Tax Proposals and Impact Analysis

Capital

Education

Advisory

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Direct Tax Decoded…3

Impact on Individuals…

Major Contributors < 60 years 60< x < 80 years > 80 Years

Basic Exemption Limit 250,000 300,000 500,000

Housing Loan Interest 200,000 200,000 200,000

80C Deduction (Life Insurance, PPF, Housing

Loan Principal repayment, etc.)

150,000 150,000 150,000

Medical Insurance premium - 20,000 20,000

Specified Medical Expenses 40,000 60,000 60,000

Total Tax Savings 640,000 710,000 930,000

Threshold in respect of TDS @ 2% on Life Insurance policy maturity is increased to INR 100,000/- to

avoid tax refund hassles on smaller amount of claims.

Trading in commodity derivatives is not a speculative transaction only if it is chargeable to

Commodity transaction Tax.

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Impact on Business Environment…

Applicability of Alternate Minimum Tax (AMT) to non- corporate entities claiming Sec. 35AD

“Investment linked” deduction.

Concessional rate of withholding tax of 5% on interest on overseas Fresh long term borrowings

(not applicable to restructured loans (such as Buyers credit)) including any sectorial bond.

Disallowance of expenditure for non- deduction of taxes:

Disallowance on non- payment of tax at source on any payments made to non- residents to

be restricted to 30% from 100% of the amount of expenditure claimed.

Expenditure on salaries and director fees are also liable for aforesaid disallowance, which was

not prevailing earlier.5

Legislative provisions…

Good measures:

Any amendments cannot be introduced retrospectively.

Advance Ruling to apply to all resident tax payers. The

Authority for Advance rulings (AAR) to be strengthened

by constituting additional benches.

The scope of Settlement Commission to be enlarged to

ensure smooth settlement of disputes.

The Government to set up a High Level Committee to

interact with trade and industry on regular basis to

strengthen tax administration.

Tough measures:

Non compliance of any scrutiny related notice shall

attract imprisonment up to 1 year as well as fine.

Transfer Pricing officer is entrusted with power to levy

penalty @ 2% of Transaction Value, in case of

inadequate documentation.

A person will now be treated as ‘defaulter’ from the date

he fails to report correct TDS statement.

TDS Authority now has power to survey the books and

records of the assessee but has no right of seizure.

6Focus : Less Government More Governance

Impact on Corporates…

Dividend Distribution Tax:

Grossing up of Dividend Distribution Tax (DDT)- The example illustrates the impact:

Corporate Social Responsibility:

• CSR expenditure as per requirement of Companies Act, 2013 cannot be allowed under the

existing provisions of IT Act unless that is incurred in relation to business.

• In case, CSR expenditure is incurred for non- business purposes as donation to charitable

trust, deduction u/s 80G is permissible with conditions.

Particulars Pre Amendment Post Amendment

(Grossing up)

Amount of Income distributed INR 100 INR 100

Tax on distributed income @ 16.995%

(including surcharge and education cess)

INR 16.995 INR 20.47

[100*17/100] [100/0.83005*0.16995]

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Impact on Corporates…

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Investment linked Tax soaps:

• To encourage investment in SME manufacturing sector, an additional deduction of 15% in

respect of new assets acquired and installed in aggregate of INR 25 crores during the year

shall be allowed over and above depreciation leading to GDP growth for Government as

well as Tax soap for Manufacturing Industry.

• Sunset date for tax holiday in power sector extended up to 31st March, 2017 with a view to

give Tax soaps for confirmed period of two additional years.

Any loss incurred by a company engaged in business of trading of shares shall be treated as

trading loss and not speculation loss.

Capital gains major implications…

Advance forfeiture:

• Forfeiture of advances towards transfer of capital asset to be taxable as ‘Income from other

sources’ leading to cash outflow in the year of forfeiture.

• Consequently, no reduction in cost to be claimed by the transferor while actual sale of the

capital asset. such move will impact the Real Estate re-sale deals to large extent.

Long term Gain on transfer of a residential house property/ other capital asset:

• Exemption from long term capital gains on transfer of any capital asset by acquisition/

construction of a new residential house property will be restricted to one residential house

property only.

• Adjoining properties having common facilities shall be treated as one property.

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Capital asset - Holding period conditions…

Type of capital asset Holding

Period

Tax Rate (with

Indexation)

Tax Rate

(without

Indexation)

Listed Equity Shares/ Equity Oriented Mutual Funds

• Long Term > 12 months Nil (*)/ 20% Nil (*)/ 10%

• Short Term < 12 months NA 15% (*)/ 30%

Unlisted Equity Shares/ Non- Equity Oriented Mutual

Funds

• Long Term > 36 months 20% NA

• Short Term < 36 months NA 30%

(*) Indicates rate in case of transactions on which Security Transaction Tax (STT) is paid10

Type of capital asset Holding

Period

Tax Rate (with

Indexation)

Tax Rate

(without

Indexation)

Listed Debentures and other securities (#)

• Long Term > 12 months 20% 10%

• Short Term < 12 months NA 30%

Unlisted Debentures and other securities (#)

• Long Term > 36 months 20% NA

• Short Term < 36 months NA 30%

(#) Other securities includes preference shares and other debt instruments like corporate bonds, T-

Bills, liquid funds. 11

Capital asset - Holding period conditions…

Impact on Charitable Trust Entities…

Rationalization of tax regime in case of charitable trust, institutions.

Deemed registration granted to a trust or institution for period between date of settlement and

date of Registration for Charity with IT Dept. Consequently, IT exemption permitted.

Mechanism to levy tax on certain assesses being universities, charitable organization, etc.

receiving anonymous donations. The tax payable in such cases is aggregate of :

• Tax calculated at 30% on the aggregate anonymous donations received in excess of higher of:

o 5% of totals donations received; or

o INR 100,000.

• Tax on balance taxable income at slab rates applicable to Individual. 12

Key Implications on International transactions...

Any transaction between an associated enterprise and any other person, whether resident or

not, if terms of transaction governed between Indian Assessee and Associated Enterprise – to be

treated as Deemed International Transaction and shall be subject to transfer pricing.

Multiple year data is now permitted to be used for benchmarking instead of one year’s.

Inter- quartile range is now proposed for benchmarking instead of arithmetic mean.

A roll back provision for Advance Pricing Agreement (APA) (i.e. applicability of the futuristic

methodology of determination of Arm’s length price) applicable for past 4 preceding financial

years.

Concessional rate of 15% tax continued for dividend income from foreign subsidiaries.13

Indirect Tax Decoded…14

Overview…

Introduction of Goods and Service Tax (GST) to be given thrust by consolidating State Level Value

Added Taxes, Central Sales Tax, Excise Laws and Service Tax law.

Need for ‘Centralised Agency’ to be prescribed to whom information return to be filed by all Tax

authorities including State level authorities, State Electricity Boards and Registrar of Companies.

The objective is to identify tax evaders and recover the confirmed dues with imposition of penalty.

Initiative intended to reduce corruption.

Local Body Tax / Local Panchayat Tax/ Entry tax to be ruled out with introduction of GST.

Mandatory compliance through ‘e-commerce’ including ‘e- payment’ by all the assesses.

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Service tax and Excise…

Service provided by Director to body corporate brought under reverse charge mechanism.

Re- credit of CENVAT allowed if export proceeds are received within one year from the end of the

specified period.

Variable interest rates (18% to 30%) to be applicable for delay in payment of service tax (w. e. f.

1st October, 2014).

Time limit for taking CENVAT credit on inputs and input services shall be six months from date of

invoice or challan.

Point of taxation on reverse charge to be amended to be the date of payment or the date

subsequent to end of 3 months from the date of invoice, whichever is earlier. (w. e. f. 1st October,

2014).

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Customs…

‘Indian Customs Single Window Project’ to facilitate trade to be implemented.

Application for refund of Custom Duties shall be made within period of 6 months.

‘Safeguard duties’ imposed on raw material/ inputs imported by SEZ and cleared into DTA as such

or after processing.

On failure to pay custom duty within a period of one month from the due date, penalty is

payable at the rate of 1% of the duty not paid for each month. Thrust is to reduce Demurage and

increase quick disposal of cargo from ports.

Increase in basic customs duty on imported flat-rolled products of stainless steel from 5 per cent to

7.5 per cent. 17

Implication of amendment in indirect tax on living cost

These items might pinch your Pocket !

•Cigarettes and cigars

•Pan masala

•Soft drinks

•Diamonds

• Imported stainless steel

•Recorded smart cards

• Imported specified telecom products

What just got cheaper ?

• LCD, LED, TV Panels < 18 inches

•Garments

•Precious and semi precious stones

• Imported groundnut and sunflower oil cakes.

•Personal computers, laptops, tablets.

•Soaps

•Branded petrol

• LED lights/ lamps.

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Sectoral impact 19

Real estate – Budget impact

INR 7,060 crore provided in 2014-15 for development of 100 smart cities

Mission on Low Cost Affordable Housing anchored in the NHB to be set up.

National Housing Bank allocated INR 8,000 crore and INR 4,000 crore to support rural housing and

urban affordable housing respectively.

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Real estate – Investment Sentiments

Built-up area and minimum capitalisation requirements for FDI in the real estate sector proposed to

be reduced from 50,000 sq meters to 20,000 sq meters, and from USD10 million to USD5 million

respectively, with a three year post completion lock in.

To promote FDI in affordable housing, projects committing at least 30 per cent of the total project

cost for affordable housing to be exempted from minimum built-up area and capitalisation

requirements, with the condition of three year lock-in.

Effective steps to revive SEZs

Slum development included in the list of corporate social responsibility activities.

Real Estate and Construction Industries to be affected positively.21

Real estate – Tax proposals

Deduction of home loan interest on self-occupied property, and home loan repayment increased

from INR1,50,000 to INR2,00,000.

Pass-through taxation regime for REIT (Real Estate Investment Trust) is proposed.

Profit from the activities of affordable housing and slum rehabilitation projects proposed to be

charged to Alternate Minimum Tax (AMT) in non-company assesses.

Service tax would be applicable on 70 per cent of the total amount charged for the contract, in

case of all works contracts other than contracts qualifying as ‘original works’ (effective from 01

October, 2014).

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Infrastructure – Need

Vision of the Government is that 500 urban habitations to be provided support for renewal of

infrastructure and services in next 10 years through PPPs.

Work on select expressways in parallel to the development of the Industrial Corridors will be

initiated

Target of NH construction of 8500 km will be achieved in current financial year.

An institution to provide support to mainstreaming PPPPs called 4P India to be setup with a

corpus of Rs.500 crores.

New Airports: Scheme for development of new airports in Tier I and Tier II cities to be launched.

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Infrastructure – Budget impact

An investment of an amount of INR 37,880 crores in NHAI and State Road is proposed which

includes INR 3,000 crores for the North East.

Present corpus of Pooled Municipal Debt Obligation Facility to be enlarged to INR 50,000 crore

from INR 5,000 crore.

INR100 crore allocated for setting up the National Industrial Corridor Authority, along with

expediting master planning of several industrial corridor and smart cities.

For project of parallel express ways to National corridor preparation, NHAI shall set aside a sum of

INR 500 crore.

National Banks allowed to raise long term funds for lending to the Infrastructure sector with

minimum regulatory obligations such as CRR, SLR and PSL.24

Infrastructure – Tax proposal

Income Tax holidays on Infrastructure projects continued.

Scope of Investment linked deduction widened.

Pass-through taxation regime for InvIT (Infrastructure Investment Trust) is proposed.

Service tax would be applicable on 70 per cent of the total amount charged for the contract, in

case of all works contracts other than contracts qualifying as ‘original works’ (effective from 01

October, 2014).

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Renewable Energy – Budget impact

Rs 500 crores provided for Ultra Mega Solar Power Projects in select states.

A Green Energy Corridor Project is being implemented to facilitate evacuation of renewable

energy across the country.

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Renewable Energy – Tax Proposals

Concessional basic customs duty of 5 per cent extended to machinery and equipment required

for setting up of a project for solar energy production.

Specified inputs for use in the manufacture of EVA sheets and back sheets and flat copper wire

for the manufacture of PV ribbons exempted from basic customs duty.

Reduction in basic customs duty & SAD on selected parts and raw materials used in the

manufacture of wind operated generators.

Concessional basic customs duty of 5 per cent and exemption of Excise Duty on machinery and

equipment required for setting up of compressed biogas plants.

Increase of import duty on coal to fuel domestic coal supply company may force many

organisations to convert from conventional energy to renewable energy.

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FMCG and Manufacturing – Budget impact

The biggest impact on FMCG companies will be because of increased personal savings due to

changes in income tax exemptions.

Technology driven second green revolution with focus on higher productivity and including

‘Protein Revolution’ will be area of major focus.

Sustained infrastructure thrust to stimulate steel demand as well as metal demand. It would also

be good news for capital goods sector.

Positive implication for manufacturing sector as increase of custom duties on imported flat rolled

products of stainless steel discourage imports and encourage domestic productions.

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FMCG and Manufacturing – Tax proposals

SME manufacturing sector to get additional Tax soaps in respect of investment in Machineries in

excess of INR 25 Crores.

10 year tax holiday extended to power utilities.

Export duty on bauxite increased from 10 per cent to 20 per cent.

Basic Customs Duty on some stainless steel flat products is being increased 5 per cent to 7.5 per

cent.

Basic Excise Duty on machinery for preparation of fruits, nuts or vegetables, poultry, meat etc.

reduced from 10 per cent to 6 per cent.

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Thank You….CA Samir Sanghvi | CA Vishal Thakkar

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Specified sectors u/s 35AD of IT Act

Cold chain facility

Warehousing facility for storage of agricultural produce including sugar

New hotel of two-star or above category, anywhere in India

New hospital with at least one hundred beds for patients, anywhere in India

Housing project under a scheme for slum redevelopment or rehabilitation

Housing project under a scheme for affordable housing project.

Production of fertilizer in India.

Inland Container Depot or a Container Freight Station

Bee Keeping and production of honey and beeswax.

Slurry pipeline for transportation of iron ore 32

Real estate investment trust (REIT) &

Infrastructure investment trust (INVITS):

Any LTCG arising from trading of the listed units of a business trust on a recognized SE shall be exempt on

payment of STT.

In case of overseas borrowings in foreign currency by the business trust, benefit of reduced rate of 5% tax on

interest payments to non- resident lenders shall be available.

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.

The income by way of capital gains on disposal of assets by the trust shall be taxable in the hands of the trust,

and there are certain other such provisions to which this is subject.

Any other income of the business trust taxable in its hands at maximum marginal rate, and exempt in the

hands of unit holders

The business trust is required to furnish its return of income.

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