HIGHLIGHTS OF AMENDMENTS IN DIRECT TAXES BY FINANCE BILL 2013 By CA Deepak K G ujrati

1. HIGHLIGHTS OF AMENDMENTS IN DIRECT TAXES BY FINANCE BILL 2013By CA Deepak KGujrati

2. Surcharge on Persons other than Companies • Now, Surcharge on Persons other than Companies is applicable as under : • If Net Income is < 1 Crore : NIL • If Net Income is > 1 Crore : 10 %

3. Surcharge on Domestic Companies • Earlier, Surcharge on Domestic Companies was as under : • If net Income is < 1 Crore : NIL • If net Income is > 1 Crore : 5 % • Now, Surcharge on Domestic Companies is as under : • If net Income is < 1 Crore : NIL • If net Income is > 1 crore but < 10 Crore : 5 % • If net Income is > 10 Crore : 10 %

4. Surcharge on Companies other than Domestic Companies • Earlier, Surcharge on Foreign companies was as under : • If net Income is < 1 Crore : NIL • If net Income is > 1 Crore 2 % • Now, Surcharge on Foreign companies is as under : • If net Income is < 1 Crore : NIL • If net Income is > 1 crore But < 10 Crore : 2 % • If net Income is > 10 Crore : 5 %

5. Benefit of Rs. 2000 for small taxpayers(SECTION 87A) • Relief for Tax Payers in the first bracket of Rs.2 Lacs to 5 Lacs. A tax credit of Rs. 2000 to resident individual with total income up to Rs. 5 Lacs will be allowed.

6. Change in Definition of Agricultural Land (Section 2(14)(iii) • Currently, for the purposes of defining “agricultural income” and “capital asset”, land is inter-alia considered to be “agricultural land” if: – it is situated in any area within the jurisdiction of a municipality or cantonment board having population of not less than ten thousand according to the last preceding census; or • It is proposed to amend the second criteria so as to provide that land will be considered as an “agricultural land” if it is situated in any area within the distance, measured aerially of not being more than: – two kilometers, from the local limits of any municipality or cantonment board and which has a population of more than ten thousand but not exceeding one Lac; or

7. – it is situated in any area within such distance not exceeding eight kilometers from the local limits of any municipality or cantonment board as notified by the Central Government. – six kilometers, from the local limits of any municipality or cantonment board and which has a population of more than one Lacs but not exceeding ten Lacs; or – eight kilometers, from the local limits of any municipality or cantonment board and which has a population of more than ten Lacs. It is also proposed to define the term “population” to mean population according to the last preceding census of which the relevant figures have been published before the first day of the previous year. • This amendment will be applicable from AY 2014-15

8. Amendment in Section 10(10D)(d)(Money Received under a LIP) It is proposed to insert a new proviso to Section 10(10D)(d) under which any payment received under an Life Insurance Policy including sum assured allocated by way of Bonus will also be exempt if Insurance is taken on life of any person who is: • a person with disability or a person with severe disability as referred to in section 80U; or • suffering from disease or ailment as specified in the rules made under section 80DDB; and Premium payable does not exceed 15% of the Capital Sum Assured. This proviso shall apply in respect of policy issued on or after 1st day of April 2013.

9. Keyman Insurance Policy • Earlier, Keyman Insurance Policy, which was assigned to the keyman employee or Director, was eligible for exemption under section 10(10D). • The Proposed amendment provides that a Keyman Insurance Policy which has been assigned to a person during his term with or without consideration shall be continued to treated as KMIP. Therefore, its surrender value will not get exemption under section 10(10D). • This amendment will be applicable from AY 2014-15

10. Introduction of Commodity Transaction Tax • CTT to be charged @ 0.01 % on sale of commodity derivative. • Taxable commodities transaction will mean a transaction of sale of commodity derivatives other than agriculture commodities, traded in recognized associations. • CTT paid as above will be allowed as deduction under section 36(xvi) of Income Tax Act if income is treated as business income. • This amendment will be applicable from AY 2014-15

11. Reduction in the rate of Securities Transaction Tax (STT)

12. Insertion of Section 32ACInvestment Allowance • It provides that where an assessee, being a company is engaged in the business of manufacture of an article or thing; and Invests a sum of more than Rs.100 Crore in new assets (plant or machinery) during the period beginning from 1stApril, 2013 and ending on 31st March, 2015, then, the assessee shall be allowed— • For assessment year 2014-15, a deduction of 15% of aggregate amount of actual cost of new assets acquired and installed during the financial year 2013-14, if the cost of such assets exceeds Rs.100 Crore; • For assessment year 2015-16, a deduction of 15% of aggregate amount of actual cost of new assets, acquired and installed during the period beginning on 1stApril, 2013 and ending on 31st March, 2015, as reduced by the deduction allowed, if any, for assessment year 2014-15.

13. The phrase ‘new asset’ has been defined as new plant or machinery but does not include— • any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; • any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; • any office appliances including computers or computer software; • any vehicle; • ship or aircraft; or • any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head Profits and gains of business or profession‛ of any previous year.

14. Commodity derivatives transaction not to be treated as Speculative transaction • Amendment in Section 43(5) w.e.f. 1st April 2014 • A commodity derivative transaction carried out in a recognized association shall not be a speculative transaction i.e. it will form part of income from business & Profession.

15. Insertion of Section 43CASale of Land and Building lying asStock in Trade • It is proposed that where the consideration on transfer of an asset (other than a capital asset), being land or building or both, is less than the stamp duty value, the value so adopted or assessed or assessable shall be deemed to be the full value of the consideration for the purposes of computing income under the head ‚Profits and gains of business of profession. In case where date of agreement and registration are different then the stamp value may be taken as on the date of agreement, the same would be applicable only where a part of consideration is paid on the date of agreement by mode other than cash. • This amendment will be applicable from AY 2014-15.

16. Amendment in Section 56(2)(vii) • Existing Provision provide where immovable property is received by IND or HUF without consideration, the stamp duty value of such property will be charged to tax as income from other sources. It does not cover the situation where property is received for inadequate consideration. • Now, this situation is also covered. As per new provisions of the act, Where the property is received for a consideration which is less than stamp duty value for an amount exceeding Rs. 50,000/-, Consideration minus Stamp duty value > Rs. 50,000 shall be charged as income from other sources. • Also, in cases, where there is time gap between the date of agreement and date of Registration , the stamp duty value to be taken of date of agreement rather than that of registration if payment is made by any mode other than cash. • This amendment will be applicable from AY 2014-15

17. Amendment in Section 80C (3A)Rebate for Premium paid for Persons suffering with Disability Deduction u/s 80C for persons suffering with disability u/s 80U & 80DDB will be available if the premium is not more than 15% of Sum assured . - Cap of 10% extended to 15% - Similar to amendment in Section 10(10D) - This amendment will be applicable from AY 2014-15

18. Amendment in Section 80CCG(Rajeev Gandhi Equity Saving Scheme)

19. Currently, deduction upto Rs. 15,000 is allowed for premium paid towards Central Government Health Scheme or any payment made towards preventive health check-up of the assessee or his family. It is proposed to allow this deduction in respect of any amount paid to any other scheme as notified by the Central Government. Amendment in Section 80D

20. Amendment in Section 80G • Currently, deduction of 50% is allowed for donation made to National Children’s Fund. • It is proposed to allow 100% deduction for donation made to the National Children’s Fund w.e.f AY 2014-15

21. Insertion of New Section 80EEAdditional Deduction of Interest on Housing Loan • For first-home buyers, it is proposed to allow an additional deduction of 100,000 in respect of interest payable on housing loan sanctioned by a financial institution during financial year 2013-14 subject to the following conditions: • The loan amount sanctioned does not exceed Rs. 25 Lacs; • The value of the residential house property does not exceed Rs. 40 Lacs; • The owner does not own any other residential house property on the date of sanction of the loan • In case the interest payable during financial year 2013-14 is less than ` 100,000, the balance amount not claimed as a deduction may be claimed in financial year 2014-15. • No deduction of such interest claimed shall be allowed under any other provisions of the Act.

22. Amendment in Section 80GGB & 80GGC • Currently donation to Political Parties qualifies for deduction. • From AY 2014-15 CASH donation will not qualify for any deduction. • This amendment will be applicable from AY 2014-15.

23. Extension of the sunset date under section 80IA for the power sector • It is proposed to extend the time limit of sunset date with a view to provide further time to the undertakings to commence the eligible activity referred in clause (iv) of subsection (4) of section 80IA to avail the tax incentive by a further period of one year i.e. up to 31stMarch, 2014.

24. Insertion a new Chapter XII-EA • Taxation of Securitisation Trusts : • A new Chapter is proposed to be introduced whereby a securitization trust will be required to pay additional income tax on income distributed to its investors, at the rate of 25% in case of the investor being an individual or HUF, and at the rate of 30% in case of any other investor. However, no additional income tax will be payable if the income distributed by the securitization trust is received by a person who is not chargeable to tax under the Act. • Further, it is proposed that income from securitization activities of a securitization trust which is regulated by SEBI / RBI will be exempt from tax. • It is also proposed that distributed income received by the investor will be exempt from tax. • The above proposal will be effective from 1 June 2013.

25. Typical Securitisation Structure

26. Dividends from specified foreign company Beneficial tax rate of 15% on dividend income from specified foreign company extended by 1 year till 31 March 2014 [ section 115BBD] Dividend distribution tax not payable on dividends payable out of dividends received from a specified foreign company being a subsidiary [ section 115-O] This amendment will take effect from 1st June, 2013. Cascading Effect of DDT is now reduced (Sec 115-O)

27. Amendment in Sec 139 (9) • Clause (aa) has been added to Explanation which stipulates that Return will be treated as defective if tax together with interest u/s 140A not paid before furnishing the return of income. • This amendment will take effect from 1st June 2013.

28. Direction for special audit under sub-section (2A) of section 142 • The existing provisions contained in sub-section (2A) of section 142 of the Income-tax Act, inter alia, provide that if at any stage of the proceeding, the Assessing Officer having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the approval of the Chief Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit. • The expression ‚nature and complexity of the accounts‛ has been interpreted in a very restrictive manner by various courts. It is, therefore, proposed to amend the aforesaid sub-section so as to provide that if at any stage of the proceedings before the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee found then he may with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit. This amendment will take effect from 1st June, 2013.

29. Insertion of new Chapter XII-DA(Tax on Buy Back of Shares) • It is provided that the consideration paid by the company for purchase of its own unlisted shareswhich is in excess of the sum received by the company at the time of issue of such shares (distributed income) will be charged to tax and the company would be liable to pay additional Income-tax @ 20% of the distributed income paid to the shareholder. The additional income-tax payable by the company shall be the final tax on similar lines as dividend distribution tax. The income arising to the shareholders in respect of such buy back by the company would be exempt where the company is liable to pay the additional income-tax on the buy-back of shares. • This amendment will take effect from 1st June 2013.

30. Insertion of new section 194-IA • This section has been inserted to cover transfer of certain immovable property (other than agricultural land) in the realm of TDS. Provision is as follows: • Provisions of TDS has now been made applicable to transfer of certain immoveable properties other than agricultural land if the total amount of consideration Rs. Fifty lacs or more. Transferee at the time of making the payment or crediting any sum as consideration for transfer of immoveable property other than agricultural land to resident transferor shall deduct tax @ 1% of such sum. • This amendment will be applicable from 1st June, 2013

31. GENERAL ANTI-AVOIDANCE RULE(GAAR) • Tax Avoidance is an area of concern across the world. The rules are framed in different countries to minimize such avoidance of tax. Such rules in simple terms are known as ‘General Anti Avoidance Rules’ or GAAR. The General Anti – Avoidance Rule were introduced by Finance Act 2012, a few amendments have been made and date of enforcement has been extended from April, 1 2014 to April, 1 2016.

32. Amendment in Sec 271FA • Earlier amount of penalty for not filing Annual Information Return (AIR) under section 285BA was limited to Rs. 100 per day. • Now Penalty Provisions have been enhanced as under : A). Penalty of Rs. 100 per day would be levied for the period from due date of filing of annual information return to date of filing of the such return. B). Penalty of Rs. 500 per day would be levied for the period from the expiry of sixty days of the notice issue by the income tax authority to the date of filing of the annual information return This amendment will be applicable from AY 2014-15.

33. THANK YOU