The Modi Budget 2014 : Direct Tax Highlights

CA Bikash Bogi

BULLET POINT SUMMARY of Direct Tax Provisions

INDIVIDUALS / HUF / AOP / BOI

• No change in income tax rates.
• Income Tax Exemption limit increased to Rs. 2.5 Lakh from Rs. 2 lakh. For Senior citizens exemption limit increased to Rs. 3 lakh.
• Deduction u/s 80C increased to Rs. 1.5 lakh from Rs. 1 lakh
• Deduction for Interest on housing loan for Self Occupied property increased to Rs. 2 Lakh from 1.5 lakh.

CORPORATES:

• No change in Corporate Tax rate.
• Investment allowance at 15% for 3 years to manufacturing company which invest more than Rs. 25 crore in plant and machinery.
• 10 Years Tax Holiday for Power Sector if begins generation, distribution & transmission of Power by 31.03.2017.
• Investment Linked deduction extended to two new ventures ; Slurry Pipeline for transportation of Iron Ore & Semi Conductor wafer fabrication manufacturing units.
• Expenditure on Corporate Social Responsibility [CSR] shall not be allowed as deduction while calculating business income.
• For Non-deduction of TDS, only 30% of the expenditure will be disallowed instead of earlier disallowance of 100% of the expenditure, if TDS rate is between 1% – 10%.
• For business of plying, hiring or leasing goods carriage [up-to 10 vehicle], the presumptive income shall be Rs. 7500/- per month.
• Credit of Alternative Minimum Tax will now be available to taxpayers and allowed to carry forward to adjust normal tax liability of succeeding years.

INTERNATIONAL TRANSACTIONS / NRI / FOREIGN TAXATION:

• Roll Back Provisions for Advance Pricing Agreement Scheme, as per which APA taken for future transactions will also applicable for transactions of preceding four years [subject to conditions].
• “Range Concept” introduced in Transfer Pricing provisions as per which Arm’s Length Price shall be calculated based on Multi-year data instead of single year data.
• Transfer Pricing Officer [TPO] can levy penalty u/s 271G.
• Dividend received from Foreign Company shall be taxed at Concessional rate of 15%. No sunset clause.
• Income Arising to Foreign Portfolio Investors from Transaction in securities will be treated as capital gains and will tax accordingly.
• TDS on any Interest payment made for “any bonds” issued in foreign currency shall be deducted @ 5% [earlier it was only on “Infrastructure bonds”]. The eligible date extended to 31.03.2017.

OTHER PROVISIONS:

• Long Term capital Gain of units of Mutual Funds [other than Equity oriented funds] shall be taxed @20%. Further, units have to hold at least 36 months for treating it as long term.
• To qualify as Long term capital assets, Unlisted securities is required to be hold for at-least 36 months instead of earlier period of 12 months.
• Advance Ruling shall be extended to Resident Taxpayers and existing number of benches of Advance Ruling shall be increased.
• More Stringent Provisions related to furnishing of Annual Information Return.
• For resolving the disputes, Scope of Settlement Commission will be expanded.
• Dividend distribution tax shall be paid on gross dividend paid instead on dividend net of taxes.
• Tax Regime to Infrastructure Investment Trusts and Real Estate Investment Trusts to set up in accordance with regulations of SEBI.
• Compulsory Imprisonment and fine, if the assesses willfully fails to produce books of accounts and other details as required in section 142(1) or 142(2A)

OTHER MAJOR ANNOUNCEMENTS:

• A high Level committee constituted by CBDT shall take care of issue of indirect transfer on retrospective amendments on case to case basis.
• No more Retrospective Amendments in Tax Laws.
• 60 New Aaykar Seva Kendra to be opened in financial year 2014-15 to promote tax payer friendly services.
• Government will review the Direct Tax Code [DTC] in its present shape and review it.

( Author is a Partner with SBR & Co. Chartered Accountants Mumbai and can be reached at bikashbogi@sbrca.in)