budget 2014 - direct tax provisions

1Sandesh Mundra & Associates

UNION BUDGET 2014-15

A LOOK AT INCOME TAX CHANGES

2Sandesh Mundra & Associates

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CHANGE IN BASIC EXEMPTION LIMIT

Taxable Income

2,50,000 3,00,000 10,00,000 5,00,000 15,00,000

Current Tax 3,090 8,240 28,840 1,33,900 2,88,400

Proposed Tax

Nil 3,090 23,690 1,28,750 2,83,250

Savings in Tax (Rs)

3,090 5,150 5,150 5,150 5,150

•Senior citizen increased from Rs. 2.5 to 3 Lacs

•(below age of 60 years) Rs. 2 to 2.5 Lacs

Impact of such Change-( for below 60 years of age)

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• Impact of change in exemption limits on tax savings in case of Senior Citizen (60 to 80 years of age)-

Taxable Income

2,50,000 3,00,000 10,00,000

5,00,000 15,00,000

Current Tax

Nil 3,090 23,690 1,28,750 2,83,250

Proposed Tax

Nil Nil 18,540 1,23,600 2,78,100

Savings in Tax (Rs)

Nil 3,090 5,150 5,150 5,150

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LETS SEE DEFINITIONS

Business Trust [Sect ion 2(13A)]

a trust registered as an Infrastructure Investment Trust (Invit) or a Real Estate Investment Trust (REIT),

the units of which are required to be listed on a recognized stock exchange, in accordance with the SEBI Act ,1992

and notified by the Central Government in this behalf . (w.e.f . October 1, 2014)

Capital Asset [Section 2(14)]

securities held by Foreign Institutional Investor (FI I ), Which has invested in such securities in accordance with SEBI regulations shall now be considered as a capital asset and shall be subject to tax on capital gains .

(w.e. f . A.Y.2015-2016)

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Income [Section 2(24)]

any sum of money received as an advance or otherwise

in the course of negotiating transfer of a capital asset,

if the said amount is forfeited and negations do not result in transfer of such capital

asset.The said income shall now be taxed under the head ‘ Income from Other Sources’.

(w.e.f . A.Y. 2015-16)

Short Term Capital Asset [Sect ion 2(42A)]

mutual fund units (other than equity oriented unit ) and unlisted security which would now include

unlisted shares held in companies

will be considered as short term capital asset if held for not more than thirty six months.

(w.e. f . A.Y. 2015-16)

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EXEMPTIONS♦ Income of certain educational institutions, universities and hospital [Section 10(23C)]

Change Effective Date

educational institution, hospital or other institution1. is funded through government grant upto a

prescribed percentage 2. Then it shall be considered as being

substantially financed by the Government for that previous year.

ProvisoA trust or institution registered for availing exemption under this Section 1. is restricted to claim exemption under

provisions of Section 10 (except in respect of agricultural income and under clause (23C)).

A.Y. 2015-16)

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• Income of Business Trust [Section 10(23FC)]


Clause (23FC) granting exemption to a Business Trust On income by way of interest received or receivable from “special purpose vehicle”

SPV to mean an Indian company engaged in business of Infrastructure and Real Estate Projects in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the concerned trust laws.Interest Income of such trust to unit holder is taxable and any other income is exempt.

A.Y. 2015-16

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• INCOME OF CHARITABLE TRUST


Insertion of sub section (6) to provide that in computing total income under section 11, when application of income for acquiring assets is allowed as deduction, no further deduction on account of depreciation on the said asset shall be allowed notionally. no simultaneous claim for exemption under Section 11 and other clauses of Section 10 (except in respect of agricultural income and exemption under clause (23C)) shall be allowed.

This section is proposed to be amended to nullify effect of judgments in the case of CIT vs. Tiny Tots society (P&H HC), DIT vs. Vishwa Jagriti Mission (Delhi HC), etc.

October 01,2014

Computation of Income [Section 11 & 12A]

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REGISTRATION OF CHARITABLE TRUST [SECT ION 12AA]


where a trust or an institution has been grantedregistration and subsequently it is noticed that –- the funds are not used for the benefit of general public or- the funds are used for the benefit of any particular religious community or cast or- any income or property of the trust is used for the benefit of-trustees, author of the trust or-funds are invested in prohibited modes,

then, the Commissioner or Principal Commissioner may by order in writing cancel the registration of such trust or institution

October 01,2014

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INCOME FROM HOUSE PROPERTYDEDUCTION IN RESPECT OF INTEREST ON HOUSING LOAN [SECTION 24(B)]


Deduction of interest on housing loan has been increased from Rs.1,50,000/- to Rs.2,00,000/- in case of self–occupied property.

A.Y. 2015-16

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BUSINESS INCOME Deduction for investment in new plant & machinery (Section 32AC)


Insert sub section (1A) to provide thatCompany Manufacturing Acquires and installs new assets after 31-03-14 but before 01-04-17 above Rs. 25 crore,

Deduction @ 15% of the actual cost in the previous year.

The deduction for First AY, shall be allowed either under sub section (1A) or sub section 1(b).

A.Y.2015-2016

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LETS LOOK AT AN EXAMPLE

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♦ Deduction in respect of capital expenditure on specified business (Section 35AD)


Two new businesses as “specified business” for this deduction, which are:- (a) laying and operating a slurry pipeline for the transportation of iron ore; (b) setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is notified by the Board in accordance with the prescribed guideline.No deduction shall be further allowed under section 10AA of the Act. minimum period of eight years to use such capital assets only for the specified business and for no other Purposes is prescribed

A.Y. 2015-16.

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♦ AMOUNT ELIGIBLE AS BUSINESS EXPENDITURE (SECTION 37)


expenditure incurred on the activities for corporate social responsibilityprescribed in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred for business or profession. However, the CSR expenditure which is of nature described in Section 30 to 36 of the Act, shall be allowed deduction under those sections

A.Y.2015-2016

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♦ AMOUNT NOT ALLOWED AS EXPENDITURE FOR NON-DEDUCTION OF TAX AT SOURCE (SECTION 40)

Previous Change Effective Date

Interest, commission, brokerage, rent ,royalty, fee for professional or technical services and contract Paymentmade to a resident are 100% disallowed if tax is not deducted at source or not paid after deductionBefore the due datespecified under section 200 (1)

The disallowance has been reduced from 100% to 30%. Scope of disallowance Has been extendedFrom any payment On which tax is deductible underChapter XVI I –Bdue date has been extended up to the date of filing the return of income

A.Y.2015-2016

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♦ SPECULATIVE TRANSACTION IN RESPECT OF COMMODITY DERIVATIVES (SECTION 43)


Eligible transaction in respect of trading In commodity derivatives carried out In a recognized association And chargeable to commodities transaction tax Shall not be considered to be a speculative transaction.

A.Y.2014-2015

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♦ BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES (SECTION 44AE)


Presumptive income of Rs.7,500 for every month (or part of a month) for all types of goods carriage vehicles without any distinction between Heavy Goods Vehicle (HGV) and vehicle other than HGV.

A.Y.2015-2016

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CAPITAL GAINS:

♦ Capital Gains arising from transfer an asset by way of compulsory acquisition (Section 4)


Presently Income is taxable In the year in which compensation is received

Amount of compensation received Shall be deemed to be income in the previous yearin which the final order of court, Tribunal or other authority is made

A.Y.2015-2016

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TRANSACTIONS NOT REGARDED AS TRANSFER (SECTION 47)


Capital asset , being a Government SecurityCarrying a periodic payment of interest,made outside India through an intermediary by a non- resident to another non-resident shall not be considered as Transfer Issue of units of the Business Trust on transfer of shares of a special purpose vehicle, shall not be considered as Transfer within the meaning of Section 2(47) of the Act .

A.Y.2015-2016

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COST WITH REFERENCE TO CERTAIN MODE OF ACQUISITION OF CAPITAL ASSET (SECT ION 49)


cost of acquisition of units of a Business trust shall be deemed to be the costof acquisition of shares held in Special Purpose Vehicle, when such units become the property in consideration of transfer of shares of the Special Purpose Vehicle as per provisions of Section 47(xvii ).

A.Y.2015-2016

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ADVANCE MONEY RECEIVED IN NEGOTIATIONS OF TRANSFER OF CAPITAL ASSET (SECT ION 51)


advance money received in negotiations of transfer ofcapital asset if forfeited is reduced from the cost of acquisition of thecapital asset

The amount forfeited shall be taxable as “Income from Other Sources”and hence the same shall not be deducted from the cost of acquisitionThis is change is proposed in view judgment of Hon’ble Apex Court in the case of Travanacore Rubber & Tea Co. Ltd. vs. CIT [(2000)243 ITR 158 (SC)] .

A.Y.2015-2016

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CAPITAL GAIN ON SALE OF PROPERTY USED FOR RESIDENCE (SECT ION 54)


where capital gain arises from the transfer of a long- term capital asset being a residential house, and new residential house is purchased or constructedThen the amount of capital gains to the extent invested in the new residential house is exempted.

Exemption is available, only if the investment is made in purchase or construction of one residential house situated in India.

A.Y.2015-2016

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CAPITAL GAIN NOT TO BE CHARGED ON INVESTMENT IN CERTAIN BONDS (SECT ION 54EC)


Proviso in sub-section (1)Is inserted so as to clarifythat the investment made in certain specified bonds shall not exceed fifty lac rupees.

A.Y.2015-2016

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CAPITAL GAIN ON TRANSFER OF CERTAIN CAPITAL ASSETS NOT TO BE CHARGED IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE (SECT ION 54F))


Capital gain arises from the transfer of a long- term capital asset and if the assessee purchases, or constructs, new residential house, then the amount of capital gains will be exempt.

Exemption is available,if the investment is made only in one residential house situated in India

A.Y.2015-2016

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LOSSES IN SPECULATION BUSINESS:

Existing Provisions Proposed Amendment

Effective Date

Explanation to sect ion 73 provides that in case of a company deriving its Incomemainly under the head “Profits and gains of business or profession” and where any part of itsbusiness consists of purchase or sale of shares, such business shall be deemed to be speculation business

A company whose principal business is the business of trading in sharesdoes any tradingotherwise than by actual delivery(speculation)then any loss arising from such delivery would be considered as loss From speculation business which initially was considered as business loss.

A.Y.2015-2016

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DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME:DEDUCT ION U/S. 80C – RAISING THE L IMI T OF DEDUCT ION


The limit of investments eligible for deduction Is increased from the existing limit of Rs. 1,00,000/- to Rs.1,50,000/-consequential amendments in sections 80CCE whereby total deduction claimed u/s . 80C, 80CCC and 80CCD shall not exceed Rs. 1,50,000/-

A.Y.2015-2016

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TIME FOR A BREAK

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DEDUCT ION U/S. 80CCD – CONTRIBUTION TO PENSION SCHEME OF CENTRAL GOVERNMENT

Current Change Effective Date

An individual , employed by any other employer on or after 1s tJanuary, 2004,

An individual , employed by any other employer(Words on or after 1st January, 2004 is deleted)

A.Y.2015-2016

Deduct ion of amount shall not exceed 10 % of salary

Deduction of amount shall not exceed 10% of salary or Rs 1,00,000/- whichever is lower

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DEDUCTION UNDER SECTION 80IA TO POWER SECTOR

Change Reason of Change

Effective Date

Sunset date under section 80IA For the power sector To avail the tax incentive, is proposed to be extended by a further period of three years i.e. up to 31s t March,2017.

With a view to provide further time to the under takings to commence the eligible activity

A.Y.2015-2016

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DETERMINATION OF TAX IN CERTAIN SPECIAL CASES

Income Source


Short Term Capital Gain on transfer of units of Business Trust

To tax the transfer ofa unit of a business trust As they apply in case of a unit of an equity oriented fund @ 15 % u/s 111A(1)

A.Y.2015-2016

Long Term Capital Gain on Listed Units

the listed “Units”are proposed to be taxed @ 20% u/s 112(1).

Anonymous donation to be taxed in certain Cases

Tax would be levied after reducing the Income by 30% u/s 115BBC

Tax on distributed income being interest

the total income of a non- resident (not being a company) or a foreign company includes distributed income being interest such income shall be taxable @ 5 %.

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LOWER RATE OF TAX ON DIVIDENDS RECEIVED FROM FOREIGN COMPANIESChange Effective

Datetaxation of gross dividends @ 15% u/s 115BBD received by an Indian Company from aspecified foreign company in which it has a share holding of 26% or more for the financial year 2014-2015 and subsequent years, Which was previously up to financial year 2013-2014.

A.Y. 2015-16

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Clause (iii) in sub-section (2) to section 115JC Is inserted that the total income shall be increased by thededuction claimed u/s. 35AD as reduced by the amount of depreciation allowable (on such assets on which deduction u/s 35AD has already been claimed to arrive at total income)in accordance with the provisions of section 32 to arrive at adjusted total income.

A.Y. 2015-16

CHANGE IN COMPUTATION OF ALTERNATE MINIMUM TAX (AMT) :

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Insert new clause © in sub-section (1) so as toapply the said Chapter -XI I BA to a person who has claimed deduction u/s. 35Aexisting provisions of sub-section (2) of section 115JEEprovide that the Chapter shall not be applicable to an individual or an HUF or an association of persons or a body of individuals (whetherincorporated or not ) or an artificial juridical person if the adjusted total incomedoes not exceed Rs . 20 lac.

A.Y.2015-2016

TAX CREDIT OF ALTERNATE MINIMUM TAX (AMT):

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INSERTION OF NEW CHAPTER XI I-FA IN RELATION TO “SPECIAL PROVISIONS RELATING TO BUSINESS TRUST :


special provisions relating to Business Trust –- the distributed income in the hands of the unit holders will be of-the same nature and in the same proportion as the income in the hands of the trust ;- the total income of the trust other than capital gain would be-taxed in the hands of the trust at the maximum margin rate and capital gain would be taxed in accordance with sections 111A and112; -any distributed income received by a unit holder-from the business trust is of the same nature as the income referred-to in clause (23FC) of section 10, then,-such distributed income -shall be deemed to be the income of such unit holderand shall be charged to tax as income of the previous year ;

A.Y.2015-2016

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DIVIDEND DISTRIBUTION TAX ON PROFITS OF COMPANIES AND INCOME TO UNIT HOLDERSChange Effective Date

There is an increase of 3% in the rate of dividend distribution tax u/s. 115-OSimilar amendments are also proposed in section 115-R related to taxon distributed income to unit holders..

A.Y.2015-2016

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REFERENCE TO VALUATION OFFICERChange Effective DateAO given the power to refer to Valuation officer for valuation of “any asset”Earlier – Any Investment, Bullion, Property

A.Y.2015-2016

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INCOME COMPUTATION AND DISCLOSURE STANDARDSChange Effective Date

Clarity that the said standards would only apply at the time of making a computation of income

A.Y.2015-2016

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ASSESSMENT OF INCOME OF A PERSON OTHER THAN THE PERSON WHO HASBEEN SEARCHED (153C)Change Effective Dateproceed against each such other person and issue such other person notice and asses s or reassess income of such other person in accordance with the provisions of section 153A

if he is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determinat ion of the total income of such other personfor the relevant assessment year or years refer red to in sub-section (1) of sect ion 153A.

1st October, 2014

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INTEREST LIABILITY ON DEMANDChange Effective Date220(1A) – Continuation of Demand Notice till the disposal by the last authority

1st October, 2014

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PROVISIONS PERTAINING TO TDS/TCSHead Change Effective

DateTDS on interest distributed by Real Estate Investment Trust (REIT) &Infrastructure Investment Trust (Invit)

Clause 194A(3) (xi ) TDS would be deducted at the rate of 10% on payment ofinterest made to resident unit holders.

1s t October , 2014

TDS in respect of payment of any sum under life insurance policy:

section 194DA according to which TDS with be deducted at 2% on any sum paid to resident under a life insurancepolicy including bonus on such policy exceeding Rs. 1,00,000.

1s t October , 2014

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Head Change Effective Date

TDS on income distributed by Real Estate Investment Trust (REIT) &Infrastructure Investment Trust (Invi t):

section 194LBA wherein TDS at the rate of 5% on payment made to non- resident unit holders and at the rate of 10% on payment made to resident unit holders

1s t October , 2014

TDS on interest distributed by Real Estate Investment Trust (REIT) &Infrastructure Investment Trust (Invit) to non-resident

Section 194LC extends benefit ofreduced rate of 5% on interest payment on external commercial borrowings and long- term Bond made to non- resident by business trust

1st October , 2014

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FILING OF TDS CORRECTION STATEMENT :Previous Change Effective

Datewithout any express provisions in the Act, the deductor is allowed to file correction statement for rectification / updation ofinformation furnished in original return of TDS filed.

to amend section 200(3) by insertingproviso to provide deductor to file correction statement in order tobring legality to filing of correction statement.to amend provisions of section 200Aof the Act for enabling processing of correction statement Filed

1st October , 2014

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SURVEY133A (2A) – Power to survey given to ensure TDS / TCS compliance

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SECTION 92B – MEANING OFINTERNATIONAL TRANSACTION


The sub-section as presently worded has led to a doubtwhether or not , for the transaction to be treated as aninternational transaction, The unrelated person should also bea non- resident

A transact ion shall be deemed toan international transact ionirrespective of whether such other (unrelated) person is a nonresidentor not. Rulings of Hyderabad ITAT in the case of Swarnandhra IJMI IIntegrated TownshipDevelopment vs. DCI T and IJM (India) vs. ACI T are nullified.

A.Y.2015-2016

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ROLL BACK MECHANISM IN THE APA SCHEMEChanges Effective

datesub section (9A) to provide roll back mechanism in the APA scheme. It may, provide for determining the arm’slength price or for specifying the manner in which arm’s length price is to be determined in relation to an international transaction entered into by a person

October 01,2014

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FILING RETURN OF INCOME [SECTION -139(4C) AND (4E)] Changes Effectiv

e datesection (4C) of the Act so to include–- Mutual Fund refer red to in clause (23D) of section 10,- securitization trust refer red to in clause (23DA) of section 10 and-Venture Capital Company or -Venture Capital Fund referred to inclause (23FB) of section 10for filling the return of income.new sub-section (4E)provide for filing of return of income by business trust which is not required to furnish return of income or loss under any other provision of the section.

A.Y. 2015-16

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NO DISCUSSION ON

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NO DISCUSSION ON

DTCGAARSettlement Commission

57Thank You