India Budget 2014-Highlights (1)

INDIA

BUDGET 2014- HIGHLIGHTS

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iINDIA BUDGET 2014 - Highlights

July 2014

INDIA


Includes

ØG-20 Countries - Comparative Corporate and Personal Tax Rates

ØTax Incentives for Businesses

ØDTAA Rates

ØDirect Tax and Service Tax Compliance Calendar

RSM Astute Consulting

CONTENTS

CHAPTER 1 : INTRODUCTION

CHAPTER 2 : INDIAN ECONOMY - AN OVERVIEW

CHAPTER 3 : TAX RATES

CHAPTER 5 : TAX INCENTIVES FOR BUSINESSES

CHAPTER 6 : DIRECT TAXES - SIGNIFICANT CHANGES

6.1 Business Entities6.2 Personal6.3 Non Residents

CHAPTER 7 : INDIRECT TAXES - SIGNIFICANT CHANGES

7.1 Service Tax7.2 Customs Duty7.3 Central Excise

7.4 Goods and Services Tax

CHAPTER 8 :

6.4 Transfer Pricing

OTHER SIGNIFICANT PROPOSALS

INDIA


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11

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39

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70

39495051

57626568

EXECUTIVE SUMMARY

CHAPTER 9 : 74

CHAPTER 10 : 81

CHAPTER 11 : TDS RATES

DTAA RATES

89

ABBREVIATIONS 94

1

IMPACT ON SELECT INDUSTRIES

6.5 General 52

ii

CHAPTER 12 : DIRECT TAX AND COMPLIANCE CALENDAR

SERVICE TAX 91

CHAPTER 4 : G-20 COUNTRIES - COMPARATIVECORPORATE AND PERSONAL TAX RATES

21

INDIA BUDGET 2014 - HighlightsRSM Astute Consulting

EXECUTIVE SUMMARY

1. DIRECT TAXES

1.1 Effective Tax Rates

1.1.1 Personal taxation

The Bill proposes certain modifications to the tax structure for individuals

# In case of a resident individual of the age of 60 years or more (senior citizen) at any time during the previous year, the basic exemption income slab of Rs.2,50,000 is enhanced to Rs. 3,00,000. For a resident individual of the age of 80 years or more (very senior citizens) at any time during the previous year the basic exemption

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Income Slabs(Rs.)

Income Slabs(Rs.)

ProposedTax Rates

Tax Rates

FY 2014-15 FY 2013-14

Nil

*10.30% [tax rate10% plus education cess3% thereon] ofincome exceedingRs. 2,00,000

Rs. 30,900 plus20.60% [tax rate20% plus education cess3% thereon]of incomeexceeding Rs. 5,00,000

Rs. 1,33,900plus 30.90% [taxrate 30% pluseducation cess3% thereon] ofincome exceedingRs. 10,00,000

0 - 2,00,000#

2,00,001# - 5,00,000

5,00,001 - 10,00,000

10,00,001 - 1,00,00,000

Nil

10.30% [tax rate10% pluseducation cess 3%thereon] of incomeexceedingRs. 2,50,000

Rs. 25,750 plus20.60% [tax rate20% plus education cess 3%thereon] of incomeexceedingRs. 5,00,000

Rs. 1,28,750 plus30.90% [taxrate 30% pluseducation cess 3%thereon] of incomeexceedingRs. 10,00,000

0 - 2,50,000#

2,50,001# - 5,00,000*

5,00,001 - 10,00,000

10,00,001 - 1,00,00,000

Rs. 32,06,390 plus33.99% [(tax rate30% plus surcharge10% thereon) pluseducation cess3% thereon] ofincome exceedingRs.1,00,00,000

1,00,00,001^ and aboveRs. 32,00,725 plus33.99% [(tax rate30% plus surcharge10% thereon) pluseducation cess3% thereon] ofincome exceedingRs.1,00,00,000

1,00,00,001^ and above


income slab of Rs. 5,00,000 continues to remain the same. The tax for other slabs will change accordingly.

* A resident individual having income upto Rs. 5,00,000 will be entitled to a rebate of tax payable [excluding education cess] or Rs. 2,000, whichever is less.

^ Marginal relief is available to ensure that the additional income tax payable, including surcharge of 10% on the excess of income over Rs. 1,00,00,000, is limited to the amount by which the income is more than Rs. 1,00,00,000. However, no marginal relief shall be available in respect of the education cess.

Investment limits for claiming deduction under section 80C of the IT Act enhanced from Rs. 1,00,000 to Rs. 1,50,000.

Increase in deduction limit on account of interest on loan in respect of self-occupied house property from Rs. 1,50,000 to Rs. 2,00,000.

Benefit of exemption under section 54 and 54F of the IT Act to be available if the investment is made in 1 residential house only, which is to be situated in India.

1.1.2 Corporate taxation

No change in the tax rates for domestic and foreign companies.

No change in MAT rate.

DDT to be levied on gross amount of dividends as against the existing provisions of computing DDT on net dividends resulting in increased effective DDT rate.

Expenditure on CSR as referred in section 135 of the Companies Act, 2013 not to be allowed as deduction under section 37 of the IT Act. However, the CSR expenditure which is in the nature as prescribed under section 30 to 36 of the IT Act shall be allowed as deduction subject to fulfillment of conditions as specified in such sections.

Concessional rate of 15% on foreign dividends to be continued without specifying any sunset date.

The benefit of concessional withholding tax rate of 5% on interest payments in respect of borrowing in foreign currency is extended to all types of bonds instead of only infrastructure bonds. Further, the benefit to be extended for the bonds issued upto 30 June 2017 as against 30 June 2015.

Disallowance of expenses under section 40 (a) (ia) of the IT Act for failure to deduct and pay tax on specified payments to residents restricted to 30% of such payments instead of 100% disallowance. Further, the scope of

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2INDIA BUDGET 2014 - HighlightsRSM Astute Consulting

disallowance has been extended to all expenditure on which tax is deductible.

1.1.3 Partnership firms / LLP

No change in the existing tax rate for partnership firms/LLPs.

No change in AMT rate.

The scope of applicability of AMT extended to Partnership Firms and LLP claiming investment linked deductions.

It is proposed to rationalize the AMT provisions to enable assessee to claim AMT credit subject to fulfillment of prescribed conditions.

1.2 Tax Incentives and Proposals for Businesses

Manufacturing companies investing more than Rs. 25 crore in any year in new assets (plant and machinery) to be entitled to an investment allowance @15% of actual cost of the assets. This allowance is in addition to depreciation claimed on such new assets. This benefit will be available for 3 years i.e. for investments upto 31 March 2017. The investment allowance announced last year will continue to operate in parallel till 31 March 2015 even if the investment in new assets is less than Rs. 25 crore.

The sunset date for setting up power sector undertakings (in order to claim 100% deduction of profits for 10 years) to be extended upto 31 March 2017.

Investment linked deduction extended to 2 new sectors, viz., slurry pipelines for the transportation of iron ore and semiconductor wafer fabrication manufacturing units as notified by CBDT.

Conducive tax regime prescribed for Infrastructure Investment Trusts and Real Estate Investment Trusts to be set up in accordance with regulations of the Securities and Exchange Board of India.

1.3 Proposals for Transfer Pricing

Introduction of a ‘roll-back’ provision in the APA scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in the previous 4 years in the specified circumstances.

Definition of ‘International transactions’ under section 92B(2) of the IT Act rationalized to treat a transaction entered into by an enterprise with a person other than the AE, such transaction be deemed to be a transaction between AE, whether or not such other person is a non-resident.

Range concept for determination of ALP is proposed to be introduced. However, the arithmetic mean concept will continue to apply where number

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of comparable is inadequate. The appropriate rules in this regard will be prescribed.

It is also proposed to allow use of multiple year data for comparability analysis under the transfer pricing regulations.

1.4 Proposals for Non-residents

Income arising to FIIs from transactions in securities to be treated as capital gains.

Transfer of government security by one non-resident to another non-resident, not to be regarded as transfer.

1.5 Other Proposals

Increase in the rate of tax on long term capital gains from 10% to 20% on transfer of units of mutual funds other than equity oriented funds.

It is proposed to provide that unlisted security and units of mutual funds (other than equity oriented funds) be treated as short term capital assets if it is held for not more than 36 months as against existing holding period of 12 months.

Deduction shall be allowed for payments made to non-residents in the year of such payments itself, if the tax is deducted during the said previous year and the same is paid on or before the due date specified for filing of return under section 139(1) of the IT Act.

Explanation to section 73 of the IT Act, so as to provide that the provision of the Explanation shall not be applicable to a company as its principal business which is the business of trading in shares.

Transaction in commodity derivatives chargeable to CTT is not a speculative transaction.

It is proposed to amend the provisions of sections 269SS and 269T so as to provide that 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 if the other conditions regarding the quantum etc. are satisfied.

New provisions introduced to treat money received as an advance or otherwise in the course of negotiations for transfer of a capital asset as income chargeable to tax if such sum is forfeited and the negotiations do not result in transfer of capital asset.

AAR’s scope to be expanded with resident taxpayers being allowed to approach AAR with some threshold. More AAR benches proposed. Also, it

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is proposed to expand scope of settlement commission.

The powers of survey are extended to verify the TDS or TCS aspects also.

2.0 INDIRECT TAXES

2.1 Excise Duty

No change in the overall rate structure with the general effective rate continuing at 12.36%.

Unbranded articles of precious metals are being exempted from excise duty for the period 1 March 2011 to 16 March 2012.

Mandatory pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal with the Commissioner (Appeals) or the Tribunal at the 1st stage and 10% of the duty demanded or penalty imposed or both for filing 2nd stage appeal before the Tribunal. The amount of pre-deposit payable would be subject to a ceiling of Rs. 10 crore.

Education Cess and Secondary and Higher Education Cess (customs component) is being exempted on goods cleared by an EOU into the DTA.

2.2 Service Tax

Effective service tax rate to remain unchanged at 12.36%.

Interest rates for delay in payment of Service Tax beyond 6 months increased from 18% p.a. to 24% p.a. For further delay of 6 months, the interest rate to be 30% p.a.

Point of Taxation in respect of reverse charge mechanism to be the payment date or the first date that occurs immediately after a period of 3 months from the date of invoice, whichever is earlier.

The composition rate for all Works Contract other than original works is rationalized at 8.652% (70% of 12.36%).

Sale of space or time for advertisements in all media other than print media to be liable to Service Tax.

Transport of passenger services by an air-conditioned contract carriage to be liable to Service Tax.

Transport of passenger services by radio taxis is proposed to be liable to Service Tax.

Technical testing of newly developed drugs on human participants even in case of approval from Drug Controller General of India, to be liable to Service Tax.

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Loading/unloading, packing, storage or warehousing and transportation of cotton, ginned or baled are exempted from Service Tax.

Service provided by a tour operator to foreign tourist for tour outside India exempted from Service Tax.

2.3 Customs

No change in peak rate of Basic Custom Duty (BCD).

BCD on half-cut or broken diamonds increased from NIL to 2.5%. BCD on cut and polished diamonds and coloured gemstones increased from 2% to 2.5%. However rough diamonds continue to be levied at NIL rate of duty.

Pre-forms of precious and semi-precious stones exempted from BCD.

The variance level and the parameter of measurement in respect of re-import of cut and polished diamonds has been changed from height and circumference (± 0.01 mm) to diameter for round shape diamonds (± 0.05mm) and length and breadth for diamonds of other shapes (± 0.07mm). The allowable variance in weight (± 1 cent) remains unchanged.

Baggage allowance increased for passengers from Rs. 35,000 to Rs. 45,000.

3.0 OTHER ASPECTS

All cases of indirect transfers arising out of retrospective amendments will be scrutinized by a high level committee of CBDT before initiating any action. Further, the Government will not bring in any retrospective amendments ordinarily.

High level committee to interact with trade and industry where CBDT / CBEC to issue appropriate clarification within 2 months wherever required.

Introduction of GST to be given a thrust. Aims at finding solution in the course of this year and approve the legislative scheme which enables introduction of GST

The Government shall consider the comments received from the stakeholders on the revised DTC. The Government will also review the DTC in its present shape and take a view in the whole matter.

Legislative and administrative changes to sort out pending tax demand for more than Rs. 4,00,000 crore under dispute and litigation.

Convergence with International Financial Reporting Standards by adoption of the new Indian Accounting Standards by the Indian Companies voluntarily for FY 2015-16 and mandatorily from FY 2016-17.


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The composite cap of foreign investments to be raised to 49% with full Indian management and control in Defence and Insurance sector through FIPB route.

Requirement of built-up area and capital conditions for FDI to be reduced from 50,000 square meters to 20,000 square meters and US$ 10 million to US$ 5 million respectively for development of smart cities.

Slum development to be included in the list of CSR activity to encourage the private sector to contribute more.

Introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector.

Introduction of one single operating demat account so the Indian financial sector consumers can access and transact all financial assets through this one account.

Uniform tax treatment for pension fund and mutual fund linked retirement plans.

To review revival of SEZs and make them effective instruments of industrial production, economic growth, export promotion and employment generation.

Complete the ongoing process of consultations with all the stakeholders on the enactment of the Indian Financial Code and reports of the Financial Sector Legislative Reforms Commission.


8RSM Astute Consulting INDIA BUDGET 2014 - Highlights

1.1 Background

In FY 2014-15, the Indian economy is expected to grow in the range of 5.4% to 5.9% p.a., which is an improvement over the below sub-5% performance witnessed in the preceding year. There has been marked improvement in the balance-of-payments position in FY 2013-14 with Current Account Deficit at US$ 32 billion as against US$ 88 billion in FY 2012-13. The fiscal deficit for FY 2014-15 is expected to be contained at 4.1% of GDP.

The Union Budget 2014 is primarily driven by the objective of reviving economic growth. Manufacturing companies investing more than Rs. 25 crores in any year in new plant and machinery would be entitled to a deduction of an investment allowance @15% of actual cost of the assets for investments up to 31 March 2017. The sunset date for setting up power sector undertakings (in order to claim tax holiday for 10 years) is proposed to be extended up to 31 March 2017. Conducive tax regime has been proposed for Infrastructure Investment Trusts and Real Estate Investment Trusts to be set up in accordance with regulations of the Securities and Exchange Board of India, which will propel investment in these sectors. It is proposed to re-energise the SEZs and make them effective instruments of industrial production, economic growth, export promotion and employment generation.

The FIIs who have pumped in US$ 130 billion would welcome the tax characterization of income as capital gains, which shall put an end to unwarranted litigation due to such income being classified as business income. The composite cap of foreign investments in Defence and Insurance sector through FIPB route is proposed to be raised to 49% with full Indian management and control. The benefit of concessional withholding tax rate of 5% on interest payments in respect of borrowing in foreign currency has been extended to all types of bonds instead of only infrastructure bonds, which will lower the cost of capital. Further, this benefit has been extended for bonds which are issued up to 30 June 2017 as

CHAPTER 1: INTRODUCTION


against 30 June 2015. The extension of concessional tax rate on foreign dividends of 15% (where the shareholding of the Indian company is more than 26%) without any sunset clause shall encourage repatriation of foreign dividends into India, which can be invested in India. Introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector would make it easier for investors to make investments across the entire spectrum of financial instruments with lesser administrative effort. It is proposed to enact a new Indian Financial Code based on reports of the Financial Sector Legislative Reforms Commissions.

To channelize personal savings for economic growth, the investment limit for claiming deduction under section 80C of the IT Act is proposed to be increased from Rs. 1,00,000 to Rs. 1,50,000. Personal income tax exemption limit is proposed to be increased by Rs. 50,000 i.e. from Rs. 2,00,000 to Rs. 2,50,000 in the case of individual / HUF taxpayers. Similarly, the exemption limit in case of senior citizens is proposed to be increased from Rs. 2,50,000 to Rs. 3,00,000. Further, the limit for deduction of interest on loan in respect of self-occupied house property is being increased from Rs. 1,50,000 to Rs. 2,00,000.

The recognition of need for a multi-pronged strategy to reduce existing and potential litigation is one major highlight of this Budget. The intent to use Settlement Commission for this purpose has been spelt out which can be very effective although the Bill does not contain any specific changes in this respect. Extending benefit of Advance Rulings to residents and allowing rollback of APAs for past 4 years is a step in this direction. The introduction of ‘range concept’ and use of multiple year data would align the Indian Transfer Pricing rules with globally followed best practices. All cases of indirect transfers arising out of retrospective amendments will be scrutinized by a high level committee of CBDT before initiating any action. Further, the Government will not bring in any retrospective amendments ordinarily. A high level committee would interact with trade and industry where CBDT / CBEC would issue appropriate clarification within 2 months, wherever required.

There are certain unfulfilled expectations on the front of incentives to export sector, pruning domestic transfer pricing coverage, deferment of GAAR and absence of Big Bang Breakthrough Ideas. DDT is proposed to be levied on gross amount of dividends as against the existing provisions of computing DDT on net dividends resulting in increase in effective DDT rate from present 16.995% to 20.47%. However, the announcements on the


front of commitment to introduce GST and revive SEZs can accelerate growth significantly. The Budget is a serious Policy Statement for putting India back on the path of long term sustained economic growth.

In this booklet compiled by us, we intend to offer a broad outline of the highlights of the Union Budget 2014 presented on 10 July 2014. We have discussed the significant proposals of general interest in respect of direct taxes. In respect of indirect taxes and other policy initiatives, only the highlights have been briefly enumerated. Preceding the budget proposals are the macro indicators of Indian economy which provide a backdrop to the legal and financial proposals.

This booklet is not an offer, invitation or solicitation of any kind and it does not purport to be comprehensive, or to render legal, economic or financial advice. This booklet should not be relied upon for taking actions or decisions without appropriate professional advice as the facts of each case have to be studied and the legal position analysed properly before taking any action or decision in the matter. Further, this booklet contains only the proposals and amendments as given in the Finance (No. 2) Bill, 2014, which may be modified before it receives the approval and assent of the Parliament and the President. The proposals regarding direct taxes would become effective from AY 2015-16 (FY 2014-15), unless otherwise specified. In this booklet, the terms 'IT Act', 'the Rules' and 'the Bill' are used for the "Income-tax Act, 1961", ''Income-tax Rules, 1962'' and "Finance (No. 2) Bill, 2014" respectively.

While all reasonable care has been taken in preparation of this booklet, we accept no responsibility for any errors it may contain or for any omissions or otherwise or for any loss, howsoever caused or sustained, by the person who relies on it.

1.2 Scope and Limitations

The reduced growth in the past 2 years was primarily attributable to weak industry, persistent uncertainty in the global outlook caused by the crisis in the Eurozone and the general slowdown in the global economy, high interest rates as well as the policy constraints adversely impacting investments.

Subsequent to the Union elections and the positive steps which are expected to be taken by the new government, the sentiment towards India as one of the fastest growing economies has been reinforced and the outlook of the Indian economy for FY 2014-15 has substantially improved.

As per the provisional estimates, the share of service sector in India’s GDP at factor cost was 59.9% in FY 2013-14. In this context, although Agriculture (including allied activities) accounted for only 13.9% of the GDP in FY 2013-14, its role in the country's economy is much bigger with its share in total employment continuing to be as high as 48.9% in FY 2011-12. The increase in the share of the service sector in the country's GDP is in alignment with the growth trajectory of any developing economy.

In FY 2014-15, the Indian economy is poised to overcome the sub-5% growth of GDP witnessed over the last 2 years and expected to grow in the range of 5.4% to 5.9% p.a. This is particularly in view of improvement in the external economic situation along with the Current Account Deficit declining to manageable levels and fiscal deficit as a proportion of GDP also declining.

CHAPTER 2 : INDIAN ECONOMY - AN OVERVIEW

2.1 General Review

11INDIA BUDGET 2014 - Highlights

GDP growth and point contribution of different sectors

2008

-09

2009

-10

2011

-12

2010

-11

2012

-13

2013

-14

10.0

8.0

6.0

4.0

2.0

0.0

9.0

7.0

5.0

3.0

1.0

Per

cen

t

Agriculture & Allied Industry Services GDP at Factor Cost


On the Balance of Payments and external sector position, India witnessed a remarkable turnaround with the Current Account Deficit of 1.7% of GDP (US$ 32.4 billion) for FY 2013-14 as against 4.7% in FY 2012-13 (US$ 88.2 billion). The sharp fall in trade deficit is largely attributable to the decline in imports, wherein there was a decline of 8.3% in imports in FY 2013-14 as compared to increase of 0.3% in FY 2012-13.

Foreign exchange reserves increased by nearly US$ 40 billion from US$ 275 billion in early September 2013 to US$ 314.9 billion as on 20 June 2014.

After plunging to Rs. 68.36 to a US$ on 28 A u g u s t 2 0 1 3 , tr iggered by the expected taper of quantitative easing in the United States, the Indian Rupee g r a d u a l l y strengthened and the year ended with the exchange rate a v e r a g i n gR s. 61 per US dollar in March 2014. Thereafter, the Indian Rupee has strengthened further to Rs. 59.87 as on 10 July 2014.

WPI inflation has been coming down in recent months, wherein it moderated to a 4 -year low of around 6% in FY 2013-14 as compared to average of 8.6% in the previous 3 years. Given the higher weightage to food in CPI, CPI inflation has remained close to double digits on the back of high prices of domestic food items.

The performance of the Indian equity markets also witnessed a consolidation in the later part of FY 2013-14, wherein the BSE Sensex reached a year high of 22,467 on 31 March 2014 from the level of 17,448 as on 28 August 2013. Subsequently, the Sensex reached an all-time high of 26,100 on 7 July 2014 and as of 10 July 2014, it stood at a high of 25,373.


65

Rupees/US $ rate

28 Fu ry 2 09

ebr a 0

60

55

50

45

40

51.00

28 Fe ru ry 2 10

ba 0

28u ry 2 11

Febr a 0u r

1

28 Febr a y 20 2

u1

28 Febr ary 20 3

28 Febru ry 2 14

a

00 Ju y 2 14

1l 0

46.0745.07

49.37

53.82

62.0759.87

Ru

pe

es

BSE Sensex

0

2000

4000

6000

8000

10000

12000

14000

16000

22000

24000

26000

18000

20000

27/02/09 26/02/10 25/02/11 29/02/12 28/02/13 28/02/14 10/07/14

8,892

16,43017,753

18,861

21,120

25,373

17,701


2.2 India - Key Economic Indicators

2R nd2 Revised Estimates

1R st1 Revised Estimates

PE Provisional Estimates

a Calculated based on available figures

b Third advance estimates

Absolute values % change over previous periodItems

2013-142012-132010-11 2011-12 2012-132010-11 2011-12

Gross Domestic Product

(Rs. thousand crore)

-At current market prices

-At factor cost (2004-05 prices)

Index of industrialproductionc

Electricity generated(Utilities only) (billion KWH)

Wholesale Price Index(Average)

aexchange rate)(US$ billion - Annual Average

-At current market prices

Foodgrains production(million tones)

10,1131R 11,355PE

167.7 177.7

172.2 171.9

7,784

165.5

143.3

2R9,010

156.1

170.3

15.7

8.9

2.9

20.2

9.6

8.2

12.3

6.0

-0.1

12.21R5,482 5,742PE4,919 2R5,248 6.78.9 4.74.5

257.1 b264.4244.5 259.3 6.112.1 2.8-0.8

912 967.6810.5 877 8.25.5 6.14.0

7.4

1,8591R 1,877PE1,709 1,8802R 10.025.1 1.0-1.1

1.1

2013-14

c The Index of Industrial Production has been revised since 2005-06 on base (2004-05=100)

d Average exchange rate (RBI's reference rate)

f Fiscal indicators for 2013-14 are based on the provisional actuals

e At end March

Imports(US$ million)

Exports

490,649 449,925369,769 489,181 32.328.2 -8.30.3

Foreign exchange reservese

(US$ million)300,378 312,693251,136 305,884 21.840.5 4.1-1.8

(in US$ billion)292 304.2304.8 294.4 -3.49.2 4.2-0.8

Average exchange rated

(Rs. / US$)54.41 60.5

4.5f

45.56 47.92 5.2-4.0 11.213.5

Gross fiscal deficit 4.94.8 5.7(% of GDP)

(Base: 2004-05 = 100)



CHAPTER 3 : TAX RATES

3.1 Individuals, HUFs, AOPs and BOIs

3.1.1 Tax Rates

T h e B i l l p r o p o s e s c e r t a i n

modifications to the tax structure for

individuals, HUFs, AOPs and BOIs.

Consequent ly, the e f fec t i ve

proposed and present tax rates for

the FY 2014-15 and FY 2013-14, in

case of individuals, HUFs, AOPs and

BOIs are as follows:

Income Slabs(Rs.)

Income Slabs(Rs.)

ProposedTax Rates

Tax Rates

FY 2014-15 FY 2013-14

Nil

10.30% [tax rate10% plus education cess3% thereon] ofincome exceedingRs. 2,00,000

Rs. 30,900 plus20.60% [tax rate20% plus education cess3% thereon]of incomeexceeding Rs. 5,00,000

Rs. 1,33,900plus 30.90% [taxrate 30% pluseducation cess3% thereon] ofincome exceedingRs. 10,00,000

0 - 2,00,000#

2,00,001# - 5,00,000*

5,00,001 - 10,00,000

10,00,001 -1,00,00,000

Nil

10.30% [tax rate10% pluseducation cess 3%thereon] of incomeexceedingRs. 2,50,000

Rs. 25,750 plus20.60% [tax rate20% plus education cess 3%thereon] of incomeexceedingRs. 5,00,000

Rs. 1,28,750 plus30.90% [taxrate 30% pluseducation cess 3%thereon] of incomeexceedingRs. 10,00,000

0 - 2,50,000#

2,50,001# - 5,00,000*

5,00,001 - 10,00,000

10,00,001- 1,00,00,000

Rs. 32,06,390 plus33.99% [(tax rate30% plus surcharge10% thereon) pluseducation cess3% thereon] ofincome exceedingRs. 1,00,00,000

1,00,00,001 and aboveRs 32,00,725 plus33.99% [(tax rate30% plus surcharge10% thereon) pluseducation cess3% thereon] ofincome exceedingRs.1,00,00,000

1,00,00,001^ and above


# In case of a resident individual of the age of 60 years or more (senior citizen) at any time during the previous year, the basic exemption income slab of Rs. 2,50,000 is enhanced to Rs.3,00,000. For a resident individual of the age of 80 years or more (very senior citizens) at any time during the previous year, the basic exemption income slab of Rs. 5,00,000 continues to remain the same. The tax for other slabs will change accordingly.

* A resident individual having income upto Rs. 5,00,000 will be entitled to a rebate of tax payable (excluding education cess) or Rs. 2,000, whichever is lower.

^ Marginal relief is available to ensure that the additional income-tax payable,

including surcharge of 10% on the excess of income over Rs. 1,00,00,000, is limited to the amount by which the income is more than Rs. 1,00,00,000. However, no marginal relief shall be available in respect of the education cess.

The incidence of income-tax for FY 2014-15 on individuals, senior citizens and very senior citizens, having different income levels can be exemplified as follows:

* The tax incidence for HUFs, AOPs and BOIs will be same as that of individuals.

3.1.2 Proposed tax incidence

Annual

Income (Rs.) Individuals(including women)*

Tax Liability (Rs.)

Very Senior CitizensSenior Citizens

2,50,000

3,00,000

4,00,000

5,00,000

8,00,000

10,00,000

25,00,000

50,00,000

1,00,00,000

1,50,00,000

-

5,150

15,450

25,750

87,550

1,28,750

5,92,250

13,64,750

29,09,750

49,00,225

-

-

-

-

61,800

1,03,000

5,66,500

13,39,000

28,84,000

48,71,900

-

-

10,300

20,600

82,400

1,23,600

587,100

13,59,600

29,04,600

48,94,560

3.2 Companies

3.2.1 Domestic companies

No changes are proposed in the tax rate and surcharge. As such, the effective tax rates and MAT rates for domestic companies for FY 2014-15 and FY 2013-14 are as follows:

Marginal relief is available to ensure that the additional income tax payable,

including surcharge of 5% on the excess of income over Rs. 1,00,00,000, is

limited to the amount by which the income is more than Rs. 1,00,00,000.

Similarly, marginal relief is available to ensure that the additional income-tax

payable, including surcharge of 10% on the excess of income over

Rs.10,00,00,000, is limited to the amount by which the income is more than

Rs.10,00,00,000. However, no marginal relief shall be available in respect of

the education cess.

No changes are proposed in the tax rate and surcharge. As such, the

effective tax rates for foreign companies for FY 2014-15 and FY 2013-14 are

as follows:

3.2.2 Foreign companies


Domestic

CompanyFY 2014-15

Effective Tax Rates

Having total income exceeding Rs. 10,00,00,000

33.99% [(tax rate 30% plus surcharge 10% thereon) plus education cess 3% thereon]

20.9605 %[(tax rate 18.5% plus surcharge 10% thereon)

plus education cess 3% thereon]


FY 2013-14 FY 2014-15 FY 2013-14

Effective MAT Rates

19.055% (tax rate 18.5% plus education cess 3% thereon)

20.008 %[(tax rate 18.5% plus surcharge 5% thereon)

plus education cess 3% thereon]

Having total income

exceeding Rs. 1,00,00,000 but not exceeding

Rs. 10,00,00,000

Having totalincome upto

Rs. 1,00,00,000

30.90% [tax rate 30% plus education cess 3% thereon]


Marginal relief is available to ensure that the additional income-tax payable, including surcharge of 2% on the excess of income over Rs. 1,00,00,000, is limited to the amount by which the income is more than Rs. 1,00,00,000. Similarly, marginal relief is available to ensure that the additional income-tax payable, including surcharge of 5% on the excess of income over Rs.10,00,00,000, is limited to the amount by which the income is more than Rs. 10,00,00,000. However, no marginal relief shall be available in respect of the education cess.

Due to no change in surcharge, the rate of tax for dividend to be distributed by domestic companies for FY 2014-15 continues to remain the same @16.995% [(tax rate 15% plus surcharge 10% thereon) plus education cess 3% thereon] for dividend to be distributed by domestic companies for FY 2014-15 and FY 2013-14.

Under the existing provisions, the DDT was computed with reference to the net amount of dividend.

It is proposed to amend the methodology to calculate the tax on distributable income and the dividends which are actually received by the shareholder / unitholder of the domestic company / mutual fund, is to be grossed up for the purpose of computing additional tax resulting into increase in effective tax rates.

This amendment will take effect from 1 October 2014.

3.2.3 Tax on dividend / income distributed by domestic companies

Foreign CompanyFY 2014-15

Effective Tax Rates

Having total income exceeding

Rs.10,00,00,000


FY 2013-14

41.20% (tax rate 40% plus education cess 3% thereon)


Rs.1,00,00,000 but not exceeding

Rs.10,00,00,000

Having total income upto Rs. 1,00,00,000



3.3 Partnership Firms/LLPs

No changes are proposed in the tax rate and surcharge. As such, the tax

rates for partnership firms/LLPs for FY 2014-15 and FY 2013-14 are as

follows:

Marginal relief is available to ensure that the additional income-tax payable,

including surcharge of 10% on the excess of income over Rs. 1,00,00,000,

is limited to the amount by which the income is more than Rs. 1,00,00,000.

However, no marginal relief shall be available in respect of the education

cess.

AMT continues on non-corporate assessees such as partnership firms, LLP,

sole proprietorships, AOPs, HUFs, BOIs, etc. AMT is to be calculated on

adjusted total income if the regular income tax payable by such person is

less than AMT. No change has been proposed in the AMT rate and

surcharge. As such, the effective tax rates for FY 2014-15 and FY 2013-14

are as follows:

3.4 AMT on all Business Organizations other than Companies

Business Organisations FY 2014-15

Effective AMT Rates


Rs.1,00,00,000

20.9605% [(tax rate 18.50% plus surcharge 10% thereon) plus education cess 3% thereon]

FY 2013-14

Having total income upto Rs.1,00,00,000

19.055% [(tax rate 18.50% plus education cess 3% thereon]

Partnership

Firms/LLPs FY 2014-15

Effective Tax Rates


Rs.1,00,00,000


FY 2013-14


30.90% [(tax rate 30% plus education cess 3% thereon]


including surcharge of 10% on the excess of income over Rs. 1,00,00,000,

is limited to the amount by which the income is more than Rs. 1,00,00,000.



cess.

The effective rate of tax on income distributed by mutual funds for FY 2014-

15 and FY 2013-14 are as follows:

3.5 Tax on Income Distributed by Mutual Funds

Type of Income

28.325%* 33.99%*

28.325%*33.99%

5.665%*

Income distributed by a money market mutual fund or a liquid mutual fund to

- an Individual or an HUF

- others

Income distributed by a mutual fund (including debt fund) other than a money market mutual fund or a liquid mutual fund to

- an Individual or an HUF

- others

Income distributed by a mutual fund to non-residents (not being company) under infrastructure debt scheme

Effective Tax Rate

FY 2014-15 FY 2013-14

* The tax rates are inclusive of surcharge of 10% for FY 2014-15 and FY

2013-14 and education cess of 3% thereon. However, w.e.f. 1 October

2014, the amount of distributable income and the dividends which are

actually received by the unit holder of mutual fund of the domestic company

are to be grossed up for the purpose of computing the additional tax.

No changes are proposed in the tax rate and surcharge. The effective taxes

rates for FY 2014-15 remain the same and are as follows :

3.6 Other Entities

3.6.1 Co-operative societies

Income Slabs (Rs.) Tax Rates

0 to 10,000 10.30%

10,001 to 20,000 Rs. 1,030 plus 20.60% of income exceeding Rs. 10,000

20,001 and above Rs. 3,090 plus 30.90% of income exceeding Rs. 20,000


However, in case total income exceeds Rs. 1,00,00,000, the amount of

income-tax computed shall be increased by surcharge of 10% of such

income-tax. Marginal relief is available to ensure that the additional income-

tax payable, including surcharge of 10% on the excess of income over Rs.

1,00,00,000 is limited to the amount by which the income is more than Rs.

1,00,00,000. However, no marginal relief shall be available in respect of the

education cess.

No changes are proposed in the tax rate and surcharge. As such, the tax

rates for local authorities for FY 2014-15 and FY 2013-14 are as follows:


including surcharge of 10% on the excess of income over Rs. 1,00,00,000 is

limited to the amount by which the income is more than Rs. 1,00,00,000.


cess.

3.6.2 Local authorities

Local authoritiesFY 2014-15

Effective tax Rates


Rs.1,00,00,000


FY 2013-14


30.90% [(tax rate 30% plus education cess 3% thereon]

CHAPTER 4 : G-20 COUNTRIES - COMPARATIVECORPORATE AND PERSONAL TAX RATES

Notes:

1. The above rates are MMR and inclusive of provincial or local taxes as may be applicable to domestic companies / resident individuals in respective countries.

2. The taxation regime for personal taxes is progressive for all the G-20 economies, except Russia and Saudi Arabia.

3. Corporate tax @ 20% is payable on the pro-rata income to the extent of non-resident shareholding.

4. The rates are inclusive of state and city taxes generally resulting in a net effective tax of approximately 40%.

5. The above rates are general rates to provide a comparative matrix and detailed regulations in the relevant country need to be referred to.

Sr. No. Country Corporate Tax Rate Personal Tax Rate [Note 1] [Notes 1 and 2]

2. Australia 30% 45%

3. Brazil 34% 27.50%

4. Canada 32.50% 50%

5. China 25% 45%

6. France 34.43% 45%

7. Germany 29.58% 47.50%

8. India 33.99% 33.99%

9. Indonesia 25% 30%

10. Italy 31.40% 45.93%

11. Japan 38.37% 50.84%

12. Mexico 30% 30%

13. Russia 20% 13%

14. Saudi Arabia [Note 3] 0% 0%

15. South Africa 28% 40%

16. South Korea 24.20% 41.80%

17. Turkey 20% 35%

18. United Kingdom 21% 45%

19. United States [Note 4] 40% 39.60%

1. Argentina 35% 35%

The G-20 economies comprising of 19 countries and the EU, account for almost 90% of the global GDP, 80% of world trade (including EU intra-trade) and two-third of the world population. Considering the significance of these economies and in order to provide an indicative overview of the prevailing tax rates in these key economies, a brief comparative matrix is tabulated below:


CHAPTER 5 : TAX INCENTIVES FOR BUSINESSES(As updated upto the Finance (No. 2) Bill, 2014)

PeriodDetails of Exemption / DeductionSection Quantumof Deduction

10AA First 5 yearsNext 5 years

+Next 5 years

100%50%50%

New eligible unit set up in SEZ on or after 1 April 2005Ø

referred to in Section (2j) of SEZ Act, 2005 for profits derived from export of articles or things or services, manufactured, or produced or provided by an eligible unit.

ØThere is no restriction on realization of the export proceeds within a particular time frame for the purpose of claiming the deduction.

ØThe profits and gains derived from on-site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.

ØThe benefit is also available to units engaged in cutting and polishing of precious and semi-precious stones.

ØThe deduction under this section is to be computed in the same proportion, which the export turnover of the eligible unit bears with the total turnover of the said unit.

ØThe benefit under this section will be available if:

The unit is not formed by splitting up orreconstruction of a business already inexistence subject to certain exceptions.The unit is not formed by transfer ofmachinery and plant previously used forany purpose to the new business subjectto certain exceptions.

Exemption is available to the entrepreneur as

l

l

The IT Act provides for far reaching tax holidays and other tax incentives for businesses. We have briefly enumerated below, the significant tax holidays and incentives available to businesses along with the nature of deductions, eligibi l i ty criteria, quantum of deduction and period for which the deductions are available. The tax holidays and incentives are subject to fulfillment of specified conditions. The changes proposed by the Finance (No. 2) Bill, 2014 are highlighted in bold font.


Details of Exemption / DeductionSection

Ø(which are domestic companies) availing these deductions will be subject to MAT @ 20.9605% [(tax rate 18.50% plus surcharge 10%) plus education cess 3% thereon] (having book profit exceeding Rs. 10,00,00,000) or 20.008% [(tax rate 18.50% plus surcharge 5%) plus education cess 3% thereon] (having book profit exceeding Rs. 1,00,00,000 but not exceeding Rs. 10,00,00,000) or 19.055%

(in other cases).

ØFrom FY 2013-14, a person other than Company shall be required to pay AMT @ 20.9605% [(tax rate 18.50% plus surcharge 10%) plus education cess 3% thereon] (having adjusted total income exceeding Rs. 1,00,00,000) or 19.055% (tax rate 18.50% plus education cess 3% there on) (in other cases).

ØThe units and the SEZ developers availing these deductions will be subject to DDT @ 16.995% [(tax rate 15% plus surcharge 10%) plus education cess 3% thereon].

ØIn case, any deduction has been claimed under section 10AA for the specified business mentioned in section 35AD(8)(c), no deduction under section 35AD shall be available in the same or any other AY in respect of such specified business.

+ The deduction is allowed only on creation of a specified reserve, which is required to be utilized for specified purposes.

The eligible units and the SEZ developers

(tax rate 18.50% plus education cess 3% there on)


Tea / Rubber development allowanceDeduction is available to assessee engaged in the business of growing and manufacturing tea, coffee or rubber in India.For claiming the deduction, the amount has to be deposited in a special account with NABARD or any Deposit Account opened by the assessee and approved by the Tea Board or Coffee Board or Rubber Board within 6 months from the end of the FY or before the due date of furnishing the return of income, whichever is earlier.The amount has to be utilized by the assessee for specified purposes.

/ CoffeeØ

Ø

Ø

33AB Available for every AY

Upto 40% of profits or amount

deposited, whichever is

less.

Site Restoration Fund – Petroleum or Natural GasDeduction is available to assessee engaged in the business of prospecting for, or extraction or production of petroleum or natural gas or both in India and in relation to which the Central Government has entered into an agreement with such assessee.For claiming the deduction, the amount has to

Ø

Ø

33ABA Available for every AY

Upto 20% of profits or amount

deposited, whichever is

less.

Period Quantumof Deduction


Details of Exemption / DeductionSection

Transfer to Special Reserve – Specified Financial Institutions

The deduction is available to specified Financial Corporation, Banking Company and Housing Finance Company engaged in the business of providing long term finance.For claiming the deduction, the amount has to be transferred to special reserve account created for the purpose of the said section before the end of the FY.

Ø

Ø

36(1)(viii)

Upto ‘20% of the profits’ or

‘amount deposit’ or ‘200% of paid up share capital

and general reserve minus

special reserve’, whichever is

less.

24

Additional Depreciation

Øspecified types of plant and machinery).

ØAn assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power can claim the additional depreciation of 20% on the cost of new plant and machinery (other than ships and aircraft) which are acquired and installed after 31 March 2005. Additional depreciation shall be allowed only to the extent of 50% (i.e. 10%) if the machinery is put to use for a period less than 180 days.

Investment Allowance for manufacturing business

ØWhere a company is engaged in the business of manufacture of an article or thing and invests a sum of more than Rs. 100 Crores in new assets (plant or machinery) during the period beginning from 1 April 2013 and ending on 31 March 2015, then the company shall be allowed -

i. For FY 2013-14, a deduction of 15% of aggregate amount of actual cost of newassets, acquired and installed during FY 2013-14, if the cost of such assetsexceeds Rs. 100 Crores;

General rate of depreciation for plant and machinery is 15% (other than certain

32(1) (iia)

32AC(1)

Eligibility Criteria, Quantum and Period of DeductionSection

INDIA BUDGET 2014 - Highlights

be deposited in a special account with SBI opened by the assessee and approved by the Ministry of Petroleum and Natural Gas before the end of the FY.The amount has to be utilized by the assessee for specified purposes.

Ø

Amortization of expenditure on prospecting etc. of certain minerals

The amortization of expenditure is available subject to fulfillment of certain conditions to the assessee engaged in the operation of prospecting for, or extraction or production of specified minerals.The expenditure incurred wholly and exclusively on any operation relating to prospecting for the minerals or development of a mine or other natural deposit qualifies for amortization.

Ø

Ø

35E Equal installments

over 10 years

‘1/10th of the expenditure’ or

‘income’, whichever is

less.

Period Quantumof Deduction

Available for every AY



ii. For FY 2014-15, a deduction of 15% of aggregate amount of actual cost of newassets, acquired and installed during the period beginning on 1 April 2013 andending on 31 March 2015, as reduced by the deduction allowed, if any, for FY 2013-14.

Øto make medium size investments in plant and machinery eligible for deduction, it is proposed that the deduction under section 32AC of the IT Act shall be allowed if the company on or after 1 April 2014 invests more than Rs. 25 Crores in new plant and machinery in a FY.

ØIt is also proposed that the company which is eligible to claim deduction under the existing combined threshold limit of Rs. 100 Crores for investment made in FY 2013-14 and FY 2014-15 shall continue to be eligible to claim deduction under the existing provisions contained in Section 32AC(1) even if the investment in the FY 2014-15 is below the proposed new threshold limit of investment of Rs. 25 Crores. The proposed deduction is available for investment made in new plant and machinery up to 31 March 2017.

ØIn case any new asset acquired and installed by the company is sold or otherwise transferred within a period of 5 years, the amount of deduction allowed above shall be deemed to be the income of the company chargeable under the head ‘Profits and Gains of business or profession’ of the FY in which such new asset is sold or otherwise transferred (In addition to taxability of gains on transfer of such new asset).

In order to simplify the existing provisions of section 32AC of the IT Act and also

25

Expenditure on eligible projects or scheme

Øwelfare.

ØAny assessee can claim deduction as under:

Deduction is available for expenditure incurred for promoting social and economic

35AC


A company can also directly incur expenditure in respect of eligible project and scheme

Not permitted

Assessee To whom payment should be made Direct expenditure

Company

Others

Public Sector Company, or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme

Same as above

Deduction in respect of expenditure on specified businessesØ

acquisition of any land or goodwill or financial instrument, wholly and exclusively, during the year for specified business shall be allowed as deduction subject to the specified provisions.

ØSpecified business and the year (in which the operations to be commenced) for availing deduction under this section are tabulated as under:

Any expenditure of capital nature incurred other than expenditure incurred on the 35AD

32AC(1A)


From 1 April 2009 onwards*

From 1 April 2007 onwards

From 1 April 2010 onwards**










From 1 April 2009 onwards*1 Setting up and operating a cold chain facility

2 Setting up and operating a warehousing facility for storing agricultural produce

3 Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network

4 Building and operating a hotel of 2 star or above category as classified by the Central Government anywhere in India

5 Building and operating a hospital with at least 100 beds for patients anywhere in India

6 Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central or State Government, as the case may be, and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed

7 The business of developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines as may be prescribed

8 Production of fertilizers in India through a new plant or a newly installed capacity in an existing plant

9 Setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962

10 Bee-keeping and production of honey and beeswax

11 Setting up and operating a warehousing facility for storage of sugar

12 Laying and operating a slurry pipeline for transportation of iron ore

13 Setting up and operating a semiconductor wafer fabrication manufacturing unit, if such unit is notified by the Board in accordance with the prescribed guidelines


Sr.No.

Specified Business Specified Year ofCommencement


* Specified business referred at Sr. No. 1, 2, 5, 7 and 8 in the above table commencing operations on or after 1 April 2012 shall be eligible for deduction of 150% of capital expenditure incurred.

** Where the assessee builds a hotel of 2 star or above category as classified by the Central Government and subsequently, while continuing to own the hotel, transfers the operation thereof to another person, the said assessee shall be deemed to be carrying on the ‘specified business’ of building and operating hotel as referred at Sr. No. 4 in the above table, with retrospective effect from AY 2011-12 and subsequent AYs.




Øallowed under this section, shall be used only for the specified business for a period of 8 years beginning with the FY in which such asset is acquired or constructed.

ØAccordingly, it is also proposed that if such asset is used for any purpose other than the specified business, then, the total amount of deduction so claimed and allowed in any FY in respect of such asset (after reducing the depreciation allowable under section 32 on deduction allowed under section 35AD of the IT Act), shall be deemed to be income of the assessee chargeable under the head ‘Profits and gains of business or profession’. However, the said provision shall not apply to a Company which has become a sick industrial company under Section 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 within the time period of 8 years as specified above.

ØIt is further proposed that while computing AMT, adjusted total income shall be increased by the deduction claimed under section 35AD as reduced by the amount of depreciation allowable under section 32 of the IT Act on such deduction under section 35AD .

ØIn case, any deduction has been availed under section 35AD on account of capital expenditure incurred for the purposes of specified business in any AY, no deduction under section 10AA or under the provisions of Chapter VI-A or under any other provisions of the IT Act shall be available in the same or any other AY in respect of such specified business.

It is proposed that any asset in respect of which a deduction is claimed and

of the IT Act

of the IT Act

of the IT Act

Deduction for payment towards rural development programmesDeduction is allowed subject to fulfillment of certain conditions for any sums paid to:i. An association or institution for carrying out any programme of rural

development.ii. An association or institution for training of persons for implementation of rural

development programme.iii. National Fund for Rural Development.iv. National Urban Poverty Eradication Fund.

Ø35CCA

Weighted deduction of expenditure incurred on agriculture extension project

This section provides for weighted deduction of 150% of the expenditure incurred on agricultural extension project. The agricultural extension project eligible for this purpose shall be notified by the CBDT in accordance with the prescribed guidelines.

Further, where a deduction under this section is claimed and allowed for any AY, in respect of any expenditure on agricultural extension project, no deduction shall be allowed in respect of such expenditure under any other provisions of the IT Act for the same or any other AY.

35CCC

Weighted deduction of expenditure incurred on skill development project

Any expenditure (not being expenditure in the nature of cost of any land or building) incurred on skill development project shall be eligible for weighted deduction of 150% in the hands of a company. The skill development project eligible for this purpose shall be notified by the CBDT in accordance with the prescribed guidelines.

Further, where a deduction under this section is claimed and allowed for any AY in respect of any expenditure on skill development project, no deduction shall be allowed in respect of such expenditure under any other provisions of the IT Act for the same or any other AY.

35CCD



Details of DeductionSection Quantum ofdeduction of

sum paid/expenditure

incurred

Weighted deduction on various expenditure incurred on Scientific Research

35(1)(i) Any expenditure (not being in nature of capital expenditure) laid or expended on scientific research related to business carried on by the assessee.

35(1)(ii) Any sum paid to an approved research association, (which has its object of undertaking scientific research) or to a university, college or other institution to be used for scientific research.

35(1)(iia) Any sum paid to an approved company to be used by it for scientific research. Such approved company will not be entitled to claim weighted deduction under section 35(2AB) of the IT Act. However, deduction to the extent of 100% of the sum spent as revenue expenditure on scientific research, which is available under section 35(1)(i) of the IT Act will continue to be allowed.

35(1)(iii) Any sum paid to approved research association (which has its object of undertaking research) or university, college or other institution to be used for research in social science or statistical research.

35(1)(iv) Any capital expenditure (other than expenditure on land and building) incurred on scientific research related to the business carried on by the assessee.

35(2AA) Any sum paid to a National Laboratory or a University or an Indian Institute of Technology or a specified person with a specific direction that the said sum shall be used for scientific research undertaken under a programme approved by the prescribed authority.

100%

175%

125%

125%

100%

200%


Amortization of preliminary expenses

Certain preliminary expenses incurred by the resident assessee before thecommencement of business or after commencement of business in case of extensionof an industrial undertaking or setting up a new industrial unit.

The deduction is allowed in 5 equal annual installments for amount of preliminaryexpenditure incurred or 5% of cost of project, whichever is less.

Ø

Ø

Amortization of amalgamation or demerger expenses

Any expenditure incurred by the Indian company for the purposes of amalgamation or demerger of an undertaking shall be eligible for amortization over 5 years beginning from the FY in which the amalgamation or demerger takes place.

35D

35DD

Amortization of expenditure incurred by way of voluntary retirement scheme

Any expenditure incurred by way of payment of any sum to an employee in connection with his voluntary retirement is eligible for amortization over 5 years, subject to specified conditions.

In case of conversion of private company or unlisted public company into a LLP, unabsorbed expenditure incurred under voluntary retirement scheme by the private company or unlisted public company will be amortized for the remaining period by the LLP.

35DDA



Details of DeductionSection Quantum ofdeduction of

sum paid/expenditure

incurred

35(2AB)cost of land and building), on in-house research and development facility, as approved by the prescribed authority, incurred by the company, engaged in the business of bio-technology or manufacture or production of article or thing (except those specified in the Eleventh Schedule).

Any expenditure incurred up to 31 March 2017(other than expenditure on

200%


Capital gains arising on transfer of plant, machinery, land, building or any rights in land / building effected in course of or in consequence of the shifting of an industrial undertaking situated in an urban area to any area (other than an urban area) shall be eligible for exemption. This exemption shall be least of the following:lAmount of capital gains;lAmount of capital gains utilized within a period of 1 year before or 3 years after the date

of transfer of the above assets, for purchase of new plant and machinery, land andbuilding and for shifting expenses, subject to specified conditions.

54G

Capital gains arising on transfer of plant, machinery, land, building or any rights in land / building effected in course of or in consequence of the shifting of an industrial undertaking situated in an urban area to any SEZ shall be eligible for exemption. This exemption shall be least of the following:lAmount of capital gains;lAmount of capital gains utilized within a period of 1 year before or 3 years after the date

of transfer of the above assets, for purchase of new plant and machinery, land andbuilding and for shifting expenses, subject to specified conditions.

54GA

Exemptions from Capital Gains in certain cases

ØLong term capital gains shall be exempt in the hands of an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of the net consideration in the equity of a newly started-up SME company in the manufacturing sector and the SME company utilizes the said funds for purchase of new plant and machinery, subject to the certain conditions.The said relief would be available in case of any transfer of residential property made on or before 31 March 2017.

Ø

54GB

Capital gain on transfer of a long term capital asset shall be exempt from tax, if an assessee invests, within a period of 6 months from the date of transfer of a long-term capital asset, the capital gains in the specified assets. The specified asset must be held for a period of 3 years from the date of its acquisition. This exemption shall be least of the following:lInvestment in specified assets viz. bonds issued by NHAI and the RECL. The

investment is restricted up to Rs. 50,00,000 per assessee per FY. lAmount of capital gains.

It is clarified that the exemption in respect of capital gains upon aforesaid investments made during the FY in which the original asset or assets are transferred and in the subsequent FY shall not exceed Rs. 50,00,000.

54EC



Any income arising to an assessee, being a shareholder on account of buy back of shares as referred in section 115QA (not being listed on a recognized stock exchange) by the company shall not be included in the total income of assessee.

10(34A)

Capital gains arising from transfer of long term capital asset being an equity share in a company or a unit of an equity oriented fund or unit of a business trust, on which securities transaction tax is charged, is exempt from tax. However, this exemption is not available for computation of MAT.

10(38)


Any dividend declared, distributed or paid by the specified foreign company to Indian Company shall be taxable at a concessional tax rate of 15%.

It is proposed to extend the above concessional tax rate to AY 2015-16 and all the subsequent AYs without any sunset clause.

115BBD

In computing DDT liability, dividend declared by the domestic holding company to its shareholders shall be reduced to the extent of:

i. Dividend received from the domestic subsidiary company during the year on whichDDT has already been paid by subsidiary under this section.

ii. Dividend received from the specified foreign subsidiary during the year onwhich tax shall be payable by the holding company under section 115BBD ofthe IT Act.

115-O

All 100% Any 10 consecutive

years out of first 15 years

Deductions of Profits derived by Newly Established Industrial Undertakings / Infrastructure Projects / Facilities / Developers of SEZs / Banking units, etc.

80-IA / 80-IB / 80-IC / 80-IAB / 80-ID / 80-IE / 80JJAA / 80LA

Nature of Activity and Location Type ofOrganization

Quantum ofExemption

Number ofYears

Sr.No.

1.(a) Power Undertakings [Section 80-IA(4)(iv)]ØUndertaking set up in any part of India

for the generation or generation and distribution, of power, which has commenced operations during 1 April 1993 to 31 March 2014*.

ØUndertaking which starts transmission or distribution by laying a network of new transmission or distribution lines between 1 April 1999 and 31 March 2014*.

ØUndertaking which undertakes s u b s t a n t i a l r e n o v a t i o n a n d modernization of the existing network of transmission or distribution lines between 1 April 2004 and 31 March 2014*.

*It is proposed to extend the terminal date for a further period of 3 years i.e. up to 31 March 2017.Deduction shall not be available to a person executing the above referred activities as a works contract.

10(34)/10(35)

Dividend referred to in section 115-O and income received in respect of units of mutual fund or shares shall not be included in the total income of assessee.



Undertakings for revival of Power Generating Units [Section 80-IA(4)(v)]Undertaking owned by Indian Company (formed before 30 November 2005 and notified before 31 December 2005) set up for reconstruction or revival of a power generating unit, which has commenced operations in power before 31 March 2011.Deduction shall not be available to person executing the above referred activities as a works contract.

1.(b) Indian Company

100% Any 10 consecutive


Specified Infrastructure Projects

[Section 80-IA(4)(i)]

Enterprise being company or consortium of companies registered in India or any authority or board or a corporation or any other body established or constituted under any Central or State Act, for carrying on business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining of any infrastructure facility (such as road including toll road, bridge, rail system, highway project, water supply project, water treatment system, irrigation project, sanitation and sewage system or solid waste management system, airport, port, inland waterways and inland ports or navigat ional channel in the sea) commencing its operations on or after 1 April 1995. Widening of an existing road by constructing additional lanes as a part of highway project is also regarded as a new infrastructure facility eligible for deduction as per Circular No. 4/2010 dated 18 May 2010.

Deduction shall not be available to a person executing above referred activities as a works contract.

2. Company / Any other

body established

or constituted under any Central or State Act

100%

For 10 consecutive


(20 years for road, bridge, rail system, highway

project, water supply project, water treatment

system, irrigation project,

sanitation and sewerage

system or solid waste

management system).

Nature of Activity and LocationType of

OrganizationQuantum ofExemption

Number ofYears

Sr.No.

Scientific and Industrial Research Company

[Section 80-IB(8A)]

Any company registered in India with its main object being scientific and industrial research and development which is for the time being approved by the DSIR at any time after 31 March 2000 but before 1 April 2007.

3. Company 100%

For first 10 years




Number ofYears

Sr.No.


Telecommunication Service Providers

[Section 80-IA(4)(ii)]

Any undertaking which starts providing tele communication services, whether basic or cellular, including radio paging, domestic satellite service or network of trunking, broadband network and internet services on or after 1 April 1995 but before 31 March 2005.

Deduction shall not be available to a person executing the above referred services as a works contract.

4. All 100%30%

First 5 yearsNext 5 years

The above 10 years shall be

consecutive AYs out of first 15

years.

Development of Industrial Park

[Section 80-IA(4)(iii)]

Any undertaking which begins to develop or develops and operates or maintains and operates an industrial park which has commenced operations during 1 April 1997 to 31 March 2011.

Deduction shall not be available to person executing the above referred services as a works contract.

5. All 100%

10 years out of first 15 years.

Production of mineral oil and natural gas

[Section 80-IB(9)]

Any undertaking which is engaged in refining of mineral oil on or after 1 October 1998 but not later than 31 March 2012 subject to specified conditions.

Any undertaking located in any part of India and has begun or begins commercial production of mineral oil on or after 1 April 1997 is eligible for tax holiday. However, the deduction will not be available for blocks licensed under a contract awarded after 31 March 2011 under the New Exploration Licensing Policy announced by Government of India.

The tax holiday is also available in respect of profits arising from commercial production of natural gas

Ø

Ø

Ø

7. All 100%

First 7 years

Developer of SEZ [Section 80-IAB]Any assessee being developer of a SEZ notified by the Central Government after 1 April 2005 can claim deduction under section 80-IAB.

6. All 100%

10 years out of first 15 years.


Approved Housing Projects [Section 80-IB(10)]

Any under tak ing engaged in developing and building housing projects approved by a local authority before 31 March 2008.

In case of projects approved before 1 April 2004, it should be completed before 31 March 2008.

In case of projects approved during FY 2004-05, it should be completed within 4 years from the end of the FY in which it is approved.

In case of projects approved on or after 1 April 2005, it should be completed within 5 years from the end of the FY in which it is approved.

The deduction is allowed subject to fulfillment of various other conditions like minimum area of the land, maximum built-up area of residential and commercial units, etc.

In case of multiple approvals from the local authority, the date of first approval will be considered for the calculation of time limit of completion.

Deduction shall not be available to a person executing the housing project as a works contract.

Ø

Ø

Ø

Ø

Ø

Ø

Ø

8. All 100%

Not applicable

Sr.No.



Number ofYears


from blocks which are licensed under the VIII Round of bidding for award of exploration contracts under the New Exp lo ra t ion L icens ing Po l i cy announced by the Government of India and IV Round for the Coal Bed Methane and begins commercial production of natural gas on or after 1 April 2009.

Undertaking engaged in specified food products [Section 80-IB(11A)]

An undertaking deriving profit from the integrated business of handling, storage and transportation of food grains subject to such business beginning its operations on or after 1 April 2001.

Ø

9. Company 100% 30%


Others 100% 25%


RSM Astute Consulting 33

Operating and Maintaining Hospital

[Section 80-IB(11B)]

Any undertaking engaged in the business of operating and maintaining a hospital in a rural area.

The undertaking shall be eligible for the deduction if such hospital is constructed in accordance with the local regulations in force and has at least 100 beds for patients.

The hospital should be constructed during the period beginning on 1 October 2004 and ending on 31 March 2008.

The deduction is also available to hospitals located anywhere in India other than specified excluded areas.

The said tax benefit is available to a hospital which is constructed and has started or starts functioning at any time during the period beginning 1 April 2008 and ending on 31 March 2013.

Ø

Ø

Ø

Ø

Ø

Sr.No.



Number ofYears


10. All 100%

First 5 years

Ø

Ø

T h e b e n e f i t i s e x t e n d e d t o undertakings engaged in the business of processing, preservation and packaging of fruits and vegetables.

Further, the benefit is extended to the undertakings engaged in the business of meat and meat products or poultry or marine or dairy products which begin to operate such business on or after 1 April 2009.

Undertakings in special category states[Section 80-IC]

Undertakings and enterprises, which begins to manufacture or produce any article or thing which is not specified in Thirteenth Schedule or undertakings and enterprises, which manufactures or produces any article or thing which is not specified in Thirteenth Schedule and undertake substantial expansion of existing undertakings.Undertakings and enterprises, which begin to manufacture or produce any article or thing which is specified in Fourteenth Schedule or commences

Ø

Ø

11.


Sr.No.



Number ofYears

any operation specified in that Schedule or undertakings and enterprises, which manufactures or produces any article or thing which is specified in Fourteenth Schedule or commences any operation specified in that Schedule and undertake substantial expansion.

i. If located in Sikkim, from 23 December 2002 to 31 March 2007

ii. If located in North Eastern States*, from 24 December 1997 to 31 March 2007

iii. If located in Himachal Pradesh and Uttaranchal, from 7 January 2003 to 31 March 2012

* States of Assam, Tripura, Meghalaya, Mizoram, Nagaland, Manipur and Arunachal Pradesh

Others 100%25%


All 100%

First 10 years

Company 100%30%



}

Undertakings in North Eastern States

[Section 80-IE]

ØNew undertakings and enterprises, which begin to manufacture or produce any eligible article or thing or provide any services or undertake substantial expansion or carry on any eligible business in any of the North Eastern states beginning from 1 April 2007 to 31 March 2017.

ØThe eligible businesses for this purpose are hotel (not below 2 star category), adventure and leisure sports including ropeways, providing medical and health services in the nature of nursing home with a minimum capacity of 25 beds; running an old-age home; operating vocational t r a i n i n g i n s t i t u t e f o r h o t e l management, catering and food craft, entrepreneurship development, nursing and para-medical, civil aviation related training, fashion designing and industrial training; running information technology related training centre; manufacturing of information technology hardware and bio-technology.

12. All 100% First 10 years


Offshore banking unit in SEZ and International Financial Services Centre[Section 80LA]Income from:ØOffshore banking unit in SEZ or ØThe business referred to in section

6(1) of the Banking Regulation Act, 1949 or

ØAny unit of the International Financial Services Center from its approved business.

13. Scheduled Bank or any

bank incorporated by or under the law of a

country outside India or a unit of an International

Financial Services Center.

100% First 5 years (beginning with

the year in which prescribed

permissions are obtained).

50% Next 5 years

Sr.No.



Number ofYears


Convention Centre and Hotels in notified areas[Section 80-ID]ØAny undertaking engaged in business

of convention centers or hotels in specified area of the National Capital Territory subject to fulfillment of certain conditions: a. Engaged in the business of hotel

located in specified area; orb. Engaged in the business of

building, owning and operating aconvention centre located inspecified area, which has startedits operations from 1 April 2007 to31 July 2010.

ØThe aforesaid deduction has been extended to any undertaking engaged in the business of hotel located in specified districts having 'World Heritage Sites' if such hotel is cons t ruc ted and has s ta r ted functioning during the period beginning 1 April 2008 and ending on 31 March 2013.

ØThe benefit is available to 2 star, 3 star or 4 star hotels.

14. All 100% First 5 years

Deduction of Additional Wages[Section 80JJAA]Deduction of an amount equal to 30% of additional wages paid to the new regular workmen shall be available to an Indian Company deriving profits from manufacture of goods in its factory.It is also provided that the deduction under this section shall not be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company.

15. Indian Company

30 % of additional

wages paid to the new

regular workmen

3 AYs including the AY relevant

to the FY in which such

employment is provided



Significant conditions for eligibility for deduction under sections mentioned above:

ØFor the purpose of sections 80-IA, 80-IB and 80-IC, an eligible industrial undertaking is one, which fulfils all of the following conditions:

lIt manufactures or produces any article or thing (other than any non-priority article or thing as specified in the Eleventh Schedule) or operates one or more cold storage plant or plants in any part of India. However, restriction regarding manufacture of non-priority article specified in Eleventh schedule is not applicable to small-scale industrial undertakings and industrial undertakings located in backward states (applicable in case of section 80-IB);

lIt employs (a) 10 or more workers in a manufacturing process carried on with the aid of power or (b) 20 or more workers in a manufacturing process carried on without the aid of power (applicable in case of section 80-IB);

lIt is not formed by splitting up, or reconstruction, of a business already in existence or by transfer to a new business of machinery previously used for any purpose (except under certain circumstances);

lThe benefit of section 80-IA shall not be available to an amalgamated or demerged entity after 1 April 2007.

ØThe profits and gains of an eligible business for the purpose of determining the quantum of deduction is to be computed as if such eligible business were the only source of income of the assessee during the FY relevant to the AY for which the deduction is to be made.

ØAn eligible enterprise engaged in development, operation and maintenance of any infrastructure facility should have entered into an agreement with the Central Government / State Government / local authority / other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility.

ØFor the enterprise where, housing or other activities are an integral part of the highway project, then the exemption is available to profits and gains derived from such project subject to condition that the profit has been transferred to a special reserve account and the same is actually utilized for the highway project excluding housing and other activities before the expiry of 3 years following the year in which such amount was transferred to the reserve account and the amount remaining unutilized shall be chargeable to tax as income of the year in which transfer to reserve account took place.

ØWhere any amount of profits and gains of an industrial undertaking or of a hotel in the case of an assessee is claimed and allowed under this section for any AY, deduction to the extent of such profits and gains shall not be allowed under any other provision of the IT Act and shall in no case exceed the profits and gains of the undertaking or hotel as the case may be.


ØAny undertaking claiming deduction under this section must furnish a report of audit in the prescribed form duly signed and verified by an accountant.

ØNo deduction under 80-IA, 80-IB, 80-IAB, 80-IC, 80-ID, 80-IE will be allowed unless the assessee files return of income within the due date specified under section 139(1) of the IT Act.

ØWith retrospective effect from FY 2002-03,

• If deduction in respect of profits and gains is claimed and allowed under the various provisions of section 10AA of the IT Act or under any provisions of Chapter VI-A under the heading ’C-Deductions in respect of certain incomes’ in any AY, no deduction in respect of same shall be allowed under any other provisions of the IT Act for such AY;

• The aggregate of the deductions under the various provisions referred above, shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business, as the case may be;

• No deductions under the various provisions referred above, shall be allowed if the deduction has not been claimed in the return of income.

ØThe transfer price of goods and services between the undertaking or unit or enterprise or eligible business and any other undertaking or unit or enterprise or business of the assessee shall be determined at the market value of such goods or services as on the date of transfer. The market value in relation to any goods or services shall mean the price that such goods or services would ordinarily fetch in the open market or the ALP computed as per the TP provisions.

ØIn case of a person other than company who has claimed deduction under any section (other than section 80P of the IT Act) included in Chapter VI-A under the heading “C-Deductions in respect of certain incomes or under section 10AA of the IT Act, shall be required to pay AMT @ 20.9605% [(tax rate 18.50% plus surcharge 10%) plus education cess 3% thereon] (having adjusted total income exceeding Rs. 1,00,00,000) or 19.055% (in other cases). However, the provisions of AMT shall not apply to an Individual or HUF or an AOP or a BOI (whether incorporated or not) or an artificial juridical person referred to in section 2(31)(vii) of the IT Act, if the adjusted total income of such person does not exceed Rs. 20,00,000.

ØWhere a deduction under section 10AA or any provisions of Chapter VI-A under the heading ‘C-Deductions in respect of certain incomes’ is claimed and allowed in respect of profits and gains of any of the specified business referred in section 35AD(8)(c) of the IT Act, no deduction of capital expenditure shall be allowed under section 35AD of the IT Act in relation to such specified business for the same or any other AY.



6.1 Business Entities

6.1.1 Investment allowance for manufacturing

business

6.1.2 Dividends received from foreign companies taxable at concessional

rate

Under the existing provisions of section 32AC of the IT Act where an assessee, being a company, is engaged in the business of manufacture of an article or thing and invests a sum of more than Rs.100 crore in new plant and machinery during the period beginning from 1 April 2013 and ending on 31 March 2015, then the assessee shall be allowed a deduction of 15% of cost of new assets.

It is proposed to extend the provisions of section 32AC of the IT Act to make medium size investments in plant and machinery eligible for deduction. Accordingly, the deduction under section 32AC of the IT Act shall be allowed if the company on or after 1 April 2014 invests more than Rs. 25 crore in plant and machinery in a year.

This deduction shall be allowed during the period beginning from 1 April 2014 and ending on 31 March 2017 (ending date as per the Finance Bill is 31 March 2018 as against 31 March 2017 specified in Memorandum to Finance Bill) if investments are more than Rs. 25 crore in plant and machinery in a year.

It is also proposed that the Company who is eligible to claim deduction under the existing combined threshold limit of Rs.100 crore for investments made in FY 2013-14 or FY 2014-15 shall continue to be eligible to claim deduction under the existing provisions contained in section 32AC(1) of the IT Act.

Section 115BBD of the IT Act was introduced as an incentive for attracting repatriation of income earned by Indian companies from investments made abroad. It provides for taxation of gross dividends received by an Indian company from a specified foreign company at concessional rate of 15% from AY 2012-13 to AY 2014-15.

It is proposed to amend the IT Act to extend the benefits of lower rate of taxation without limiting it to particular AYs. Thus, such foreign dividends

CHAPTER 6 : DIRECT TAXES - SIGNIFICANT CHANGES


received in AY 2015-16 and subsequent AYs shall continue to be taxed @15% for AY 2015-16 and subsequent AYs.

The existing provisions of section 115-O of the IT Act, provides for levy of DDT on the company at the time when company distributes, declares or pays any dividend to its shareholders. Sub-section (1) of the said section provides that any amount declared, distributed or paid by a domestic company by way of dividends shall be charged to additional income-tax at the rate of 15% (plus applicable surcharge and cess).

The existing provisions of section 115-R of the IT Act, provides for levy of DDT on the company at the time when company distributes, declares or pays any dividend to its unit holders. Sub-section (2) of the said section provides that any amount of income distributed by the specified company or a mutual fund to its unit holder shall be charged to additional income-tax at the rate of 25% (plus applicable surcharge and cess).

It is proposed to provide that for the purposes of determining the tax on distributed profits payable in accordance with section 115-O and 115-R of the IT Act, any amount by way of dividends referred to in sub-section (1) and sub-section (2) respectively of the said sections, as reduced by the amount referred to in sub-section (1A) [referred to as net distributed profits], shall be increased to such amount as would after reduction of the tax on such increased amount at the rate specified in sub-section (1) and (2), be equal to the net distributed profits.

As such, the proposed amendment requires the amount of distributable income and the dividends which are actually received by the unit holder of mutual fund or shareholders of the domestic company to be grossed up for the purpose of computing the additional tax resulting into increased effective tax rates.


The existing provisions of section 80-IA(4)(iv) of the IT Act provides that a deduction shall be allowed to an undertaking which-

(a) is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1 April 1993 and ending on 31 March 2014;

6.1.3 Tax on dividends distributed by domestic company

6.1.4 Extension of the sunset date under section 80-IA of the IT Act for the

power sector


(b) starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1 April 1999 and ending on 31 March 2014;

(c) undertakes substantial renovation and modernization of existing network of transmission or distribution lines at any time during the period beginning on 1 April 2004 and ending on 31 March 2014.

It is proposed to amend the above sub-clauses of the section so as to extend the time limit from 31 March 2014 to 31 March 2017.

The existing provisions of section 35AD of the IT Act inter alia, provide a deduction in respect of any expenditure of capital nature incurred, other than expenditure incurred on acquisition of any land or goodwill or financial instrument, wholly and exclusively for the purposes of any specified business carried on by the assessee during the previous year in which such expenditure is incurred. The said section also provides that deduction under the provisions of Chapter VI-A under the heading ‘Deductions in respect of certain incomes’ shall not be available to any specified business which has claimed deduction under the said section.

It is proposed to insert new clauses (ai) and (aj) in sub-section (5) of the aforesaid section to specify that the date of commencement of operation shall be on or after 1 April 2014 where the specified business is in the nature of laying and operating a slurry pipeline for the transportation of iron ore or in the nature of setting up and operating a semi-conductor wafer fabrication manufacturing unit which is notified by the CBDT.

It is also proposed to insert a new sub-section (7A) in the aforesaid section so as to provide that any asset in respect of which a deduction is claimed and allowed under this section shall be used only for the specified business, for a period of 8 years beginning with the previous year in which such asset is acquired or constructed.

It is also proposed to insert a new sub-section (7B) in the aforesaid section so as to provide that where any asset, in respect of which a deduction is claimed and allowed under this section is used for a purpose other than the specified business, the total amount of deduction claimed (net of depreciation), shall be deemed to be business income of the previous year in which the asset is so used. However, this provision shall not apply to a sick industrial company.

It is also proposed to insert a new sub-section (10) to provide that where

6.1.5 Deduction in respect of capital expenditure on specified business


deduction under section 10AA of the IT Act has been availed by any specified business for any AY, no deduction under section 35AD of the IT Act shall be allowed in relation to such specified business for the same or any other AY.

The existing provision of section 115JC of the IT Act provides that where the regular income-tax payable by a person, other than a company, for a FY is less than the AMT for such FY, the person would be required to pay income-tax @18.5% (plus applicable surcharge and cess) on its adjusted total income. The section further provides that the total income shall be increased by deductions claimed under Part C of Chapter VI-A and deduction claimed under section 10AA of the IT Act to arrive at adjusted total income.

It is proposed to amend the section so as to provide that total income shall be increased by the deduction claimed under section 35AD of the IT Act (as reduced by depreciation allowable under section 32 of the IT Act) for purpose of computation of adjusted total income.

It is proposed to introduce a new tax regime for REIT and Infrastructure Investment Trust. In this context, ‘business trust’ is defined as a trust registered as an Infrastructure Investment Trust or a REIT, the units of which are required to be listed on a recognised stock exchange, in accordance with the regulations made under SEBI and notified by the Central Government in this behalf.

The income-investment model of the business trusts has the following distinctive elements:

(i) The trust would raise capital by way of issue of units (to be listed on a recognised stock exchange) and can also raise debts directly from resident as well as non-resident investors;

(ii) the income bearing assets would be held by the trust by acquiring controlling or other specific interest in an Indian company (SPV) from the sponsor.

The proposal will put in place a specific taxation regime for providing the manner in which the income of such trusts is to be taxed and the taxability of the income distributed by such business trusts in the hands of the unit holders of such trusts. The regime has the following main features:

(I) The listed units of a business trust, when traded on a recognised stock

6.1.6 Investment linked deductions claimed under section 35AD of the IT Act

subject to AMT

6.1.7 Taxation regime for Real Estate Investment Trust and Infrastructure

Investment Trust


exchange, would attract same levy of STT, and would be given the same tax benefits in respect of taxability of capital gains as equity shares of a company i.e. long term capital gains, would be exempt and short term capital gains would be taxable at the rate of 15% (plus applicable surcharge and cess).

(ii) In case of capital gains arising to the sponsor at the time of exchange of shares in SPVs with units of the business trust, the taxation of gains shall be deferred and taxed at the time of disposal of units by the sponsor. However, the preferential capital gains regime (consequential to levy of STT) available in respect of units of business trust will not be available to the sponsor in respect of these units at the time of disposal. Further, for the purpose of computing capital gain, the cost of these units shall be considered as cost of the shares to the sponsor. The holding period of shares shall also be included in the holding period of such units.

(iii) The income by way of interest received by the business trust from SPV is accorded pass through treatment i.e. there is no taxation of such interest income in the hands of the trust and no withholding tax at the level of SPV. However, withholding tax at the rate of 5% (plus applicable surcharge and cess) in case of payment of interest component of income distributed to non-resident unit holders, at the rate of 10% in respect of payment of interest component of distributed income to a resident unit holder shall be effected by the trust.

(iv) In case of ECB by the business trust, the benefit of reduced rate of 5% (plus applicable surcharge and cess) tax on interest payments to non-resident lenders shall be available on similar conditions, for such period as is provided in section 194LC of the IT Act.

(v) The dividend received by the trust shall be subject to DDT at the level of SPV but will be exempt in the hands of the trust and the dividend component of the income distributed by the trust to unit holders will also be exempt.

(vi) The income by way of capital gains on disposal of assets by the trust shall be taxable in the hands of the trust at the applicable rate. However, if such capital gains are distributed, then the component of distributed income attributable to capital gains would be exempt in the hands of the unit holder. Any other income of the trust shall be taxable at the maximum marginal rate.

(vii) The business trust is required to furnish its ROI.

(viii) The necessary forms to be filed and other reporting requirements to be met by the trust shall be prescribed to implement the above scheme.



6.1.8 Concessional rate of withholding tax on interest on overseas

borrowings

6.1.9 Transaction in commodity derivatives chargeable to CTT is not a

speculative transaction

6.1.10 Disallowance of payments to resident on account of non-deduction of

tax restricted to 30%

6.1.11 Rationalisation of TDS provisions in case of payments to non-residents

Section 194LC of the IT Act provides that if an Indian company borrows money in foreign currency from a source outside India either under a loan agreement or by way of issue of long-term infrastructure bonds at any time on or after 1 July 2012 but before 1 July 2015, the interest payment to a non-resident person would be subject to a concessional rate of withholding tax @ 5% (plus applicable surcharge and cess).

It is proposed to amend the section to extend the benefit of this concessional rate of withholding tax on interest on borrowing by way of issue of any long-term bonds instead of limiting to long term infrastructure bonds.

It is further proposed to extend the concessional rate of withholding tax in respect of borrowing made before 1 July 2017.

These amendments will take effect from 1 October 2014.

It is proposed to amend clause (e) of proviso to section 43(5) of the IT Act so as to provide that eligible transaction in respect of trading in commodity derivatives carried out in a recognized association and chargeable to CTT shall not be considered to be a speculative transaction.

Section 40(a)(ia) of the IT Act provides for the disallowance of the entire amount of expenditure on which tax was deductible but not deducted on certain payments made to residents for the purposes of computing income under the head ‘Profits and gains of business or profession’.

It is proposed that in case of non-deduction or non-payment of TDS on payments made to residents as specified in section 40(a)(ia) of the IT Act, the disallowance shall be restricted to 30% of the amount of expenditure claimed in this regard.

The existing provisions of section 40(a)(i) of the IT Act provide that certain payments made to a non-resident shall not be allowed as deduction for computing business income if tax on such payments was not deducted, or after deduction, was not paid during the FY or in subsequent FY within the


time prescribed under section 200(1) of the IT Act.

It has been proposed that the deductor shall be allowed to claim deduction for payments made to non-residents in the year of such payments, if tax is deducted during the said previous year and the same is paid on or before the due date specified for filing of ROI.

It is proposed that the disallowance under section 40(a)(ia) of the IT Act shall extend to all expenditure on which tax is deductible under Chapter XVII-B of the IT Act.

Under the Companies Act, 2013, certain companies are required to spend certain percentage of their profit on activities relating to CSR. Further, the existing provisions of section 37(1) of the IT Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the IT Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession.

It is proposed to clarify that for the purposes of section 37(1) of the IT Act, any CSR expenditure incurred by an assessee referred to in section 135 of the Companies Act, 2013 shall not be allowed as deduction under section 37 of the IT Act. However, the CSR expenditure having the nature described in section 30 to section 36 of the IT Act shall be allowed as deduction, subject to fulfillment of conditions specified in such sections of the IT Act.

Presently, explanation to section 73 of the IT Act provides that in case of a company deriving its income mainly under the head “Profits and gains of business or profession” (other than a company whose principal business is business of banking or granting of loans and advances), and where any part of its business consists of purchase or sale of shares, such business shall be deemed to be speculation business for the purpose of this section.

It is proposed to amend the aforesaid explanation so as to provide that the provision of the explanation shall not be applicable to a company, the principal business of which is trading in shares.

6.1.12 Widening of scope for disallowance of payment to resident on account

of non-deduction of tax at source

6.1.13 Disallowance of expenditures related to CSR

6.1.14 Losses in speculation business


6.1.15 Rationalization of presumptive tax provisions in respect of business of

plying, hiring or leasing goods carriages

6.1.16 Scope of power of survey extended

6.1.17Assessment of income of a person other than the person who has been

searched

The existing provisions of section 44AE of the IT Act provides for presumptive taxation in the case of an assessee who is engaged in the business of plying, hiring or leasing goods carriages and not owning more than 10 goods carriages at any time during the previous year. The presumptive income per heavy goods vehicle is Rs. 5,000 for every month (or part of a month) and Rs. 4,500 for every month (or part of a month) in other cases.

It is proposed to provide for a uniform amount of presumptive income of Rs. 7,500 for every month (or part of a month) for all types of goods carriage without any distinction between heavy goods vehicle and vehicle other than heavy goods vehicle.

It is proposed to amend section 133A of the IT Act by which period of retaining the custody of books of account or other documents is extended from 10 days to 15 days (exclusive of holidays).

It is also proposed to amend section 133A of the IT Act and extend the power of survey to an income-tax authority for the purpose of verifying that tax has been deducted or collected at source in accordance with the provisions of Chapter XVII-B or Chapter XVII-BB. Further, such income-tax authority may require the deductor or the collector or any other person who may at the time and place of survey be attending to such work—

(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place, and

(ii) to furnish such information as he may require in relation to such matter. It is also proposed to provide that an income-tax authority may place marks of identification on the books of account or other documents inspected by him and take extracts and copies thereof. However, he shall not impound and retain in his custody any books of account or documents inspected by him or make an inventory of any cash, stock or other valuables.


It is proposed to amend section 153C of the IT Act to provide that AO shall proceed against a person other than the person who has been searched and


issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A of the IT Act, if the AO is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant AYs referred to in section 153A (1) of the IT Act.


It is proposed to substitute section 142A of the IT Act so as to provide that the AO may, for the purpose of assessment or re-assessment, require the assistance of a Valuation Officer to estimate the value, including fair market value, of any asset, property or investment and submit the report to him. The AO may make a reference whether or not he is satisfied about the correctness or completeness of the accounts of the assessee. The Valuation Officer, shall, for the purpose of estimating the value of the asset, property or investment, have all the powers of section 38A of the WT Act. The Valuation Officer is required to estimate the value of the asset, property or investment after taking into account the evidence produced by the assessee and any other evidence in his possession gathered, after giving an opportunity of being heard to the assessee.

If the assessee does not co-operate or comply with the directions of the Valuation Officer, he may estimate the value of the asset, property or investment to the best of his judgment. It is also proposed to provide that the Valuation Officer shall send a copy of his estimate to the AO and assessee within a period of 6 months from the end of the month in which the reference is made. The AO on receipt of the report from the Valuation Officer may, after giving the assessee an opportunity of being heard, take into account such report in making the assessment or reassessment.

It is also proposed to amend sections 153 and 153B of the IT Act so as to provide that the time period beginning with the date on which the reference is made to the Valuation Officer and ending with the date on which his report is received by the AO, shall be excluded from the time limit provided under the aforesaid section for completion of assessment or reassessment.


The existing provisions relating to AMT, created difficulty in claim of credit of AMT in an AY where the income is not more than Rs. 20,00,000 or there is no

6.1.18 Assistance of valuation officer for assessment / reassessment

6.1.19 Rationalisation of credit of AMT


claim of any deduction under section 10AA of the IT Act or Chapter VI-A.

It is proposed to amend the provisions to enable an assessee who has paid AMT in any earlier years, to claim credit of the same in any subsequent years, subject to fulfillment of prescribed conditions.

The existing provisions of section 112 of the IT Act provides that the tax payable in the case of income arising from the transfer of a long term capital asset, being listed securities or unit or zero coupon bond exceeds 10% (plus applicable surcharge and cess) of the amount of capital gains without indexation adjustment, such excess shall be ignored.

It is proposed to amend the aforesaid provision so as to provide that where the tax payable in respect of any income arising from transfer of a long-term capital asset being listed securities (other than a unit) or zero coupon bond exceeds 10% (plus applicable surcharge and cess) of the amount of capital gains without indexation adjustment, such excess shall be ignored. As such, there will be increase in the rate of tax on long term capital gains from 10% to 20% (plus applicable surcharge and cess) on transfer of units of mutual funds other than equity oriented funds.

It is proposed to amend the provisions of sections 269SS and 269T of the IT Act to provide that 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 aforesaid sections if the other conditions are satisfied.

It is proposed to amend section 200 of the IT Act to allow the deductor to file correction statements. Consequently, it is also proposed to amend provisions of section 200A of the IT Act for enabling processing of correction statement filed.

It is also proposed to replace section 201(3) of the IT Act to provide that no order under section 201(1) of the IT Act shall be passed at any time after the expiry of 7 years from the end of the FY in which payment is made or credit is given.


6.1.20 Tax on long-term capital gains on units

6.1.21 Mode of acceptance or repayment of loans and deposits

6.1.22 Rationalisation of TDS provisions


6.1.23 Rationalisation of computation mechanism under section 115BBC of

the IT Act

6.1.24 TDS on non-exempt payment received under life insurance policy

6.2 Personal

6.2.1 Increase in investment limit under section 80C of the IT Act from Rs.

1,00,000 to Rs. 1,50,000

Under the existing provision of section 115BBC of the IT Act, tax @ 30% is levied on the aggregate amount of anonymous donations exceeding 5% of the total donations received by the assessee or Rs.1,00,000, whichever is higher. Tax @ 30% is levied on the amount of anonymous donations exceeding the threshold limit only and the remaining tax is chargeable on total income after reducing the full amount of anonymous donations (instead of reducing the income of anonymous donation which has been taxed @ 30%) .

It is proposed to amend the section to provide that the income-tax payable shall be the aggregate of the amount of income-tax calculated @ 30% on the following:

anonymous donations received in excess of 5% of the total donations received by the assessee or Rs. 1,00,000, whichever is higher, and

the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the aggregate of the anonymous donations which is in excess of 5% of the total donations received by the assessee or Rs. 1,00,000.

It is proposed to insert a new section to provide for deduction of tax @ 2% on sum paid under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D) of the IT Act.

Further, it has also been proposed that no tax under the aforesaid provision shall be deducted if the aggregate sum paid in the FY to an assessee is less than Rs. 1,00,000.

These amendments will take effect from 1 October 2014.

It is proposed to raise the limit of deduction allowed under section 80C of the IT Act from existing Rs. 1,00,000 to Rs.1,50,000 and the consequential amendments are proposed in sections 80CCE and 80CCD of the IT Act.


6.2.2 Increase in deduction of interest on housing loan in respect of SOP

6.2.3 Capital gains exemption in case of investment in one residential house

property

6.3 Non Residents

6.3.1 Characterisation of income in case of FII

Under the existing provisions, section 24 of the IT Act provides that, income chargeable under the head ‘Income from House Property’ shall be computed after making certain deduction. In terms of section 24(b) of the IT Act, where the property is acquired with borrowed capital, the amount of interest payable on such capital shall be allowed as deduction in computing the income from house property. In addition to that, second proviso to section 24(b) of the IT Act, inter alia, provides that, in case of SOP where acquisition or construction is completed within 3 years from end of FY in which the capital is borrowed, the amount of deduction shall not exceeds Rs. 1,50,000.

It is proposed to amend the second proviso to section 24(b) of the IT Act, so as to increase the limit of deduction on account of interest in respect of property referred to in section 23(2) of the IT Act to Rs. 2,00,000.

The existing provisions contained in section 54(1) of the IT Act provides for exemption from the capital gain arising on transfer of a residential house, where the assessee purchases or constructs, a residential house within stipulated timeframe, to the extent of amount of capital gains invested in such new residential house.

The existing provisions contained in section 54F(1) of the IT Act provides that the capital gains arising on transfer of a long-term capital asset, not being a residential house, and the assessee purchases or constructs a residential house within stipulated timeframe, then the portion of capital gains in the ratio of cost of new asset to the net consideration shall be exempt.

It is proposed to amend the aforesaid section 54(1) and 54F(1) of the IT Act so as to provide that the exemption under these sections is available if the investment is made in one residential house situated in India.

The existing provision of section 2(14) of the IT Act defines the term ‘Capital Assets’ to include property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock in trade or personal assets as provided in the definition. Foreign Portfolio Investors (referred as FII in the IT Act) face a difficulty in characterisation of


their income arising from transaction in securities as to whether it is capital gain or business income.

It is proposed to provide that any security held by FIIs which have invested in such security in accordance with the regulations made under the SEBI Act, 1992, would be treated as capital assets only, so that, any income arising from transfer of such security by FIIs would be in the nature of capital gains.

The existing provision contained in section 47 of the IT Act provides that certain transactions shall not be considered as transfer for the purpose of charging of capital gains.

It is proposed to insert clause (viib) in the said section so as to provide that any transfer of a capital asset, being government securities carrying periodic payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital gains.

Section 92CC of the IT Act empowers the CBDT, with the approval of the Central Government, to enter into an APA with any person for determining the ALP or specifying the manner in which ALP is to be determined in relation to an international transaction to be entered into by the person. The APA is valid for a period, not exceeding 5 years.

It is now proposed to provide for “roll back” mechanism in the APA scheme. The “roll back” provisions refer to the applicability of the methodology of determination of ALP, or the ALP, to be applied to the international transactions which had already been entered into in a period prior to the period covered under an APA.

The APA is subject to such prescribed conditions, procedure and manner for determining the ALP or for specifying the manner in which ALP is to be determined, in relation to an international transaction entered into by a person, during any period not exceeding 4 previous years preceding the first of the previous year for which the APA applies in respect of the international transaction to be undertaken in future.


6.3.2 Transfer of government security by one non-resident to another non-

resident not to be regarded as transfer

6.4 Transfer Pricing

6.4.1 Introduction of “Roll Back” provision in APA scheme


6.4.2 Rationalisation of the definition of international transaction

6.4.3 Levy of penalty under section 271G of the IT Act by TPO

6.4.4 Other announcements

6.5 General

6.5.1 Expanding the scope of Short-term capital asset

Under the existing provisions, section 92B(2) of the IT Act extends the scope of international transaction to include deemed international transactions provided that “a transaction entered into with an unrelated person shall be deemed to be a transaction with an AE, if there exists a prior agreement in relation to the transaction between such other person and the AE, or the terms of the relevant transaction are determined in substance between the other person and the AE”. Under the existing provisions, the sub-section as presently worded has led to a doubt whether or not, for the transactions to be treated as an international transaction, the unrelated person should also be a non-resident.

It is now proposed to amend the section to provide that where in respect of a transaction entered into by an enterprise with a person other than an AE, if there exists a prior agreement in relation to the relevant transaction between the other person and the AE or, where the terms of the relevant transaction are determined in substance between such other person and the AE, and either the enterprise or the AE or both of them are non-resident, then such transaction shall be deemed to be an international transaction entered into between two AEs, whether or not such other person is a non-resident.

It is proposed to amend Section 271G of the IT Act to include a TPO also, as an authority competent to levy the penalty under this section in addition to the AO and the Commissioner (Appeals).

This amendment will be effective from 1 October 2014.

Range concept for determination of ALP is proposed to be introduced. However, the arithmetic mean concept will continue to apply where number of comparable is inadequate. The appropriate rules in this regard will be prescribed.

It is proposed to allow the use of multiple year data for comparability analysis.

Existing provisions of Section 2(42A) of the IT Act provides that short-term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer. However, in the case of


a share held in a company or any other security listed in a recognised stock exchange in India or a unit of the Unit Trust of India or a unit of a Mutual Fund or a zero coupon bond, the period of holding for qualifying it as short-term capital asset is not more than 12 months.

It is proposed to provide that an unlisted security and 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 36 months.

It is proposed to insert a new clause (ix) in section 56(2) of the IT Act to provide for the taxability of any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset. Such sum shall be chargeable to income tax under the head ‘Income from other sources’ if such sum is forfeited and the negotiations do not result in transfer of such capital asset.

Consequentially, it is proposed to amend section 51 of IT Act to provide that the amount which has been included in the total income of the assessee for any FY, in accordance with the aforesaid provisions of section 56(2)(ix) of the IT Act, shall not be deducted while computing the cost of acquisition.

Section 45(5) of the IT Act provides for dealing with capital gains arising from transfer by way of compulsory acquisition where the compensation is enhanced or further enhanced by the court, tribunal or any other authority. Clause (b) of the said section provides that where the amount of compensation is enhanced by the court it shall be deemed to be the income chargeable of the previous year in which such amount is received by the assessee.

It is proposed to provide that the amount of compensation received in pursuance of an interim order of the court, tribunal or other authority shall be deemed to be income chargeable under the head ‘Capital gains’ in the previous year in which the final order of such court, tribunal or other authority is made.

6.5.2 Taxability of forfeiture of advance received in course of negotiation for

transfer of capital assets

6.5.3 Capital gains arising from transfer of an asset by way of compulsory

acquisition


6.5.4 Clarification in respect of capital gains exemption on investment in

specified bonds

6.5.5 Failure to produce accounts and documents

6.5.6 Power to notify income computation and disclosure standards

The existing provisions contained in section 54EC(1) of the IT Act provides that where capital gain arises from the transfer of a long-term capital asset and the assessee has, within a period of 6 months invested the whole or part of capital gains in the long-term specified asset, the proportionate capital gains so invested in the long-term specified asset, out of the whole of the capital gain, shall not be charged to tax. Proviso to section 54EC(1) of the IT Act provides that the investment made in the long-term specified asset during any FY shall not exceed Rs. 50,00,000.

It is proposed to insert a proviso to section 54EC(1) of the IT Act so as to provide that the investment made by an assessee in the long-term specified asset, out of capital gains arising from transfer of one or more original asset, during the FY in which the original asset or assets are transferred and in the subsequent financial year does not exceed Rs. 50,00,000.

Existing provisions of section 276D of the IT Act provide that if a person willfully fails to produce accounts and documents as required in any notice issued under section 142(1) of the IT Act or willfully fails to comply with a direction issued to him under section 142(2A) of the IT Act, he shall be punishable with rigorous imprisonment for a term which may extend to 1 year or with fine equal to a sum calculated at a rate which shall not be less than Rs. 4 or more than Rs. 10 for every day during which the default continues, or with both.

It is proposed to amend the provisions of section 276D of the IT Act so as to provide that person shall be punishable with rigorous imprisonment for a term which may extend to 1 year and with fine.


It is proposed to provide that the Central Government may notify in the official gazette from time to time income computation and disclosure standards to be followed by any class of persons or in respect of any class of income. It is further proposed to provide that the AO may make an assessment in the manner provided in section 144 of the IT Act, if the income has not been computed in accordance with the standards notified under section 145(2) of the IT Act.


6.5.7 Notice of demand to be valid till the disposal of appeal by last appellate

authority or disposal of proceedings for the purpose of Interest payable

under section 220 of the IT Act

6.5.8 Cancellation of registration of the trust or institution in certain cases

It is proposed to insert a new sub-section (1A) to section 220 of the IT Act so as to provide that where any notice of demand has been served upon an assessee and any appeal or other proceeding, as the case may be, is filed or initiated in respect of the amount specified in the said notice of demand, then such demand shall be deemed to be valid till the disposal of appeal by the last appellate authority or disposal of proceedings, as the case may be.

It is further proposed to provide that where as a result of an order under section specified in the first proviso, the amount on which interest was payable under this section has been reduced and subsequently as a result of an order under said sections or section 263 of the IT Act, the amount on which interest was payable under section 220 of the IT Act is increased, the assessee shall be liable to pay interest under sub-section (2) of the said section on the amount payable as a result of such order, from the day immediately following the end of the period mentioned in the first notice of demand referred to in sub section (1) of the said section and ending with the day on which the amount is paid.


It is proposed to amend section 12AA of the IT Act to provide that where a trust or an institution has been granted registration, and subsequently it is noticed that its activities are being carried out in such a manner that-

its income does not enure for the benefit of general public; or

it is for benefit of any particular religious community or caste (in case it is established after commencement of the Act); or

any income or property of the trust is applied for benefit of specified persons like author of trust, trustees etc.; or

its funds are invested in prohibited modes

then, the Principal Commissioner or the Commissioner may cancel the registration, if such trust or institution does not prove that there was a reasonable cause for the activities to be carried out in the above manner.



6.5.9 Rationalisation of taxation regime in the case of charitable trusts and

institutions

It is proposed to amend section 11 of the IT Act to provide specifically that where a trust or an institution has been granted registration for the FY for purposes of availing exemption, then such trust or institution cannot claim any exemption under any provisions of section 10 of the IT Act [other than that relating to exemption of agricultural income and income exempt under section 10(23C) of the IT Act]. Similarly, entities which have been approved or notified for claiming benefit of exemption under section 10(23C) of the IT Act would not be entitled to claim any benefit of exemption under other provisions of section 10 of the IT Act (except the exemption in respect of agricultural income).

Further, it is proposed to amend section 11 and section 10(23C) of the IT Act to provide that the 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, the acquisition of which has been claimed as an application of income under these sections in the same or any other FY.


The provisions applicable to Service Tax, Customs and Excise are given under:

W.e.f. 11 July 2014, ‘resident private limited company’ has been notified as class of persons eligible to apply for advance ruling.

Mandatory pre-deposit of 7.5% of the duty demanded or penalty imposed or both, for filing appeal with the Commissioner (Appeals) or the Tribunal at the 1st stage and 10% of the duty demanded or penalty imposed or both, for filing 2nd stage appeal before the Tribunal is proposed. The amount of pre-deposit payable would be subject to a ceiling of Rs. 10 crore.

It is proposed to increase the discretionary powers of the Tribunal to refuse admission of appeal from the existing Rs. 50,000 to Rs. 2,00,000.

The effective rate of service tax has been kept unchanged at 12.36% [Tax @ 12%, Education Cess @ 2% and Secondary and Higher Education Cess @ 1%].

The services of transportation of passenger provided by radio taxis including 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 or General Packet Radio Service, whether air conditioned or not, is proposed to be made liable to Service Tax. Further, the abatement as applicable to rent-a-cab services would also be made applicable to radio taxis.

7.1 Service Tax

7.1.1 General

7.1.2 Reduction in the scope of Negative list of Services

The changes in rates effected in the Customs and Central Excise regulations shall be effective from 11 July 2014 and legislative changes shall be effective from the enactment of Finance Bill, unless otherwise specified. The changes in Service Tax regulations shall be effective from the date of enactment of the Bill, unless otherwise specified.

CHAPTER 7 : INDIRECT TAXES - SIGNIFICANT CHANGES


Service Tax on sale of space or time for advertisements in broadcast media namely radio or television has been proposed to be extended to cover all segments other than advertisement in print media. Print media not to include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes.

The above proposed changes will be in force from the date to be notified.

Exemption has been provided in respect of services by common bio-medical waste treatment facility operator to clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto.

Services by way of Technical testing or analysis of newly developed drugs including vaccines and herbal remedies on human participants by a clinical research organization approved by Drug Controller General of India, shall henceforth not be an exempted service.

The existing exemption of auxiliary educational services has been substituted by specific exemption such as transportation of student, faculty and staff, catering (including mid day meals scheme), security or cleaning or housekeeping services and admission or conduct of examination provided to an education institution. Further, the services provided by an educational institution to its students, faculty and staff are also exempted from Service Tax.

Transport of organic manure and cotton (whether ginned or baled) by way of rail or vessel or by a goods transport agency is exempted from Service Tax. Further, loading/unloading, packing, storage or warehousing of cotton (whether ginned or baled) are also exempted from Service Tax.

The Services of transport of passenger services by air-conditioned contract carriages like buses shall henceforth be considered as taxable services.

Exemption in respect of services provided to Government or local authority or Government authority will be limited to services by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation.

Exemption from Service Tax to life micro-insurance schemes for the poorer sections as approved by IRDA where sum assured does not exceed Rs. 50,000.

7.1.3 Amendment in scope of Exempted Services


Specialized financial services received from global financial institutions in the course of management of foreign exchange reserves such as external asset management, custodial services, securities lending services, etc. by RBI is exempted from Service Tax.

Service provided by a tour operator to foreign tourist for tour conducted wholly outside India has been exempted from Service Tax.

The above changes shall be in force w.e.f. 11 July 2014.

A time limit of 15 days for issuance of Form A-2 by the Central Excise Officer from the date of receipt of Form A-1 from Assessee has been prescribed.

Exemption would be available from the date when list of services on which SEZ unit is entitled to upfront exemption is endorsed by the authorized officer of SEZ in Form A-1, provided Form A-1 is furnished to the jurisdictional Central Excise Officer within 15 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 3 months from provision of service.

A service shall be treated as exclusively used for SEZ operations if the service receiver 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.


Where service portion cannot be determined in case of works contract service other than original works, the value to be adopted shall be 70% (effective rate of Service Tax to be 8.652% i.e. 70%*12.36%) of the total amount charged. Erstwhile, the value to be adopted was 60% or 70% depending upon the nature of contract.

Following changes have been made in relation to renting of motor vehicle designed to carry passengers:

7.1.4 Amendment in procedure for exemption to SEZ units/developers

7.1.5 Amendment in abatement/composition rates


* CENVAT credit of input service of renting of motorcab available in the following manner::

(i) 100% CENVAT credit of such input service if service tax is paid on 40% of the value of the service; or

(ii) Upto 40% CENVAT credit of such input service if service tax is paid on the 100% of value of the service.

Service Tax on transport of goods in a vessel agency shall be exempt to the extent of 60% provided CENVAT credit on inputs, capital goods and input service, used for providing the taxable service, has not been taken.

The above changes shall be in force w.e.f. 1 October 2014.

The Service provided by recovery agent to a banking or a financial institution or a non-banking financial company has been covered under the scope of reverse charge mechanism, where service receiver will be liable to pay 100% of the Service Tax.

The services provided by a Director to a body corporate are being brought under the reverse charge mechanism. Erstwhile, services provided by a Director to a company were only covered under reverse charge mechanism.


The portion of Service Tax payable by service provider and service receiver in case of renting of motor vehicle designed to carry passenger on non abated value will be 50% each as against existing 60% by service provider and 40% by service receiver.

7.1.6 Amendment in Reverse Charge Mechanism

Renting of any motor vehicle designed to carry passengers

Transport of passengers, with or without accompanied belongings, by a contract carriage other than motorcab

Renting of motorcab

Transport of passengers, with or without accompanied belongings, by: (a) a contract carriage other than motorcab(b) a radio taxi

Effective Upto 30 September 2014

Effective up to 30 September 2014

W.e.f. 1 October 2014

From the day transportation of passenger provided by radio taxis is made liable to Service Tax

No CENVAT credit on inputs, capital goods and input services

No CENVAT credit on inputs, capital goods and input services

No CENVAT credit on inputs, capital goods and input services*No CENVAT credit on inputs, capital goods and input services

TaxablePortion(%)

9

9A

9

9A

Nature of Service Effective DateTaxable

Portion (%)Sr.No.

40

40

40

40


The point of taxation in respect of reverse charge mechanism to be the payment date or the first date that occurs immediately after a period of 3 months from the date of invoice, whichever is earlier. The provisions are laid down for transition period.

The above changes shall be in force w.e.f. 1 October 2014.

In case of goods imported for repair and is exported after repair, without being put to any use other than that which is required for such repair, the place of provision of service would not be the place of performance. The place of provision to be determined as per other rules, as applicable.

The definition of intermediary has been amended to include arranging or facilitating supply of goods between two or more persons. Presently, only arranging or facilitating provision of service between two or more persons are covered under the definition of intermediary. The place of provision in case of intermediary is the location of service provider i.e. intermediary.

The place of provision of service in case of Hiring of vessels (except yachts) and aircraft to be determined as per rules other than Rule 9. As per the Rule 9, the place of provision of service shall be the location of service provider.

The above change shall be effective from 1 October 2014.

The rate of interest applicable for delayed payment of Service Tax is under:

The above change shall be effective from 1 October 2014.

W.e.f. 1 October 2014, e-payment of Service Tax is being made mandatory. The relaxation from e-payment may be allowed by the Deputy/Assistant Commissioner on case to case basis. Presently, e-payment of Service Tax is mandatory only in case of liability on or above Rs. 1,00,000 in a financial year.

7.1.7 Amendment in the Place of Provision of Services Rules

7.1.8 Change in rate of interest for delayed payment of Service Tax

7.1.9 Other significant amendments

Rate of Simple Interest (p.a.)

18%

18% for first 6 months

24% for delay beyond 6 months up to 1 year

18% for first 6 months

24% for delay beyond 6 months up to 1 year

30% for delay beyond 1 year

Period of Delay

Upto 6 months

More than 6 months

upto 1 year

More than 1 year


It is proposed to delink the exchange rate as notified under Customs Notification. The Government will prescribe rules for determination of rate of exchange for calculation of Service Tax in respect of certain services.

It is proposed to prescribe a time limit of 6 months/1 year, as the case may be, from the date of notice for adjudication of show cause notice.

Section 80 is proposed to be amended for excluding the waiver of 50% penalty imposable under section 78.

Section 82(1) is proposed to be amended so that Joint or Additional Commissioner or any other officer notified by the Board can authorize any central excise officer to search and seize.

Section 87 is proposed to be amended to include the power of recovery of dues of a predecessor from the assets of a successor purchased from the predecessor.

Peak rate of BCD on non-agricultural goods remains unchanged at 10.3 % (Tax @ 10%, Education Cess @ 2% and Secondary and Higher Education Cess @ 1%).

Baggage Rules are being proposed to be amended as follows:-

• Duty free baggage allowance for passengers increased from Rs. 35,000 to Rs. 45,000.

• Duty free allowance in respect of cigarettes reduced from 200 to 100; cigars from 50 to 25 and tobacco from 250 grams to 125 grams.

BCD on half-cut or broken diamonds increased from NIL to 2.5% and on cut & polished diamonds and coloured gemstones from 2% to 2.5%.

Full exemption from BCD is being granted to pre-forms of precious and semi-precious stones.

The variance level and the parameter of measurement in respect of re-import of cut and polished diamonds has been changed from height and

(+ (+circumference 0.01 mm) to diameter for round shape diamonds 0.05 - -+(mm) and length and breadth for diamonds of other shapes 0.07 mm). The -

(allowable variance in weight + 1 cent) remains unchanged.-

7.2 Customs Duty

7.2.1 General

7.2.2 Gems and Jewellery


7.2.3 Electronics / Hardware

7.2.4 Capital Goods / Infrastructure

7.2.5 Textiles

BCD on specified telecommunication products not covered under the Information Technology Agreement increased from NIL to 10%.

The exemption from Education Cess and Secondary and Higher Education Cess leviable on CVD is withdrawn on certain electronic goods.

BCD reduced in respect of -

• LCD and LED TV panels of below 19 inches from 10% to NIL.

• Colour picture tubes for manufacture of cathode ray TVs from 10% to NIL.

• E-Book readers from 7.5% to NIL.

• Battery waste and battery scrap from 10% to 5%.

BCD has been exempted on specified parts of LCD and LED panels for TVs.

Full exemption from SAD has been provided on specified inputs such as Poly Vinyl Chloride and Ribbon used in the manufacture of smart cards.

CVD on portable X-ray machine/systems is withdrawn.

SAD on all inputs/components used in the manufacture of Personal Computers (laptops/desktops) and tablet computers is exempted, subject to actual user condition.

Requirement of certification by National Highway Authority of India or Ministry of Road Transport for availing custom duty exemption on specified goods required for construction of roads is no longer required.

Plants & Equipment imported prior to 2008 for use in projects financed by the UN or an international organization, which hitherto could not be transferred / sold / re-exported out of the project site, are now being allowed to be transferred/sold/re-exported from the project site.

The duty free entitlement for import of trimmings and embellishments used by the readymade textile garment sector for manufacture of garments for export increased from 3% to 5%.

Non-fusible embroidery motifs or prints are being included in the list of items eligible to be imported duty free for manufacture of garments for export.

Specified goods imported for use in the manufacture of textile garments for export are fully exempt from BCD and CVD subject to the condition that the


manufacturer produces an entitlement certificate from the Apparel Export Promotion Council. In addition, Indian Silk Export Promotion Council is authorised to issue entitlement certificate.

BCD on raw materials for manufacture of spandex yarn viz. Polytetramethylene ether glycol and Diphenylmethane 4,4 di-isocyanate reduced from 5% to NIL.

The list of specified goods required by handicraft manufacturer-exporters is expanded by including wire rolls so as to provide Customs Duty exemption on import by handicraft manufacturer-exporters.

Fusible embroidery motifs or prints, anti-theft devices, pin bullets for packing, plastic tag bullets, metal tabs, bows, ring and slider hand rings are being included in the list of items eligible to be imported duty free for manufacture of handloom made ups or cotton made ups or manmade made ups for export.

BCD at a concessional rate of 5% is provided on machinery, equipments, etc. required for initial setting up of compressed biogas plant (Bio-CNG).

BCD and CVD on machinery, equipment, etc. required for initial setting up of solar energy production projects reduced to 5%.

Full exemption from BCD in respect of –

• Specified raw materials used in the manufacture of solar backsheet and Ethylene Vinyl Acetate sheet.

• Flat copper wire used in the manufacture of Photovoltaic ribbons (tinned copper interconnect) for solar PV cells/modules.

BCD reduced from 10% to 5% on forged steel rings used in the manufacture of bearings of wind operated electricity generators.

Section 8B of the Customs Tariff Act, 1975 is being amended so as to provide for levy of safeguard duty on inputs/raw materials imported by an EOU and cleared into DTA as such or used in the manufacture of final products & cleared into DTA. The change will be effected immediately.

Section 15(1) of the Customs Act, 1962 is proposed to be amended to provide for determination of rate of duty and tariff valuation for imports through a vehicle in cases where the Bill of Entry is filed prior to the filing of Import Report (as the Manifest is called in case of imports by land).

7.2.6 Renewable Energy

7.2.7 Others


Section 25 of the Customs Act, 1962 is proposed to be amended to provide that the customs duties on mineral oils including petroleum & natural gas extracted or produced in the continental shelf of India or the exclusive economic zone of India shall not be recovered for the period prior to 7 February 2002.

Section 46(3) of the Customs Act, 1962 is proposed to be amended to allow the filing of a Bill of Entry prior to the filing of Import Report (as the Manifest is called in case of imports by land) for imports through land route.

It is proposed that an application for settlement of cases can also be filed in cases where a Bill of Export, Baggage Declaration, Label or Declaration accompanying the goods effected through Post or Courier have been filed.

The Board has been vested with power to condone delay for a period of upto 30 days for review by the Committee of Chief Commissioners of the orders in original passed by the Commissioner of Customs is proposed.

No change in the overall rate structure with the general effective rate continuing at 12.36% (12% Basic Duty +2% Education Cess + 1% Secondary and Higher Education Cess)

Duty on machinery for the preparation of meat, poultry, fruits, nuts or vegetables, and on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages and on packaging machinery being reduced from 10% to 6%.

Duty has been reduced from 12% to 6% on footwear of retail price exceeding Rs. 500 per pair but not exceeding Rs.1,000 per pair. Footwear of retail price up to Rs. 500 per pair will continue to remain exempted.

Duty @ 2% without CENVAT or 6% with CENVAT on hand operated sewing machine being rationalized by levying concessional duty on sewing machines other than those operated with electric motors (whether in-built or attachable to the body).

Semi-mechanized units manufacturing safety matches, which attract concessional duty of 6%, being allowed to carry out the processes of ‘Pasting of labels’ and ‘Packing’ with the aid of power.

7.3 Central Excise

7.3.1 General

7.3.2 Agriculture/Agro Processing/Plantation Sector

7.3.3 Consumer Goods


Concessional duty of 2% without CENVAT credit and 6% with CENVAT credit being extended to gloves specially designed for use in sports.

An additional duty of excise being levied at the rate of 5% ad valorem on aerated waters containing added sugar.

It is proposed that unbranded articles of precious metals like gold, silver, platinum, palladium, rhodium, iridium, osmium or ruthenium are exempted from Excise Duty retrospectively for the period 1 March 2011 to 16 March 2012. W.e.f 17 March 2012, the said duty is withdrawn.

Duty on recorded smart cards being increased from 2% without CENVAT and 6% with CENVAT to a uniform rate of 12%.

Full exemption from duty being provided to Reverse Osmosis (RO) membrane element used in water filtration or purification equipment (other than household type filter). Duty on RO membrane element used in household type filters has been reduced from 10% to 6%.

Duty on Metal Core Printed Circuit Board and Light Emitting Diode (LED) driver for use in the manufacture of LED lights and fixtures and LED lamps, has been reduced from 10% to 6%.

Duty has been reduced from 12% to Nil on forged steel rings used in the manufacture of bearings of wind operated electricity generators.

Full exemption from Duty being provided for :

• Solar tempered glass used in the manufacture of solar photovoltaic cells/modules, solar power generating equipment/system, and flat plate solar collectors.

• Machinery, equipments, etc. required for setting up of solar energy production projects.

• Backsheet and Ethylene Vinyl Acetate sheet used in the manufacture of photovoltaic cells/modules and specified raw materials used in their manufacture.

• Parts consumed within the factory of production for the manufacture of non-conventional energy devices.

7.3.4 Gems and Jewellery

7.3.5 Electronics/ Hardware

7.3.6 Renewable Energy


• Flat copper wire used in the manufacture of Photovoltaic ribbons (tinned copper interconnect) for use in the manufacture of solar cells/modules.

• Machinery, equipments, etc. required for setting up of compressed biogas plant.

Duty on Polyester Staple Fiber (PSF) and Polyester Filament Yarn (PFY) manufactured from plastic waste or scrap or plastic waste including waste Polyethylene Terephthalate bottles (which is already exempt w.e.f. 8 May 2012) being exempted retrospectively w.e.f. 29 June 2010 to 7 May 2012 and intermediate product ‘Tow’ arising during the course of manufacture of such PSF/PFY being exempted retrospectively w.e.f. 29 June 2010 to 10 July 2014.

Duty @ 2% without CENVAT or 6% with CENVAT being imposed on PSF and PFY manufactured from plastic waste or scrap or plastic waste including waste Polyethylene Terephthalate bottles w.e.f. 11 July 2014.

Duty on cigarettes has been increased by –

• 72% for cigarettes of length not exceeding 65 mm

• 11% to 21% for cigarettes of other lengths. Similar increases are proposed on cigars, cheroots and cigarillos.

Duty on winding wires of copper has been increased from 10% to 12%.

Basic Duty being increased from 12% to 16% on pan masala, from 50% to 55% on unmanufactured tobacco and from 60% to 70% on jarda scented tobacco, gutkha and chewing tobacco.

Full exemption from Duty being provided –

• Goods supplied to National Technical Research Organization.

• Security threads and security fibre supplied to Security Paper Mill Corporation of India Limited and Bank Note Paper Mill India Private Limited.

Education Cess and Secondary and Higher Education Cess (customs component) are being exempted on goods cleared by an EOU into the DTA.

The scope of duty exemption to “all goods supplied against International Competitive Bidding” is being clarified to the effect that the said exemption is also available to sub-contractors for manufacture and supply of goods to the

7.3.7 Textile

7.3.8 Others


main contractor (who has won the bid for the project through ICB) for execution of the said project.

Rule 4(1) [for input credit] and Rule 4(7) [for input service credit] of CCR are amended effectively from 1 September 2014 in order to fix a time limit of 6 months for availment of CENVAT Credit.

Rule 7 of CCR provides for manner of distribution of common input service credit by Input Service Distributor. Rule 7(d) of CCR was amended to provide for distribution of common input service credit among all units in their turnover ratio of the relevant period. However, some interpretational issues raised in respect of the same have now been clarified that Rule 7 allows distribution of input service credit to all units (which are operational in current year) in the ratio of their turnover of the previous year /previous quarter as the case may be.

Re-credit of CENVAT credit reversed on account of non-receipt of export proceeds within the specified period or extended period, to be allowed, if export proceeds are received within 1 year from the period so specified or extended period. The same can be done on the basis of documents evidencing receipt of export proceeds.

Electronic Payments of duty has been made mandatory for all assessees subject to certain exceptions effective from 1 October 2014.

It is proposed to substitute sub rule (3A) of Rule 8 of Central Excise Rules, 2002 to provide in case of default in payment of duty, the assessee shall on his own pay a penalty of 1% per month on the amount of duty not paid for each month or part thereof.

It is proposed to provide that in cases where excisable goods are sold at a price below the manufacturing cost and profit and there is no additional consideration flowing from buyer to the assessee directly or from third person on behalf of the buyer, value for assessment of duty shall deemed to be the transaction value.

Finance Minister gave a push to the Goods and Services Tax and indicated its

7.3.9 Amendments in CCR

7.3.10 Amendments to Central Excise Rules, 2002

7.3.11 Amendments to Central Excise Valuation (Determination of Price of

Excisable Goods) Rules, 2000

7.4 Goods and Service Tax


implementation soon. During his Budget 2014 speech, the Finance Minister said that it is time to end the confusion over GST.

The Government hopes to bring a conclusion on GST by the end of the year. "GST will streamline tax administration and result in higher tax collection for Centre and States. The long pending tax reform, GST, that would subsume indirect levies such as excise, service and local taxes, has been highlighted as an important agenda of the Government.

8.1 Investment Environment:

8.1.1 Defence Sector

F D I i n D e f e n c e manufacturing is proposed to be raised to 49% from the present cap of 26% with full Indian management and control under FIPB approval route in order to enhance domestic manufacturing capacities.

8.1.2 Insurance Sector

FDI in Insurance sector is proposed to be raised to 49% from the present cap of 26% with full Indian management and control under FIPB approval route.

The pending insurance laws (amendment) Bill is proposed to be immediately brought into effect.

8.1.3 Liberalization in certain conditions for Construction Development

At present, 100% FDI in townships, housing and construction-development projects is permissible under Automatic Route, subject to fulfillment of certain conditions. Such conditions are being liberalized to encourage development of smart cities and facilitate habitation for the neo-middle class as follows:

lMinimum built-up area to be developed under each project in case of construction-development projects is being reduced to 20,000 sq. mts from 50,000 sq. mts.

lMinimum capitalization for wholly owned subsidiaries is being reduced to US$ 5 million from US$ 10 million with a lock-in period of 3 years.

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CHAPTER 8: OTHER SIGNIFICANT PROPOSALS


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Projects which commit at least 30% of the total project cost towards low cost affordable housing will be exempted from minimum built up area and capitalisation requirements, with the condition of 3 years’ lock-in.

Incentives for REITs (pass through for the purpose of taxation) and a modified REITs type structure for infrastructure projects as Infrastructure Investment Trusts to attract long term finance from foreign and domestic sources including the NRIs.

8.1.4 E-commerce Sector

At present, 100% FDI is permissible for manufacturing sector under automatic route. It is proposed to allow manufacturing sector to sell its products through retail including E-commerce platforms, without any additional approval.

8.1.5 Infrastructure Development - Railways

It is proposed to attract private investment in rail infrastructure through domestic investment. Ministry of Railways would also seek cabinet approval for allowing FDI in state-owned networks but passenger services would be excluded.

It is proposed to finance bulk of future projects through PPP model.

The Government is considering to set-up a Railway University for both technical and non-technical subjects and tie up with technical institutions for introducing railways oriented subject for graduation and skill development.

8.2 Capital Market Initiatives

Uniform tax treatment for pension fund and mutual fund linked retirement plans.

Extend a liberalized facility of 5% withholding tax to all bonds issued by Indian corporates abroad for all sectors and extend the validity of the scheme to 30 June 2017.

Liberalize the ADR/GDR regime to allow issuance of depository receipts on all permissible securities.

Introduction of uniform KYC norms and inter-usability of the KYC records across the entire financial sector.


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Introduce single operating demat account so that Indian financial sector consumers can access and transact all financial assets through this one account.

Complete the ongoing process of consultations with all the stakeholders on enactment of the Indian Financial Code and reports of the Financial Sector Legislative Reforms Commission.

Allow international settlement of Indian debt securities.

Revamp the IDR and introduce a much more liberal and ambitious BhDR.

8.3 Certain Other Proposals

All cases of indirect transfers arising out of retrospective amendments will be scrutinized by a high level committee of CBDT before initiating any action. Further, the Government will not bring in any retrospective amendments ordinarily.

High level committee to interact with trade and industry where CBDT / CBEC to issue appropriate clarification within 2 months wherever required.

Measures to be taken for strengthening the AAR.

The Government shall consider the comments received from the stakeholders on the revised DTC. The Government will also review the DTC in its present shape and take a view on the whole matter.

Legislative and administrative changes to sort out pending tax demands for more than Rs. 4,00,000 crores under dispute and litigation.

Convergence with International Financial Reporting Standards by adoption of the new Indian Accounting Standards by the Indian Companies voluntarily for FY 2015-16 and mandatorily from FY 2016-17.

Slum development to be included in the list of CSR activity to encourage the private sector to contribute more.

To review revival of SEZs and make them effective instruments of industrial production, economic growth, export promotion and employment generation. SEZs to be developed in Kandla and JNPT.

Comprehensive policy to be announced to promote Indian ship building industry.



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While preserving the public ownership, the capital of banks (in line with Basel - III norms) will be raised by increasing the shareholding of the people in a phased manner through sale of shares largely through retail to common citizens of India.

To establish an Export Promotion Mission to bring all stakeholders under one umbrella.

To appoint Committee to examine the financial architecture for MSME sector, remove bottlenecks and create new rules and structures to be set-up and give concrete suggestion in 3 months.

Scheme for development of new airports in Tier I and Tier II Cities to be launched for implementation through Airport Authority of India or PPPs.

A green Energy Corridor Project is being implemented to facilitate evacuation of renewable energy across the country.

Ultra Mega Solar Power Projects in Rajasthan, Gujarat, Tamil Nadu, Andhra Pradesh and Ladakh to be launched.

To develop additional 15,000 km gas pipelines using PPP model, which will increase usage of gas (domestic as well as imported) and in the long-term will reduce dependency on any one energy sources.

Banks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and priority sector lending.



9.1 Gems and Jewellery Industry

9.1.1 Key highlights

The Gems and Jewellery industry in India is one of the world’s largest with its market size estimated at Rs. 5,67,000 crores (Exports Rs. 2,13,000 crores and Domestic Rs. 3,54,000 Crores) for FY 2012-13. The exports for FY 2013-14 stood at approx. Rs. 2,10,224 Crores as per the provisional data released by GJEPC. The Gems and Jewellery sector has been playing a very important role in the Indian economy and Gems and Jewellery exports contribute for more than 15% of India’s total exports. India is one of the largest consumers of gold ( 975 tons for FY 2012-13) accounting for more than 20% of the world’s gold consumption, most of which are used in the manufacture of jewellery. The industry is a major contributor towards the country’s foreign exchange earnings. The industry is also one of the largest employment providers in India.

Personal income tax exemption limit increased by Rs. 50,000 i.e. from Rs. 2,00,000 to Rs. 2,50,000 in the case of individual taxpayers who are below the age of 60 years. Similarly, the exemption limit in case of senior citizens increased from Rs. 2,50,000 to Rs. 3,00,000. This shall benefit the employees / workers, as the industry is highly labour intensive.Increase in investment limit for claiming deduction under section 80C of the IT Act from Rs. 1,00,000 to Rs. 1,50,000 and increase in deduction limit on account of interest on loan in respect of self-occupied house property from Rs. 1,50,000 to Rs. 2,00,000. This shall result into benefit of tax savings to the employees / workers, as the industry is highly labour intensive.Repatriation of dividends from foreign companies to Indian companies (in which it has shareholding of 26% or more) to be continued at a lower tax rate of 15% without any sunset date.Disallowance of expenses for failure to deduct and pay tax on specified

9.1.2 Positive proposals / impact

CHAPTER 9 : IMPACT ON SELECT INDUSTRIES


payments to residents restricted to 30% of such payments instead of 100% disallowance.AAR scope expanded to resident taxpayers with some threshold.Introduction of ‘roll-back’ provision in the APA scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in the previous 4 years in the specified circumstances.The range concept to be introduced for determination of ALP under the TP regulations.Manufacturing units having FDI are now allowed to sell their products through retail including E-commerce platforms. This shall enable Gems and Jewellery companies having FDI to sell diamonds or jewellery through own or third party e-commerce platforms.Pre-forms of precious and semi-precious stones exempted from BCD.Unbranded articles of precious metals exempted from excise duty for the period 1 March 2011 to 16 March 2012.The variance level and the parameter of measurement in respect of re-import of cut and polished diamonds has been changed from height and circumference (± 0.01 mm) to diameter for round shape diamonds (± 0.05mm) and length and breadth for diamonds of other shapes (± 0.07mm). The allowable variance in weight (± 1 cent) remains unchanged.

The scope of disallowance of expenditure for non-deduction of tax has been extended to all expenditure on which tax is deductible.Expenditure on CSR as referred to in section 135 of the Companies Act, 2013 not to be allowed as deduction under section 37 of the IT Act.DDT to be levied on gross amount of dividends as against the existing provisions of computing DDT on net dividends resulting into effective DDT rate of 20.47%.It is proposed to provide that an unlisted security and units of Mutual Funds (other than equity oriented funds) be treated as short term capital assets if it is held for not more than 36 months as against existing period of not more than 12 months.BCD on half-cut or broken diamonds increased from NIL to 2.5%. BCD on cut and polished diamonds and coloured gemstones increased from 2% to 2.5%. However, rough diamonds continue to be levied at NIL rate of duty.The period of limitation for Cenvat Credit or refund has been reduced from 1 year to 6 months, which shall impact the refund of service tax paid by Gems and Jewellery companies on input services.

9.1.3 Negative proposals / impact


9.2 Entertainment And Media Industry

9.2.1 Key highlights



The Indian Media and Enter ta inment ( ‘M&E’ ) industry is a Rs. 91,800 crores industry reporting an annual growth of 11.8% in 2013. The M&E industry broadly comprises Television, Films, Print, Electronic Media, Radio, Music, Animation, Digital Advertising, Gaming, etc. Each of these segments has their own impact on the masses.Paradigm shift in Indian consumers’ lifestyles coupled with rising disposable incomes has led to the increased importance of this industry. The Indian M&E industry is the fastest growing industry and is expected to grow at CAGR of 14.2 % by 2018.

Personal income tax exemption limit increased by Rs. 50,000 i.e. from Rs. 2,00,000 to Rs. 2,50,000 in the case of individual taxpayers who are below the age of 60 years. Similarly, the exemption limit in case of senior citizens increased from Rs. 2,50,000 to Rs. 3,00,000.Increase in investment limit for claiming deduction under section 80C of the IT Act from Rs. 1,00,000 to Rs. 1,50,000.Increase in deduction limit on account of interest on loan in respect of self-occupied house property from Rs. 1,50,000 to Rs. 2,00,000.Repatriation of dividends from foreign companies to Indian companies (in which it has shareholding of 26% or more) to be continued at a lower tax rate of 15% without any sunset date.Disallowance of expenses for failure to deduct and pay tax on specified payments to residents restricted to 30% of such payments instead of 100% disallowance.AAR scope expanded to resident taxpayers with some threshold.Colour picture tube used in cathode ray televisions exempted from Customs Duty, and BCD on LCD and LED TV panels below 19 inches reduced from present 10% to Nil.

The scope of disallowance under section 40(a)(ia) of the IT Act has been


extended to all expenditure on which tax is deductible.Expenditure on CSR as referred in section 135 of the Companies Act, 2013 not to be allowed as deduction under section 37 of the IT Act.DDT to be levied on gross amount of dividends as against the existing provisions of computing DDT on net dividends resulting into effective DDT rate of 20.47%.It is proposed to provide that an unlisted security and units of Mutual Funds (other than equity oriented funds) be treated as short term capital assets if it is held for not more than 36 months as against the existing period of not more than 12 months.Service tax levy to include the activity of sale of space or time in online or mobile segments.

India’s IT and ITeS services industry with its exponential growth over the past years is an unique export-led success story which has put India on the global map.Indian IT and ITeS industry is divided into four major segments – IT services, business process management (’BPM’), software products and engineering services and hardware. CRISIL Research expects the ITeS industry’s export revenues to grow by 12% in FY 2014-15 and the domestic ITeS market is expected to grow at 12% to 13 % in FY 2014-15.The revenues of the IT-BPM sector is around US$ 105 billion registering a growth of 10.3% in FY 2013-14. It is also a provider of skilled employment both in India and abroad, generating direct employment for nearly 3.1 million workers and indirect employment for around 10 million workers in FY 2013-14.

Personal income tax exemption limit increased by Rs. 50,000 i.e. from Rs. 2,00,000 to Rs. 2,50,000 in the case of individual taxpayers who are below the age of 60 years. Similarly, the exemption limit in case of senior citizens increased from Rs. 2,50,000 to Rs. 3,00,000.Increase in investment limit for claiming deduction under section 80C of the IT Act from Rs. 1,00,000 to Rs. 1,50,000.

9.3 Information Technology and ITeS Industry

9.3.1 Key highlights:

9.3.2 Positive proposals / impact:


Increase in deduction limit on account of interest on loan in respect of self-occupied house property from Rs. 1,50,000 to Rs. 2,00,000.Repatriation of dividends from foreign companies to Indian companies (in which it has shareholding of 26% or more) to be continued at a lower tax rate of 15% without any sunset dateDisallowance of expenses for failure to deduct and pay tax on specified payments to residents restricted to 30% of such payments instead of 100% disallowance.Introduction of ‘roll-back’ provision in the APA scheme so that an APA entered into for future transactions is also applicable to international transactions undertaken in the previous 4 years in the specified circumstances.The range concept to be introduced for determination of ALP under the transfer pricing regulations.AAR scope to be expanded to resident taxpayers with some threshold.

The scope of disallowance under section 40(a)(ia) of the IT Act has been extended to all expenditure on which tax is deductible.Expenditure on CSR as referred to in section 135 of the Companies Act, 2013 not to be allowed as deduction under section 37 of the IT Act.DDT to be levied on gross amount of dividends as against the existing provisions of computing DDT on net dividends resulting into effective rate of DDT of 20.47%.It is proposed to provide that an unlisted security and units of Mutual Funds (other than equity oriented funds) be treated as short term capital assets if it is held for not more than 36 months as against existing period of not more than 12 months.

Infrastructural development mirrors the overall health of a nation’s economy. The infrastructure sector accounts for 26.7% of India's industrial output. The Planning Commission has projected that investment in infrastructure would almost double at US$ 1,025 billion in the Twelfth Five Year Plan (2012-17). The value of total roads and bridges infrastructure in the country is projected to grow at a CAGR of 17.4% over FY 2012–17. The total approximate earnings of the Indian Railways on originating basis during FY 2013–14 were Rs 140,485.02 crore (US$ 23.34 billion) as against Rs 121,831.65 crore (US$ 20.25 billion) during FY 2012–13.

9.3.3 Negative proposals / impact:

9.4 Real Estate And Infrastructure Industry:

9.4.1 Key highlights:


Twelfth Five Year Plan (2012-17). The value of total roads and bridges infrastructure in the country is projected to grow at a CAGR of 17.4% over FY 2012–17. The total approximate earnings of the Indian Railways on originating basis during FY 2013–14 were Rs 140,485.02 crore (US$ 23.34 billion) as against Rs 121,831.65 crore (US$ 20.25 billion) during FY 2012–13.According to the data released by DIPP, the construction development sector (including townships, housing, built-up infrastructure and construction-development projects) attracted total FDI worth US$ 22,994.20 million in the period April 2000 to December 2013. Construction (infrastructure) activities during the period received FDI worth US$ 2,352.64 million. In the next 10 years, FDI in the sector is expected to increase to US$ 25 billion.The sector is the second largest employer after agriculture and is slated to grow at 30% over the next decade.

Increase in investment limit for claiming deduction under section 80C of the IT Act from Rs. 1,00,000 to Rs. 1,50,000 and increase in deduction limit on account of interest on loan in respect of self-occupied house property from Rs. 1,50,000 to Rs. 2,00,000. This shall result into benefit of tax savingstothe employees / workers, as the industry is highly labour intensive.Requirement of built-up area and capital conditions for FDI to be reduced from 50,000 square meters to 20,000 square meters and US$ 1,00,00,000 to US$ 50,00,000 respectively for development of smart cities.Slum development to be a part of CSR activity.Personal income tax exemption limit increased by Rs. 50,000 i.e. from Rs. 2,00,000 to Rs. 2,50,000 in the case of individual taxpayers who are below the age of 60 years. Similarly, the exemption limit in case of senior citizens increased from Rs. 2,50,000 to Rs. 3,00,000. This shall benefit the employees / workers, as the industry is highly labour intensive.Conducive tax regime prescribed for Infrastructure Investment Trusts and Real Estate Investment Trusts to be set up in accordance with regulations of SEBI.Banks will be allowed to give long-term loans to infrastructure.Scheme for development of airports in Tier I and Tier II cities through AAI or PPP.SEZs to be developed in Kandla and JNPT.Building smart cities and "Housing for All by 2022" is on the priority list of the



new government. These new satellite cities and smart metros will help kick start these cities by proving empóoyment and boost the real estate sector.An investment of an amount of Rs. 37,880 crores in NHAI and state roads is proposed.

Any advance money retained or received in the course of negotiations for transfer of a capital asset to be included in the total income.The scope of disallowance under section 40(a)(ia) of the IT Act has been extended to all expenditure on which tax is deductible.Expenditure on CSR as referred to in section 135 of the Companies Act, 2013 not to be allowed as deduction under section 37 of the IT Act.DDT to be levied on gross amount of dividends as against the existing provisions of computing DDT on net dividends resulting into effective rate of DDT of 20.47%.It is proposed to provide that an unlisted security and units of Mutual Funds (other than equity oriented funds) be treated as short term capital assets if it is held for not more than 36 months as against existing period of not more than 12 months.Exemption from service tax on renting of immovable property service provided to Educational Institutes has been withdrawn w.e.f. 11 July 2014.Valuation of works contract with respect to maintenance, repair, completion and finishing services such as glazing, plastering, floor and wall tiling, installation of electrical fitting of an immovable property, for the purposes of charging Service Tax has been enhanced to 70% (from 60%) of the total amount charged for the works contract w.e.f. 1 October 2014.


One of the major hurdles faced by businesses, while operating on an international scale, is the complexity of taxation systems existing in various jurisdictions. India being a major player in the world market has entered into comprehensive DTAAs with almost 87 countries in order to mitigate the taxation complexities and to facilitate international business transactions. In this chapter, we have compiled the tax rates in respect of Dividend, Interest, Royalty and Fees for Technical Services, based on the DTAAs entered into by India with various countries.

Sr.No.

Country Dividend[Note 1]

Interest Royalty FTS Remarks

Tax rate Tax rate Tax rateTax rate

CHAPTER 10 : DTAA RATES(As updated up to the Finance (No.2) Bill, 2014)

Rate as per IT Act Nil [Note 1] 20% [Note 6] 25% [Notes 25% [Notes Rate as per IT Act (3 and 6] 3 and 6] increased by applicable surcharge

and education cess) or DTAA rate, whichever is more beneficial shall apply.

1. Albania 10% 10% [Note 4] 10% 10%

2. Armenia 10% 10% [Note 4] 10% 10%

3. Australia 15% 15% Note 5 Coveredunder

Article forRoyalty

4. Austria 10% 10% [Note 4] 10% 10%

5. Bangladesh 10% / 15% 10% [Note 4] 10% No 10% tax on dividends if at least 10% of separate the capital is owned by company; inprovision any other case 15%.

6. Belarus 10% / 15% 10% [Note 4] 15% 15% 10% tax on dividends if at least 25% of the shares are owned by company; in any other case 15%.

7. Belgium 15% 15% / 10% 10% 10% 1. Interest taxable at 10% if recipient isbank; in any other case 15%.

2. MFN clause with respect to Royaltyand FTS.

8. Botswana 7.5% / 10% 10% [Note 4] 10% 10% 7.5% tax on dividends if at least 25% of the capital is owned by company; in any other case 10%.

to be further


Sr.No.





9. Brazil 15% 15% [Note 4] 15% (25% Covered 15% tax on dividends if paid to afor under company; in any other case as per

trademark) Article for domestic tax laws.Royalty

10. Bulgaria 15% 15% [Note 4] 15% / 20% 20% 15% tax on royalties if relating to copyrights of literary, artistic or sc ien t i f i c wo rks , o the r t han cinematograph films or films or tapes used fo r rad io or te lev is ion broadcasting; in any other case 20%.

11. Canada 15% / 25% 15% [Note 4] Note 5 Note 5 15% tax on dividends if at least 10% of the voting power is owned by company; in any other case 25%.

12. China 10% 10% [Note 4] 10% 10%

13. Cyprus 10% / 15% 10% [Note 4] 15% 15% / 10% 1. 10% tax on dividends if at least 10%of the shares are owned bycompany; in any other case 15%.

2. Technical Fees are taxable @10%under Article 13 and Fees forIncluded Services is chargeable@15% under Article 12.

14. Czech Republic 10% 10% [Note 4] 10% 10%

15. Denmark 15% / 25% 15% / 10% 20% 20% 1. 15% tax on dividends if at least 25% [Note 4] of the shares are owned by

company; in any other case 25%.2. Interest taxable at 10% if recipient is

bank; in any other case 15%.

16. Estonia 10% 10%[Note 4] 10% 10%

17. Ethiopia 7.5% 10% [Note 4] 10% 10%

18. Finland 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS.

19. France 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS.

20. Georgia 10% 10% [Note 4] 10% 10%

21. Germany 10% 10% [Note 4] 10% 10%

22. Greece Taxable as per domestic laws in Nosource country separate

provision

23. Hungary 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS.

24. Indonesia 10% / 15% 10% [Note 4] 15% No 1. 10% tax on dividends if at least 25%separate of the shares are owned byprovision company; in any other case 15%.

82RSM Astute Consulting

Sr.No.





2. The tax rates on dividend income,royalties and FTS (In the earlierDTAA, no separate provision forFTS) have been reduced to 10%but the same is yet to be notified.

25. Iceland 10% 10% [Note 4] 10% 10%

26. Ireland 10% 10% [Note 4] 10% 10%

27. Israel 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS.

28. Italy 15% / 25% 15% [Note 4] 20% 20% 15% tax on dividends if at least 10% of the shares are owned by company; in any other case 25%.

29. Japan 10% 10% [Note 4] 10% 10%

30. Jordan 10% 10% [Note 4] 20% 20%

31. Kazakhstan 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS.

32. Kenya 15% 15% [Note 4] 20% No 17.50% tax in case of Managementseparate and Professional fees.provision

33. Korea 15% / 20% 15% / 10% 15% 15% 1. 15% tax on dividends if at least 20%[Note 4] of the capital is owned by company;

in any other case 20%.2. Interest taxable at 10% if recipient is

bank; in any other case 15%.

34. Kuwait 10% 10% [Note 4] 10% 10%

35. Kyrgyz Republic 10% 10% [Note 4] 15% 15%

36. Latvia 10% 10% [Note 4] 10% 10%

37. Libya Taxable as per domestic laws in Nosource country separate

provision

38. Lithuania 5%/15% 10% 10% 10% 5% tax on dividends if at least 10% of the shares are beneficially owned by company (other than a partnership); in any other case 15%.

39. Luxembourg 10% 10% [Note 4] 10% 10%

40. Malaysia 5% 10% [Note 4] 10% 10%

41. Malta 10% / 15% 10% [Note 4] 15% 15% / 10% 1. 10% tax on dividends if at least 25%of the shares are owned bycompany; in any other case 15%.

2. FTS, ancillary and subsidiary toRoyalty under Article 12, aretaxable @10% under Article 13 andFees for Included Services ischargeable @15% under Article 12.


Sr.No.




42. Mauritius 5% / 15% Taxable as per 15% No 5% tax on dividends if at least 10% of domestic laws separate the capital is owned by company; in

[Note 4] provision any other case 15%.

43. Mongolia 15% 15% [Note 4] 15% 15%

44. Montenegro 5% / 15% 10% [Note 4] 10% 10% 5% tax on dividends if at least 25% of the capital is owned by company (other than a partnership); in any other case 15%.

45. Morocco 10% 10% [Note 4] 10% 10%

46. Mozambique 7.5% 10% [Note 4] 10% Noseparateprovision

47. Myanmar 5% 10% [Note 4] 10% Noseparateprovision

48. Namibia 10% 10% [Note 4] 10% 10%

49. Nepal [5%/10%] [10%] [Note 4] 15% No 1. 5% tax on dividends if at least 10%separate of the shares are owned byprovision company; in any other case 10%.

2. MFN clause with respect to Royalty,if Nepal enters into treaty with alower rate

50. Netherlands 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS.

51. New Zealand 15% 10% [Note 4] 10% 10%

52. Norway 10 % 10 % [Note 4] 10% 10%

53. Oman 10% / 12.5% 10% [Note 4] 15% 15% 10% tax on dividends if at least 10% of the shares are owned by company; in any other case 12.5%.

54. Philippines 15% / 20% 15% / 10% 15% No 1. 15% tax on dividends if at least 10%[Note 4] separate of the shares are owned by

provision company; in any other case 20%.2. Interest taxable @ 10% if recipient

is FI (including an insurance c o m p a n y ) a n d w h e r e t h einterest is payable by a companyresident of Philippines to a residentof India in respect of public issues ofbonds, debentures or similarobligations; in any other case 15%.

3. Royalty taxable @ 15% if it ispayable in pursuance of anycollaboration agreement approvedby the Government of India. Norates prescribed in any other case.

55. Poland 15% 15% [Note 4] 22.5% 22.5%


Sr.No.




56. Portuguese 10% / 15% 10% [Note 4] 10% 10% 10% tax on dividends if at least 25% ofRepublic the capital stock is owned by company

for an uninterrupted period of 2 yearsprior to the payment of dividend; in anyother case 15%.

57. Qatar 5% / 10%. 10% [Note 4] 10% 10% 5% tax on dividends if at least 10% of the shares are owned by company; in any other case 10%.

58. Romania 10% 10% [Note 4] 10% 10%

59. Russian Federation 10% 10% [Note 4] 10% 10%

60. Saudi Arabia 5% 10% [Note 4] 10% Noseparateprovision

61. Serbia 5% / 15% 10% [Note 4] 10% 10% 5% tax on dividends if at least 25% of the capital is owned by company (other than a partnership); in any other case 15%.

62. Singapore 10% / 15% 10% / 15% 10% 10% 1. 10% tax on dividends if at least 25%of the shares are owned bycompany; in any other case 15%.

2. Interest taxable at 10% if recipient isbank or similar FI includingan insurance company; inany other case 15%.

63. Slovenia 5% / 15% 10% [Note 4] 10% 10% 5% tax on dividends if at least 10% of the capital is owned by company; in any other case 15%.

64. South Africa 10% 10% [Note 4] 10% 10%

65. Spain 15% 15% [Note 4] 10% 10% 1. 10% tax on royalties if paid for theuse or right to use any industrial,commercial or scientific equipment;in any other case 20%.

2. MFN clause with respect to Royaltyand FTS.

66. Sri Lanka 7.5% 10% [Note 4] 10% 10%

67. Sudan 10% 10% [Note 4] 10% 10%

68. Sweden 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS.

69. Swiss 10% 10% [Note 4] 10% 10% MFN clause with respect to Dividend,Confederation Interest, Royalty and FTS.

70. Syria 5% / 10% 10% [Note 4] 10% No 5% tax on dividends if at least 10% ofseparate the shares are owned by companyprovision (other than a partnership); in any other

case 10%.


Sr.No.




71. Tajikistan 5% / 10%. 10% [Note 4] 10% No 5% tax on dividends if at least 25% ofseparate the capital is owned by company (otherprovision than a partnership); in any other case

10%.

72. Tanzania 5%/10% 10% [Note 4] 10% No 5% tax on dividends if at least 25% ofseparate the shares are beneficially owned byprovision company; in any other case 10%.

73. Thailand 15% / 20% 25% / 10% 15% No 1. 15% tax on dividends if at least 10%[Note 4] separate of the voting shares are owned by

provision payee company and the payer is anindustrial company, 20% if payercompany is an industrial companyor the payee company owns at least25% of the voting shares; and in anyother case as per the domestic lawsof the payer company.

2. Interest taxable at 10% if recipient isany FI including an insurance company; in any other case 25%.

74. Trinidad and 10% 10% [Note 4] 10% 10%Tobago

75. Turkey 15% 10%/15% 15% 15% Interest is taxable at 10% if recipient is[Note 4] bank, insurance company or similar

FI in any other case 15%.

76. Turkmenistan 10% 10% [Note 4] 10% 10%

77. Uganda 10% 10% [Note 4] 10% 10%

78. Ukraine 10% / 15% 10% [Note 4] 10% 10% 10% tax on dividends if at least 25% of the capital is owned by company (other than a partnership); in any other case 15%.

79. United Arab 10% 5% / 12.5% 10% No Interest taxable at 5% if recipient isEmirates [Note 4] separate bank or similar financial institution; in

provision any other case 12.5%.

80. United Arab As per As per Taxable in NoRepublic (Egypt) domestic law domestic law source separate

country as provisionper

domestic tax rate

81. United Kingdom 15% / 10% 15% / 10% Note 5 Note 5 1. Interest taxable at 10% if recipient is[Note 4] bank; in any other case 15%.

2. Dividend taxable at 15% wheredividend is paid out of incomederived directly or indirectly fromimmovable property; in other case10%.


Sr.No.




82. United Mexican 10% 10% 10% 10%States [Note 4]

83. United States of 15% / 25% 10% / 15% Note 5 Note 5 1. 15% tax on dividends if at least 10%America [Note 4] of the voting stock is owned by

company; in any other case 25%.2. Interest taxable at 10% if recipient is

bonafide bank or FI including aninsurance company; in any othercase15%.

84. Uruguay 5% 10%[Note 4] 10% 10%

85. Uzbekistan 15%[10%] 15%[10%] 15%[10%] 15%[10%] 1. Rates provided in bracket are[Note 4] applicable from FY 2013-14.

2. Interest received from transactionapproved by source country’sgovernment will be exempt. In anyother case, normal provisions ofdomestic law will apply.

86. Vietnam 10% 10% 10% 10%[Note 4]

87. Zambia 5% / 15% 10% 10% 10% 1. 5% tax on dividends if at least 25%[Note 4] of the shares are owned by company

during a period of 6 months immediately preceding the date of payment of dividend; in any other case 15%.

New DTAAs signed but not yet notified

88. Colombia 5% 10% 10% No Press release dated 13 May 2011.


Notes:

1. As per section 115-O of the IT Act, subject to certain exceptions, any amount declared,

distributed or paid by a domestic company by way of dividend shall be chargeable to DDT

@ 16.995% which further needs to be grossed up. In such cases, dividend distributed (which is

subject to DDT) is not subject to any withholding tax and is tax exempt in the hands of the

recipient shareholders in India. The rates mentioned in the Table are applicable to dividend other

than the dividend declared, distributed or paid by Indian companies on which DDT is applicable.

[Such as deemed dividend under Section 2(22)(e) of the IT Act.]

2. Unless otherwise provided in the DTAA, both the States have right to tax.

3. With effect from FY 2013-14, the rate of tax under the IT Act on Royalty and/or FTS receivable by

a non-resident is increased to 25% (plus applicable Surcharge and Education Cess) by the

Finance Act, 2013. As per section 90(2) of the IT Act, tax rate as per the provisions of DTAA or

the IT Act, whichever is beneficial to the assessee, shall apply. For availing the benefit of DTAA,

furnishing of TRC and self declaration in Form 10F by the payee shall be mandatory.

4. Interest derived and beneficially owned by the Government, a political sub-division or a local

authority or certain institutions like the RBI or Central Bank of other State or any other institution

as may be agreed upon is exempt from taxation in the country of source.

5. Tax rate is 10% in case of Royalties for equipment rental and fees for services ancillary or

subsidiary thereto. For other cases, the tax rate is 15%. However, for first 5 years of the

agreement, the rate is 20% in case of payer other than Government or specified institution and

15% for the subsequent years.

6. In case, the payee is not able to furnish his PAN to the payer, tax shall be deducted at the higher

of the following rates (i) rate specified in the relevant provisions of the IT Act or (ii) at the rate or

rates in force or (iii) at the rate of 20%.


CHAPTER 11 : TDS RATES(As updated up to the Finance (No. 2) Bill, 2014)

In this chapter, we have compiled the

relevant provisions of TDS relating to

r e s i d e n t s a n d n o n - r e s i d e n t s ,

incorporating herein the nature of

payment, threshold limits for tax

deduction and the applicable rates of

TDS for different classes of recipients.

Sr.No.

Nature of Payment Section Proposedthreshold for

deduction w.e.f.1 April 2014

Rate atwhich Tax

is to bededucted[Note 1]

Existing thresholdfor deduction

Proposedrate at

which Taxis to be

deducted

89

1. Salary 192 As per slab rates prescribed for senior citizens (includes very senior citizens) and other individuals.

2a. Interest other than 194A Payment in excess of 10% Payment in excess of 10%interest on securities Rs. 5,000 / Rs. 10,000 Rs. 5,000 / Rs. 10,000[Notes 2 and 3] p.a. p.a.

2b. Interest on Securities 194A Payment in excess of 10% 10%including listed Rs. 5,000 for interestdebentures on debentures

Payment in excess of Rs. 10,000 for interest

on 8% savings(Taxable) Bonds,

2003

3. Winnings from lottery or 194B Payment in excess 30% Payment in excess 30%crossword puzzle or of Rs. 10,000 of Rs. 10,000card game or other game

4. Winnings from 194BB Payment in excess 30% Payment in excess 30%horse race of Rs. 5,000 of Rs. 5,000

5. Payments to 194C Payment in excess of 2% (1% for Payment in excess of 2% (1% forcontractors Rs. 30,000 per contract individual Rs. 30,000 per contract individual[Note 3 and 4] or Rs. 75,000 p.a. in and HUFs) or Rs. 75,000 p.a. in and

aggregate aggregate HUFs)

6. Insurance commission 194D Payment in excess 10% Payment in excess 10%of Rs. 20,000 of Rs. 20,000

7. Commission or 194H Payment in excess 10% Payment in excess 10%brokerage [Note 3] of Rs. 5,000 p.a. of Rs. 5,000 p.a.

8. Payment to non-resident 194E No threshold 20% No threshold 20%sportsmen / entertainer /sports association

9. Payment in respect of 194EE Payment in excess of 20% Payment in excess 20%deposits under National Rs. 20,000 Rs. 20,000Savings Scheme, 1987



Sr.No.

Nature of Payment Section Proposedthreshold for

deduction w.e.f.1 April 2014

Rate atwhich Tax

is to bededucted[Note 1]

Existing thresholdfor deduction

Proposedrate at

which Taxis to be

deducted

10a. Rent of Land / Building / 194IFurniture or fitting [Note3] of Rs. 1,80,000 p.a. of Rs. 1,80,000 p.a.

10b. Rent of Plant, Machinery 194I Payment in excess 2% Payment in excess 2%or Equipment [Note 3] of Rs. 1,80,000 p.a. of Rs. 1,80,000 p.a.

11. Fees for professional and 194J Payment in excess 10% Payment in excess 10%technical services / of Rs. 30,000 p.a. of Rs. 30,000 p.a.royalty / remuneration toDirector other than salary[Notes 3 and 5]

12. Payment / credit of 194IA Property in excess of 1% Payment in excess 1%consideration to a Rs. 50,00,000 of Rs. 50,00,000resident transferor of anyimmovable property

13. Payment to non-resident 195 As per the rate in force or rate specified in the relevant DTAAs,of sum chargeable to tax whichever is beneficial [Note 6]in India

Payment in excess 10% Payment in excess 10%

Notes:

1. Higher TDS rate of 20% for not furnishing correct PAN: In case the payee is not able to furnish his / her PAN to the payer, tax shall be deducted w.e.f. 1 April 2010 at higher of the rates specified in the relevant provision of the IT Act or the rates in force or 20%.

2. Under section 194A of the IT Act, the threshold limit is Rs.10,000 where the payer is a banking company or a co-operative society engaged in banking business, or in case of deposits with post office under a scheme notified by Central Government and Rs. 5,000 in any other cases. Further, tax is not to be deducted, if the payee furnishes to the payer a declaration in writing in duplicate in Form No.15G or 15H, as the case may be.

3. An individual or HUF is not liable to deduct tax. However, an individual or HUF, who is liable to tax audit under section 44AB during the financial year immediately preceding the financial year in which sum is credited or paid, shall be liable to deduct tax under sections 194A, 194C, 194H, 194I and 194J, as the case may be.

4. No tax is required to be deducted at source on credit or payment of transport charges, if the transporter furnishes a valid PAN.

5. Tax is required to be deducted on remuneration paid to a director which is not in the nature of salary.

6. For the purpose of claiming DTAA benefit, the payee shall furnish PAN as per provisions of section 206AA and also a valid Tax Residency Certificate (TRC) from its resident country and self declaration in Form No. 10F.

7. As per CBDT circular no. 1 of 2014 dated 13 January 2014, it has been clarified that a payer shall not be required to deduct TDS on service tax component wherever in terms of the agreement between the payer and payee, the service tax component comprised in the amount payable to a resident payee is indicated separately.


CHAPTER 12 : DIRECT TAX AND SERVICE TAX COMPLIANCE CALENDAR(As updated up to the Finance (No. 2) Bill, 2014)

In this chapter, we have provided an overview of the various direct tax and service tax compliances from the perspective of a Company, Partnership Firm (including LLP), Individual and HUF.

91

I. Due dates for filing of Return of Income (‘ROI’), Return of Wealth and Transfer Pricing (Notes 1 and 2)

Person covered under tax audit(other than those to whom transfer pricing is applicable)

Person covered under transfer pricing 30 November

Other persons 30 September 31 July 31 July (Note 2)

II. Advance Tax Payments for Income Tax (Note 3)

1st Installment - on or before 15 June 15% Not Applicable Not Applicable

2nd Installment - on or before 15 September 45% 30% 30%

3rd Installment - on or before 15 December 75% 60% 60%

4th Installment – on or before 15 March 100% 100% 100%

III. Tax Deducted at Source (‘TDS’)

Tax must be deducted at the time of payment,in case of salary

In case of payments other than salary, at the timeof making payment or credit, whichever is earlier

Tax deducted must be deposited in the bank by 7th dayof following month except tax deducted for paymentor credit made in March must be deposited by 30 April

IV. Tax Collected at Source (‘TCS’)

Tax must be collected at the time of receipt or debit,whichever is earlier

Tax collected must be deposited within one week fromthe last day of the month in which the collection is made.

V. Due dates for filing of TDS / TCS Returns

For quarter ended June 15 July

For quarter ended September 15 October

For quarter ended December 15 January

For quarter ended March 15 May

VI. Due dates for issue of Form 16 (for Salaries) / Form 16A (for other than Salaries) and Form 27D (For TCS)(Note 4)

Issue of Form 16 annually 31 May

Issue of Form 16A / 27D for quarter ended June 30 July

Issue of Form 16A / 27D for quarter ended September 30 October

Issue of Form 16A / 27D for quarter ended December 30 January

Issue of Form 16A / 27D for quarter ended March 30 May

(‘ROW’), obtaining Tax Audit Report

30 September

Nature of Compliances Company PartnershipFirm / LLP

Individualand HUF

Person

person is covered Applicable under tax audit

in the precedingprevious year

Applicable, only if

person is covered Applicable under tax audit

in the precedingprevious year

Applicable, only if


DIRECT TAX COMPLIANCE CALENDAR



VII. Due date of submission of Statement under section 285 of the IT Act

Non-resident having liaison office in India to Within 60 daysfile statement in Form 49C from the end of financial year

VIII. Due date for filing Statement under section 285BA of the IT Act

Specified persons to furnish Statement in respect of 31 Augustspecified financial transactions

IX. Due dates for filing of appeals before the income-tax appellate authorities

Objections before the Dispute Resolution Panel Within 30 days from the receiptof the draft assessment order

Appeal to the Commissioner of Income-tax (Appeals) Within 30 days from the date of service of notice of demand or the relevant order sought to be

appealed against

Appeal to the Income-tax Appellate Tribunal (Note 5) Within 60 days from the date on which order sought to be appealed against is communicated

Nature of Compliances Company PartnershipFirm / LLP

Individualand HUF

Person

Notes:

1 Only Companies, Individuals and HUFs are required to file ROW.

2. In case of working partner of a partnership firm, whose accounts are required to be audited under section 44AB of the IT Act, the date of filing of ROI is 30 September.

3. Advance tax payment for income-tax is applicable to every person where the amount of income-tax payable is Rs.10,000 or more.

4. Every person, being a non-resident having Liaison Office in India shall, in respect of its activities in a financial year, file a statement in Form No. 49C within 60 days from the end of the financial year i.e. 30 May to the Assessing Officer.

5. Memorandum of cross objection is to be filed within 30 days from the receipt of notice intimating that the appeal has been preferred before the Tribunal, against any part of the order under appeal, if required.

6. Dividend Distribution Tax under section 115O of the IT Act must be paid within 14 days from the date of declaration, distribution, or payment of dividend, whichever is earlier.


Due date for payment of Service Tax1For Individual, partnership firm and LLP By 6th of the following month for every quarter

1For Others (Companies, Trusts, HUF, AOP, Societies, etc.) By 6th of the following month for every month

Interest on late payment of Service Tax

Gross Value of taxable services in preceding FY is 18% p.a. - first 6 months2Rs. 60,00,000 or above 24% p.a. - delay beyond 6 months up to 1 year

30% p.a. - delay beyond 1 year

Filing of Service Tax returns3April to September 25 October

4October to March 25 April5Late fees for delay in filing of returns

For delay up to 15 days Rs. 500

For delay beyond 15 days up to 30 days Rs. 1,0006For delay beyond 30 days Rs. 1,000 + Rs. 100 per day

Due date for filing of appeal

Appeal to be filed before Commissioner of Central Within 2 months from date of receipt of the order. TheExcise (Appeals) against order of adjudication authority Commissioner of Central Excise (Appeals) has thesubordinate to Commissioner of Central Excise power to condone delay in filing of appeal for a further

period of one month provided sufficient cause is shownfor non-filing the appeal within stipulated period of 2months.

Appeal to be filed before Customs, Excise and Service Within 3 months from date of receipt of the order.Tax Appellate Tribunal (CESTAT) against order of CESTAT has powers to condone the delay in filing ofCommissioner of Central Excise or Commissioner of appeal if it is satisfied that there was sufficient cause forCentral Excise (Appeals) not presenting the appeal within the stipulated period.


ParticularsDue dates/quantum of

interest and late filing fees

Notes:

1. The due date for payment of Service Tax for the month or quarter ended on 31 March is 31 March itself.

2. For Service provider having turnover below Rs. 60,00,000 in the preceding financial year, the specified rate shall be reduced by 3%.

3. The due date for filing of Service Tax returns for the period April to September for Input Service Distributor is 30 October.

4. The due date for filing of Service Tax returns for the period October to March for Input Service Distributor is 30 April.

5. In case Service Tax is NIL, the authority may waive the late filing fees on being satisfied that there is sufficient reason for not filing the return.

6. Maximum late filing fees shall not exceed Rs. 20,000

7 . The following categories of person must mandatorily obtain Service Tax Registration and comply with the provisions:lEvery person liable to pay Service Tax;lAn Input Service Distributor;lEvery provider of Taxable Service whose aggregate value of taxable service

in financial year exceeds Rs. 9,00,000.

SERVICE TAX COMPLIANCE CALENDAR



AAI Airports Authority of IndiaAAR Authority for Advance RulingADR American Depository ReceiptAE Associated EnterpriseALP Arm’s Length PriceAMT Alternate Minimum TaxAO Assessing OfficerAOP Association of PersonsAPA Advance Pricing AgreementAY Assessment YearBCD Basic Customs DutyBhDR Bharat Depository ReceiptBOI Body of IndividualsBSE Bombay Stock ExchangeCAGR Compounded Average Growth Rate CBDT Central Board of Direct TaxesCBEC Central Board of Excise and CustomCIF Cost Insurance and Freight CCR Cenvat Credit RulesCIT Commissioner of Income TaxCPI Consumer Price IndexCRR Cash Reserve RatioCSR Corporate Social ResponsibilityCTT Commodities Transaction TaxCVD Additional Duty of Customs levied under

section 3(1) of the Customs Tariff Act, 1975DDT Dividend Distribution TaxDIPP Department of Industrial Policy and

PromotionDRP Dispute Resolution PanelDSIR Department of Scientific & Industrial

ResearchDTA Domestic Tariff AreaDTC Direct Taxes Code DTAA Double Taxation Avoidance AgreementECB External Commercial BorrowingEOU Export Oriented UnitFC Factor CostFDI Foreign Direct InvestmentFI Financial InstitutionsFII F o r e i g n I n s t i t u t i o n a l I n v e s t o r s /

Foreign Institutional InvestmentsFIPB Foreign Investment Promotion BoardFTS Fees for Technical ServicesFTZ Free Trade ZoneFY Financial YearGAAR General Anti Avoidance RulesGDP Gross Domestic ProductGDR Global Depository ReceiptGJEPC Gems and Jewellery Export Promotion

CouncilGST Goods and Services TaxHUF Hindu Undivided FamilyIDR Indian Depository ReceiptIIM Indian Institute of ManagementIIT Indian Institute of TechnologyIPO Initial Public OfferIT Information TechnologyITeS Information Technology enabled ServicesIT Act Income-tax Act, 1961

ABBREVIATIONSITAT Income Tax Appellate TribunalJNPT Jawaharlal Nehru Port TrustKYC Know Your Customer Guidelines LLP Limited Liability PartnershipMFN Most Favoured NationMRP Maximum Retail Sale PriceMMR Maximum Marginal RateMAT Minimum Alternate TaxMRO Maintenance Repair and OverhaulMSME Micro, Small and Medium Enterprises NABARD National Bank for Agriculture and Rural

DevelopmentNASSCOM The National Association of Software and

Services CompaniesNCCD National Calamity Contingent DutyNGO Non-Government OrganisationNHAI National Highway Authority of IndiaNRI Non-Resident IndianOCB Overseas Corporate BodiesPAN Permanent Account NumberPIO Person of Indian OriginPPP Public Private PartnershipPSU Public Sector UndertakingQIB Qualified Institutional BuyerR&D Research and DevelopmentRBI Reserve Bank of IndiaRECL Rural Electrification

Corporation LimitedREIT Real Estate Investment TrustROI Return of IncomeROW Return of WealthRSP Retail Sale PriceSAD Special Additional Duty of Customs

l e v i e d u n d e r s u b - s e c t i o n ( 5 ) o fsection 3 of the Customs Tariff Act, 1975

SDT Specified Domestic TransactionSEBI Securit ies and Exchange Board of

IndiaSEZ Special Economic ZoneSLR Statutory Liquidity RatioSME Small and Medium EnterprisesSOP Self-Occupied PropertySPV Special Purpose VehicleSUV Sports Utility VehicleSSI Small Scale IndustriesTCS Tax Collected at SourceTDS Tax Deducted at SourceTP Transfer PricingTPO Transfer Pricing OfficerTRC Tax Residency CertificateULIP Unit Linked Insurance PolicyUMPP Ultra Mega Power ProjectsVAT Value Added TaxVCC Venture Capital CompanyVCF Venture Capital FundVCU Venture Capital UndertakingWDV Written Down Valuew.e.f. with effect fromWPI Wholesale Price IndexWT Act Wealth Tax Act, 1957

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India Budget 2014-Highlights (1)

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