Tax Benefits/ Exemptions to Individual/ HUF
- Basic Exemption Limit for FY 2014-15 is increased to Rs. 250000/- for individuals (whether male or female) below 60 years of age. For persons of 60 years or above, the basic exemption limit is raised to Rs. 300000/-
- Limit for Deduction u/s 80C has been increased to Rs. 150000/-. Simultaneously, investment in PPF per year is increased to Rs. 150000/- (Earlier Rs. 100000/-).
- Deduction u/s 24(b) for interest payment towards loan taken for self occupied houses increased to Rs. 200000/- (Earlier Rs. 150000/-)
Calculation of Dividend/Income Distribution Tax
- Section 115-O/115R levy additional income tax on income/divided distributed by companies or mutual funds. Earlier, the tax was calculated @ 15% on the net income/ distributed. Now, the tax shall be paid on the gross income distributed. For eg. If a dividend of Rs. 100 is distributed, earlier it was 15% of dividend paid i.e. Rs. 15/-. But now the dividend has to be grossed up by dividing the dividend amount by (1-tax rate). Accordingly, the tax would be Rs. 17.65. Additional burden on the companies or we may say less income in the hands of shareholders.
Classification of Unlisted Equity Shares and units of mutual fund (other than equity oriented fund)
- Sec 2(42A) now provides that an unlisted security and a unit of mutual fund (other than an equity oriented mutual fund) shall be short term capital assets if it is held for not more than 36 months.
Long Term Capital Gain Tax on debt oriented mutual fund
- LTCG on debt oriented fund shall be 20%. Earlier it was 20% after indexation and 10% without indexation.
Taxability of Real Estate Investment Trusts (REIT) and Infrastructure Investment Trust (INVIT)
- These trusts would raise capital by way of issue of units to be listed on a recognized stock exchange. The income bearing assets would be held by the trust by acquiring interest in an Indian Company (SPV) from the sponsor
- Taxability on par with listed equity shares i.e. LTCG is exempt on the listed units of REIT/INVIT and STCG @ 15% on such units
- In case of Capital gains arising to sponsor at the times of exchange of shares in SPVs with units of the business trusts, the taxation of gains shall be deferred and taxed at the time of disposal of units by the sponsor. However, preferential tax regime (as in case of listed equity shares ) shall not be available to sponsor.
- Interest received by business trust from SPV is not taxable in the hands of trust and no withholding tax at the level of SPV. However, in case of payment of income component of income distributed, trust shall effect withholding tax at rate of 5% for non-residents and 10% for residents unit holder
- In case of ECB by trusts, withholding rate of 5% on interest to be paid
- Dividend received by the trust from SPV shall be exempt in the hands of trust and such dividend distributed to unit holders shall also be exempt. However, SPV shall pay DDT on dividend paid to trusts.
- Capital gain is taxable in the hands of trust, but on distribution, such capital gain shall be exempt in the hands of unit holders.
Investment allowance to a Manufacturing Company
- Deduction of 15% u/s 32AC for investment in new plant & machinery if the amount exceeds Rs. 25 Crore.
100% Deduction of Capital Expenditure on Specified Business
- 100% Deduction is allowed of Capital Expenditure (excluding land, goodwill and financial instrument) u/s 35AD for investment in specified business. Two new businesses are included i.e.
o Laying and operating a slurry pipeline for the transportation of iron ore
o Setting up and operating a semiconductor wafer fabrication manufacturing unit
- If such asset is not used for the purpose of such business for eight years, deduction claimed earlier shall be income after deducting depreciation.
- As per Sec 115JC, total income of the company shall be increased by the deduction claimed u/s 35AD (and decreased by the depreciation allowable u/s 32) for the purpose of computing of Alternate Minimum Tax (AMT).
Taxability of advance for transfer of a Capital Asset
- Advance received against transfer of capital asset and forfeited thereafter shall be taxable under the head “Income from other Sources” as per Section 56(2)
(Earlier, Sec 51 covered these situations and the amount forfeited was reduced from the cost of acquisition of Capital Asset. If the amount forfeited exceeds the cost of acquisition, the cost of acquisition was reduced to nil and excess amount was treated as capital receipt not taxable in light of Apex Court decision in Travancore Rubber & Tea Co.)
Taxation of Charitable Trusts and Institutions
- Where a trust or an institution has been granted registration for purposes of availing exemption under section 11, and the registration is in force for a previous year, then such trust or institution cannot claim any exemption under any provision of section 10 [other than that relating to exemption of agricultural income and income exempt under section 10(23C)] and vice versa.
- Under section 11 and section 10(23C), income for the purposes of application shall be determined without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year.
- Term “Substantially Financed by the Government” used in Sec 23AC, explained.
- Powers of Commissioner to cancel the registrations of such trusts/ institutions widened.
- Exemption from income also granted for period before registration.
- Introduction of Roll-back mechanisms in Advance Pricing Agreements (APA). Arm’s Length Price (ALP) determined in APA is valid for previous 4 years also.
- TPO is also empowered to levy penalty u/s 271G in addition to the AO and CIT(A)
- Definition of international transaction rationalized
Tax Deduction at Source (TDS)
- To claim the expenditure, TDS on payment made to non-residents can be deposited before filing of return [Sec 40(a)(i)]
- In case of non-deduction or non-payment of TDS from certain payments made to residents, only 30% of the expenditure shall be disallowed. [Sec 40(a)(ia)]
- Disallowance u/s 40(a)(ia) shall extend to all payments on which tax is deductible
- Time limit for 2 years to treat payer as assessee in default has been dispensed with.
- Time limit of 6 years for TDS Statements not filed, extended to 7 years.
- An income tax authority may for the purpose of checking of compliance of TDS may survey any premises and enquire about books of accounts etc u/s 133A
Income Computation and disclosure standards
- Central Government to notify the income computation and disclosure standards to be followed by any class of persons or in respects of any class of income.
- AO may make best judgement assessment u/s 144, if the income is not computed in accordance with the standards notified u/s 145(2) of the Act.
- Extension of the sunset date under section 80-IA for the power sector to 31-03-2017
- Withholding tax of 5% on interest paid towards foreign borrowings via long term bonds
- Dividend income from foreign companies to continue to be taxed @ 15%
- Income arising from transfer of securities by a Foreign Portfolio Investor (FII) would be in the nature of Capital Gain
- TDS @ 2% from payments (Not covered u/s 10(10D)) made by the Insurance Companies under a life insurance policy if it exceeds Rs. 100000/- in a year.
- Corporate Social Responsibility (CSR) expenditure not allowed as deduction u/s 37
- Presumptive income u/s 44AE = Rs 7500 per month per vehicles, whether HGV or other than HGV (Heavy Goods Vehicle)
- Transfer of Government Security (carrying a periodic payment of interest) by one non-resident to other non-resident shall be exempt from capital gains tax.
- Transaction in respect of trading in Commodity derivatives carried out in recognized association and chargeable to CTT is not speculative transaction.
- In case of Capital gains arising from transfer of an asset by way of compulsory acquisition, the amount received in pursuance of an interim order of the authority shall be income of the previous year in which final order is made.
- Sec 54/54F exemption only when the investment is made in one residential house situated in India
- Limit of Rs. 50 Lakh u/s 54EC explained. Total investment of Rs. 50 Lakhs only is to be allowed, even if covering two financial years.
- New Section 133C inserted to empower the prescribed income tax authority to issue notice to person, whose information is in possession of such authority, requiring him to furnish information or documents.
- Failure to produce books of accounts and documents as required in any notice issued u/s 142(1) or failure to comply with a direction issued u/s 142(2A) mandatorily requires rigorous imprisonment upto 1 year and fine.
- Sec 285BA includes more transactions and reportable accounts to be furnished by specified persons to the income tax authority.
- Assessment of income of a person other than the searched person u/s 153C only if the Assessing officer of such other person is satisfied that books etc seized or requisitioned have a bearing on the determination of the total income of such other person.
- Credit of Alternate Minimum Tax u/s 115C shall be allowed.
(Author CA Rahul Jain is Partner in Delhi Based CA firm RPMD & Associates and can be reached at email@example.com)