Budget 2013-14 – Direct & Indirect Tax Highlights

Direct Tax – At a Glance

• No change in income tax slabs
• A tax credit of Rs. 2,000 to every person with an income of up to Rs. 5 lakh per annum
• Surcharge of 10 % on persons (other than companies) whose taxable income exceeds Rs. 1 crore for only one year
• Increase in surcharge from 5 % to 10 % on domestic companies whose taxable income exceeds Rs. 10 crore for only one year
• Increase in surcharge from 2 % to 5 % on foreign companies paying higher rate of corporate tax, whose taxable income exceeds Rs. 10 crore for only one year
• Increase in surcharge from 5 % to 10 % on dividend distribution tax or tax on distributed income for only one year
• No change in education cess i.e. it continue to remain the same at 3 %.
• Permissible premium rate increased from 10 % to 15 % of the sum assured by relaxing eligibility conditions of life insurance policies for persons suffering from disability and certain ailments.
• Contributions made to schemes of Central and State Governments similar to Central Government Health Scheme will be eligible for deduction under section 80D of the Income tax Act.
• 100 % deduction under income tax act on donations made to National Children Fund
• Manufacturing companies eligible for investment allowance of 15 % for investment made more than Rs. 100 crore in plant and machinery during the financial year 2013-14
• Eligible date for projects in the power sector to avail benefit under Section 80-IA extended from 31.3.2013 to 31.3.2014.
• Concessional tax of 15 % to be continued for one more year on dividend received by an Indian company from its foreign subsidiary
• Securitization Trust to be exempted from Income Tax, however tax to be levied at specified rates only at the time of distribution of income for companies, individual or HUF etc. No further tax on income received by investors from the Trust.
• Investor Protection Fund of depositories exempt from Income-tax in some cases.
• A Category I AIF set up as Venture capital fund allowed pass through status under Income-tax Act.
• TDS of 1 per cent on land deals worth over Rs. 50 lakh, however agricultural land are exempted
• Withholding tax of 20 % on profits distributed by unlisted companies to shareholders through buyback of shares.
• Royalty and technical expertise tax increased from 10 % to 25 %, where DTAA doesn’t apply
• Securities Transaction Tax brought down to 0.01 % from 0.017 %
• Commodity transaction tax of 0.01 per cent introduced on non-agri futures traded on commodity market
• Modified provisions of GAAR will come into effect from 1.4.2016.
  

What goes up & down

 Indirect Tax – At a Glance

• No change in the normal rates of 12 percent for excise duty and service tax.
• No change in the peak rate of basic customs duty of 10 % for non-agricultural products

Customs Duty

• Reduction in duty on specified machinery for manufacture of leather and leather goods including footwear from 7.5 % to 5 %
• Reduction in duty on pre-forms precious and semi-precious stones from 10% to 2 %
• Export duty on de-oiled rice bran oil cake withdrawn
• New duty imposed on export of unprocessed ilmenite @ 10 %
• New duty imposed on export on ungraded ilmenite @ 5 %
• Increase in duty on Set Top Boxes from 5% to 10%
• Increase in duty on raw silk from 5% to 15 %
• Duties on Steam Coal and Bituminous Coal equalized. Custom duty @ 2% and CVD @ 2 % levied on both kinds coal
• Increase in duty on imported luxury motor vehicles from 75 % to 100 %
• Increase in duty on imported motorcycles with engine capacity of 800cc or more from 60 % to 75 %
• Increase in duty on imported yachts and similar vessels from 10 % to 25 %
• Duty free gold limit increased to Rs. 50,000 in case of male passenger and Rs.1, 00,000 in case of a female passenger subject to conditions.

Excise duty

• Relief for readymade garment industry. In case of cotton there will Zero % excise duty at fiber stage. In case of spun yarn made of manmade fiber, duty of 12 % at the fiber stage.
• Handmade carpets and textile floor coverings of coir and jute totally exempted from excise duty
• Ships and vessels exempted from excise duty. No CVD on imported ships and vessels.
• Increase in specific excise duty on cigarettes, cigars, cheroots and cigarillos by 18 %
• Excise duty on non-taxi SUVs hiked to 30 per cent from 27 per cent
• Excise duty on SUVs increased from 27 % to 30 %
• Excise duty on marble increased from Rs. 30 per square meter to Rs. 60 per square meter
• New duty imposed @ 4 % on silver manufactured from smelting zinc or lead
• Increase in duty from 1 % to 6 % on mobile phones priced at more than Rs. 2000
• MRP based assessment in respect of branded medicaments of Ayurveda, Unani, Siddha, Homeopathy and bio-chemic systems of medicine to reduce valuation disputes. There will be an abatement of 35 percent

Service Tax

• Maintain stability in tax regime.
• Vocational courses offered by institutes affiliated to the State Council of Vocational Training and testing activities in relation to agricultural produce included in the negative list for service tax
• Exemption of Service Tax on copyright on cinematography limited to films exhibited in cinema halls.
• Service Tax to be levied on all air conditioned restaurant
• For homes and flats with

ü  carpet area of 2,000 sq.ft. or more or

ü  value of Rs. 1 crore or more

which are high-end constructions, where the component of services is greater, rate of abatement reduced from 75 % to 70 %

• A onetime scheme called ‘Voluntary Compliance Encouragement Scheme’ has been proposed to motivate the registered assesses under service tax to file returns and pay tax dues since 1^St October 2007 to avoid interest, penalty and other consequences

Good and Services Tax

• A sum of Rs. 9,000 crore towards the first installment of the balance of CST compensation has been provided in the budget.
• Work on draft GST Constitutional amendment bill and GST law expected to be taken forward.

About Author

Pradeep Bajoria is a Chartered Accountant and Masters of Business Administration, he is also IFRS certified and holds diploma in commodities market. He is part of Tata Consultancy Services Ltd’s Banking Industry Practice and specializes in Finance & Reporting and is an expert on IFRS/ IGAAP/FATCA.

He can be reached at Pradeep.bajoria@tcs.com.