 of the Act, thereby

incase of unlisted security and a unit of a mutual fund (other than an

equity oriented mutual fund), if sold, within a period of 36 months shall

be classified as a short term capital asset.

Rate of tax on Long term capital gains in respect of Debt oriented mutual

funds

Under existing provisions long term capital gain from transfer of units of

debt oriented mutual funds is taxed at the rate of 10% (without

indexation) or 20% (with indexation).

It is now proposed to amend existing provisions of section 112 whereby

long term capital gain on transfer of units of debt oriented mutual fund is

taxed at the rate of 20% (with indexation).

Characterization of income in case of transfer of securities by Foreign

Institutional Investors (FII's)

It is proposed that any investments made by Foreign Portfolio Investors

(FPI's) or Foreign Institutional Investors (FII's) in qualified securities shall

be treated as a capital asset. Hence, income arising from transfer of such

securities shall be in nature of capital gains only.


BUDGET 2014-2015 15

Business & Non- Profit Trusts

Ineligibility of certain applications of income in the cases of charitable

trusts and institutions.

New sub-section (6) & (7) has been inserted in section 11 to plug the loop

holes to combat ineligible applications of income for the purpose and

object in respect of charitable trusts/institutions. The benefit of

depreciation u/s 32 and the general exemptions of section 10 against

income of trust/institutions will not be characterized as application or

utilization for the object or purpose for which the institution or trust has

been established.

Rationalization of provisions related to cancellation of registration of

Trust/Institution u/s 12AA

New sub-section (4) has been inserted u/s 12AA which widens the scope

of cancellation of registration of trusts or institution by the

commissioner in the following cases:-

(a) Where its income does not enure for the benefit of general public

(b) Where it is for the benefit of particular religious community or

caste ( in case it is established after the commencement of

the act.)

(c) Where any income or property of the trust is applied for benefit of

specified persons like the author of the trust, trustees, etc. ; or

(d) Where its funds are invested in prohibited modes.

The principal commissioner or the commissioner may cancel the

registration if such trust or institution does not prove that there was a

reasonable cause for the activities to be carried out in the above manner.


October, 2014.

Anonymous donations u/s 115BBC

Under the proposed provisions the assessee will now be allowed to reduce

the amount of anonymous donation in excess of either 5% of total donations

received by the assessee or Rs. 1,00,000 whichever is higher.


BUDGET 2014-2015 16

Mutual funds, securitization trusts and venture capital companies to file

return of income

It is proposed to amend section 139(4C) so as to provide that mutual funds,

securitization trusts and venture capital companies who were exempted u/s

10 will now be required to file return of income if total income in respect of

such fund is assessable without giving effect to provisions of section 10,

Deductions

Clarification with respect to deduction of New Pension Scheme u/s 80CCD

It is now clarified that for employees in private sector date of joining of

service is not relevant for claiming deduction of New Pension Scheme u/s

80CCD.

Extension of the sunset date under section 80IA for the power

generation & distribution sector

With a view to provide further time to the eligible power project

undertakings to commence the eligible activity to avail the tax incentive,

it is proposed to amend the above provisions so as to extend the terminal

date to 31st

March, 2017 i.e. till the end of the 12th

Five Year Plan.

Enhanced interest deduction from income of house property

Under the existing provisions of Section 24 of the IT Act, the amount of

deduction shall not exceed Rs.1,50,000 subject to the fulfillment of the

prescribed conditions.

It has now been proposed that an additional deduction of Rs. 50,000/-

shall be allowed on self-occupied properties (SOP's). The new proposed

deduction now stands at Rs. 2,00,000/-.

Raising the limit of Deduction under section 80C

The benefit of deduction under section 80C is enhanced to Rs. 1,50,000

from the existing Rs. 1,00,000 for investments in eligible instruments.


BUDGET 2014-2015 17

TRANSFER PRICING

Rollback provision in Advance Pricing Agreement (APA) of transfer pricing

APA provisions to allow rollback for international transactions entered

during any period not exceeding four previous years prior to which APA

applies. The rollback provisions refer to applicability of ALP

determination methodology, or the ALP, to be applied to the

international transactions which had already been entered into in a

period prior to the period covered under an APA.

These amendments will take effect from 1st

October, 2014.

Powers to Transfer Pricing Officer (T.P.O.) to levy penalty

The Transfer Pricing Officer (TPO) shall have the powers to exercise levy

of penalty under the existing provisions of section 271G of the Act, on

failure to furnish requisite documents or information under section

94D(3) . TPO can levy such penalty on both international transactions and

specified domestic transactions.


October, 2014.

Miscellaneous provisions

Verification of return of income u/s 140.

With a view to enable the verification of returns either by a sign in

manuscript or by any electronic mode, hence the words “signed” is replaced

by “verified” and the words “signed and verified” are replaced by “verified”.


October, 2014.

Clarifications regarding mode of payment and acceptance of loans and

deposits

It is clarified that mode of payment shall include use of electronic clearing

system through a bank account (i.e. R.T.G.S or N.E.F.T.) for the purpose of

acceptance and repayment of loans and deposits u/s 269SS and u/s 269T.

Hence, no such penalty will be levied u/s 271D & 271E if loan is accepted

or settled through above electronic mode.


BUDGET 2014-2015 18

Extended period for interest payment u/s 220.

As per the newly inserted proviso to Section 220(2) now the interest

@1% has to be paid from the date of expiry of 30 days as mentioned in

the first notice of demand till the date of payment of demand as per the

order of the last appeal. The proviso has included the order passed u/s

263 which is a revision carried out by the commissioner in the case where

the assessment is prejudicial to the interests of the revenue.


October, 2014.

Inquiry for possession of information

It is proposed to insert a new section, 133C in the Act. As per this section,

the prescribed income tax authority for the purpose of verification of

information, can issue notice to any person to furnish the requisite

information at any time.


October, 2014.

Time limit for completion of valuation report

It is proposed to provide that the valuation officer shall send a copy of his

report to Assessing Officer and the assessee within a period of six months

from the end of the month in which a reference is made to him under the

provisions of section 142A of the Act.

It is also proposed to amend section 153 & 153B so as to provide that the

time period beginning with the date on which the reference is made to

the Valuation Officer and ending with the date on which his report is

received by the Assessing Officer shall be excluded from the time limit

provided for completion of assessment or reassessment.


October, 2014.


BUDGET 2014-2015 19

Penalty for failure to produce accounts and documents

It is proposed to amend the provisions of section 276D of the Act, thereby

any person, who willfully fails to produce accounts or documents under the

notice issued under section 142 (1) or 142(2A) of the Act, shall be punishable

with a rigourous imprisonment for a term up to one year AND a penal fine.


October, 2014.

Time limit for provisional attachment

Under the existing provisions of section 281B, Assessing officer in order to

protect the interest of revenue attach provisionally any property belonging

to assessee and such provisional attachment cease to have effect after

expiry of six months from the date of attachment unless otherwise it is

extended by chief commissioner maximum upto period of two years.

Now, it is proposed that the Assessing Officer can make the provisional

attachment of the property under section 281B of the Act for a period of

not exceeding two years or upto sixty days after the date of

assessment/reassessment, whichever is later.

These amendments will take effect from 1st

October, 2014.

Credit of Alternate Minimum Tax (A.M.T.)

It is proposed to give credit for tax paid under Alternate Minimum Tax

(A.M.T.). Notwithstanding, whether conditions mentioned under section

115JEE is fulfilled or not amendment will benefit all persons other than

companies who will benefit all persons (other than companies) who have

paid Alternate Minimum Tax (A.M.T.) in preceding years.


BUDGET 2014-2015 20

Assessment of Income of person other than person who has been

searched

It is proposed to amend section 153C of the Act to provide that assessing

officer of person other than person who has been searched will proceed

against such other person in accordance with provisions of section 153A

(Block assessment) if he is satisfied that books of accounts or documents

or assets seized have bearing on determination of total income of such

other person.

In other words, proceedings u/s 153A shall not be initiated to such other

person if there is no bearing on determination of total income.

Dividend and Income Distribution Tax

It is proposed to amend Section 115O Dividend Distribution Tax and 115R Tax

on income to unit holders w.e.f 1.10.2014 – Amount of distributable income

and dividends received by unit holders and shareholders needs to be Thus,

where the amount of dividend paid or distributed by a company is Rs. 85,

then DDT under the amended provision would be calculated as follows:

Dividend amount distributed = Rs. 85

Increase by Rs. 15 [i.e. (85*0.15)/(1-0.15)]

Increased amount = Rs. 100

DDT @ 15% of Rs. 100 = Rs. 15

Tax payable u/s 115-O is Rs. 15

Dividend distributed to shareholders = Rs. 85


BUDGET 2014-2015 21

Taxation Regime for Real Estate Investment Trust (REIT) and Infrastructure

Investment Trust (Invit)

Salient features of REITs and Infrastructure Investment Trust:

· Units of REIT and Inv Trust to be listed on recognised stock

exchanges in India

· Income bearing assets to be held under Indian Special Purpose

Vehicle (SPVs), which in turn would be held by REITs / InvTrust

· Units of REITs / InvTrust to be granted same status as listed equity

shares i.e. same levy of STT as well capital gains tax rates

· Swap of shares of SPV by Sponsors for units of REITs / InvTrust

would be exempt

In order to facilitate financing and taxation aspects of these business

trusts, Budget has introduced a separate regime for taxation of business

trusts through introduction of Section 115UA and other enabling

provisions in this regard. As per the said provisions, business trusts have

been accorded a pass-through status for taxation purposes.

INTERNATIONAL TAX PROPOSALS

Deemed international transactions

· “Deemed international transactions” concept stipulates that any

transaction between an unrelated party (URP) and an associated

enterprise (AE) qualifies as an international transaction if such

transaction was a result of a prior agreement/ terms of such

transaction were in substance determined between/by such URP

and AE (i.e., when a third party is interposed between 2 AEs) · Earlier, there was a view that such URP had to be a non-resident

to fall within above provisions and hence transactions between 2

residents fell outside the purview

· This loophole is now plugged by the clarificatory amendment that

stipulates that such URP could be either resident or non-resident

[Section 92(B)(2) of the Act with effect from 1 April 2015]


BUDGET 2014-2015 22

INDIRECT TAX PROPOSALS

Service Tax:-

Changes in the Negative list in case of certain services

· Service tax levy on sale of space and time for advertisements is to

be extended to cover online and mobile advertisements (Effective

date yet to be notified). However, Advertisements in print media

continue to be exempt.

· Services provided by radio taxis/cabs to be taxable at abated rates

applicable to rent-a-cab operator services i.e service tax will be

levied on 40% of the value of service. (Effective date yet to be

notified).

· Value of service portion in works contract relating to movable and

immovable property will be brought under one category, with

uniform service portions 70% of the invoice. (Effective from

1st

October, 2014).

· Services in relation to renting of immovable property to specified

educational institutions.

Services exempted from the levy of service tax

Exemption to 'auxiliary educational services' received by an

educational institution replaced with a specific list of services received

by specified educational institution such as

· Transportation of students, staff, etc, catering services, security or

cleaning or house-keeping services and services relating to

admission or conducting of examination.


BUDGET 2014-2015 23

· Services provided by way of public health, sanitation, solid waste

management or slum improvement or upgradation, water supply

to Government or local authority.

· Services provided by a tour operator to a foreign tourist in

relation to tour conducted wholly outside India.

· Life micro-insurance schemes for the poor, approved by IRDA,

where sum assured does not exceed rupees fifty thousand.

· Transportation of organic manure, cotton by vessel, rail or road

(by GTA).

· Loading, unloading, packing, storage or warehousing, transport by

vessel, rail or road (by GTA), of cotton, ginned or baled.

· Services provided by common bio-medical waste treatment

facility operators to clinical establishments.

· Services received by RBI from FII's in relation to management of

foreign exchange reserves.

· Retrospective exemption to services provided by Employees' State

Insurance Corporation (ESIC) during the period prior to 1st July

2012.

These amendments are to be effective from 11th

July, 2014

Withdrawal of exemption from levy of service tax

1. Air conditioned contract carriages other than for the purpose of

tourism, conducted tour, charter or hire.

2. Technical testing or analysis of newly developed drugs on human

participants by a clinical research organisation.


BUDGET 2014-2015 24

Introduction of variable interest on late payment of service tax

To encourage prompt payment of service tax, it is being proposed to

introduce interest rates which would vary on the extent of delay

[Notification No.12/2014-ST]. Simple interest rates per annum payable on

delayed payments under section 75, are prescribed as follows:

Extent of Delay Simple interest rate per annum

Upto six months 18%

More than six months &upto one year 18% for first six months and 24% for the period of

delay beyond six months

More than one year 18% for first six months, 24% for second six

months and 30% for the period of delay beyond

one year

This new interest rate regime will become operational only on 1st

October

2014. In other words, upto 1st October, 2014, the rate of interest of 18%,

presently applicable, will continue to apply. The variable interest rates will

apply only on or after 1st October, 2014.

These amendments are to be effective from 1st

October, 2014.

Mandatory E-payment of Service Tax

Presently E-payment of service tax is mandatory for service tax liability of

Rs. 1 Lakhs. However, E-payment of service tax is being made mandatory.

Relaxation from e-payment may be allowed by the Deputy

Commissioner/Asst. Commissioner on case to case basis.

Inclusion in the definition of reverse charge mechanism

· Reverse charge mechanism extended to include recovery agent

services provided to banks, NBFC's and other financial institutions.

Service receiver shall be liable to pay service tax under full reverse

charge (Effective from 11th

July, 2014).

· Services provided by Director to a Body Corporate. Service receiver

who is a Body Corporate will be the person liable to pay service tax

under full reverse charge. (Effective from 11th

July, 2014).

· Proportion of service tax payable under partial reverse charge by a

service recipient of rent-a-cab services (non-abated) increased to 50%

(Effective from 1st

October, 2014).


BUDGET 2014-2015 25

Amendments in Place of Provision of Service Rules 2012

· Provision for prescribing conditions for determination of place of

provision of repair service carried out on temporarily imported goods

is being omitted.

· Service consisting of hiring of Vessels (excluding yachts) and Aircraft is

being excluded from rule 9(d). Accordingly, hiring of vessels, or aircraft,

irrespective of whether short term or long term, will be covered by the

general rule, that is, the place of location of the service receiver.


October, 2014.

Point of Taxation Rules

In case of reverse charge services, it is proposed to provide that point

of taxation will be the payment date or first day after 3 months from

the date of invoice whichever is earlier.

Amendment will apply to invoices issued after 1st

October, 2014.

· In case of invoices in respect of services issued before 1st October 2014

but payment has not been made as on today, point of taxation shall be

a) if payment is made within a period of six months of the

date of invoice, be the date on which payment has been

made

b) if payment is not made within a period of six months of

the date of invoice, be determined as if rule 7 does not

exist.


October, 2014.


BUDGET 2014-2015 26

Others

· Concept of intermediary which hitherto was restricted to services is

extended to goods. Intermediaries covers brokers, agents or any

other person who arranges or facilitates a transaction;

· Abatement rate to be revised to 60% in case of transport of goods by

vessel (effective from 1st

October 2014)

· Advance Ruling option extended to resident private limited companies.

· It is proposed that 7.50% of the duty demanded or penalty imposed

or both shall be pre-deposited for filing appeal before Commissioner

(Appeal) or the Tribunal at the first stage and 10% of the duty

demanded of penalty imposed or both for filing second stage appeal

before the Tribunal. The amount of pre-deposit payable would be

subject to the ceiling of Rs. 10 Crore. (Effective date is yet to be

notified). It is to be noted that all pending appeals/stay application

would be governed by the statutory provisions prevailing at the time

of filing such stay application/appeal.

· Procedure for exemption in case of SEZ units simplified.

· Procedure for exemption in case of SEZ units simplified.

Cenvat Credit

· Cenvat credit on inputs and input services to be availed within a

period of six months from the date of issue of invoice (effective from

1st September 2014)

· In case of service tax paid under full reverse charge, the condition of

payment of invoice value to the service provider for availing credit of

input services is being withdrawn. However, there is no change in

respect of partial reverse charge. (Effective from 11th

July, 2014)


BUDGET 2014-2015 27

· CENVAT credit reversed on account of non-receipt of export proceeds

within the specified period or extended period should be allowed to be

claimed, if export proceeds are received within one year from the

period so specified or extended period. This can be done on the basis of

documents evidencing receipt of export proceeds. (Effective from 11th

July, 2014).

· The condition for availing abatement in case of GTA service is being

amended with immediate effect to clarify that the condition for non-

availment of credit is required to be satisfied by the service providers

only. Service recipient will not be required to establish satisfaction of

this condition by the service provider. (Effective from 11th

July, 2014).

· As per the conditions for availing abatement, presently tour operators

who are availing abatement benefit are not allowed CENVAT credit on

the input services used for providing the taxable services. Tour operator

service providers are also being allowed to avail CENVAT credit on the

input service of another tour operator, which are used for providing the

taxable service. This is being provided to avoid cascading of taxes.

(Effective from 1st

October, 2014)

· Rule for determination of rate of exchange to be prescribed.

Excise

· If goods are sold at a price less than the manufacturing cost

including profit, and if no additional consideration is flowing from

the buyer, then transaction value will be adopted.

· Restriction on transfer of credit by a LTU from one unit to other.

· Discretionary powers of the Tribunal to refuse admission of appeals

increased from INR 50,000 to INR 2,00,000.


BUDGET 2014-2015 28

· Mandatory fixed pre-deposit of 7.50% of the duty demanded (including

penalty) for filing appeal with the Commissioner (Appeals) or the

Tribunal at the first stage and 10% for filing second stage appeal before

the Tribunal (subject to a total ceiling of INR 10 crores).

· If an assessee fails to pay duty within a period of one month from

the due date, penalty is payable at the rate of 1% of the duty not

paid for each month.

· Exemption introduced from excise duty on types of drugs and

diagnostic equipment required for the national AIDS control

programme funded by the Global fund to fight AIDS, TB and malaria.

· Exemption to machinery/ components for initial setting up of power

generation projects using non-conventional materials extended to

generation of compressed bio-gas. · It is also proposed to insert a new section 15B which provides for

imposition of penalty if the information return is not submitted.

· It is proposed to allow filing of applications of settlement before the

Settlement Commission in cases where the applicant has not filed

the returns after recording reasons for the same.

· It is proposed to amend section 35L so as to clarify that

determination of disputes relating to taxability or excisability of

goods is covered under the term 'determination of any question

having a relation to rate of duty' and hence, appeal against Tribunal

orders in such matters would lie before the Supreme Court.


BUDGET 2014-2015 29

Amendments in rates

It is proposed to make changes in rate of excise duty which will be

effective from 11th

July, 2014. The amendments in rates are as under;

· Excise duty on pan masala increased to 16% from 12%. · Export Duty On Bauxite Hiked To 20% From 10%. · Excise duty on footwear cut to 6% from 12% for

footwears ranging from Rs.500/- to Rs. 1000/-. · Excise duty on cigarettes hiked from 11% to 72%. · Excise duty on gutkha, chewing tobacco & jarda

scented tobacco raised to 70% from 60%. · Excise duty on winding wires of coppers is raised to

12% from 10%. · Tractors parts removed from one unit to another unit of

same manufacturer, then it will not attract excise duty

on such removals. · Excise duty on forged steel rings is decreased to 0% from 12%. · To withdraw concessional excise duty on recorded smart cards.

· An additional duty of excise of 5% ad valorem on

aerated drinks containing sugar has been imposed.

Key changes in assessment proceedings in respect of Excise & Service Tax

(Effective from the date of enactment of the Budget)

· Time period prescribed within which Revenue

authorities shall determine Service tax as under:

a. Within 6 months from the date of notice (if possible)

where assessees have limitation to receive Show Cause

Notice notice of 18 months; and b. Within one year from date of notice (if possible) where

assessess have limitation to receive Show Cause Notice is

5 years. U.S. Gandhi & Co. | Chartered Accountant

BUDGET 2014-2015 30

· Section 80 amended to remove power granted to Revenue

authorities to waive 50% penalty in cases where service tax not

paid/ short paid by reason or fraud, collusion, etc. but details of

transactions are available in specified records · Additional Commissioner of Central Excise or such other officer

notified by CBEC may direct any Central Excise officer to search

premises · Section 5A (2), Section 15A and section 15B of the Central Excise

Act, 1944 made applicable to Service tax Section 87 amended to

incorporate power to recover dues of a Seller of business from

the "goods" of a Purchaser purchased from the Seller, similar to

Section 11 of the Central Excise Act, 1944 · Central Government empowered to impose Rules for proper

levy and collection of Service tax on persons liable to pay service

tax, duty of furnishing information, keeping records and the

manner in which such records shall be verified, restrictions on

availing CENVAT credit, authorise CBEC officials to issue

instructions for incidental or supplemental matters for

implementation of the Act

Customs Duty

· Advance ruling facility extended to private limited companies.

· Powers of Settlement Commission expanded to specified

exports through post or courier.

· Mandatory fixed pre-deposit of 7.5% of the duty demanded

(including penalty) for filing appeal with the Commissioner

(Appeals) or the Tribunal at the first stage and 10% for filing

second stage appeal before the Tribunal (subject to a total

ceiling of INR 10 crores).


BUDGET 2014-2015 31

· Free baggage allowances are increased from Rs. 35,000 to Rs.

45,000. However duty free allowances of cigarettes is reduced

from Rs. 200 to Rs. 100 and of cigars from Rs. 50 to Rs. 25 and of

tobacco from 250 gms to 125 gms.

· Determination of rate of duty and tariff valuation for imports

through a vehicle in cases where the Bill of Entry is filed prior to

the Import Report.

· It has been allowed to File a Bill of Entry prior to the filing of

Import Report for imports by land.

· Increased the discretionary powers of tribunal to refuse

admission of appeal from the existing Rs.50,000 to Rs.2 lakh.

· Board has been vested with powers to condone delay for a

period of upto 30 days, for review by the Committee of Chief

Commissioners.

· Enabling the Commissioner (Appeal) to take into consideration

the fact that a particular order being cited as a precedent on the

issue has not been appealed against for reasons of low amount.

· Basic Customs Duty on Polystyrene (other than moulding

powder) is being increased from 1.15% to 7.5%.

· Basic Customs Duty is being reduced from 5% to 2.5% on

electrolysers and their parts/spares required by caustic soda or

caustic potash units and membranes and their parts/spares

required by industrial plants based on membrane cell

technology. The BCD on other spares (other than membranes

and parts thereof) is also being reduced from 7.5% to

2.5%.Withdrawal of exemption from education cess and

secondary & higher education cess on aircraft and aircraft parts,

soya bean oil, olive oil, etc.


BUDGET 2014-2015 32

· A provision is being made for refund of Customs duty paid at the

time of import of scientific and technical instruments,

apparatus, etc. by public funded and other research institutions,

subject to submission of a certificate of registration from the

Department of Scientific & Industrial Research (DSIR).

· Section 8B of the Customs Tariff Act, 1975 is being amended so

as to provide for levy of safeguard duty on inputs/raw materials

imported by an EOU and cleared into DTA as such or are used in

the manufacture of final products & cleared into DTA.


BUDGET 2014-2015 33

Disclaimer

This document has been prepared as a service to clients. It

summarizes the Union Budget 2014-15 and the recent policy

changes. We recommend the reader to seek professional advice

taking action on specific issues. It is for Private Circulation only.


Budget 2014 15 - An analysis

Economy & Finance

partial reverse

full reverse

corporate

newly developed

reits invtrust

alternate

basic customs

venture capital