Budget 2013-14 – Analysis of Income Tax Provisions

 1. Personal Income Tax: Minor relief of Rs.  2000  

• Slabs of taxation not revised
• Ad-hoc Relief of Rs.  2000 for Tax Payers in the first bracket of Rs.  2 lakhs to Rs.  5 lakhs.
• Relief available to Individuals having total income upto Rs. 5 lacs.

Let’s Party of these Rs. 2000…J

2. Personal Income Tax:  Surcharge Re-introduced 

• Surcharge to be levied at the rate of 10%
• If the taxable income of following persons exceeds Rs.  1 Crore:-

–      Individuals;

–      HUF’s;

–       Firms; &

–      entities with similar tax status

– Applicable for one year i.e. Financial Year 2013-14

3. Surcharge Increased on Companies 

	Domestic Companies	Foreign Companies
Existing Surcharge	5 % on domestic companies whose taxable income exceed Rs.  10 crore.	2 % on foreign companies whose taxable income exceed Rs.  10 crore.
Proposed Surcharge	10 % on domestic companies whose taxable income exceed Rs.  10 crore.	5 % on foreign companies whose taxable income exceed Rs.  10 crore.

 4. Surcharge Increased on Distribution of profits also

• Dividend distribution tax or tax on distributed income, surcharge increased from 5 to 10 %
• Applicable for one year i.e. Financial Year 2013-14

5. Raising the limit of percentage of eligible premium for life insurance policies of persons with Disability or Disease 

• Under existing provisions, in section 10(10D) and section 80C(3A) the benefit is available to such policy, whose premium does not exceed 10% of the ‘actual capital sum assured
• Now this limit has raised to 15% in case of life insurance policies for persons suffering from disability and certain ailments.

 6. Section 80D: Deduction Expanded  to Other schemes 

• Earlier this benefit was available to Central Government Health Scheme (CGHS) only;
• Now this deduction has been extended to other health schemes of the Central and State Governments, which are similar to the CGHS, as may be notified by the Central Government

7. Section 80G: 100% deduction for donation to National Children’s Fund 

Existing the deduction is allowable at the rate of 50% of the amount donated.

Now proposed to increase the deduction to 100% of the amount of donation.

8. Rajiv Gandhi Equity Savings Scheme liberalized

Expanding the scope of deduction and its eligibility u/s 80CCG

Existing it is available to Equity shares of listed companies	Now available in respect of listed equity shares as well as units of mutual funds i.e. equity oriented fund
Eligibility limit of the investors’ income was Rs. 10 lacs	Eligibility limit of the investors’ income raised to Rs.  12 Lacs
It was allowed for One assessment Year	Now it shall be allowed for THREE consecutive assessment Years
Maximum Deduction amount : Rs.  25,000 i.e. 50% of the investment	Maximum Deduction amount : Rs.  25,000 i.e. 50% of the investment

 9. Tax Rate on Royalty or Fees for Technical Services, INCREASED!!! 

• Section 115A proposed to be amended
• Tax rate on income by way of royalty and fees for technical services u/s 115A increased from 10% to 25%.
• Above rate is further subject to the tax rate as specified in the treaty with the other country. 

10. Investment Allowance @ 15% 

Incentive for acquisition and installation of new plant or  machinery by manufacturing company

 • New Section 32AC proposed to be inserted

• To encourage substantial investment in plant or machinery by a Manufacturing Company

• Conditions:-

o          Investment of Rs.  100 Crore or more in new assets (plant or machinery), as defined in this section

o          during the period from 1st April, 2013 and ending on 31st March, 2015

o          Lock in Period of 5 Years

•           Investment Allowance Working:-

o          15% of the investment in AY 2014-15, cost of such assets exceeds Rs.  100 Crore;

o          15% of aggregate amount of actual cost of new assets, acquired and installed on 1st April, 2013 and ending on 31st March, 2015, as reduced by the deduction allowed, if any, for assessment year 2014-15

• This is over & above Normal & Additional Depreciation.

11. Extension of the sunset date under section 80IA  for the POWER SECTOR 

• Section 80IA(4)(iv)
• Proposed to provide further time to the undertakings to commence the eligible activity to avail the tax incentive
• By extending the terminal date by a further period of one year i.e. up to 31st March, 2014
• But benefit available to POWER SECTOR Only

12.  Owning your First House 

• New Section 80EE proposed to be inserted – For Additional Deduction in respect of interest on loan  sanctioned during financial year 2013-14 for acquiring residential house property

• Allowability of deduction:-

–      Amount of interest paid subject to maximum of Rs.  1 Lac in AY 2014-15;

–      Amount of  interest payable for the subsequent years is less than one lakh rupees, the balance amount shall be allowed in the AY 2015-16.

• Conditions:-

–      Loan must be sanctioned during the period from 1st April, 2013 and ending on 31st March, 2014

–      The amount of home loan does not exceed Rs.  25 Lacs;

–      the value of the residential house property does not exceed Rs.  40 Lacs

–      the Assessee does not own any residential house property on the date of sanction of the loan, this must be the first house

13. Extension for one more year:-Lower rate of tax on dividends received from foreign companies 

• Section 115BBD
• Taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26% or more) at the rate of 15%
• To incentive for attracting repatriation of income earned by residents from investments made abroad
• In order to continue the tax incentive for one more year, this section proposed to extent for one more year i.e. AY  2014-15.

14. Removal of the CASCADING EFFECT of  Dividend Distribution Tax (DDT) on Dividend from Foreign Subsidiary Company

• Section 115-O proposed to be amended
• Earlier this covered exemption of DDT in case of holding company on dividend received from DOMESTIC Subsidiary Company
• Now this section proposed to extend the same provisions to Foreign Subsidiary Company of a Domestic Parent Company

Applicable with Effect from 01/06/2013

A Welcome provision

15. Section 194LC extended to long-term infrastructure  (Rupee Denominated) bonds

• Withholding tax on interest of such borrowings @ 5%
• In order to facilitate subscription by a non-resident in the long term infrastructure bonds issued by an Indian company in India (rupee denominated bond ),
• Concessional rate of withholding tax on interest in case of certain rupee denominated long-term infrastructure bonds
• Where a non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilised for subscription to a long-term infrastructure bond issue of an Indian company, then, for the purpose of this section, the borrowing by the company shall be deemed to be in foreign currency.
• Applicable with Effect from 01/06/2013 

Widening of tax base and anti-tax avoidance measures

16. Introduction of TDS : On transfer of Immovable Properties,  Except Agricultural Land 

• New Section 194-IA proposed to be inserted
• 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% of such sum.
• No deduction if consideration less than 50 lakh rupees.

Applicable with Effect from 01/06/2013 

17. Additional Income-tax on distributed income by company for BUY-BACK OF UNLISTED SHARES 

• New Chapter XII-DA, proposed to be inserted
• to provide that the consideration paid by the company for purchase of its own unlisted shares which 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
• 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.
• Applicable with Effect from 01/06/2013
• Older Provisions:-
• Section 46A reads with section 48 of the Act, provided for taxability of the difference of buy back value & sale consideration as Capital Gain in the hands of the shareholders
• These gain was taxable as long term or short term capital gain as depending upon the holding period.

18. Logic of Section 50C, now Imported to the  “Profits and gains of business or profession”

• New section 43CA proposed to be inserted
• where the consideration for the transfer of an asset (other than 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”.
• Further, in case difference in dates of agreement for fixing the value of consideration & date of registration, the value as on date of AGREEEMNT to be revoked for this section.
• However, above exception shall be applied only in case consideration is received in any mode other than CASH.

Real Estate Businessman, Pl take CARE!!! 

19. Taxability of immovable property received for Inadequate Consideration

• Provisions of clause (vii) of sub-section (2) of section 56 proposed to be amended
• Existing provisions covered only taxability of immovable properties received for without consideration, in hands of the individual or HUF as income from other sources.
• Now the section has been amended to cover the cases of transfer of immovable properties at concessional rate too.
• Further, in case difference in dates of agreement for fixing the value of consideration & date of registration, the value as on date of AGREEMENT to be revoked for this section.
• However, above exception shall be applied only in case consideration is received in any mode other than CASH.

Now Taxable as Gift in kind

20. GAAR Postponed to AY 2016-17

• GENERAL ANTI-AVOIDANCE RULE (GAAR), as inserted into the Income-tax Act by the Finance Act, 2012
• These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

 21. Definition of “Agricultural Land”  for Capital Gains amended 

• Amendment in Section 2(14)(iii)(b);
• Corresponding amendments in section 2(1A) of Income Tax Act & Section 2(ea) of the Wealth Tax Act.
• To include, any land situated in any area within the distance, measured aerially (shortest aerial distance)

–      (I) not being more than 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 lakh; or

–      (II) not being more than 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 lakh but not exceeding ten lakh; or

–      (III) not being more than 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 lakh, shall form part of capital asset.

Now nature of the land, is linked with Populations

22. Section 10(10D) Amended  

• Definition of Keyman insurance policy, amended
• to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy

23. No deduction for CASH PAYMENTS u/s 80GGB & 80GGC

• With a view to discourage cash payments by the contributors
• No deduction shall be allowed in respect of cash contributions under above sections

24. Merely Tax Residency Certificate, Not sufficient

• Sub-section (4) of sections 90 and 90A of the Income-tax Act inserted by Finance Act, 2012 makes submission of Tax Residency Certificate containing prescribed particulars, as a condition for availing benefits of the agreements referred to in these sections
• It is proposed to amend sections 90 and 90A in order to provide that submission of a tax residency certificate is a NECESSARY BUT NOT A SUFFICIENT condition for claiming benefits under the agreements referred to in sections 90 and 90A.
• Retrospective amendment w.e.f. AY 2013-14

Scope of Verification Widen

25. Section 132B:  Term “Existing Liability” clarified

• The existing provisions contained in section 132B of the Income-tax Act, inter alia, provide that seized assets may be adjusted against any existing liability under the Income-tax Act, Wealth-tax Act, the Expenditure-tax Act, the Gift-tax Act and the Interest-tax Act and the amount of liability determined on completion of assessments pursuant to search, including penalty levied or interest payable and in respect of which such person is in default or deemed to be in default
• Now, it is proposed to amend the aforesaid section so as to clarify that the existing liability does not include advance tax payable in accordance with the provisions of Part C of Chapter XVII of the Act

Applicable with Effect from 01/06/2013

Negative Impact of Interest, in Seizure case

26. Return of Income filed  without payment of self- assessment tax  to be treated as defective return

• Explanation to Section 139(9) amended
• It is proposed to amend the aforesaid Explanation so as to provide that the return of income shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A has been paid on or before the date of furnishing of the return.

Applicable with Effect from 01/06/2013

Caution: Do not file return without paying taxes

27. Amendment in section 142(2A) 

Existing Conditions

Proposed Conditions

Assessing Officer having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue

if at any stage of the proceedings before him, 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, AND THE INTERESTS OF THE REVENUE, is of the opinion that it is necessary so to do, 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.

28. Assessment of Foreign transactions:
Period of limitation u/s 153 & 153B Amended

• With a view to clarify the above situation, it is proposed to amend the aforesaid clause (viii) of Explanation I to section 153 so as to provide that the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Commissioner or a period of one year, whichever is less, shall be excluded in computing the period of limitation for the purposes of section 153.
• Also Applicable to Search Assessments
• Similar amendments are also proposed in the Explanation to section 153B

 29. Penalty under section 271FA  for non-filing of Annual Information Return

fails to furnish such return within time as prescribed in 285BA(2)	fails to furnish such return within time as prescribed in notice issued 285BA(5)
Rs.  100 per day for the days the default continues	Rs.  500 per day for the days the default continues

30. Commodities Transaction Tax  (CTT) Introduced 

• A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions entered into in a recognised association
• It is proposed to define ‘taxable commodities transaction’ to mean a transaction of sale of commodity derivatives in respect of commodities, other than agricultural commodities, traded in recognised associations
• Payable by Seller of commodities only
• This CTT is allowable expenditure u/s 36 of the Income Tax Act, 1961

31. E-filing of annexure-less return of WEALTH TAX 

• New section 14A & 14B (similar to section 139C & 139D of Income Tax Act) proposed to be inserted into the Wealth Tax Act, 1953
• Consequential amendment to section 46 Wealth Tax Act, 1953
• Applicable with Effect from 01/06/2013

Now E-filing Wealth Tax Returns possible

Go Green!!!

Disclaimer :- This immediate analysis has been prepared keeping in mind the interest of tax fraternity. Full care have been taken while doing the analysis, however we disclaim any liability if any arise.

Authors:-

CA Vidhan Surana      : vidhansurana@suranamaloo.com

CA Sunil Maloo          : sunilmaloo@suranamaloo.com