union budget 2014 15 - for the common man
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DESCRIPTIONThe Union Budget of India always evokes a great amount of interest. This time, it was even more keenly awaited since it was the 1st Budget of the new Modi government. This presentation contains a few important pointers on how the Budget affects the common man.
- Important Amendments Presented by Ameet N. Patel 16th July, 2014
- 2 What the Aam Aadmi expected from the #ModiBudget? Achche Din!
- 3 What were the most important expectations? Reduction in tax rates / changes in slabs Simplification of law Steps for reducing inflation Introduction of GST Changes in subsidies doled out Spurring economic growth No more populism Removal of retrospective amendments of past Push back of GAAR provisions Clear signal to foreign investors to come to India
- And what did the Finance Minister give us? A marathon Budget Speech with a 5 minute break thrown in Not too many heavy duty policy decisions No indication of what is being done about inflation No roll back on retrospective amendments A few changes aimed at reducing litigation Quite a few changes affecting stock markets Resolve to push GST forward Committee to review Expenditure of the Govt Resolve to reduce wastage of food grains And lots more
- DIRECT TAX PROPOSALS
- No change in rates of taxes No abolition of / changes in Surcharge & Education Cesses DDT to be grossed up Tax slabs increased For Resident senior citizens (above 60 years but below 80 years) threshold limit increased from Rs. 2,50,000 to Rs. 3,00,000 For others threshold limit increased from Rs. 2,00,000 to Rs. 2,50,000 Individuals above 80 years No change. Rs 5,00,000 continues Tax Rates
- Tax Rates Slab Rates: For persons other than Resident senior citizens (below 60 years) Slabs Tax Rate Up to Rs 2,50,000 NIL Rs 2,50,001 to Rs 5,00,000 10% Rs 5,00,001 to Rs 10,00,000 20% Above Rs 10,00,000 30%
- Tax Rates Slab Rates: For Resident senior citizens (60 years and above but below 80 years) Slabs Tax Rate Upto Rs 3,00,000 NIL Rs 3,00,001 to Rs 5,00,000 10% Rs 5,00,001 to Rs 10,00,000 20% Above Rs 10,00,000 30%
- Effective Tax Rates Individuals earning more than INR 1 crore 33.99% Corporate Tax Domestic Company Income less than INR 1 crore 30.90% Income from INR 1 crore to INR 10 crore 32.445% Income more than INR 10 crore 33.99% Corporate Tax Foreign Company Income less than INR 1 crore 41.20% Income from INR 1 crore to INR 10 crore 42.024% Income more than INR 10 crore 43.26% Firm/LLPs Income less than INR 1 crore 30.90% Income up to INR 1 crore 33.99%
- DEDUCTIONS FROM INCOME
- Two important changes The limit for deduction of interest on Self Occupied Property has been increased from 1.5 lakh to 2 lakh Limit of Investment under section 80C has been increased from 1 lakh to 1.5 lakh PPF Limit to be increased to Rs 1.5 lakh (look at past experience when limit was raised from 70,000 to 100,000)
- NET IMPACT OF 3 IMPORTANT CHANGES Increase in threshold limits Increase in 80C limit Increase in deduction for Interest on Housing Loans As a result of the above, if you are having taxable income exceeding Rs. 10 lakh but less than Rs. 1 crore, then you will pay a lower tax and save about Rs. 36,050. Eg: Present Amended Gross Income 1,800,000 1,800,000 Less: Interest on Housing Loan 150,000 200,000 Less: 80C deduction 100,000 150,000 Taxable Income 1,550,000 1,450,000 Tax payable 295,000 260,000 Education Cess 8,850 7,800 Total tax payable 303,850 267,800 Net Saving 36,050
- CHANGES AFFECTING CAPITAL GAINS
- Exemptions From Long Term Capital Gains by investing in Residential House Property Sections 54 / 54F When a residential house or any other long term capital asset is sold, exemption is available if a new residential house is purchased or constructed within the specified time limit and subject to conditions Controversy on whether exemption is available if 2 residential houses are constructed/purchased Amendment : Exemption available only in respect of one residential house purchased / constructed Additional condition now laid down: The new house should be in India
- Exemptions From Long Term Capital Gains by investing in Specified Bonds Section 54EC If any long-term capital asset is sold, an exemption is available if the amount of Capital Gains is invested within 6 months in o REC Bonds o NHAI Bonds Maximum deduction was prescribed as Rs. 50 Lakh per financial year Tax planning : To pace 6 months in such a way that 2 financial years fall within the period - exemption claimed : Rs. 1 Crore Amendment: Rs. 50 Lakh is maximum exemption that can be claimed over both years (what about exemption for gain earned in next year?)
- Period of holding for qualifying as long-term capital asset increased from 12 months to 36 months This will immediately impact FMPs Tax rate of 20% applicable in case of debt fund - 10% tax without indexation has been done away with This will also immediately impact FMPs Does this amount to retrospective amendment? What about the redemptions that have already taken place post 1st April, 2014 ? Unlisted Securities & Units of Debt Funds
- Advance Money Forfeited Money received as an advance in the course of negotiation for transfer of a capital asset is taxable if the negotiation does not result in transfer of such capital asset in the same year Earlier, the same effectively became taxable as part of capital gains when the asset for which negotiation was unsuccessful was actually sold Now, it will be treated as income from other sources. Hence exemptions available for capital assets shall not be available
- DIVIDENDS WILL BECOME DEARER FOR COMPANIES AND MUTUAL FUNDS
- DDT to be Grossed Up After Amendment Dividend Distributed : 85 Increased by Rs 15 [85*0.15)/(1-0.15)] Increased amount : Rs 100 DDT @ 15% of Rs 100 = Rs 15 Total outgo for company: Rs. 100 (Sur charge and EC not considered above) Before Amendment Dividend Distributed : 85 DDT Rate : 15% DDT @ 15% paid by company on Rs 85 = 85*15% = 12.75% Total outgo for company : Rs. 97.75 (Sur charge and EC not considered above)
- DDT to be Grossed Up The impact is even more dramatic and disastrous for income distributed on units of mutual fund Mutual fund industry is shaken up Present Amended DDT Companies 15% 17.65% DDT Mutual Funds Individuals and HUF 25% 33.33% DDT Mutual Funds Others 30% 42.86% Plus applicable surcharge and cess. The provisions is effective from 1st October, 2014.
- Are there any positives out of this amendment ? Possibility of getting out of the web of Section 14A Possibility of getting a credit for the tax in another country (in case of Non Residents from a DTAA country)
- BUSINESS RELATED CHANGES
- Disallowance of expenses in case of non- withholding of tax Payments to non residents brought at par with payments to residents - eligible to claim deduction of expenses if withholding taxes paid upto due date of filing of Return. In case of payment made to a resident, disallowance of expenses on account of non-deduction/non-payment of taxes restricted to 30% instead of 100% Disallowance of salary payments if default in withholding tax payments
- Corporate Social Responsibility (CSR) Expenses not an allowable business expenditure Sec 32AC (1A):- Investment Allowance Special provision introduced providing deduction on investment in plant and machinery for manufacturing companies Introduced to promote investments in medium size entities Eligible for investment in new plant and machinery of more than INR 25 crore for each year Benefit available between April 2014 to March 2017 Investment allowance of 15% of the actual cost of machinery allowed Other Amendments
- Other Amendments Returns no longer required to be signed? Amendment in section 140 Does this mean that ITR-V is now not required to be sent to CPC? If yes, this is a big change
- FOR FOREIGN INSTITUTIONAL INVESTORS Achche Din Are here!
- Ambiguity in case of Foreign Institutional Investors (FII) of characterization of income from transfer of securities (business income or capital gains) has been removed Definition of capital asset includes security held by FII in accordance with the regulations of SEBI Transfer by Foreign Institutional Investors (FII) of such security would be taxable as capital gains Question for FM: What about domestic investors? Why can they not have the same clarity? Characterisation of Income in case of FIIs
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