• Mar
  • 03
  • 2013

Budget 2013 – Impact on Direct tax Provisions

Budget 2013 Impact (Direct tax) – 28 February 2013

I.   Individuals

    Rebates/ Deductions/ Incentives for Individuals 

  • Tax rebate of Rs.  2,000 for Resident Individuals for FY 2013-2014
  • Total Income does not exceed Rs.  5 lacs
  • Thus, no tax on effective total income of Rs.  2,20,000 and accordingly no WHT upto the said income
  • Deduction for interest on housing loan sanctioned during FY 2013 – 2014 for acquiring residential property
  • New section 80EE introduced
  • Loan taken from specified Financial institution
  • Deduction shall not exceed Rs.  1 lacs

Deduction for interest on housing loan sanctioned during FY 2013 – 2014 for acquiring residential property-

Conditions

  • Loan is sanctioned  during FY 2013-2014
  • Loan sanctioned does not exceed Rs.   25  lacs
  • Value of residential house property does not exceed Rs.   40 lacs
  • Assessee does not own any residential house property on date of sanction of loan.

Open issues:

  • Loan sanctioned in FY 2012-2013 and disbursed in FY 2013-2014 may not be eligible for deduction?
  •   Meaning of value of residential house? (It may mean stamp duty value)
  •  Financial institution term to be defined?

   Tax rates for Individuals:

FY 2012-2013 & FY 2013-2014(Refer Notes)
Income slabs Rate (%)
Upto Rs.  2,00,000* NIL
Rs.   2,00,001 to Rs.  500,000 10%
Rs.  5,00,001 to Rs.  10,00,000 20%
Above Rs.  10,00,000 30%

 Notes

  • Threshold limit for a resident individual who is of the age of 60 years or more but less than 80 years and for a resident individual who is of the age of 80 years or more will be Rs.  2,50,000/- and Rs.  5,00,000/- respectively
  • No Surcharge to be levied while computing total income for individuals having income upto Rs.  1 cr Surcharge at 10% if income exceeds Rs.  1 Cr
  • Education Cess @ 2% and Secondary and Higher education cess @ 1% leviable on tax

   Rebates/ Deductions/ Incentives for Individuals – Eligible Listed shares

  • Expansion and relaxation in provisions of 80CCG (RGESS).

Current scheme of RGESS

  • One time deduction of 50% of the amount invested or Rs.  25,000 (least of two) in specified listed shares to first time Investors.
  • Gross total income does not exceed Rs.  10,00,000.

Proposed liberalization/ changes

  • Investment in listed units of an equity oriented fund eligible for deduction.
  • Deduction for 3 consecutive years.
  • Gross total Income (‘GTI’) does not exceed Rs.  12 lacs (What if GTI exceeds Rs.  12 lacs in year 2 or Year 3?)
  • Amendment effective from FY 2013-2014.

   Increase in the limit of percentage of eligible premium for life insurance policies of persons with disability or disease

  • Premium paid in respect of a policy issued on or after 01.04.2013 for insurance on the life of a person with disability or severe disability shall be allowed to the extent the premium paid does not exceed 15% of the actual capital sum assured (Under the extant provisions.

   Expansion in scope of medical insurance for CG/SG schemes

  • Other health schemes of the Central and State Governments, which are similar to the CGHS shall also be eligible for deduction under section 80D.

  Immovable property received for inadequate consideration

  • Current provisions cover only transfer of immovable property received by an individual or HUF without consideration (inadequate consideration not covered).
  • Extant provisions have been amended to cover transfer of Immovable property received for inadequate consideration and the same shall be taxable under Income from other sources.

II. Corporate

   Tax rates

Particulars Domestic Co Foreign Co Co operative society Firms/LLP
Existing rate 32.445%  42.024%2 30.9% 30.9%
Proposed rate  33.99%1  43.26%2 33.99% 3 33.99%4

Notes

  1. Surcharge at 10% if income exceeds  Rs. 10 Cr as against current rate of 5% if income exceeds Rs.  1 Cr
  2. Existing rate and proposed rate for Co-operative society having income more than Rs.  20,000. The proposed increase in rate is applicable if income exceeds Rs.  1 Cr
  3. Surcharge not applicable to LLP/Firms earlier. It is proposed to introduce surcharge at 10% if income exceeds Rs.  1 Cr

   Special deduction for Investment in P&M exceeding Rs. 100 Cr

Conditions

  • Company engaged in business of manufacture of an article or thing
  • Investment of more than Rs.  100 Cr in new assets (plant or machinery) from 1 April 2013 to 31 March 2015
  • Deduction of upto 15% each for 2 AYs of the aggregate amount of new asset acquired and installed during the aforementioned period
  • Such P&M cannot be transferred upto 5 years period

Open issues:

  • Eligibility  restricted to Company only
  • Definition could have been widened to include Buildings etc.
  • Would computer software be termed as ‘Article or thing’?
  • What if the part of the P&M is transferred in 5 year period? (Proportionate/ Full disallowance)

   Sunset clause for Power and related undertakings u/s 80 – IA

Assessee engaged in following:

  • Generation or generation and distribution of power
  • Transmission or distribution by laying a network of new transmission or distribution lines
  • substantial renovation and modernization of the existing network of transmission or distribution lines

  Lower rate of tax on dividends received from F Co’s

  • Under the current provisions (section 115BBD) gross dividends received by an Indian company from a specified F Co (in which it has shareholding of 26% or more) taxed at 15%
  • To give incentive for attracting repatriation of income earned by residents from investments made abroad the same has been extended for FY 2013-2014
  • It is proposed that where the tax on dividends received from the foreign subsidiary is payable under section 115BBD by the holding domestic company then, any dividend distributed by the holding company in the same year, to the extent of such dividends, shall not be subject to Dividend Distribution Tax under section 115-O of the Income-tax Act.

   Cascading effect of DDT for Foreign sourced dividends

  • Any dividend distributed by the holding company in the same year, to the extent of such dividends, shall not be subject to DDT u/s 115-O of the Act if:
    • Tax on dividends received from the foreign subsidiary is paid u/s 115BBD by the holding domestic company

Open issues:

  • In case dividend received in FY 2012-2013 from Foreign Subsidiary and Indian Co distributes the same in FY 2013-2014, then DDT may be applicable?

  Additional tax on distributed income by unlisted Company for buy-back

Need of provision

  • Unlisted Companies, as part of tax avoidance scheme were resorting to buy back of shares instead of payment of dividends in order to avoid payment of tax by way of DDT particularly where the capital gains arising to the shareholders are either not chargeable to tax or are taxable at a lower rate.

New Provisions  wef 1 June 2013

  • Applicable for unlisted shares
  • Company liable to pay additional income-tax @ 20% of the distributed income paid to the shareholder. The additional income-tax payable shall be the final tax on similar lines as DDT.
  • 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.  

  WHT on payments to NR/ Foreign Co

Withholding tax (‘WHT’) on payments in nature of Royalty/ FTS:

  • WHT under domestic laws increased from 10% to 25% for payments made to NR/Foreign Co
  • However, Foreign Co/NR can resort to lower WHT rate under DTAA  provided the conditions under the relevant article are complied

Surcharge on payments made to NR/ Foreign Co ie on WHT

Particulars Surcharge
Payment to NR Surcharge at 10% if income exceeds Rs.  1 Cr
Payment to Foreign Co Surcharge at 2% if income exceeds Rs. 1 Cr but upto Rs. 10 Cr Surcharge at 5% in case income exceeds Rs.  10 Cr

Transfer of immovable property in certain cases – Deemed value

New Provisions  wef FY 2013-2014

  • Provisions of stamp duty value (section 50C) as deemed value for sale consideration were not applicable to transfer of immovable property, held by the transferor as stock-in-trade (ie for Real estate developers etc)
  • New section 43CA introduced
  • If the consideration for the transfer of an asset being land or building or both, is less than the stamp duty value, the stamp duty value shall be deemed to be the full value of the consideration for the purposes of computing business income.

  Clarification of the phrase ‘tax due’ for recovery from Directors

  • Section 179 of the Act provides that where the tax due from a private company cannot be recovered, then the director shall be jointly and severally liable for payment of tax unless he proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part
  • The expression  “tax due”  to  include penalty, interest or any other sum payable under the Act
  • Liability of directors widened under the Act

III.        Other provisions

  TDS on transfer of Immovable Property

Need of provision

  • Albeit it is mandatory to quote Permanent Account Number (PAN) on purchase or sale of immovable property for value of Rs.  5 lacs, however most of the transactions go unreported
  • To have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time

New Provisions

  • New section 194-IA  introduced
  •  Every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1%
  • Effective from 1 June 2013

Open issues:

  • The current provisions may not be applicable on sale of property by Non resident transferor as the same is restricted to resident transferor only? (Was this the intent of the provisions?)
  • TDS may be applicable at 20% u/s 206AA in case Transferor does not have PAN?
  • Agricultural land exempt (rural/urban both)
  • Planning opportunity as the same is effective from 1 June 2013

   Commodity Transaction Tax (‘CTT’)

S.No. Taxable commodities Transaction Rate Payable by
1. Sale of commodity derivative 0.01 per cent  Seller
  1.  Applicable to sale of commodity derivatives other than agricultural commodities, traded in Recognized Associations
  2. CTT will be deductible expenditure in the hands of seller if the income is taxable under the head ‘Profit and Gains from Business and Profession’
  3. Applicable from FY 2013-2014

   Securities Transaction Tax (‘STT’)

S.No Nature of taxable securities transaction Payable by Existing Rates (in %) New Rates(in %)
1. Delivery based purchase of units of an Equity Oriented Fund entered in arecognized stock exchange (RSE) Purchaser 0.1 Nil
2. Delivery based sale of units of an equity oriented fund in a RSE Seller 0.1 0.001
3. Sale of a futures in securities Seller 0.017 0.01
4. Sale of a unit of an equity oriented fund to the mutual fund Seller 0.25 0.001

  Definition of ‘Agricultural land’ revised

  • Amendment to section 2(14)(iii)(b) of the Act (Exclusion of agricultural land from capital asset definition)
  • It would be termed as capital asset if:
  • Land situated in any area within the distance, measured aerially (shortest aerial distance) and
  • Within two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lacs; or
  • Within six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lacs but not exceeding ten lacs; or
  • Within eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lacs
  • Proposed to define the expression “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

  Other amendments

  • Proposed to define the expression “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
  • Submission of a Tax Residency Certificate (‘TRC’) is a necessary but not a sufficient condition for claiming benefits under the agreements referred to in sections 90 and 90A
  • Return of Income (‘ROI’) filed without payment of self- assessment tax to be treated as defective return
  • Expression “nature and complexity of the accounts” under section 142(2A) for special audit widened
  • Special audit to be directed having regard to the nature and complexity of the accounts the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the Assessee

   Policy Measures

  • GAAR applicable from AY 2016-2017 (FY 2015-2016). Other amendments made in GAAR
  • E filing for wealth tax returns to be introduced
  • DTC to be introduced soon in Budget Session
  • Insurance and PFRDA bill to be passed
  • GST constitutional bill to be amended
  • Rules for Safe Harbor to be notified

Disclaimer

  • The views and opinions expressed in this article are personal and do not  necessarily reflect the official policy or position of any agency of the Indian tax Authorities
  •  Assumptions made within the analysis are not reflective of the position of any Indian tax Authorities

Prepared and Compiled by CA Piyush Chopra & CA Punkaj Jain


4 Responses to “Budget 2013 – Impact on Direct tax Provisions”

  1. mohini says:

    thank u

  2. Ravi says:

    Good and informative article as compared to other article in public domain.

  3. CA Priyanka Mundra says:

    Special deduction for Investment in P&M exceeding Rs. 100 Cr – under which section this deduction is covered? Further kindly throw light on depreciation calculation of the asset. Whether depreciation will be calculated on Cost or after providing the deduction? further is it relevant to additional depreciation?

  4. CA Priyanka Mundra says:

    Special deduction for Investment in P&M exceeding Rs. 100 Cr – under which section this deduction is covered? Further kindly throw light on depreciation calculation of the asset. Whether depreciation will be calculated on Cost or after providing the deduction? further is it relevant to additional depreciation?

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