Taxing

1. TRC Fiscal deficit Taxing • Budget 2013 • Key policy announcements • Direct Tax proposals Budget 2013 Retrospective amendments Super rich tax GAAR I

2. Budget backdrop • Economy expected to grow at around 5.0% in FY 2012-13 • Agriculture – 1.8% • Industry – 3.1% • Services – 6.5% • GDP growth remains sluggish with higher inflation • Growth in next fiscal expected to be 6.1 to 6.7% • Fiscal deficit stands at 5.2% of GDP (4.8% for FY 2013-14) • Revenue deficit to be 3.9% of GDP in FY 2012-13 (3.3% for FY 2013-14) • Direct tax revenue expected to go up by 18.07% and indirect tax revenue to go up by 20.24%

3. Budget snapshot • Direct tax revenue expected to go up by 18.07% and indirect tax revenue to go up by 20.24%

4. Key policy announcements ‘Higher growth leading to inclusive and sustainable development’ to be the mool mantra Government believes in inclusive development with emphasis on improving human development indicators specially of women, the SC, the ST, the minorities and some backward classes. • Tax Reforms Finance Minister is his speech has stated that to set up a “Tax Administration Reform Commission” (TARC) to review the application of tax policies and tax laws and submit periodic reports that can be implemented to strengthen the capacity of tax system . The constitution of the TARC reflects the views of Shome on modern taxadministration.

5. Key policy announcements • Endeavour to re-introduce DTC before the end of the Budget session • Work on draft GST Constitutional Amendment Bill and GST Law expected to be taken forward • Rules on Safe Harbour to be issued shortly • Fifth large tax payer unit to open at Kolkata shortly • Number of administrative measures such as extension of refund banker system, extension of e-payment through more banks, expansion in the scope of AIR to be introduced

6. Rates of tax – Individuals • No change in tax rates and tax slabs for individuals • Rebate upto INR 2,000 for resident individuals earning up to INR 5 Lacs • Surcharge of 10% on tax on INR 1 Crore plus income earners (marginal relief available) • Education cess of 3% to continue

7. Rates of tax - companies • No change in corporate tax rates • Rate of surcharge on domestic companies with income exceeding INR 10 Crores increased from 5% to 10% • Rate of surcharge on non-resident companies with income exceeding INR 10 Crores increased from 2% to 5% • Rate of surcharge on dividend distribution tax increased from 5% to 10%; effective rate would now be 16.995% • Where book profits of a domestic company exceed INR 10 Crores, the rate of MAT to increase to 20.96%

8. Rates of tax - companies • Foreign dividend • Beneficial tax rate of 15% on dividend declared, distributed or paid by specified foreign company again extended for one more year • The above foreign dividend if received from subsidiary, is to be reduced for the purpose of DDT payable by the domestic company

9. Securities Transaction Tax (STT) • STT rates revised as follows: *Effective from 1st June, 2013

10. Commodities Transaction Tax (CTT) • CTT to be levied on taxable commodities transactions (other than in agricultural commodities) from the date the Finance Bill is notified • CTT to be levied at 0.01% and would be payable by the seller • CTT paid to be deductible in computing business income from taxable commodities transactions

11. Capital Asset • Definition of “capital asset” to be amended w.e.f April 1, 2014 to include any land (including agricultural land) situated within distance from : • 2 kilometers of any municipality or cantonment board and which has a population of more than 10,000 (not exceeding 1 lakh); or • 6 kilometers of any municipality or cantonment board and which has a population of more than 1 lakh (but not exceeding 10 lakh); or • 8 kilometers of any municipality or cantonment board and which has a population of more than 10 lakh. • The distance to be measured aerially.

12. Dividend Distribution Tax • Tax on income distribution by mutual funds • Tax on distribution of income by mutual funds (other than equity oriented funds) to individuals or HUFs to be increased from 12.5% to 25% • Tax on income distributed by infrastructure debt funds set up as mutual funds to be reduced to 5% for parity with infrastructure debt funds set up as NBFCs

13. Key International Tax proposals • Tax Residency Certificate • Submission of tax residency certificate a necessary but not a sufficient condition for claiming benefits under tax treaty • Amendment to take effect from FY 2012-13 The Finance Minister has post budget clarified in a press conference that “In order to claim treaty benefit, two conditions need to be satisfied viz. residence and beneficial ownership. TRC is sufficient to prove only ‘residence’ criteria and not ‘beneficial ownership’

14. Key International Tax proposals • Royalty and fees for technical services • Tax on royalty and fees for technical services earned by non resident taxpayers increased from 10% to 25%, as applicable under domestic law • Above rate applicable to all agreements entered post 31 March 1976 • Tax treaty protection available However, majority of the tax treaties are likely to have a rate of 10% to 15%

15. Widening of tax net • Business income on transfer of immoveable property • Higher of stamp duty value or consideration received or accruing on transfer of land and/ or building (not being capital assets) to be taken as full value of consideration • In case of difference between date of agreement and date of registration, stamp duty value as on date of agreement to be considered • Applicable only if consideration (in non-cash mode) is paid on or before date of such agreement • Buyer to withhold tax at the rate of 1% in case of transfer of immovable property (other than agricultural land) to a resident where sale consideration exceeds INR 50 Lacs

16. Widening of tax net • Additional income-tax on buyback of shares • Effective 1 June 2013, unlisted company liable to pay additional income-tax of 20% on distribution of income through buyback of its shares • Tax payable on difference between consideration paid on buyback of shares and amount received by company at the time of issue of such shares • Consideration received by shareholder is exempt from further income-tax • No deduction allowed on the distribution tax paid by the company

17. Widening of tax net • Taxability of immovable property received for inadequate consideration • Where an Individual or HUF receives immovable property for consideration less than stamp duty value of property, then the differential amount will be subject to tax in the hands of individual or HUF • Stamp duty value will be considered as on date of agreement fixing the amount of consideration as long as the consideration, or part thereof, has been paid by any mode other than cash on or before date of agreement • Otherwise, the date of registration of agreement will be considered for computing stamp duty value

18. General Anti Avoidance Rules (GAAR) • Certain recommendations of the Expert Committee accepted with modifications • GAAR to be deferred to FY 2015-16 • Only arrangements which have the main purpose (as opposed to one of the main purposes) of obtaining tax benefit would be covered by GAAR • Treaty override provisions applicable in case GAAR is invoked • The Commissioner of Income-tax to issue a notice to the taxpayer setting out the reasons and basis of invoking GAAR and the taxpayer to be given an opportunity to prove that obtaining tax benefit is not the main purpose of the arrangement • Directions of the Approving Panel to be binding on the taxpayer as well as the Income-tax authorities

19. GAAR • Following conditions relevant though not sufficient to determine whether an arrangement is an Impermissible Avoidance Arrangement • Period of time for which an arrangement exists • Payment of taxes, directly or indirectly, under the arrangement • Availability of exit route under the arrangement • An arrangement shall also be considered to be lacking commercial substance, if it does not have a significant effect upon business risks, or net cash flows apart from the tax benefit • Term of the Approving Panel to be one year (extendable to three years) • Definition of “associated person” and “connected person” combined under an inclusive definition of “connected person” • Central Board of Direct Taxes empowered to make rules in relation to GAAR provisions and matters relating to Approving Panel

20. Exemptions and deductions Deduction in respect of generation, distribution and transmission of power • Sunset clause extended to 31 March 2014 Additional investment allowance for manufacturing companies investing INR 100 Crores in specified new assets between 1 April 2013 and 31 March 2015 • 15% of the actual cost of specified new assets acquired between 1 April 2013 and 31 March 2014 in assessment year 2014-15; and • 15% of the actual cost of specified new assets acquired between 1 April 2013 and 31 March 2015 in assessment year 2015-16, as reduced by the amount of deduction allowed, if any in assessment year 2014-15

21. Exemptions and deductions Deduction of wages to workmen (100 or more) to be restricted to Indian companies deriving profits from manufacture of goods in factories only • Deduction would not be available if the factory is hived off, transferred or acquired by amalgamation with another company Deduction of health insurance premium payments up to INR 15,000 extended to other Central and State Government Health schemes (to be notified) similar to the existing Central Government Health Scheme (CGHS)

22. Exemptions and deductions • Deduction of investment made under equity savings scheme subject to lower of 50% of investment or INR 25,000 • Extended to listed equity oriented fund units • Made applicable for resident individuals with gross total income not exceeding INR 12 Lacs • Deduction available for three consecutive years beginning with the year of investment

23. Exemptions and deductions • Exemption under section 10(10D) not available to any sum received under keyman insurance policy • Keyman insurance policy assigned to any person with or without consideration during its term now to be treated as a keyman insurance policy • Deduction of contribution to National Children’s Fund to be increased from 50% to 100% of the amount donated

24. Exemptions and deductions • New Section 80EE to be introduced to provide for additional deduction of INR 100,000 for interest on housing loan from any financial institution provided • individual does not own any residential house property on the date of sanction • the loan is sanctioned between 1 April 2013 and 31 March 2014 • loan amount is not exceeding INR 25 Lacs • value of house property is not exceeding INR 40 Lacs • Unutilized deduction to be carried forward till 31 March 2015

25. Assessments, appeals and other provisions • Liability of directors of private company in liquidation • Definition of ‘tax due’ from directors of a private company in liquidation expanded to include penalty, interest or any other sum payable under the Act • Seized assets not to be allowed to be adjusted against advance tax liability • Return filed without payment of tax (along with interest, if any) to be regarded as defective return • Scope of direction for special audit to be extended to include parameters like volume of accounts, correctness of accounts, multiplicity of transactions and specialized nature of business activity of the taxpayer • In case of payments to non resident individuals exceeding INR 1 Crore, rate of TDS to be increased by a 10% surcharge

26. Questions?

27. Thank You