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FINANCE BILL, 2014

FINANCE BILL, 2014. Announcements. Announcements. Not to ordinarily bring about any change retrospectively. Instead of tax officers, High Level Committee to scrutinise ‘indirect transfer’ cases covered by retrospective amendment.

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FINANCE BILL, 2014

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  1. FINANCE BILL, 2014

  2. Announcements

  3. Announcements • Not to ordinarily bring about any change retrospectively. • Instead of tax officers, High Level Committee to scrutinise ‘indirect transfer’ cases covered by retrospective amendment. • Advance Ruling can now be obtained by resident taxpayers also. • High level Committee to interact with trade and industry regularly and ascertain areas where clarity in tax laws is required. Appropriate clarifications to be issued within 2 months.

  4. Announcements • Government to review provisions, consider comments received from stakeholders’ and take view on the Direct Taxes Code. • Standards for computing tax would be notified separately pursuant to adoption of new Indian accounting standards. • No policy announcements or amendments in relation to General Anti Avoidance Rules which are effective from AY 2016-17. • Income-tax survey can now be carried out by Income-tax authorities for verifying TDS compliances.

  5. Corporate Tax

  6. Investment in New Plant & Machinery – Section 32AC(1A) & (1B) • W.e.f AY 2015-16, where a company, engaged in the business of manufacturing or production of any article or thing acquires or installs a new Plant & Machinery at a cost exceeding Rs.25 Crores from AY 15-16 up to AY 2017-18, there shall be allowed a deduction of 15% of the actual cost of the asset acquired and installed. • Further, the assessee who is eligible to claim deduction under existing combined threshold limit of Rs. 100 Crores for investment made in AY 2014-15 & AY 2015-16, shall continue to be eligible to claim deduction under the existing provisions of section 32AC(1) (W.e.f. 1stApril 2015)

  7. Deduction in respect of capital expenditure on specified business – Section 35AD • It is proposed to include two new businesses as ‘specified business’ for the purposes of the investment-linked deduction so as to promote investment in these sectors – • laying and operating a slurry pipeline for the transportation of iron ore; • setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is notified by the Board in accordance with the prescribed guidelines. • The date of commencement of operations for availing investment linked deduction in respect of the two new specified businesses shall be on or after 1st April, 2014.

  8. Deduction in respect of capital expenditure on specified business – Section 35AD • It is proposed to amend the section to provide that any asset in respect of which a deduction is claimed and allowed under section 35AD, shall be used only for the ‘specified business’ for a period of eight years beginning with the previous year in which such asset is acquired or constructed. • Where any asset, in respect of which such deduction is claimed and allowed, is used for a purpose other than the specified business during the specified period of eight years, the total amount of deduction claimed and allowed (as reduced by the amount of depreciation otherwise allowable for income-tax purposes) shall be taxable as business income of the taxpayer in the year of such use of the asset. • (W.e.f. 1stApril 2015)

  9. Deduction in respect of capital expenditure on specified business – Section 35AD • However, this would not apply to a company which has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions)Act, 1985 during the specified period of eight years. • Where a taxpayer claims an investment linked deduction, the same taxpayer, being a unit in a SEZ, will not be allowed a profit linked deduction in respect of the same business and vice-versa. • (W.e.f. 1st April 2015)

  10. Corporate Social Responsibility (CSR) –Section 37 • It is proposed to add Explanation 2 to S.37(1) to disallow any expenditure incurred on any activities related to CSR as referred under section 135 of the Companies Act, 2013, while computing taxable income, as it shall not be deemed to be expenditure incurred for the purpose of business or profession. • However, CSR expenditure of the nature described in Section 30 to Section 36 of the Act shall be allowed under those sections subject to fulfillment of the prescribed conditions, if any, specified therein. (W.e.f. 1st April 2015)

  11. Amount Not deductible while computing Total Income – Section 40(a)(i) • Under clause (i), any amount which is payable outside India or in India to a non-resident as Interest, royalty and Fees for technical services or any other sum, on which tax is deductible at source but tax has not been deducted or deducted but not deposited during the previous year or by the due date u/s. 200 is not allowable as deduction in the year in which the expenditure is incurred. Such expenditure is allowable in the year of payment. • W. e. f. A.Y. 2015-16, it is proposed to allow such expenditure, if tax is deducted and deposited by the due date for filing the return of income u/s. 139(1).

  12. Amount Not deductible while computing Total Income – Section 40(a)(ia) • The provision is now proposed to be in line with the provision applicable to TDS on payments to residents covered under clause 40(a)(ia). • W.e.f. A.Y. 2015-16, all expenses subject to TDS will be disallowed u/s. 40(a)(ia), in the same manner in which interest, royalty, etc. are disallowed. However, disallowance under this clause is proposed to be restricted to 30% of the expenditure instead of 100% disallowable at present. Such sum shall be allowable in the year in which tax is deducted and deposited

  13. Speculative Transaction – Section 43 • An eligible transaction in respect of trading in commodity derivatives carried out in a recognised association, which is chargeable to commodities transaction tax shall not be deemed to be speculative transaction. (retrospectively w.e.f. 1st April 2014)

  14. Special Provisions for computing profits and gains of business of plying, hiring, or leasing goods carriage - Section 44AE • Under the existing provisions of section 44AE, for the purpose of presumptive taxation in case of an assessee engaged in the business of plying, hiring or leasing of goods carriages who does not own more than 10 goods carriages, Rs 5,000/- and Rs. 4,500/- for every month or part thereof is taken as income per heavy goods vehicle (HGV) and vehicle other than HGV respectively. • Now the distinction between HGV and vehicle other than HGV is sought to be done away with and it is proposed to take Rs. 7,500/- for every month or part thereof per vehicle as income under this section. (W.e.f. 1st April 2015)

  15. Losses in Speculation Business – Section 73 • The existing provisions of section 73 of the Act provide that losses incurred in respect of a speculation business cannot be set off or carried forward and set off except against the profits of any other speculation business. • Explanation to section 73 provides that in case of a company deriving its income mainly under the head “Profits and gains of business or profession” (other than a company whose principal business is business of banking or granting of loans and advances), and where any part of its business consists of purchase or sale of shares, such business shall be deemed to be speculation business for the purpose of this section. • Explanation to Sec 73 to be amended to provide that provision of the Explanation shall also not be applicable to a company the principal business of which is the business of trading in shares. • (W.e.f. 1st April 2015)

  16. Extension of sunset date for power sector undertaking – Section 80-IA • Currently, a deduction of profits is available to an undertaking, if the undertaking: • is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1st April, 1993 and ending on 31st March, 2014; • starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1st April, 1999 and ending on 31st March, 2014; • undertakes substantial renovation and modernization of existing network of transmission or distribution lines at anytime during the period beginning on 1st April, 2004 and ending on 31st March, 2014. • It is proposed to extend the above terminal date from 31 March 2014 to 31 March 2017. (w.e.f. AY 2015-16)

  17. Dividend distribution Tax and Income Distribution Tax • –Section 1150 & Section 115R • Dividends distributed by domestic companies and mutual funds to be grossed up. • It is proposed to amend Section 115-O and Section 115-R to provide that tax would be paid after grossing up the net profit distributed by the company or the income distributed by the mutual fund. • In other words - • a) If surcharge and education cess is excluded then effective rate of Dividend distribution tax will be 17.647% (100×15 ÷85=17.647%). An extra burden of 2.647%. • b) If surcharge and education cess is included then effective rate of Dividend distribution tax will be 20.47% (100×16.995 ÷83.005=20.47%). An extra burden of 3.48%. • (W.e.f. 1st October 2014)

  18. Furnishing PAN in respect of payment of interest on long term bonds –Section 206AA • Existing provision under Section 206AA(7) of the Act relating to requirement of furnishing PAN are not applicable to payment of interest on long term infrastructure bond referred to in section 194LC of the Act. • It is proposed to amend Section 206AA (7) to extend the benefit of exemption to payment of interest in any long term bondsreferred to in Section 194LC of the Act and not restricted to infrastructure bonds. • (W.e.f. 1stOctober 2014)

  19. Capital Gains Tax

  20. Definition of Short term capital asset - Section 2(42A) • Section 2(42A)amended to provide that securities other than units not listed in a recognized stock exchange and units of mutual fund other than equity oriented mutual fund shall be regarded as short term capital asset, if the same are held for not more than 36. (W.e.f. 1st April 2015)

  21. Capital Gains – Section 45 • In case of compulsory acquisition of capital asset, any enhanced compensation received by the order of the Court, Tribunal or other authority, is chargeable to tax in the year in which such amount is received by the assessee. • It is proposed to provide that, if any amount of compensation is received pursuant to an interim order passed by the Court, Tribunal or other authority, such amount shall be taxable in the year in which the final order of such Court, Tribunal or other authority is made. (W.e.f. 1st April 2015)

  22. Transaction not regarded as transfer – Section 47 • Any transfer of Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident, shall not be regarded as “transfer”. • Section 2(b) of Securities Contracts (Regulation) Act, 1956 defines the expression “Government Security” (W.e.f. 1st April 2015)

  23. Taxation of advance for transfer of a capital asset • A new clause (ix) in sub-section (2) of section 56 is proposed to provide for the taxability of any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset if – • such sum is forfeited; and • the negotiations do not result in transfer of such capital asset. • A consequential amendment is also proposed to be made to include such sum in the definition of the term 'income'. • Correspondingly, section 51 is proposed to be amended to provide that where tax is paid on the forfeited advance, the same is proposed not to be reduced from the cost of acquisition of the asset while computing the capital gains on its transfer. • (W.e.f. 1st April 2015) • `

  24. Capital gains exemption in case of investment in long term specified assets – Section 54EC • The existing provisions exempt proportionate capital gains arising from transfer of a long-term capital asset, if the same is invested in specified long-term assets within a period of six months. • The investment in such specified long-term assets during any financial year should not exceed Rs 50 lakhs. • The existing provisions are ambiguous due to the window of six months being spread in two years in certain cases (transfers post September) which results in claim of relief of Rs 1 crore instead of the intended relief of Rs 50 lakhs. • Accordingly, it is proposes to insert a proviso to clarify that the investment made by a tax payer during the financial year in which the assets are transferred and in the subsequent financial year should not exceed Rs 50 lakhs. • (W.e.f. 1st April 2015)

  25. Capital gains exemption in case of investment in a residential house property – Section 54 & Section 54F • The existing provisions exempt capital gains arising from sale of a long term capital asset, being a residential property if the gains are utilisedfor purchasing/constructing another residential property within the specified period. • If the gains are utilised in the aforesaid manner the capital gains arising from transfer of a long term capital asset, other than a residential house are exempt. • It is proposed to amend section 54 and section 54F to provide relief only if the investment is made in one residential house situated in India. • At present instead of ‘one’ the term used is ‘a’. The FM wants to put an end to the controversy whether investment can be made in more than one residential house to claim the exemption. • (W.e.f. 1st April 2015)

  26. Tax on Long Term Capital Gains – Section 112 • Presently, the concessional tax rate of 10% is applicable on long term capital gains arising from transfer of listed securities, units of mutual funds and zero coupon bonds. • Now, the concessional tax rate of 10% shall be applicable only on long term capital gains arising from the transfer of listed securities (other than units) and zero coupon bonds. (W.e.f. 1st April 2015)

  27. Taxation regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (Invit) – Chapter XII - FA

  28. Taxation regime for REIT and Invit– Chapter XII - FA Investor Sponsor REIT / INVTS SPV

  29. Taxation regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust – Chapter XII - FA • A specific taxation regime is proposed for two new categories of investment vehicles namely, the Real Estate Investment Trust (REIT) & Infrastructure Investment Trust (Invit). Business Trust means a trust registered as an REIT/Invit, the units of which are required to be listed on a recognised stock exchange in accordance with SEBI. Trust would be given a pass-through status. • Listed units of business trust when traded on stock exchange would attract STT and long term capital gains would be exempt while short term capital gains would be taxable at 15%. • However, the period of holding of units would be reckoned as long term only where the units have been held for more than 36 months. (W.e.f. 1stOctober 2014)

  30. Taxation regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust – Chapter XII - FA • Sponsor will not be liable to capital gains tax arising at the time of exchange of shares in SPVs with units of the business trust. However, sponsor shall be liable to tax at the time of disposal of such units and no preferential capital gains tax regime (consequential to levy of STT) will be available to sponsor in respect of units of business trust. • For the purpose of computing capital gain, the cost of units shall be the original cost of shares to the sponsor. The holding period of shares shall also be included in the holding period of such units for the sponsor. • Income by way of interest received by the business trust from SPV is not taxable in the hands of the trust when the SPV makes an interest payment to the trust. However, withholding tax at the rate of 5% (non-resident unit holders) and 10% (resident unit holders) shall be applicable in case of payment of interest component of income distributed to unit holders.

  31. Taxation regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust – Chapter XII - FA • In case of ECBs availed by the business trust, the benefit of reduced rate of 5% tax on interest payments to nonresident lenders shall be available for a prescribed period as specified in section 194LC of the Act. • The dividend received by the trust will be subject to DDT at the level of SPV but will be exempt in the hands of the trust, and the dividend component of income distributed by the trust to unit holders will also be exempt in the hands of unit holders. • Income by way of capital gains on disposal of assets by the trust shall be taxable in the hands of the trust. However, if such capital gains are distributed, then the component of distributed income attributable to capital gains would be exempt in the hands of unit holder. • Any other income of the trust shall be taxable at the maximum marginal rate • The business trust is required to furnish its return of income.

  32. International Tax

  33. Characterization of income in case of Foreign Institutional Investors - Section 2(14) • Definition of the term “Capital Asset” has been amended to provide that securities held by FIIs in accordance with the Securities and Exchange Board of India Act,1992regulations will be regarded as Capital Asset asset only so that any income arising from transfer of such security by a Foreign Portfolio Investor (FPI) would be taxable under the head “capital gain”. (W.e.f. 1st April 2015)

  34. Meaning of International Transaction - Section 92B (2) • Under the current transfer pricing provisions, transactions entered into by an enterprise with a person other than an associated enterprise is deemed as a transaction between associated enterprises, if there exists a prior agreement in relation to such transaction between such other person and an associated enterprise or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. • In order to bring clarity, it has been proposed to amend the deeming provision as transaction shall be deemed to be an international transaction irrespective of whether such other person is a resident or non-resident, as long as either the enterprise or the associated enterprise or both are non-resident. (W.e.f. 1st April 2015) (w.e.f. AY 2015-16)

  35. Reduction in tax rate on certain dividends received from foreign companies – Section 115BBD • The section provides for taxation of gross dividends received by an Indian company from a specified foreign company at aconcessional rate of 15%, if such dividend is included in the total income for the AY 2012-13 or AY 2013-14 or AY 2014-15. • With a view to encourage Indian companies to repatriate foreign dividends into the country, it is proposed to amend the section to extend the benefit of lower rate of taxation without limiting it to a particular assessment year. • Thus, such foreign dividends received in FY 2014-15 and subsequent financial years shall continue to be taxed at the lower rate of 15%. • (W.e.f. 1st April 2015)

  36. Roll back provisions in Advance Pricing Agreement (APA) Scheme • APA is an agreement between the taxpayer and the income-tax authorities on an appropriate TP methodology for a set of international transactions over a fixed time period in future. It is proposed to now introduce roll back provisions in the APA scheme – • Roll back refers to the applicability of the TP methodology agreed in an APA to international transactions entered prior to the period covered under the APA. • Roll back period not to exceed four years preceding the first financial year for which APA is applicable. • Procedure, conditions and manner in respect of roll back of APAs to be prescribed. • (W.e.f. 1st October 2014)

  37. Use Of Multiple year data & Computation of the arms length price • Use Of Multiple year data • Presently, the Indian transfer pricing regulations allow the use of single year data for comparability analysis and multiple year data in exceptional cases. • It is proposed to amend the regulations to allow use of multiple year data for comparability analysis. Rules to be issued on this aspect. • Computation of arm’s length price • Range concept to be introduced for determination of arm’s length price. • Concept of arithmetic mean to continue where number of comparables is inadequate. • (W.e.f. 1st October 2014)

  38. TDS on income by way of interest from Indian company - Section 194LC • The existing provisions of section 194LC of the Act provide for lower withholding tax rate of 5%, on interest paid by an Indian company to non-residents on monies borrowed by it in foreign currency from a source outside India under a loan agreement or through issue of long-term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of July,2015 subject to certain conditions. • It is proposed to make Section 194LC applicable to a business trust also. • It is proposed to extend the benefit of this concessional rate to all long-term bonds including long term infrastructure bonds. • It is proposed to extend the benefit of lower withholding tax rate for overseas borrowing made up to 1st July 2017. (w.e.f. 1st October 2014)

  39. Personal Tax

  40. TAX RATES • For Companies • There are no changes in the Tax Rates including surcharge and education cess applicable to Companies for the AY 2015-16. • For Individuals: • Currently, there is no change in surcharge and education cess payable by individuals • For resident senior citizens of 60 years of age but less than 80 years, the basic exemption limit is proposed to be raised from Rs. 2,50,000 to Rs 3,00,000/-. and for resident senior citizens above 80 years the basic exemption limit remains unchanged at Rs 5,00,000/-

  41. Income from House Property – Section 24 • The deduction in respect of interest paid on money borrowed for the construction, repair and acquisition of self –occupied house property is proposed to be raised from Rs 1,50,000 to Rs 2,00,000 (W.e.f. 1st April 2015)

  42. Deductions under Chapter VIA • Section 80C- Deduction in respect of life insurance premia, deferred annuity, contribution to PF etc. has been raised from Rs 1 Lakh to Rs 1.5 lakh. • Section 80CCD - Under the existing provisions of section 80CCD, deduction respect of contribution to pension scheme of Central Government is allowed to an individual employed by the Central Government or any other employer on or after 1 January 2004 . Now, the condition of being employed on or after 1 January 2004 for private sector employees is proposed to be omitted. • Section 80CCE – Cumulative Limit of deductions under sections 80C, 80CCC and 80CCD has been increased from Rs 1 Lakh to Rs 1.5 Lakh. (w.e.f. AY 2015-16)

  43. Miscellaneous Provisions

  44. Income of Charitable Trust and Institution – Section 11& Section 12 • Principal Commissioner or the Commissioner may also by an order in writing cancel the registration of trust or institution if the activities of trust or institution is not carried out in a manner that : • its income does not endure for the benefit of general public • it is for the benefit of any particular religious community or caste • any income or property of the trust is applied for the benefit of specified persons, or • its funds are invested in prohibited mode. • However, registration shall not be cancelled if there was a reasonable cause to carry out such activity • The power to cancel registration has been expanded. Now for any of the above failures, the registration of a trust can be cancelled by the Commissioner. (W.e.f. 1stOctober 2014)

  45. Income of Charitable Trust and Institution – Section 11& Section 12 • Where registration granted u/s 12A then benefit of exemption would be available for earlier years which are pending before AO as on the date of registration if activities and objects are same. No reopening of assessment for earlier years do be done merely because trust or institution has not obtained registration u/s 12AA. (W.e.f. 1st October 2014) • It is proposed to provide definition of institution (university, hospital or other educational institution) 'substantially financed by the Government" u/s 10(23C). A specific percentage will be prescribed for amount of Government grant as a percentage of total receipts including any voluntary contribution and when such percentage is exceeded the institution will be treated as substantially financed by the Government. (W.e.f. 1st April 2015)

  46. Income of Charitable Trust and Institution – Section 11& Section 12 • Double benefit would not be allowable in respect of depreciation and application of income for acquiring capital asset. Therefore, it is proposed that under section 11 and section 10(23C), income for the purposes of application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year • Any trust or institution registered for availing exemption u/s 11 cannot claim any other exemption u/s 10 other than exemption related to agriculture income and exemption u/s 10(23C) (W.e.f. 1stApril 2015)

  47. Anonymous donations - Section 115BBC As per the existing provisions of section 115BBC, while tax at the rate of 30% is levied on the amount of anonymous donations exceeding the threshold (5% of the total donations received by the assessee or Rs 1 Lakh, whichever is higher), the remaining tax is chargeable on total income after reducing the full amount of anonymous donations. The proper way of computation is to reduce the income by the amount which has been taxed at the rate of 30%. It is proposed to amend section 115BBC to provide that the remaining tax is chargeable on total income after reducing the income by the amount which has been taxed at the rate of 30%. (w.e.f. 1st April 2015)

  48. Anonymous donations - Section 115BBC

  49. Alternate minimum tax - Section 115JC Under the existing provisions, total income is required to be increased by deductions claimed under Part C of Chapter VI-A and under section 10AA to arrive at adjusted total income. It is proposed to insert a new clause (iii) in sub-section (2) so that the total income shall be increased by the deduction claimed under section 35AD for computing adjusted total income. However, the amount of depreciation allowable in accordance with the provisions of section 32 shall be reduced to arrive at adjusted total income. (w.e.f. 1st April 2015) E.g. Total income : Rs. 60, Deduction claimed under Chapter VI-A : Rs. 40, Deduction claimed u/s 35AD on a capital asset : Rs. 100.

  50. Credit of AMT - Section 115JEE The existing provisions provide that provisions of section 115-JEE relating to AMT are applicable to any person who has claimed a deduction under part C of Chapter VI-A or under section 10AA. Further, section 115-JEE does not apply to individuals or HUF or an association of persons or a body of individuals (whether incorporated or not) or an artificial juridical person if the adjusted total income does not exceed Rs 20 Lakhs. However, there was difficulty in claiming AMT credit in subsequent years where income of specified persons is less than Rs 20 Lakhs or no deduction under part C of Chapter VI-A or under section 10AA has been claimed. It is proposed to amend this section to provide credit for tax paid under section 115JC in subsequent assessment years whether or not the conditions mentioned above are satisfied or not. (w.e.f. 1st April 2015)

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