Highlights of Budget -- Finance Bill, 2014 PART - III

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PART - III

**International Tax

Characterization of income in case of Foreign Institutional Investors (FII) – Section 2 (14)

Definition of the term “Capital Asset” has been amended to provide that securities held by FII in accordance with the Securities and Exchange Board of India Act, 1992 regulations will be regarded as Capital Asset only so that any income arising from Transfer of such security by a foreign  Portfolio Investor (FPI) would be taxable under the head “Capital Gain” . (w.e.f. 01/04/2015)

Meaning of International Transaction – Section 92B(2)

Under the current transfer pricing provisions, transactions entered into by an enterprise with a person other than an associated enterprises is deemed as a transaction between associated enterprises, if there exists a prior agreement in relation to such transaction between such other person and an associated enterprise or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise.

In order to bring clarity, it has been proposed to amend the deeming provision as transaction shall deemed to be an international transaction irrespective of whether such other person is a resident or non-resident, as long as either the enterprise or the associated enterprise or both are non-resident. (w.e.f. 01/04/2015)

Reduction in tax rate on certain dividends received from foreign companies – Section 115BBD

a. The section provides for taxation of gross dividends received by an Indian company from a specified foreign company at a concessional rate of 15%, if such dividend is included in the total income for the AY 2012-13 or AY 2013-14 or AY 2014-15.

b. With a view to encourage Indian companies to repatriate foreign dividends into  the country, it is proposed to amend the section to extend the benefit of lower rate of taxation without limiting it to a particular assessment year.

c. Thus, such foreign dividends received in FY 2014-15 and subsequent financial year shall continue to be taxed at the lower rate of 15%. (w.e.f. 01/04/2015)

Roll back provisions in Advance Pricing Agreement (APA) Scheme

APA is an agreement between the taxpayer and the income-tax authorities on an appropriate Transfer Pricing Methodology for a set of international transactions over a fixed time period in future. It is proposed to now introduce roll back provision in the APA scheme-

a. Roll back refers to the applicability of the Transfer Pricing Methodology agreed in an APA to international transactions entered prior to the period covered under the APA.

b. Roll back period not to exceed four years preceding the first financial year for which APA is applicable.

c. Procedure, conditions and manner in respect of roll back of APAs to be prescribed.

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

Use of Multiple year data & Computation of the Arms Length Price (ALP)

a. Use of Multiple year data

b. Presently, the Indian transfer pricing regulations allow the use of single year data for comparability analysis and multiple year data in exceptional cases.

c. It is proposed to amend the regulations to allow use of multiple year data for comparability analysis. Rules to be issued on this aspect.

Computation of ALP

Range concept to be introduced for determination of arm’s length price.

Concept of arithmetic mean to continue where number of comparables is inadequate.

TDS on income by way of interest from Indian company – Section 194LC

a. The existing provisions of section 194LC of the Act provide for lower withholding tax rate of 5%, on interest paid by an Indian company to non-resident on monies borrowed by it in foreign currency from a source outside India under a loan agreement or through issue of long term infrastructure bonds at any time on or after the 1st day of July, 2012 but before the 1st day of July,  2015 subject to certain conditions.

b. It is proposed to make Section 194LC applicable to a business trust also.

c. It is proposed to extend the benefit of this concessional rate to all long term bonds including long term infrastructure bonds.

d. It is proposed to extend the benefit of lower withholding tax rate for overseas borrowings made up to 1st July, 2017. (w.e.f. 01/10/2014)

**personal Tax

Tax Rates

For Companies

There are no changes in the Tax Rates including surcharge and education cess applicable to Companies for the AY 2015-16.

For Individuals

a. Currently, there is no change in surcharge and education cess payable by individuals

b. For resident senior citizen of 60 years of age but less than 80 years, the basic exemption limit is proposed to be raised from Rs.2,50,000 to 3,00,000/-

c. And for resident senior citizen above 80 years the basic exemption limit remains unchanged at Rs. 5,00,000/-.

Income from House Property – Section 24

The deduction in respect of interest paid on money borrowed for the construction, repair and acquisition of self-occupied house property is proposed to be raised from Rs.1,50,000 to Rs.2,00,000/- (w.e.f. 01/04/2015)

Deductions under Chapter VIA

a. Section 80C -Deduction in respect of life insurance premium, deferred annuity, contribution to PF etc. has been raised from Rs.1,00,000 to Rs.1,50,000/-.

b. Section 80CCD –Under the existing provisions of section 80CCD, deduction respect of contribution to pension scheme of Central Government is allowed to an individual employed by the Central Government or any other employer on or after 1st January 2004. Now, the condition of being employed on or after 1st January 2004 for private section employees is proposed to be omitted.

c. Section 80CCE –Cumulative limit of deductions under section 80C, 80CCC and 80CCD has been increased from Rs.1 lakh to Rs.1.5 lakh. (w.e.f. AY 2015-16)

In Next Part: Miscellaneous Provisions