UNION BUDGET 2014-15
Direct Taxes
1. No change in corporate tax rate.
2. No change in surcharge for all taxpayers
3. Education cess remains same for all taxpayers.
4. Insertion of new clause with effect from 01.10.2014 section 2(13A)– Business Trust: Business trust mean a trust registered as a Infrastructure Investment Trust or a Real Estate Investment Trust, the units which are required to be listed on a recognized stock exchange, in accordance with SEBI regulations.
Tax implications for the above trusts transactions:
1. Transfer of a capital asset, being a share of a special purpose vehicle to a business trust in exchange of units allotted by the trust to the transferor shall not amount to transfer w.e.f. 01.10.2014 under section 47(xvii) of the IT Act.
2. Income by way of interest received or receivable from a special purpose Vehicle (SPV) is exempt under section 10(23FC).
SPV means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which trust is granted registration.
1. Total income of a business trust shall be charged to tax at the maximum marginal rate.
2. Any distributed income received by a unit holder from the business trust shall be deemed to be income of such unit holder and shall be exempted under section 10 (23FD).
3. Business trust shall furnish a statement to the unit holder and the prescribed authority within such time and in such form giving the details of the nature of the income paid during the previous year.
Amendment to Section 2(14) - Capital asset includes any securities held by a Foreign Institutional Investors in accordance with SEBI regulations. Income arising from foreign portfolio investor (FPIs) investments will be treated as capital gain income and accordingly chargeable to income tax.
Proposes deduction of capital expenditure on specified business under section 35AD: Two new business segments are notified to extend the investment linked deduction to two new sectors, namely,
1. slurry pipelines for the transportation of iron ore, and
2. setting up and semi-conductor wafer fabrication manufacturing units.
Amendment industrial undertakings under Section 80IA: Tax holiday deduction has been extended upto 31.03.2017 for supply of power generation, distribution and transmission of power.
Amendment to Dividend Distribution Tax under section 115O and 115R: Grossing up dividend for computing dividend distribution tax with effect from 01.10.2014. An hypothetical example is as below;
Dividend amount distributed Rs. 85
Grossing up = [Dividend distributed amount x Dividend tax rate]/1-dividend distributed tax rate
Dividend distributed tax rate = 15% or 0.15
Increased amount = [(Rs. 85X0.15)/1-0.15]= Rs100
Dividend distributed tax = Rs. 100X0.15= Rs.15
Dividend distributed to share holders = Rs. 100-15=Rs. 85
Insertion of new section 194DA: Any person responsible for paying to a resident any sum under life insurance policy shall deduct income tax at the rate of two percent if the payment exceeds one lakhs.
Insertion of new section 194LBA: Any income distributed by business trust to its unit holder being a resident, the business trust shall deduct income tax thereon at the rate of ten percent. In case of non-resident deduct income tax at the rate of five percent
Amendment to section 194LC: Extended the withholding tax rate 5% on eligible borrowings in foreign currency upto 30.06.2017. Further, extended the limit to all types of bonds instead of only infrastructure bonds.
Transfer Pricing: In order to reduce litigation on transfer pricing issues, the following proposals have been made;
(1) An Advance Pricing Agreement (APA) scheme was introduced in the year 2012. It has received good response. Further, proposed to introduce a “Roll Back” provision in the APA scheme so that an APA entered into for future transactions may also be applied to international transactions undertaken in previous four years in specified circumstances.
(2) To introduce range concept for determination of arm’s length price. However, the arithmetic mean concept will continue to apply where number of comparable is inadequate. The relevant data is under analysis and appropriate rules will be prescribed.
(3) Transfer Pricing Regulations have been proposed to allow use of multiple year data for determining ALP
Specified payments to residents: While computing income, if assessee failed to deduct and pay withholding tax only 30% is disallowed and not 100% of such payments. This is a positive amendment to all type of industries so as to claim the 70% expenditure as allowable expenditure while computing total taxable income of an assessee.
Direct tax code bill: The Government will also review the DTC in its present shape and take a view in the whole matter.
Others: Small taxpayers such as salaried employees, individuals, etc tax slabs have been amended. The revised tax slabs are below;
1. Personal income tax exemption limit increased by Rs. 50,000 i.e. from Rs. 2,00,000 to Rs. 2,50,000
2. Senior Citizens exemption limit increased further by 50,000 i.e. Rs. 2,50,000 to Rs. 3,00,000
3. Section 80C deduction increased to Rs. 1,50,000 from existing deduction limit Rs. 1,00,000
4. Self-Occupied property – deduction limit on interest on housing loan has been increased to Rs. 2,00,000 from Rs. 1,50,000.
Indirect Taxes
Customs
a. No change in basic custom duty
b. However, product based reduction has been proposed
The proposals are as below:
Basic Customs Duty reduced on the following items namely:
1. Fatty acids, crude palm stearin, RBD and other palm stearin, specified industrial grade crude oils from 7.5 percent to Nil for manufacture of soaps and oleo-chemicals;
2. Crude glycerin from 12.5 percent to 7.5 percent and crude glycerin used in the manufacture of soaps from 12.5 percent to Nil;
3. Steel grade limestone and steel grade dolomite from 5 percent to 2.5 percent;
4. Battery waste and battery scrap from 10 percent to 5 percent;
5. Coal tar pitch from 10 percent to 5 percent;
6. Specified inputs for manufacture of spandex yarn from 5 percent to Nil.
Chemical Industry: To reduce the basic customs duty on reformate from 10 percent to 2.5 percent on ethane, propane, ethylene, propylene, butadiene and ortho-xylene from 5 percent to 2.5 percent; on methyl alcohol and denatured ethyl alcohol from 7.5 percent to 5 percent; and on crude naphthalene from 10 percent to 5 percent.
To boost domestic production on electronics goods; the following incentives are proposed:
1. Levy basic customs duty at 10% on specified telecommunication products that are outside the purview of the Information Technology Agreement;
2. Exempt all inputs/components used in the manufacture of personal computers from 4 percent special additional duty (SAD);
3. To provide equal parity between domestic electronic products and imported electronic goods impose education cess on imported goods.
4. Exempt 4% SAD on PVC sheet and ribbon used for manufacture of smart cards.
Basic Customs duty exempted on Televisions:
1. Proposed to exempt basic customs duty exemption on colour picture tubes from basic customs duty
2. Proposed to reduce the basic customs duty on LCD and LED TV panels of below 19 inches from 10 percent to Nil.
3. Proposed to exempt basic customs on manufacture of LCD and LED TV panels on specified inputs used in their manufacture.
4. Increased basic custom duty on imported flat-rolled products of stainless steel from 5% to 7.5%.
5. Solar power projects: To boost domestic production in solar domestic manufacture- proposed to exempt basic customs duty on;
a. Specified inputs for use in the manufacture of EVA sheets and back sheets;
b. Flat copper wire for the manufacture of PV ribbons.
c. A concessional basic customs duty of 5 percent is also being extended to machinery and equipment required for setting up of a project for solar energy production.
6. On wind Energy: Proposed to reduce the basic customs duty from 10 percent to 5 percent on forged steel rings used in the manufacture of bearings of wind operated electricity generators. Also, proposed to exempt the SAD of 4 percent on parts and raw materials required for the manufacture of wind operated generators. Further, proposed to prescribe a concessional basic customs duty of 5 percent on machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).
Coal Industry: To rationalise the duty structure on all non-agglomerated coal at 2.5 percent basic customs duty and 2 percent CVD. Henceforth, anthracite coal, bituminous coal, coking coal, steam coal and other coal will attract the same duty.
2. The basic customs duty on metallurgical coke is being increased from Nil to 2.5 percent in line with the duty on coking coal.
To rationalise the duty on ship breaking scrap and melting scrap of iron or steel by reducing the basic customs duty on ships imported for breaking up from 5 percent to 2.5 percent.
The basic customs duty on semi-processed, half cut or broken diamonds, cut and polished diamonds and coloured gemstones is being rationalized at 2.5 percent. To encourage exports, pre-forms of precious and semi-precious stones are being fully exempted from basic customs duty.
Textile industry: Proposed to increase the duty free entitlement for import of trimmings, embellishments and other specified items from 3 percent to 5 percent of the value of their exports.
Increase the export duty on bauxite from 10 percent to 20 percent.
Baggage Rules: Propose to Increase the free baggage allowance from Rs. 35,000 to Rs. 45000
Tax Administrative aspects:
1. Faster clearance of import and export cargo reduces transaction costs and improves business competitiveness. To help achieve these objectives, measures are being initiated to extend the existing 24x7 customs clearance facility to 13 more airports in respect of all export goods and to 14 more sea ports in respect of specified import and export goods.
2. It is also proposed to implement an ‘Indian Customs Single Window Project’ to facilitate trade. Under this, importers and exporters would lodge their clearance documents at a single point only.
3. The scheme of Advance Ruling in indirect taxes is being expanded to cover resident private limited companies.
4. The scope of Settlement Commission is being enlarged to facilitate quick dispute resolution.
5. To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal.
Excise
a. Basic Excise duty remains same.
b. However on concession based exemption have been proposed on sector based, product based, etc. The details are as below;
Amendment to Central Excise Rules, 2002 vide notification number 19/2014- CE (N.T.) dated 11.07.2014
a. Every assessee shall electronically pay duty through internet banking from 01.10.2014
b. If the assess fail to pay the duty as declared in the return within the period of one month from the due date, then the assessee has to pay the penalty at the rate of 10% on such amount of duty not paid for each month or part thereof.
Amendment to CENVAT credit Rules, 2004 with vide notification Number 21/2014 – CE (N.T.), dated 11.07.2014
Rule 4 conditions for availing CENVAT credit;- has been amended by inserting following proviso
Provided also that manufacturer or the provider of output service shall not take CENVAT credit after six months of the date of issue of any of the documents as specified in sub-rule (1) of the Rule 9 i.e. invoice, challan supplementary invoice, bill of entry, etc. This is with effect from 01.09.2014
In sub – rule (7) the first and second proviso has been amended i.e. where the whole of the service tax is payable by the recipient of the service, credit shall be allowed after payment of service tax. i.e. whether invoice value has been paid or not credit can be allowed immediately upon payment of the service tax portion. However, in case of where partial reverse charge is applicable, CENVAT credit is allowed only upon payment of the invoice value plus service tax. This is with effect from 01.09.2014.
Footwear Industry: Propose to reduce the excise duty from 12 percent to 6 percent 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.
Proposed to withdraw the concessional excise duty (2 percent without Cenvat benefit and 6 percent with Cenvat benefit) on smart cards and levy a uniform excise duty at 12 percent. Consequently, imports will attract higher CVD.
Energy Industry: The following parts/products are exempted from basic excise duty
EVA sheets and solar back sheets and specified inputs used in their manufacture;
Solar tempered glass used in the manufacture of solar photovoltaic cells and modules;
Flat copper wire for the manufacture of PV ribbons for use in solar cells and modules;
Machinery and equipment required for setting up of a project for solar energy production;
Forged steel rings used in the manufacture of bearings of wind operated generators;
Machinery and equipment required for setting up of compressed biogas plants (Bio-CNG).
Proposed to levy prospectively a nominal duty of 2 percent without CENVAT benefit and 6 percent with CENVAT benefit on such PSF and PFY.
Proposed to prescribe a concessional excise duty of 2 percent without CENVAT benefit and 6 percent with CENVAT benefit on sports gloves.
Proposed higher rate of excise duty on uty on cigarettes in the range of 11 percent to 72 percent. Similar increases are proposed on cigars, cheroots and cigarillos. Likewise, the excise duty is being increased from 12 percent to 16 percent on pan masala, from 50 percent to 55 percent on unmanufactured tobacco and from 60 percent to 70 percent on gutkha and chewing tobacco. Further proposed to levy an additional duty of excise at 5 percent on aerated waters containing added sugar.
Clean Energy Cess has been increased from Rs. 50 per tonne to Rs. 100 per tonne which has been presently levied on coal, peat and lignite for the purposes of financing and promoting clean energy initiatives and funding research in the area of clean energy.
SERVICE TAX
The service tax rate remain unchanged
The following are the changes proposed in this budget
Change in Mega exemption notification 25/2012 by vide notification No. 06/2014 – ST dated 11.07.2014
1. Newly inserted: Service provided by operators of the common Bio-medical Waste Treatment Facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto. Service tax is exempted. Vide Notification No. 06/2014 – ST [w.e.f. 11.07.2014]
2. Sl. No. 9 substituted with: Service provided By educational institutions to Its students, faculty and staff or to an educational institution, by way of,
1. Transportation of students, staff and faculty
2. Government sponsored schemes such as catering, mid-day meals, etc
3. Security or cleaning or house-keeping services performed in such educational institution
Educational institution means an institution providing services by way of pre-school education and education up to higher secondary school or equivalent, education as a part of a curriculum for obtaining qualification and vocational education.
All the services are now taxable except the above said (a), (b) and (c) services. [w.e.f.11.07.2014]
1. SL.No. 18 has been generalised i.e. having declared tariff value less than Rs. 1,000 services provided by a hotel, inn, guest house, club or campsite, by whatever name called for residential or lodging purpose no service tax is applicable. [w.e.f.11.07.2014]
2. Sl.No. 23 for item (b); only non-air-conditioned contract carriage is exempted from service tax. That means to say that air-conditioned carriage and radio taxi is taxable service now. [w.e.f.11.07.2014]
3. Services provided to Government authorities; the list of activities have been clarified for SL.No. 25 (a) of the mega exemption notification para. [w.e.f.11.07.2014]
4. Service tax is exempted from all life micro-insurance schemes where the sum assured does not exceed Rs. 50,000 per life insured. [w.e.f.11.07.2014]
5. Service tax on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled, is being exempted. [w.e.f.11.07.2014]
6. Amendment to section 66D: i.e. negative list which are not subject to service tax.
7. Selling of space for advertisements in print media only exempt. Because of these changes, now sale of space for advertisement in bill boards, buildings, ATMs, online, mobile applications, etc would be liable to service tax.
Amendment to exemption on services provided to SEZ authorized operations (12/2013). The Form A2 has to be issued within 15 days from the submission of Form A1. Vide Notification No. 07/2014 – ST, dated 11.07.2014. [w.e.f.11.07.2014]
Amendment to notification number 12/2012 (i.e. abatement notification) with vide notification number 08/2014 – ST, dated 11.07.2014
Amendment to abatement notification No. 26/2012. Sl.No. 7 the CENVAT Credit shall not be allowed to service provider only. That mean to say that manufacture is eligible to take full credit on GTA services even if the manufacturer is availing the abatement under 26/2012 notification. [w.e.f.11.07.2014]
Amendment to abatement notification No. 26/2012. Sl.No. 9: replaced motorcab in place of any motor vehicle i.e. renting of motorcab designed to carry passengers. Further, CENVAT credit is allowed on input services. Full CENVAT credit is allowed if pay service tax on 40% of the value. If pay service tax on full value, then 40% CENVAT is allowed. [01.10.2014]
New serial number 9A has been inserted: Transport of passengers by a contract carriage is taxable on 40% value subject to the condition that no CENVAT credit has been taken. [w.e.f.11.07.2014]
Amendment to abatement notification No. 26/2012. Sl.No. 10: CENVAT Credit is allowed on input services received by tour operator from another tour operator. [01.10.2014]
Amendment to service tax rules, 1994 with vide notification number 09/2014 – ST, dated 11.07.2014;
Rule 2 (EE) has been amended i.e. service provided by a director of a company or a body corporate to the said company or the body corporate, the recipient of such service. Earlier it was only for director now they brought body corporate also into the ambit. [w.e.f.11.07.2014]
Amendment to Rule 6. Every assessee has to pay service tax electronically through internet banking. However, Asst.Commissioner or Deputy Commissioner may give relaxation. [01.10.2014]
Amendment to notification number 30/2012 i.e. service tax shall be payable by the recipient of the service (i.e. reverse charges mechanism) with vide notification number 10/2014 – ST, dated 11.07.2014. In respect of services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate.[11.07.2014]
Amendment to Sl.No. 7 i.e. service provided by way renting of motor vehicle designated to carry passengers without abatement the liability is made 50% by recipient of the service and 50% by the service provider (earlier it was 40% & 60% respectively). [01.10.2014]
Amendment to service tax (Determination of Value) Rules, 2006 with vide notification No. 11/2014 – ST, dated 11.07.2014. Other than original works contract, the service tax shall be payable on 70% value. However, any transaction which falls under 70% is more tax burden as the assessee need to charge service tax on 70% value and VAT also it would be 70% or above. So total tax impact is 140% (i.e. 70% VAT plus 70% service tax) on a single transaction which has not considered by the Govt. [01.10.2014]
Interest rate on delayed payment of service. Up to six month 18%, more than six months and upto one year – 18% for first six months and 24% for remaining months up to one year. Beyond one year, first six months 18%, 24% for next six months and beyond one year 30% with vide notification number 12/2014 – ST, dated 11.07.2014. [01.10.2014]
Amendments to point of taxation rules, 2011 with vide notification number 13/2014 – ST, dated 11.07.2014. An amendment to point of taxation in case of specified services or persons (i.e. reverse charge mechanism). Point of taxation shall be the date on which payment is made. Provided where the payment is not made within three months of the date of invoice, the point of taxation shall be the date immediately following the said period of three months. [01.10.2014]
New Rule 10 has been inserted w.e.f. 01.10.2014- point of taxation where the invoice is issued before 01.10.2014 but payment has not been made as on the said date, the point of taxation shall be;
If payment is made within six months of the date of invoice, be the date on which payment is made.
If payment is not made within six months of the date of invoice, be determined as if this rule and rule 7 do not exit.
Circular No. 178/4/2014 – ST, dated 11.07.2014 issued to clarify the manner of distribution of common input service credit under rule 7(d) of the CENVAT credit rules, 2004 by input service distributor.
Amendment to section 73 – Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded. Limitation time has been reduced to six months from eighteen months in normal course. In extended period, the limitation is reduced to one year from five years. This is a good sign to speed up completion of adjudications in service tax cases. [01.10.2014]
Mandatory fixed pre-deposit at 7.5% of duty demand or penalty imposed or both for filing of appeal before first appellate authority i.e. Commissioner (appeals). In case of Tribunal the pre-deposit is 10%. This is a discouraging practice and adverse impact on trade and industry.
Service tax is proposed on the service provided by radio-taxis to place them on par with rent-a-cab service. These new levies will come into effect from a date to be notified after the passing of the Finance Bill.
For few services such as services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants’ exemptions are being withdrawn.
Service tax on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled, is being exempted to bring it on par with certain other agricultural produce. Services provided by the Employees’ State Insurance Corporation for the period prior to 1st July 2012 is being exempted.
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