Budget 2014 – Key Highlights – Income Tax and Service Tax

CA Sanjeev Singhal

(A) Key Highlights – Income Tax

1. Rates of Income Tax, Surcharge and Cess 
There is no change in the rate of income tax, surcharge , education and SHE cess. The rates for AY 2015-16 will remain the same as in AY 2014-15.

2. Income Tax basic exemption Slabs enhanced 
The new income tax basic exemption limits has been increased. The revised limits are as under:

(a)

Up to Rs. 250000/-	Nil
From 250001 to Rs. 500000	10%
From 500001 to Rs. 1000000	20%
Above Rs. 1000000	30%

     (b)

Up to Rs. 300000/-	Nil
From 300001 to Rs. 500000	10%
From 500001 to Rs. 1000000	20%
Above Rs. 1000000	30%

     (c)

Up to Rs. 500000/-	Nil
From 500001 to Rs. 1000000	20%
Above Rs. 1000000	30%

 3. Investment Limit for Deduction u/s 80C increased 
The investment limits has been increased from Rs. 1.00 lacs to rs.1.50 lacs. (wef AY 2015-16)

4. Extention of section 80CCD deduction benefits to private sector employees (w.e.f. AY 2015-16

Benefit extended for employees in the private sector, joining the New Pension Scheme (NPS) for deduction of amount so paid not exceeding 10% of salary

5. Housing Loan Interest deduction limit increased

The limit for claiming deduction for interest paid on housing loan for self occupied house has been raised from rs. 1.50 lacs to Rs. 2.00 lacs (w.e.f.  AY 2015-16)

6. Grossing up for payment of Dividend Distribution Tax (DDT) u/s 115O

The current rate for DDT is 15%.The method of computation for every 85 rupees of” dividend paid or distributed” by a company would be as under:

Dividend Distributed (say 100-15)	Rs. 85/-
Grossing up for 15%	Rs. 100/- (Rs. 85 / 0.85)
DDT @ 15%	Rs. 15/-
Tax payable u/s 115O	Rs. 15/-
Dividend to be distributed/paid	Rs. 85/-

Similar treatment is proposed for distribution of income to unit holders under section115R. the amendment shall be applicable wef 01-10-2014.

7. Holding period qualifying for LTCA by unlisted securities and units of MF increased
An unlisted security and a unit of a mutual fund (other than an equity oriented mutual fund) shall be a short-term capital asset if it is held for not more than thirty-six months. (w.e.f AY2015-16)

8. Taxation regime for Real State Investment Trust (REIT) and Infrastructure Investment Trust (INVIT)

Specific taxation regime provided for taxation of the income in the hands of such trusts and the taxability of the income distributed by such business trusts in the hands of the unit holders of such trusts. (wef 01/10/2014)

9. Investment Allowance to Manufacturing Company-section 32AC

(a) Period of investment in plant and machinery extended to 31-03-2017

(b) Deduction to be if the investment is more than Rs.25 crore in a previous year.

(c) The assessee who is eligible to claim deduction under the existing combined threshold limit of Rs.100 crore for investment made in previous years 2013-14 and 2014-15 shall continue to be eligible to claim deduction under the existing provisions contained in sub-section (1) of section 32AC even if its investment in the year 2014-15 is below the proposed new threshold limit of investment of Rs. 25 crore during the previous year (wef AY2015-16)

10. Extention of Sunset date under section 80IA for Power Sector

The start date for eligible activity extended  up to 31st March, 2017 i.e. till the end of the 12th Five Year Plan.

11. Capital Expenditure on Scientific Business u/s 35AD (w.e.f.AY 2015-16)

(a) Two new businesses added:

     (i) laying and operating a slurry pipeline for the transportation of iron ore;

     (ii) setting up and operating a notified semi conductor wafer fabrication manufacturing unit,.

(b) Capital asset to be used for minimum 8 years.

(c) Withdrawal of exemption if asset is used for other purposes

(d) Deduction u/s 10AA shall not be available

12. Concessional withholding Tax on overseas borrowings (w.e.f. 01/10/2014)
Concessional withholding tax rate of 5% u/s 194LC shall now also apply to any long-term bond, rather then long term infrastructure bond only. Period of borrowing also extended by two years to 30/06/2017

13. Roll Back Advance Pricing Agreement Provisions u/s 92CC (w.e.f. 01/10/2014)

14. Alternate Minimum Tax (w.e.f. AY 2015-16)

For computing adjusted total income, that total income shall be increased by the deduction claimed under section 35AD

15. Advance received for transfer of capital assets to be taxable (w.e.f. AY2015-16)

Amount received as advance or otherwise in the course of negotiations for transfer of a capital asset. shall be taxable as ‘income from other  sources’

16. TDS on Non-exempt payments under Life Insurance Policy (w.e.f. AY2015-16)

Rate of 2% provided for deduction at source. No deduction to be made if  the aggregate sum paid in a financial year is less than Rs. 1 lacs

17. Rationalization of the definition of International transaction (w.e.f. AY2015-16)

18. Rationalization of exemptions available to charitable institutions (w.e.f. AY2015-16)

(a) Section 10(23C) and Section 10 made mutually exclusive (other than agricultural income)

(b) For computing application of income, depreciation shall be excluded

19. Rationalization of provisions related to cancellation of registration of trusts us/ 12AA (w.e.f. 01/10/2014)

Ambit for cancellation increased. Now registration of trust can be cancelled if:
(i) its income does not ensure for the benefit of general public;
(ii) it is for benefit of any particular religious community or caste (in case it is established after commencement of the Act);
(iii) any income or property of the trust is applied for benefit of specified persons like author of trust, trustees etc.; or
(iv) its funds are invested in prohibited modes ,

20. Exemption u/s 11 and12 to trust/institution for period before registration (w.e.f. 01/10/2014)

a) Exemption shall be available for an earlier assessment year for which registration was pending with Assessing Officer.
(b) No reopening of the case for earlier year shall be done on this ground
(c) This provision not to apply to cases where registration was denied subsequently

21. No Income Tax deductions for expenses by companies on CSR (w.e.f. AY2015-16)

The deductions on only those CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed

22. Disalowance of Expenses for non deduction of tax at source (w.e.f. AY2015-16)
(a) For claming deduction of payments to non-residents, time limit for payment of TDS shall be date of filing of ITR
(b) The disallowance u/s 40(a)(ia) shall be restricted to 30% of the amount of expenditure claimed
(c) The disallowance u/s 40(a)(ia) shall apply to all expenses currently not specified on which tax is required to be deducted at source.

23. Uniform rates for Business of Playing Hiring and Leasing Goods Carriage u/s 44AE (w.e.f. AY2015-16)
Uniform presumptive rate of Rs.7,500/ p.m. provided for all types of goods carriage without any distinction between Heavy Goods Vehicle and vehicle other than HGV

24. Accounting Standards are meant for computation    (w.e.f. AY2015-16)
Accounting Standards notified u/s 145 are not meant for maintenance of books.These computation and disclosure standards shall be used for computation of income.

25. Speculative Tranzactions in commodity derivatives   (w.e.f. AY 2014-15)
Eligible transaction in respect of trading in commodity derivatives carried out in a recognised association and chargeable to commodities transaction tax shall not be considered to be a speculative transaction.

26. Year of Taxability of compensation received in compulsory acquisition  (w.e.f. AY2015-16)

The amount of compensation received in pursuance of an interim order of the court,Tribunal etc. shall be taxable in the previous year in which the final order of such court, Tribunal or other authority is made.

27.Capital gain exemption benefit u/s 54 restricted to one residential house (w.e.f.) AY2015-16)

Section 54(1) amended to provide that relief is available if the investment is made in one residential house.

28. Capital gain exemption benefit u/s 54EC–relief is restricted to 50 lacs in whole (w.e.f. AY2015-16)

Relief under section 54EC shall be 50 lacs including the financial year in which the original asset or assets are transferred and the subsequent financial year

29. New Income tax Authorities (w.e.f. 01/06/2013)
Principal Chief Commissioner of Income-tax”, “Principal Commissioner of Income-tax”, “Principal Director General of Income-tax” and “Principal Director of Income-tax”  to be new authorities

30. Survey – Power to retain books and documents u/s 133A (w.e.f. 01/10/2014)
(a) Period of retention without approval extended to 15 days
(b) Power to survey for verifying TDS Compliances

31. Mutual Funds, Securitisation Trusts and Venture Capital Companies or Venture Capital Funds to file return of income (w.e.f. AY 2015-16)

32. Power to call for Information – New Section 133C (w.e.f. 01/10/2014)
For verification of information in its possession relating to any person,prescribed income-tax authority, may, issue a notice and call for information or documents.

33. Valuation of property, investments etc.  u/s 142A (w.e.f. 01/10/2014)
(a) Valuation Officer to estimate the value after taking into account the evidence produced by the assessee and any other evidence in his possession after giving an opportunity of being heard to the assessee.
(b)Time between reference to valuation officer and submission of his report to be excluded from time of completion of assessment.

34. Acceptance/repayment of Loans or Deposits u/s 269SS/269TT by ECS  (w.e.f. 01/10/2014)

Any acceptance or repayment of any loan or deposit by use of electronic clearing system through a bank account shall not be prohibited under the said sections

35. Fine for failure to produce books of account (w.e.f. 01/10/2014)

Section 276D amended to provide for a fine as against the present rate based fine for days under default.

36. Provisional attachment of property us/ 281B (w.e.f. 01/10/2014)
Chief Commissioner, Commissioner, Director General or Director may extend the period of provisional attachment for maximum two years or up to sixty days.

37. Annual Information Return (w.e.f. AY 2015-16)

a) Prescribed reporting financial institution covered for reporting.
(b) Inaccuracy in AIR noticed by the furnisher to be reported in 10 days
(c) Due diligence to be carried out when specified
(d) New penalty of Rs. 50000/- prescribed u/s 271FAA for various defaults.

38. Assessment of other persons in search cases (w.e.f. 01/10/2014)
Satisfaction of jurisdictional Assessing Officer has been imported before assessment of other persons

B] KEY HIGHLIGHTS – SERVICE TAX

1.   Changes in Negative list: EFFECTIVE FROM DATE TO BE NOTIFIED AFTER THE ENACTMENT OF FINANCE BILL

a. Only „selling of space for advertisements in print media‟ would be covered with clause (g) of Section 66D. With this following would be chargeable to Service tax:

Advertisement in

i. Internet websites, Out of home media, On film screens and theatres ii.   Bill boards

iii. Conveyances iv. Buildings

v. Cell Phones vi. ATMs

vii. Tickets

viii. Commercial Publications ix. Aerial Advertising

x. Yellow Pages

b. Radio taxi would be removed from negative list (Section 66D) and thus would be made chargeable to Service tax

c. Radio taxi has not been defined in the Act but is defined in Notification No.25/2012 – ST as:

„(za) “radio taxi” means a taxi including a radio cab, by whatever name called, which is in two-way radio communication with a central control office and is enabled for tracking using Global Positioning System (GPS) or General Packet Radio Service (GPRS);

d. Thus a view may be taken that only the taxi which would be covered within the above definition would be excluded from negative list. Other radio taxis not fulfilling the requirements of the above definition may be construed as still covered within „metered taxi‟ and therefore covered by negative list.

2. Changes Brought Through Notifications:    [DIFFERENT  DATES   FOR DIFFERENT CHANGES]

A. Amendments in mega exemption notification [W.E.F. 11.07.14]

a. Entry 2B added: Services provided by operators of the Common Bio-medical Waste Treatment Facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto

b. Entry 7 – omitted: clinical testing, analysis of drugs, vaccines etc. c.

c.   Entry 9 – substituted

–              Educational institution clarified – divided in services to educational institution and services by educational institution

–              Services by educational institution to faculty, staff and students fully exempt

–              Specific services to educational institutions exempt. Concept of auxiliary education service removed.

–              Exemption for Renting of immovable property to educational institutions withdrawn

d. Entry 18 – Services of hotel, inn, guest house etc.: “Commercial purposes” excluded. Now no dispute regarding exemption to services provided by dharamshalas, ashrams, etc

e. Entry 20/21 – Transportation by rail or vessel or by Goods Transport Agency

“GTA”: no tax on cotton, ginned or baled and organic manures

f. Entry 40: Services by way of loading, unloading, packing, storage or warehousing of cotton, ginned or baled;

g. Entry 41: Services received by the Reserve Bank of India, from outside India in relation to management of foreign exchange reserves;

h. Entry 42: Services provided by a tour operator to a foreign tourist in relation to a tour conducted wholly outside India

3. Compliance enhancement:

• Simple interest rates per annum payable under section 75, to vary on the basis of extent of delay in payment of service tax. This will come into force on 1^st October 2014.

Extent of delay	Simple interest rate per annum
Up to six months	18%
From six months and up to one year	24%
More than one year	30%

 4. Service Tax Rules: [changes to have immediate effect]

• Service provided by a Director to a body corporate to be brought under the reverse charge mechanism; service receiver, who is a body corporate will be the person liable to pay service tax.
• Services provided by Recovery Agents to Banks, Financial Institutions and NBFC to be brought under the reverse charge mechanism; service receiver will be the person liable to pay service tax.

5. Cenvat Credit:

•   Service tax paid under full reverse charge: the condition to pay invoice value to the service provider for availing credit of tax paid, to be omitted [change to have immediate effect].
•   Re-credit of Cenvat credit reversed on account of non-receipt of export proceeds within the specified period, to be allowed, if such export proceeds are received within one year from the specified period on the basis of documentary evidence of receipt of payment [change to have immediate effect].
•  Rent-a-cab operator and tour operator: service tax paid by sub-contractor in the same line of business would be allowed as eligible credit to the main service provider to avoid double taxation, subject to certain conditions [with effect from 1^st October 2014]. Refer amendment in Notification No.26/2012-ST.
•   GTA service: service receiver may avail abatement, without having to obtain non-availment of Cenvat Credit certificate from service provider [change to have immediate effect]. Refer amendment in Notification No.26/2012- ST.
•   Time limit for taking credit on input and input services: credit shall be taken within six months from the date of the invoice or challans or other documents specified [change to have effect from 1^st September, 2014].
  

6. Place of Provision of Services Rules:

•   Provision for prescribing conditions for determination of place of provision of repair service carried out on temporarily imported goods, to be omitted.
•   Intermediary of goods to be given the same treatment as is given to intermediary of services.
•  Vessels (excluding yachts) and aircraft to be excluded from Rule 9(d); hiring of vessels or aircrafts, irrespective of whether short term or long term, will be covered by the general rule, which is place of location of the service receiver.

[The above changes to have effect from 1^st October 2014]

7 . Point of Taxation Rules:

In case of reverse charge services, to bring certainty in the determination of point of taxation, it is proposed to provide that point of taxation will be the payment date or first day after three months from the date of invoice, whichever is earlier. The amended point of taxation will apply to invoices issued after 1^st October 2014. A transition rule is proposed to be prescribed [change to have effect from 1^st October, 2014].

8. Simplification of partial reverse charge mechanism:

• In renting of motor vehicle, portion of service tax payable by service provider and service receiver will be 50% each. This will come into effect from 1^st of October 2014.

9. SEZ – procedural simplification: [changes to have immediate effect].

•  To be provided that the Central Excise Officer would issue Form A-2, within fifteen days from the date of receipt of Form A-1.
•  Exemption would be available from the date when list of service on which SEZ is entitled to upfront exemption is endorsed by the authorised officer of SEZ in Form A-1, provided Form A-1 is furnished to the jurisdictional Central Excise Officer within fifteen days of its verification. If furnished later, exemption would be available from the date on which Form A-1 is so furnished.
• Pending issuance of Form A-2, exemption will be available subject to condition that authorization issued by the Central Excise officer will be furnished to service provider within a period of three months from provision of service.
•  As regards services covered under reverse charge, the requirement of furnishing service tax registration number of service provider shall be dispensed with.
• A service shall be treated as exclusively used for SEZ operations if the recipient of service is a SEZ unit or developer, invoice is in the name of such unit/developer and the service is used exclusively for furtherance of authorized operations in the SEZ.