THE FINANCE (NO. 2)BILL 2014 SALIENT FEATURES ON PROPOSALS RELATING TO DIRECT TAXES

1. THE FINANCE (NO. 2)BILL 2014SALIENT FEATURES ON PROPOSALS RELATING TO DIRECT TAXES CA. ANIL MATHUR JAIPUR

2. RATE OF TAXATION /BASIC EXEMPTION No change in rate of tax, SC & Cess . Slab rates in case of individual, HUF , AOP, BOI is as under:- * In case of senior citizen, it will be 300000/-. No change in slab for Super Senior Citizen. Rebate u/s 87A upto 2000/- for resident individual having income upto 500000/- shall continue. Change in methodology of DDT will increase effective rate of tax for companies

3. DEFINITIONS : IMPORTANT CHANGES • 2 (13A) :- Business Trust ( New ) • Means : “ A trust registered as an infrastructure investment trust or a real estate investment trust , units of which to be listed on recognized stock exchange in accordance with SEBI regulations and notified by Central Govt. in its behalf.” • 2 (14) : Capital Asset ( modified) Means : • a) Property of any kind held by an assessee, whether or not connected with his business or profession; • b) any securities held by FII which has invested in such securities in accordance with regulation made by SEBI , but does not include :- (i) any stock in trade [ other than securities referred to in sub clause (b)]

4. Definitions: (Continues…..) • Explanation inserted to assign meaning of FII as per section 115 AD and securities as per clause (h) of section 2 of SCR Act. • 2 (24):- Income (modified) New sub clause (xvii) added to include any sum of money referred to in clause (ix) of sub section 2 of section 56 . • 2 (42A) :- Short term capital assets (modified) Proposes to provide that for short tern capital asset the period of holding shall be less than 12 months in case of i) a security (other than a unit) listed in recognized stock exchange in India. ii) A unit of an “ equity oriented fund ” Accordingly for unlisted securities and unit other than equity oriented fund, period of more than 36 months will be LTCG.

5. Sec. 10 : Important Changes • 10(23 C) :- It provides for exemption for income to university / educational institutions / hospital / other institutions substantially financed by the Govt. • However substantially financed by the Govt. was not defined and now it is proposed to mean such percentage of total receipts including voluntary contribution as may be prescribed. • Income shall be determined without deduction/ allowance of depreciation on asset which has been claimed as application of income. • 10 (23FC): Provides for exemption of any income of a Business Trust by way of interest received or receivable from a SPV.

6. Sec. 10 …………….continues….. • 10 (23FD) :- Any distributed income, referred in section 115UA, received by a unit holder from the business trust, not being that proportion of the income which is of the same nature as the income referred to in clause ( 23FC). • 10 (AA):- SEZ It exempts 100 % profits of SEZ units from exports. A new sub section (10) added to provide that such units not entitled to claim benefit u/s 35 AD in respect of capital expenditure of any specified business.

7. Taxation of Charitable Trust • Income required to be applied / accumulated or set apart for application u/s 11 shall be determined without any deduction by way of depreciation on any asset claimed as application. • Where trust / institution is entitled for exemption u/s 11 then it will not be entitled to claim any exemption u/s 10. • A trust / institution which is granted registration u/s 12AA in an assessment year , benefit will be available for preceding assessment year provided the object and activities were same in earlier year and the registration was not refused / cancelled. AO also debarred for reopening of assessment of earlier year. (with effect from 01.10.2014) . • Registration u/s 12AA can also be cancelled where provision of sec. 11 & 12 don’t apply due to operation of section 13 (1). (with effect from 01.10.2014)

8. Income from House Property • Deduction in respect of interest payment on housing loan for acquisition / construction of SOP increased from 150000/- to 200000/-

9. Income from Business & Profession :- • Sec. 32 AC: Investment in New P&M :- - Investment allowance @ 15% now available to installation of new P & M exceeding 25 crores after 31.03.2015 and upto 31.03.2017. - Such allowance not available for 31.03.15 to companies eligible under 100 crores investment provision in past. • Sec .35 AD:- • Benefit of 100 % deduction in capital expenditure also extended to following two more categories on or after 01.04.2014 :- • a) lying & operating a slurry pipe line for transportation of iron ore • b) setting up and operating a semi conductor wafer fabrication manufacturing unit notified by the board in accordance with such guidelines as may be prescribed. • Any asset in respect of which deduction is claimed need to be used in such specified business for period of 8 years from the year in which it was acquired/ constructed.

10. Income from Business & Profession continues …… • Where such asset used in specified business is used for purpose other than specified business, difference between deduction claimed and depreciation allowable u/s 32 will be treated as income under profit & gains for the year in which the asset is so used. • Sec. 37 :- Disallowance of CSR expenditure - it is clarified by way of explanation that any expenditure on activity relating to Corporate Social Responsibility referred to in section 135 of the Companies Act shall not be deemed to be an expenditure for the purpose of business or profession.

11. Income from Business & Profession continues …… • Sec. 40 : Amount not deductible • In respect of payment to non resident or outside India for payment of interest, royalty or FTS, it will not be disallowed if tax deducted on such expenses has been paid on or before due date of filling of return of income u/s 139 (1). Further, in case TDS has been paid after due date of filling of return, such sum shall be allowed as deduction in the year in which payment is made. • For payment to resident u/s 40 (a)(ia) disallowance will now be restricted to 30% of the expenditure. Deduction will be available if the TDS payment is subsequently made.

12. Income from Business & Profession continues …… • Sec. 43(5): Speculative Transactions :- It is proposed that eligible transactions in respect of trading in commodity derivatives in a recognized association shall not be considered as speculative transaction tax if it is chargeable to CTT. (Retrospective from A. Y. 2014-15). • Sec. 44AE: Presumptive Income :- Distinction between heavy goods vehicle and other vehicles has been removed and uniform presumptive income of Rs. 7500/- per month will be applicable to assessee engaged in plying , hiring or leasing goods carriers.

13. Capital Gain • Sec. 45 (5):- Compulsory Acquisition Any amount of compensation in pursuance of an interim order of a court , tribunal or other authority shall be deemed capital gain of the previous year in which the final order is made. • Sec 47 :- Transactions not regarded as transfer • Any transfer of capital asset being government security carrying periodic payment of interest, made outside India by non – resident to another non – resident through intermediary dealing in settlement of securities. • Any transfer of capital asset being share of SPV to a Business Trust in exchange of units allotted by Trust to the transferor.

14. Capital Gain …….Continues….. • Sec. 48 :- Indexation Indexation will now be governed by “Consumer Price Index ( Urban )” in place of existing “Consumer Price Index for Urban Non Manual Employees” with effect from 01.04.2016. • Sec. 51:- Advance money Advance money will be taxable under income from other sources in following circumstances :- a) The sum received is forfeited b) The negotiation do not result in transfer of capital asset c) Would not be allowed as deduction while calculating capital gains

15. Capital Gain …….Continues….. • Sec. 54 / 54F : Investment in New Residential House The rollover benefit for capital gain arising in transfer of residential house or any other capital asset will be allowed only in respect of investment made in one residential house in India. • Sec. 54 EC :- Investment in specified financial asset the overall ceiling of investment during the financial year in which asset was transfer and in subsequent financial year will be restricted to 50 lacs.

16. Income from other sources • Sec. 56 (2) (ix) :- Any sum of money received as an advance or otherwise in course of negotiations for transfer of a capital asset shall be chargeable to tax under the head, if such sum is forfeited and the negotiations don’t result in transfer of such capital assets. Set off of Losses • Sec. 73 : losses in speculating transactions of business If principal business of company is business of trading of shares or banking, the business of trading of shares shall not be deemed to be speculative business.

17. Deduction under Chapter – VI A • Sec. 80C :- Deduction available has been enhanced to 1.5 lac from 1 lac. • Sec. 80CCD:- • Deduction now available to employees of private sector irrespective of their date of employment. • The amount of deduction shall not exceed 1 Lac • Sec. 80CCE :- The overall ceiling for deduction u/s 80C/ 80CCC , 80CCD increased to 1.5 lac. • Sec. 80 - IA :- Time limit for set up etc. extended upto 31.03.2017 from 31.03.2014

18. Transfer Pricing • Sec. 92B: Meaning of International Transaction The section presently provides that any transaction entered by an enterprise with a person other than an AE shall be deemed to be transaction between two AE if there exist a prior agreement between such persons and AE. It is now proposed to provide that a transaction shall be deemed to be an international transaction where enterprise or AE or both of them are non – resident irrespective of whether other person is resident or non resident. • Sec. 92 CCC :- Advance pricing agreement The APA may provide that ALP or manner of ALP is to be determined, once entered will be applicable to 4 previous years preceding the year where APA is applicable subject to such conditions & manner as may be prescribed. (w.e.f. 01.10.2014.)

19. Taxation in special cases :- • Sec . 112 LTCG on units of mutual funds Long term capital gain on transfer of units of mutual funds other than units of equity oriented funds will not be eligible for concessional rate of tax of 10 % under this section. • Sec. 115A : Taxation of specified non – resident A non resident including a foreign company will be taxed at concessional rate of 5 % in respect of interest earned on any long term bonds including infrastructure bonds issued by specified company or a business trust, at any time between 01.10.2014 to 1. 07.2017. • Sec. 115 BBC: Anonymous Donations : Earlier 5 % of total such donation or Rs. 100000/- which ever is higher is taxed @ 30% and other at normal rate. Now, income tax is payable on total income computed after reducing the amount of anonymous donation which has been taxed @ 30% as against reducing the income by full amount of anonymous donations.

20. Taxation in special cases…Continues… • Sec. 115BBD: Dividend from foreign company Concessional tax rate of 15 % on dividend received by an Indian Company from a foreign company in which the Indian company holds at least 26 % of equity capital shall continued without sunset clause. • Sec . 115JC : Alternate Minimum Tax • While calculating AMT amount of capital expenditure u/s 35 AD to be included after reducing allowable depreciation. • Credit of tax paid shall be allowed whether or not income of the person is more than 20 lac or there is claim u/s 10AA or chapter VI A or 35AD.

21. Taxation in special cases…Continues… • Sec. 115O : Dividend Distribution Tax Methodology of calculating DDT proposed to be changed by grossing up and in the manner that tax on tax to be calculated. Effective rate of tax will be increased (w.e.f. from 01.10.14) . Example as under :-

22. Special provisions related to Business Trust Sec. 115 UA • New Chapter XII- FA to be incorporated for specific provisions of taxation for Business Trust. • It means a trust registered as “Infrastructure Investment Trust "or a “Real Estate Investment Trust” whose units are listed on a recognised stock exchange & notified by the Central Govt. in this behalf. • BT to hold controlling interest as may be required in a SPV being an India company. • Exchange of shares of SPV against units of BT will not be regarded as transfer.

23. Special provisions related to Business Trust ………Continues…….. • Subsequent sales of units of BT subject to capital gain tax depending upon period of holding . • Period of holding of shares to be included in period of holding of units of BT for capital gain. • Interest income received by BT from SPV is exempt. • However on distribution of such interest to unit holders, BT to deduct tax on source at specified rate. • Other income of BT at MMR. • BT to furnish its return of income. • New provisions related to STT on transaction of purchase / sale of units of BT specified.

24. Power to survey Sec. 133A (effective from 01.10. 2014):- • Power of survey extended for purpose of verification of TDS / TCS. • However, tax officer has no right to impound the books of accounts. • Period of retention & custody of books extended to 15 days from against 10 days. Sec. 133C ( New section w.e.f. 01.10.14) • For verification of information in its possession relating to any person , the prescribed Income Tax authority may issue a notice to such person requiring him to furnish information / documents which may be useful or relevant to any inquiry or proceeding.

25. Return of income / Assessment • A mutual fund , securitization trust, venture capital fund & venture capital company & Business Trust to compulsorily file their tax returns. • The requirement of furnishing report/ statement ( regarding distributed income of a Mutual fund ) to be dispensed with. • The Govt. to notify income computation and disclosure standards to be followed by any class of assessee or in respect of any class of income. • Power to make best judgement assessment to be given to the AO in the event the income has not been computed in accordance with such notified standards.

26. Return of income / Assessment…. continues… Sec . 142 A :- (w. e. f. 01.10.14) • The section has been substituted to overcome the court’s decisions which held that before making reference to valuation officer it was mandatory to reject the books of accounts . • It is now proposed that AO for purpose of assessment or reassessment make a reference to VO to estimate the value of asset , property for investment without satisfying about the correctness or completeness of accounts. • Time limit of 6 months provided for sending of the report.

27. Other amendments Tax Deducted at source :- • Sec. 194DA:- (w.e.f. 01.10. 14) Non exempt sums payable under life insurance policy including bonus aggregating to 1 lac or more during any financial year will be subject to TDS @ 2 %. • Time limit as provided u/s 201 (3) (ii) for passing order u/s 201 (1) further extended by 1 year (i.e. 7 years). • Sec. 220 (1A) to be inserted to provide that any demand u/s 156 shall be deemed to be valid till the disposal of appeal by the last appellate authority or disposal of proceedings , as the case may be & such notice of demand shall have effect as provided in the section of 3 of Taxation Laws (Continuation and Validation of Recovery Proceedings ) Act , 1964.

28. Other amendments …….continues…. • Where as a result of an order pursuant to rectification order or any order by any appellate authority or revision order u/s 263 , the amount on which interest was payable u/s 220 is increased , the assessee to be liable to pay interest on the amount payable as a result of such order, from the day immediately after the expiry of period of 30 days from the date of service of notice of demand u/ s156 till the day on which the amount is paid. • Sec. 269SS / 269T :- E-payment is considered as valid payment.

29. Other amendments …….continues…. • Sec .276D (w.e.f. 01.10.14) - Imposition of fine added alongwith provision for imprisonment . • Sec . 281B (w.e.f. 01.10.14) - Power of Tax Authority to extend period of provisional attachment amended to provide that total period of extension shall not exceed to 2 years or 60 days after the date of assessment / reassessment , whichever is later. • Sec. 285 BA : AIR return • Original section substituted and also made applicable to certain prescribed financial institutions. • Form & manner and time limit for information to be furnished to be prescribed .Corrections can be made within 10 days if inaccurate information provided. • Penalty of 50000/- can be levied in case of inaccurate information .

30. Thank You