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Highlights of Budget - Finance Bill, 2014

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PART - I

** Announcements

• Not to ordinarily bring about any retrospectively.

• Instead of tax officers, High Level Committee to scrutinize ‘indirect transfer’ cases covered by retrospective amendment.

• Advance Ruling can now be obtained by resident taxpayers also.

• High Level Committee to interact with trade and industry regularly and ascertain areas where clarity in tax laws is required. Appropriate clarifications to be issued within 2 months.

• Government to review provisions, consider comments received from stakeholders and take view on the Direct Tax Code.

• Standards for computing tax would be notified separately pursuant to adoption of new Indian accounting standards.

• No policy announcements or amendments in relation to General Anti Avoidance Rule (GAAR) which are effective from AY 2016-17

• Income-tax survey can now be carried out by Income-tax authorities for verifying TDS compliances.

** Corporate Tax

Investments in New Plant & Machinery – Section 32AC(1A) & (1B)

• W.e.f. AY 2015-16, where a company, engaged in the business of manufacturing or production of any article or thing acquires or installs a new Plant & Machinery at a cost exceeding Rs.25 Crores from AY 2015-16 up to AY 2017-18, there shall be allowed a deduction of 15% of the actual cost of the asset acquired and installed.

• Further, the assessee who is eligible to claim deduction under existing combined threshold limit of Rs.100 Crores for investment made in AAY 2014-15 & AY 2015-16, shall continue to be eligible to claim deduction under the existing provisions of section 32AC(1) (w.e.f. 01/04/2015)

Deduction in respect of capital expenditure on specified business – Section 35AD

• It is proposed to include to new business as ‘specified business’ for the purpose of the investment-linked deduction so as to promote investment in these sectors –

a. Laying and operating a slurry pipeline for the transportation or iron ore;

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

• The date of commencement of operations for availing investments linked deduction in respect of the two new specified businesses shall be on or after 1st April, 2014.

Deduction in respect of capital expenditure on specified business – Section 35AD

• It is proposed to amend the section to provide that any asset in respect of which a deduction is claimed and allowed under section 35AD, shall be used only for the ‘Specified Business’ for a period of eight years beginning with the previous year in which such asset is acquired or constructed.

• Where any asset, in respect of which such deduction is claimed and allowed, is used for a purpose other than the specified business during the specified period of eight years, the total amount of deduction claimed and allowed (as reduced by the amount of depreciation otherwise allowable for income-tax purposes) shall be taxable as business income of the taxpayer in the year of such use of the asset. (w.e.f. 01/04/2015)

Deduction in respect of capital expenditure on specified business – Section 35AD

• However, this would not apply to a company which has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 during the specified period of eight years.

• Where a taxpayer claims an investment linked deduction, the same taxpayer, being a unit in a SEZ, will not be allowed a profit linked deduction in respect of the same business and vice-versa. (w.e.f. 01/04/2015)

Corporate Social Responsibility (CRS) – Section 37

• It is proposed to add Explanation 2 to section 37(1) to disallow any expenditure incurred on any activities related to CRS as referred under section 135 of the Companies Act, 2013, while computing taxable income, as it shall not be deemed to be expenditure incurred for the purpose of business or profession.

• However, CSR expenditure of the nature described in Section 30 to Section 36 of the Act shall be allowed under those sections subject to fulfillment of the prescribed conditions, if any, specified therein. (w.e.f. 01/04/2015)

Amount Not deductible while computing Total Income – Section 40(a)(i)

• Under clause (i), any amount which is payable outside India or in India to a non-resident as interest, royalty and fees for technical services or any other sum, on which tax is deductible at source but tax has not been deducted or deducted but not deposited during the previous year or by the due date u/s 200 is not allowable as deduction in the year in which the expenditure is incurred. Such expenditure is allowable in the year of payment.

• W.e.f. AY 2015-16, it is proposed to allow such expenditure, if tax is deducted and deposited by the due date of filing the return of income u/s 139(1).

Amount Not deductible while computing Total Income – Section 40(a)(ia)

• The provision is now proposed to be in line with the provision applicable to TDS on payments to residents covered under section 40(a)(ia).

• W.e.f. AY 2015-16, all expenses subject to TDS will be disallowed u/s 40(a)(ia), in the same manner in which interest, royalty, etc. are disallowed. However, disallowance under this clause is proposed to be restricted to 30% of the expenditure instead of 100% disallowable at present. Such sum shall be allowable in the year in which tax is deducted and deposited.

Speculative Transaction – Section 43

An eligible transaction in respect of trading in commodity derivatives carried out in a recognized association, which is chargeable to commodities transaction tax shall not be deemed to be speculative transaction. (retrospectively w.e.f. 01/04/2014)

Special Provisions for computing profits and gains of business of plying, hiring,  or leasing goods carriage – Section 44AE

• Under the existing provisions of section 44AE, for the purpose of presumptive taxation in case of an assessee engaged in the business of plying, hiring or leasing of goods carriages who does not own more than 10 goods carriages, Rs.5,000/- and Rs.4,500/- for every month or part thereof is taken as income per heavy goods vehicle (HGV) and vehicle other than HGV respectively.

• Now the distinction between HGV and vehicle other than HGV is sought to be done away with and it is proposed to take Rs.7,500/- for every month or part thereof per vehicle as income under this section. (w.e.f. 01/04/2015)

Losses in Speculation Business – Section 73

• The existing provisions of section 73 of the Act provide that losses incurred in respect of a speculation business cannot be set off or carried forward and set off except against the profit of any other speculation business.

• Explanation to section 73 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 tis business consists of purchase or sale of shares, such business shall be deemed to be speculation business of for the purpose of this section.

• Explanation to section 73 to be amended to provide that provision of the Explanation shall also not be applicable to a company the principal business of which is the business of trading in shares (w.e.f. 01/04/2015)

• Extension of sunset date for power sector undertaking – Section 80IA

• Currently, a deduction of profit is available to an undertaking, if the undertaking:

- is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 01/04/1993 and ending on 31/03/2014;

- starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 01/04/1999 and ending on 31/03/2014;

- undertaking substantial renovation and modernization of existing network of transmission or distribution lines at anytime during the period beginning on 01/044/2014 and ending on 31/03/2014.

- It is proposed to extend the above terminal date from 31/03/2014 to 31/03/2017.

(w.e.f. AY 2015-16)

Dividend distribution Tax and Income Distribution Tax – Section 115-O and Section 115-R

• Dividends distributed by domestic companies and mutual funds to be grossed up.

• It is proposed to amend section 115-0 and section 115-R to provide that tax would be paid after grossing up the net profit distributed by the company or the income distributed by the mutual fund.

• In other words-

a. If surcharge and education cess is excluded then effective rate of Dividend distribution tax will be 17.64% (100 x 15 ÷ 85 = 17.647%). An extra burden of 2.644%.

b. If surcharge and education cess is included then effective rate of Dividend distribution tax will be 20.47% (100 x 16.995 ÷ 83.005 = 20.47%). An extra burden of 3.48%.

(w.e.f. 01/10/2014)

Furnishing  PAN in respect of payment of interest on long term bonds – Section 206AA

Existing provision under section 206AA(7) of the Act relating to requirement of furnishing PAN are not applicable to payment of interest on long term infrastructure bond referred to in section 194LC of the Act.

It is proposed to amend section 206AA(7) to extend the benefit of exemption to payment of interest in any long term bonds referred to  in section 194LC of the Act and not restricted to infrastructure bonds. (w.e.f. 01/10/2014)

In Next Part:  

Capital Gain Tax

REIT and Invit

International Tax

Personal Tax and

Miscellaneous Provisions


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