Dr. Suresh Surana  

The change in the political landscape and resurgent optimism in the Indian economy has created widespread expectations from the Budget 2014 with focus on:

  • Improving investment climate by reducing legislative uncertainty caused by retrospective amendments and aggressive approach of tax authorities
  • Greater thrust on manufacturing and export-oriented businesses
  • Rationalization of provisions regarding Minimum Alternate Tax, Dividend Distribution Tax and Transfer Pricing

In context of the above, the following are the Top 10 Expectations from Budget 2014 in the field of Direct Taxes:

A. Corporate Sector

1. Restoration of Tax incentive for Promoting Exports earlier available under section 10A /10B

Section 10A of the Income Tax Act provided 100% tax deduction of profits and gains derived by an undertaking established in free trade zone (FTZ), export processing zone (EPZ) etc. from the export of articles or things for a period of 10 years. Further, section 10B of the Income Tax Act provided a 100% tax deduction of profits and gains derived by an export-oriented unit (‘EOU’) and Software Technology Park of India (STPI) Units from the export of articles or things or computer software for a period of 10 years.

The tax benefits under section 10A / 10B are not available from Financial Year 2011-12 and onwards. In order to re-vitalize and provide impetus to the export sector, it is recommended that these benefits should be restored to promote exports by EOU/FTZ/EHTP/EPZ as well as STPI Units.

2. Reduction of MAT rates

The rate of Minimum Alternative Tax (MAT) levy has seen considerably increased over the years from 7.5% to 18.5% (increased by applicable surcharge and cess). The levy of MAT at such higher rate (i.e. about 2/3rd of the corporate rate of taxation) should be reduced to 10% to provide relief to the beleaguered industrial sector. Further, levy of MAT at the reduced rate of 10% in case of 10A/10B/10AA/80IA/80IB units will ensure that the benefits of tax holidays are not negated by higher MAT.

3. Wider Coverage of Safe Harbour Rules for International Transfer Pricing 

To reduce the widespread litigations in respect of international transactions between Associated Enterprises, the introduction of the Safe Harbour rules (notified on 18 September 2013) provided benchmark and certainty for Information Technology and IT Enabled Services sector and for Research & Development Centers. The scope of the Safe Harbour Rules (SHR) be extended to reduce litigation by covering other major sectors such as:

(i)             Automobile sector (currently auto ancillary is covered in the Safe Harbour Rules)

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(ii)            Engineering sector

(iii)           Pharmaceutical Sector (currently contract research and development in pharmaceutical sector covered in SHR)

(iv)          Diamond and Jewellery Sector

(v)           Metallurgical and other industries

4. No Adjustment in case of Tax Neutral Domestic Transfer Pricing

The international transfer pricing transactions have resulted in high-pitched assessments by tax authorities with additions estimated at Rs. 70,000 crores. To avoid similar potential litigation from the domestic transfer pricing perspective which has been introduced from financial year 2012-13, the tax adjustment in the income of the taxpayer should be restricted only to the cases where there is tax loss to the revenue. In other words, in case of transactions between associated enterprises which are subject to same incidence of tax resulting in tax neutrality, no adjustment should be made.

5. Reducing Legislative uncertainty caused by Retrospective Amendments

The retrospective clarificatory amendments introduced under Section 9(1)(i), Section 2(14) and section 2(47) to tax capital gain on direct / indirect transfer of capital asset w.e.f. 1.4.1962 is regressive. It has eroded the confidence of the international investor community Such retrospective amendments need to be repealed to restore India’s image as an investor friendly investment destination with a stable tax regime.

6. Deduction for Corporate Social Responsibility costs

The new Companies Act 2013 obliges companies to mandatorily spend 2% of average net profits under Corporate Social Responsibility (CSR). However at present, there is no specific provision under the Income Tax Act, 1961 which allows deduction for CSR Expenditure. Allowance of deduction through a specific provision will provide certainty regarding tax treatment.

7. Substitution of Dividend Distribution Tax (DDT) with Withholding Tax for foreign investors

The concept of DDT is uncommon globally and acts as a disincentive to the foreign investors. The DDT is not in the nature of withholding tax and is not eligible for tax credit in the home countries of the foreign investors. It is imperative that the dividend distribution tax paid is converted into withholding tax. This shall enable the foreign investors to claim the tax credit in their home country for the taxes paid on dividends in India without any loss of revenue to the Indian tax authorities.

8. Deletion of Section 40a(i)/(ia)

Under Section 40(a)(i)/(ia), expenditure on which tax is not deducted or / and is not paid to the credit of Central Government is liable for disallowance. There are several types of payments requiring deduction of tax at source such as interest, contractors’ payments, rent, brokerage, professional fees to non-residents/residents. The Income-Tax Act contains stringent provisions relating to non-deduction of tax at source by way of levy of interest and penalty. It is punitive to provide for disallowance of entire expenses in computing taxable income as this results in penalizing the taxpayers twice for the same contravention. Section 40(a)(i)/(ia) should be deleted accordingly.  

9. Continuation of lower rate of 15% tax on dividends received from foreign companies –under section 115BBD

In order to encourage repatriation of funds from specified foreign companies, a concessional rate of tax of 15% on dividend received by an Indian company from such foreign companies (where it holds 26% or more in the equity share capital) was introduced under section 115BBD. The provision of concessional rate of tax under section 115BBD ended on 31.03.2014. Since Section 115BBD acts an incentive for repatriation of income earned by resident companies from investments made abroad and to set off the same while computing the DDT, the provisions should be continued for Financial Year 2014-15 also.

B. Individual Taxpayers

1. Increase in limits for deduction under Section 80C

To encourage savings for the growth of economy, the present limit for deduction under section 80C of the Income Tax Act (the Act) of Rs. 1,00,000 in respect of certain investments such as Provident fund, ELSS, life insurance premium, housing loan repayment and 5 year bank deposits needs to be increased to Rs.2,00,000.

(Above are the views of Dr. Suresh Surana, Founder, Rsm Astute Consulting Group)

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0 responses to “Top 10 Expectations of Indians from Budget 2014”

  1. Amber says:

    The top personnels of various tax authorities should be replaced with person fit for that place for example a chartered accountant.
    We are taking commissioner of income tax a engineer who has cleared upsc, how he can understand the problems of tax world .
    it is the most important issue, a person who has cleared upsc does not mean that he is well equiped with knowledge of tax.

  2. MANDEEP SINGH says:

    Need to omit section 44AB for Non-Corporate assessees because it is a financial burden & wastage of time without evaluating its output since 1984.
    our government can’t blindly faith on these provisions & these are strict hurdle to increase genuine tax base of our country.

    NON-CORPORATE SHOULD BE EXCLUDE FROM THE PROVISIONS OF SECTION 44AB OF INCOME TAX ACT FOR WIDEN GENUINE TAX BASE AS LIKE FOREIGN COUNTRIES.

  3. vsnmurty says:

    Respected Members may also suggest the means to augment resources to meet the cost of various welfare measures promised to weaker sections of the Country.Income Tax assesses are not even 3% and theFM has to Budget 100% of the Population.

  4. Rehan says:

    The following recommendations is a must to incl defence service people

    under 80 c…limit increase to 2 lacs is welcome

    no tax till rs 5 lacs income is a must viewing the inflation, separate slab for people running pvt business, institutes etc

    Business class incl people running educational institution should be made more accountable.Service tax to be paid by the business firms and such pvt institutions and not by the people.

    only the salaried class suffers from this tax regime hence separate slab a must for them.

    separate slab for defence services due to the service provided in difficult conditions.( I m sure defence people are not levying any service tax from people for the yeoman service they are providing!)

    Allowances of any kind should be free of tax for defence services.

    Tax on tobacco,alcohol,high range electrical appliances be incr

  5. Shanu says:

    Excellent comment by Mr. P ROY. Though there is some pension scheme for every senior citizen also in some state like 500/- or 1000/- which is meager, but must be good amount and equal to all senior citizen irrespective of their past job. Only defence or military retired senior citizen should be given some extra benefits which i think they are already having e.g. canteen for dutyfree product which are quite cheaper.

  6. K N Srikantan says:

    All middle class retired senior citizens like me who do not get any support/pension from their former employers and surviving on savings or family support will be grateful to the new Government if the above suggestion of Mr Roy is implemented. It will be of very great help to meet the unexpected exhorbitant medical expenses and increasing cost of livng. Government should pay pension to all senior citizens those who were sincere tax payers and paid huge amounts towards income tax while in service and after retirement do not have sufficient income to lead a decent living. The EPF pension received is very meagre.

    One more suggestion – on fixed deposits banks instead of deducting TDS on entire interest amount (including the first 10,000/-) when it exceeds even by one rupee, should deduct TDS only on interest amount exceeding the exempted limit of Rs.10,000/- similar to income tax payable on amount exceeding the taxable limit. This will help retired seniors who rely on interest income and whose all source income may exceed the taxable limit and who may invest to the extent allowed in tax savers at the year end to make their tax liability to nil.

    We trust Hon’ ble Prime Minister/ Finance Minister will consider the above suggestions.

  7. P ROY says:

    IDEALY THERE SHOULD NOT BE ANY PENSION PAY FOR RETIRED GOVERNMENT SERVANTS ONLY. TAX IS PAID BY EACH AND EVRY CITIZEN SO IF PENSION AS OLD AGE SU[PORT IS TO BE GIVEN THEN IT SHOULD BE GIVEN ALL CITIZENS AFTER A CERTAIN AGE AND ALL SHOULD BE PAID SAM AMOUNT PER MONTH.
    DIFFERENCE OF SALARY FOR GOVERNMENT SERVANT AT DIFFERENT POSTS ARE BASED ON DIFFERENCE IN EDUCATIONAL QUALIFICATION AND TYPE OF SERVICE PROVIDED BY AN EMPLOYEE DURING HIS/HER SERVICE. AFTER RETIREMENT, ALL MUST BE TREATED SAME FOR PENSION PAY FOR OLD AGE SUPPORT.

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