UNION BUDGET 2013-14: - Direct Tax

UNION BUDGET 2013-14
-DIRECT TAX
Prepared By- Arvind Rathi (Article Assistant)
Sandesh Mundra & Associates.
SURCHARGE
A surcharge of 10 % on persons whose taxable income exceeded 1 cr Rs. Applicable to individuals, HUFs , firms and entities. Increase of the surcharge from 5 % to 10 % on the domestic companies,whose taxable income exceeded 10 cr Rs. In case of the foreign companies, there would be an increase of surcharge from 2 % to 5 %.
Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.
RELIEF & WELFARE MEASURES

Rebate of Rs 2000 for individuals having total income up to Rs 5 lakh. Raising the limit of percentage of eligible premium for life insurance policies of person with disability or disease. Deduction for contribution to health schemes similar to CGHS. One hundred percent deduction for donation to National Childrens Fund.
SECURITIES TRANSACTION TAX

S.NO NATURE OF TAXABLE ST PAYABLE BY EXISTING RATES(IN %)
0.1
PROPOSED RATES(IN %)
Nil
1.
Delivery based Purchaser purchase of units of an equity oriented fund entered into in a recognised stock exchange. Delivery based sale of units of an equity oriented fund entered into in a recognised stock exchange.
Sale of a futures in securities.
2.
Seller
0.1
0.001
3. 4.
Seller
0.017
0.01 0.001
Sale of a unitof an Seller 0.25 equity oriented fund the mutual Prepared By- Arvind Rathi (Article Assistant),Sandesh fund. Mundra & Associates.
KEY MAN INSURANCE POLICY

Keyman insurance, - insurance against the death of a key person of the company. During the term, the company assigns the policy to the employee Collects the surrender value from the key employee. Employee pays subsequent premiums, and gets proceeds at maturity. Normally, proceeds are taxable in the hands of whoever gets it. Employee argues that it was not a keyman insurance policy any more. And thus, the proceeds were tax free. It is now stated that if a keyman insurance policy is assigned, proceeds will be fully taxed. The change works for any assignment done or proceeds received after April 1, 2013. The lesson to learn is: Dont screw with the Income Tax Dept.
Delhi HcRajan Nanda
PENALTY- U/S 271FA

SECTION
Section 271FA
Nature of Authority who can levy Failure/Default penalty Failure to furnish Prescribed Income Tax annual information authority. return required u/s. 285BA or failure to furnish such return within the time prescribed.
Quantum of Penalty
Rs. 100/- for every day during which failure continues.
This Amendment Will Take Effect From 1st April,2014.

GENERAL ANTI AVOIDANCE RULES (GAAR)

The GAAR objective was to "counter aggressive tax avoidance schemes." It empowers officials to deny the tax benefits on transactions or arrangements. The GAAR proceedings has to be approved by a pannel. The directions issued by the Approving Panel shall be binding on the taxpayer as well as the income-tax authorities. No appeal can be made against such directions. The Assessing Officer can send a reference to the GAAR panel for one or more assessment years.
APPLICABILITY OF SURCHARGE ON TDS PROVISION
PARTICULARS
Non Resident Other Than Company-
PROPOSED RATE (%)
10
2
Having total income exceeding Rs 1 Cr.

Foreign Company-Having total income
exceeding Rs 1 Cr but less than 10 Cr.

Others-Having total income exceeding Rs 10 5 Prepared By- Arvind Rathi (Article Cr. Assistant),Sandesh Mundra & Associates.
INVESTMENT IN NEW PLANT OR MACHINERY (SEC-32AC)

o Section 32AC shall be effective from the 1st April 2013. o A manufacturer or producer of any article acquires or installs a new asset between April 1, 2013 to March 31, 2015 & the aggregate cost of the assets exceeds INR 100 cr, then deduction shall be allowed as under, A.Y. 2014-15 15% of the actual cost of new asset where,asset acquired & installed between April 1,2013 to March 31,2014 & the aggregate cost of the new assets exceeds INR 100 cr. A.Y. 2015-16 15% of the actual cost of new asset where,asset acquired & installed between April 1,2013 to March 31,2015 after subtracting the amount deducted in AY 2014-15.
TAXABILITY ON BUY BACK OF SHARES

When a company purchase its own shares in accordance with the provisions of Sec 77A of the Companies Act, 1956. In relation to buy-back of shares of an unlisted company.Such additional income-tax is payable at the rate of 20% on the distributed income. The tax paid by the company on distribution of income in accordance with the buy-back of shares will be the final tax No credit of taxes shall be available either to the company or to the shareholder
In Armstrong World Industries Mauritius Multiconsult Ltd.
No Changes In The Slab Rates. Slab Rate,For Individuals, Hindu Undivided Families, Association of Persons and Body of Individuals
INCOME (INR)* 0-2,00,000 2,00,001-5,00,000 5,00,001-10,00,000 10,00,000 & Above RATE (%)^@ Nil 10 20 30
INCOME TAX RATES
@ Surcharge of 10% is levied if the total income exceeds INR 1 crore. ^ Education cess of 2% and Secondary Education cess of 1% is leviable on the amount of income-tax. *The exemption limits are as follow- INR 2,50,000 for resident individuals of the age of 60 years or more INR 5,00,000 for Very Senior Citizens of the age of 80 years or more.
STAMP DUTY VALUATION FOR COMPUTATION OF INCOME UNER HEAD BUSINESS INCOME-43CA
Stamp-duty valuation will be considered as full value consideration in cases where agreed consideration is less. It is only applicable were immovable property is a capital asset and not stock-in-trade. The date of an agreement fixing the value of consideration for the transfer of the property and the date of registration of the transfer of the property are not the same. The stamp duty value may be taken as on the date of the agreement for transfer provided the consideration, in a mode other than cash.
TDS ON TRANSFER OF IMMOVABALE PROPERTY

Section 194-IA has been introduced to provide that in case of transfer of immoveable property,other than agricultural land, by a resident. The transferee shall deduct tax at the rate of 1% thereof. No deduction is required to be made in case the consideration for transfer of immoveable property is less than fifty lakhs rupees.
Allahbad KAN construction
AGRICULTURE LAND SEC 2(1)A

A land shall not be treated as an agriculture land, if such land is situated within the distance measured aerially which should not be more than:
REGARDING DISTANCE 10,000 1,00,000 1,00,000 10,00,000 > 10,00,000 Any Muncipality. BEYOND (KMs) 2 6 8 Would Be Rural Agriculture Land.
CIT v. Lal Singh
LIFE INSURANCE POLICY SEC 10(10D)

If the premium payable for any of the years during the term of the policy does not exceed 15% (earlier 10%) of the actual capital sum assured, will be Exempt for the Insurance on the life of any person who isI. A a person with disability or a person with severe disability as referred to in section 80U. II. Suffering from disease or ailment as specified in the rules made under section 80DDB.
MEDICAL SCHEME SEC 80D

Finace Bill, 2013 proposes to expand the scope of deduction under section 80D by expanding the eligible schemes on which deduction shall be available by amending section 80D with effect from 1.04.2014 which provides as under:
In section 80D of the Income-tax Act, in sub-section (2), in clause (a), after the words Central Government Health Scheme, the words or such other scheme as may be notified by the Central Government in this behalf shall be inserted with effect from the 1st day of April, 2014.
RAJIV GANDHI EQUITY SCHEME

Continued because of prestige behind the name. To enable first time investors to park funds in MFs and listed shares and extended tax benefits to three successive years. The limit for investors wanting to invest in RGESS has been raised to Rs 12 lakh from Rs 10 lakh earlier.
Under the scheme, an individual with an income of less than Rs 12 lakh would get tax incentives for investing up to Rs 50,000 in the stock market.
The RGESS, which was originally announced in the Budget for 2012-13, seeks to provide tax benefits to first-time investors in stock markets.
AMENDMENT IN SEC 80-IA(4)

Finance Bill 2012 proposes for the words, figures and letters "the 31st day of March, 2012" in section 80-IA(4)(iv) the words, figures and letters "the 31st day of March, 2013" shall be substituted.
This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to assessment year 2013-14 and subsequent assessment years.
Analysis/ConclusionAs per the proposed amendment, the eligibility cut-off for carrying out the aforesaid activities has been extended by a period of one year i.e., up to 31 March 2013.
SPECIAL AUDIT SEC 142(2A)

The powers of the AO to direct special audit have been widened. The AO can now order a special audit not only due to the reason of nature and complexity of accounts but he can now order a special audit in the following additional circumstances:
a) The volume of the accounts; b) Doubts about the correctness of accounts; c) Multiplicity of transactions in the accounts; d) Specialized nature of business activity of assessee.
Delhi Development Authority v. Union of India
DEFECTIVE RETURN SEC 139(9)

Filling return without paying self assessment tax, Now it will be treated as Defective return.
If AO gives noticeRectify in 15 days otherwise, return would be invalid.
Note- The tax together with interest, if any, payable in accordance with the provisions of section 140A, has been paid on or before the date of furnishing of the return. Prepared By- Arvind Rathi
(Article Assistant),Sandesh Mundra & Associates.
BAD DEBTS SEC 36(1)(Vii)

In case of Banks and Financial Institutions.
The amount of deduction in respect of the bad debts.

Actually written off under section 36(1)(vii) shall be limited to the amount by which such bad debts exceeds the credit balance in the provision without any distinction between rural advances and other advances.
DCIT v. Karnataka Bank Ltd Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.
IMMOVABLE PROPERTY RECEIVED FOR INADEQUATE CONSIDERATION SEC 56(2) (Vii) (b)
Where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs. 50,000.
The stamp duty value of such property as exceeds such consideration, shall be chargeable to tax in the hands of the individual or HUF as income from other sources. The existing provisions provide that where any immovable property is received by an individual or HUF without consideration. The stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property would be charged to tax as income from other sources. The existing provision does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration.
In CIT v. Khoobsurat Resorts (P.) Ltd
COMMODITIES TRANSACTION TAX
S.NO
TAXABLE COMMODITIES TRANSACTION Sale Of Commodity Derivative
RATE
PAYABLE BY
1.
0.01 Percent
Seller
The Tax is proposed to be levied at the rate, given in the table above.
Prepared By- Arvind Rathi (Article Assistant), Prepared By- Arvind Rathi (Article Sandesh Mundra & Associates. Assistant),Sandesh Mundra & Associates.
ROYALTY/ FTS TO NON-RESIDENT SEC 115A

Agreement after 1/6/2005=10%. Argument by department- Most of the DTA the rate is more than 10% . ex- US/UK=15%
Question arises- We have DTAA with 84 countries, but what about other countries????
Now the rate stands increased to 25%.
CASE LAW- GUJARAT HC V. MAGANBHAI PATEL 167C/179

1. Director liable for tax due if Company has not paid as well as Partners of LLP.
2.Unless He proves fault not breach of trust.

3.The word tax due has changed- even the Penalty & Interest will also calculated.
TAX RESIDENCY CETIFICATE (TRC)

TRC containing prescribed particulars was a necessary but not sufficient condition for availing benefits of DTAA.
This provision was for those coming from jurisdictions other than Mauritius, depending on provisions of treaties with those nations.
This provision was in the explanatory memorandum to the Finance Act, 2012. In this Budget, however, the provision was added to the Finance Bill itself. The ministry clarified that TRC would be taken as a proof of residence for these jurisdictions. For beneficial ownership, however may check other documents as well.
APPROVAL FROM JOINT CIT IS NOT MANDATORY IF APPROVAL FROM CIT IS OBTAINED FOR ASSESSMENT IN SEARCH CASES.
A. With a view to remove the procedural ambiguity, the proposed proviso makes it clear that section 153D shall not apply requiring approval by Joint CIT.
B. where the assessment / reassessment order is passed by the Assessing Officer with the prior approval of the Commissioner under sub-section (12) of section 144BA. C. It is because an order passed under Section 144BA(12) is with the approval of an authority higher than the JCIT.
Akil Gulamali Somji v. ITO
SEIZED ASSETS ARE NO LONGER AVAILABLE FOR ADJUSTMENT TOWARDS ADVANCE TAX LIABILITY
"Existing liability" does not include advance tax payable in accordance with the provisions of the Act. Various Courts have taken a view that the term "existing liability" includes advance tax liability of the assessee. In some of the cases, it was held that amount of cash seized from assessee in search proceedings under section 132 can be adjusted against his advance tax liability.
UNION BUDGET 2013-14
-INDIRECT TAX
CENTRAL EXCISE
Offences cognizable and non bailable:
Offences relating to excisable goods,involving evasion of duty or contravention of provisions pertaining to utilization of Credit. where the duty leviable thereon under the CE Act exceeds Rs. 50 lakhs, shall be cognizable & non-bailable.
Expansion in the scope of Advance Ruling proceedings: 1. Any new business of production or manufacture proposed to be undertaken by an existing producer or manufacturer. 2. Advance ruling can be sought, is proposed to be amended to cover the question of admissibility of credit of service. 3. Resident public limited companies has been notified as a person eligible for seeking Advance Ruling.
DUTY IMPACT ON CERTAIN GOODS

No change in the basic rate of excise duty- 12%. Readymade garments- Sold under a brand name,are subject
to Excise Duty at the rate of 12.36% from 10.30%, w.e.f. April 1, 2012.
Mobile handsets- Including cellular phones having retail sale price

more than Rs. 2000/- is being increased from 1% to 6%.
Cigarettes-Excise Duty on cigarettes and other products of CETH 2402,

has been increased,to about 18%.
DUTY IMPACT ON CERTAIN GOODS

Excise duty on SUVs- Including utility vehicles is being increased from 27% to 30%, with immediate effect, the duty increase does not affect SUVs used as taxis. Branded Ayurvedic Medicaments- They are being brought under MRP based assessment with an abatement of 35% from the MRP. Marble slabs- Excise Duty is being increased on marble slabs and tiles
from Rs 30 per square meter to Rs 60 per square meter.
FULL EXEMPTION FROM CENTRAL EXCISE DUTY

Tapioca starch manufactured and consumed captively in the manufacture of tapioca sago. All goods for the manufacture of fertilizers. Henna powder or paste, not mixed with any other ingredient. All handmade carpets and carpets and other textile floor coverings of coir and jute,whether or not handmade.
CENVAT CREDIT RULES,2004

An explanation has been inserted after Rule 3(5B) stating that non-payment of duty payable On removal of inputs or capital goods, would be recoverable in terms of Rule 14. It is applicable in respect of cases falling under sub-rules (5), (5A) and (5B) of Rule 3, i.e. duty payment on removal of inputs or capital goods as such or after being used, and on write off of any value of the inputs or capital goods fully or partially in the books of accounts.
Alpump Pvt. Ltd. vs. Commissioner of Central Excise, Chennai
SERVICE TAX
SERVICE TAX VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013

1) To encourage voluntary compliance of filing returns and payment of tax dues, by making truthful declaration of the tax dues. 2) The declarant shall be granted immunity from penalty, interest or any other proceedings on payment of the tax dues. 3) The eligibility criteria of the scheme are set out below: a) The scheme is applicable for the tax dues. b) The declaration to be made on or before December 31, 2013. c) Declaration cannot be filed by a person who has furnished return . 4) The timeliness for making payment of declared tax dues are as follows:
a) At least 50% of the tax dues to be paid on or before December 31, 2013. b) Balance tax dues to be paid on or before June 30, 2014.
5) The tax dues so paid shall not be refundable under any circumstances.
DEFAULTS
SECTION 89- Term of imprisonment for failure to deposit service
tax collected but not paid within 6 months increased from 3 years to 7 years. Further, the offence is made cognizable.
DEFAULT IN PAYMENT OF SERVICE TAX- To hold officers of
companies responsible for conduct of business, liable for contravention of the provisions of the Act.Maximum penalty is Rs.1,00,000.
SERVICE TAX REGISTRATION CAPPED- To cap penalty
for failure to obtain registration,maximum of Rs.10,000.
RATIONALIZATION OF ABATEMENT
S.NO SERVICE TAX BASE ON WHICH TAX TO BE CALCULATED,POST ABATEMENT(%) 25 CONDITION
1.
The servic provided by way of construction of complex, buildings, civil structure intended for sale prior to issuance of completion certificate.
For residential unit having a carpet area up to 2000 sq. ft. or where the amount charged is less then Rs. 1 Cr. For Other Than Above.
30
EXEMPTIONS RATIONALIZED
S.NO TAXABALE SERVICE EXISTING NOTIFICATION AMENDMENTS
1.
Educational Institution
Services provided to or by an educational institution in respect of education exempted from Service Tax. Services provided in relation to serving of food or beverages by a restaurant, eating joint or a mess.
The words provided to or by has been replaced with provided to.
2.
Restaurant Services
The condition that the restaurant should have a license to serve alcoholic beverage has been deleted.
NEGATIVE LIST
A. Certain Educational Services forms part of Negative List of Services. B. The scope of the entry has been enlarged by including State Council of Vocational Training as an approved vocational education course. C. The scope of the Negative List has been curtailed, and a course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India has been removed. D. Any process amounting to manufacture or production of goods on which duties of excise is leviable under the CE Act or under a State Excise Act on the manufacture of alcoholic.
EXEMPTIONS WITHDRAWN
I. Service provided by an educational institution by way of renting of immovable property. II. Temporary transfer or permitting the use or enjoyment of a copyright relating to cinematographic films was fully exempt so far, this exemption will be restricted to exhibition of cinematograph films in a cinema hall or a cinema theater. III. Services by way of vehicle parking to general public. IV. Services provided to government, a local authority, by way of repair or maintenance of aircraft.
WRONGFUL INVOCATION OF EXTENDED PERIOD OF LIMITATION

where a demand has been raised invoking the larger period of limitation, i.e. 5 years, and the Court finds that the demand for the larger period is not sustainable. Because the charges of fraud, suppression, wilful misstatement are not sustainable, the Department can determine the Service Tax liability for the normal period and raise a demand accordingly.
It seeks to clarify that in cases where the demand for the normal period (18 months) is sustainable but a Notice has been issued for 5 years, the same can be severed and the entire demand need not be set aside.
ADVANCE RULLING
It is being extended to cover resident public limited companies. A notification is being issued for this purpose,under section 96A(b)(iii) of the Finance act,1994.
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UNION BUDGET 2013-14: - Direct Tax

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UNION BUDGET 2013-14

Sandesh Mundra & Associates.

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

RELIEF & WELFARE MEASURES

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

SECURITIES TRANSACTION TAX

KEY MAN INSURANCE POLICY

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

PENALTY- U/S 271FA

This Amendment Will Take Effect From 1st April,2014.

GENERAL ANTI AVOIDANCE RULES (GAAR)

APPLICABILITY OF SURCHARGE ON TDS PROVISION

PROPOSED RATE (%)

Having total income exceeding Rs 1 Cr.

exceeding Rs 1 Cr but less than 10 Cr.

INVESTMENT IN NEW PLANT OR MACHINERY (SEC-32AC)

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

TAXABILITY ON BUY BACK OF SHARES

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

INCOME TAX RATES

TDS ON TRANSFER OF IMMOVABALE PROPERTY

AGRICULTURE LAND SEC 2(1)A

CIT v. Lal Singh

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

LIFE INSURANCE POLICY SEC 10(10D)

MEDICAL SCHEME SEC 80D

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

RAJIV GANDHI EQUITY SCHEME

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

AMENDMENT IN SEC 80-IA(4)

SPECIAL AUDIT SEC 142(2A)

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

DEFECTIVE RETURN SEC 139(9)

If AO gives noticeRectify in 15 days otherwise, return would be invalid.

(Article Assistant),Sandesh Mundra & Associates.

BAD DEBTS SEC 36(1)(Vii)

The amount of deduction in respect of the bad debts.

COMMODITIES TRANSACTION TAX

TAXABLE COMMODITIES TRANSACTION Sale Of Commodity Derivative

ROYALTY/ FTS TO NON-RESIDENT SEC 115A

Now the rate stands increased to 25%.

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

CASE LAW- GUJARAT HC V. MAGANBHAI PATEL 167C/179

2.Unless He proves fault not breach of trust.

TAX RESIDENCY CETIFICATE (TRC)

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.

Prepared By- Arvind Rathi (Article Assistant),Sandesh Mundra & Associates.