union budget 2013 detailed analysis
DESCRIPTION
An in-depthTRANSCRIPT
UNION BUDGET 2013 Analysis of
(For internal circulation only)
Contents
• Direct Taxes
• Indirect Taxes
• Service Tax
Direct Taxes
Direct Taxes
Change Impact/Comments
Deferment of GAAR implementation to AY 2016-17
This is based on the
recommendations of the expert
committee headed by Dr
Parthasarathy Shome. And is in
line with the earlier
pronouncements of the finance
minister. You can download a
copy of our report on GAAR here
Revision of withholding tax rates on Royalties and FTS
for non residents hikes to 25% from the existing
minimum rate of 10%
Done to ostensibly bring rates in
line with international
withholding rates. It is worth
noting that applicable treaty rates
shall still be available.
Direct Taxes
Change Impact/Comments
TRC ( tax residency certificates) shall not be sufficient
alone to claim relief under DTAA.
The finance ministry has since
clarified that circular no 789 shall
continue to be in force and that
the IT department shall not
question the TRC as proof of
residence. The budget statement
that caused confusion has been
thus withdrawn.
Concessional rate of tax of 15% on dividend received
from a specified foreign company has been extended
for one more year. Further onward distribution of such
dividend received has been exempted from tax with
effect from 1st June 2013
Clause is applicable where Indian
company holds more than 26% of
equity capital in the foreign
company
Direct Taxes
Change Impact/Comments
Categorization of groups of angel investors as category 1
AIF VC funds. Accordingly the definition of Venture
capital funds as per Section 10 (23FB) has been amended
to include such angel funds.
“Pass through benefits” will now
be available to such funds just as
they are available to other
registered AIFs. Meaning that the
profits from such funds shall be
taxable in the hands of the
investors and not the fund itself.
Incomes earned by investor protection funds set up in
accordance with SEBI guidelines to be exempt from
incidence of income tax.
Direct Taxes
Change Impact/Comments
Imposition of and increase in surcharge on incomes of
All Assesses other than companies 10% on income
above Rs 1 crore. For Companies the rates are 10% and
5% respectively for domestic and foreign companies
where income exceeds Rs 10 Crore. Further a surcharge
has been imposed on Dividend Distribution at 10%
Imposition of 20% withholding tax on distribution of
profits by way of buy-back of securities. Further, a
surcharge of 10% shall be applicable on such
distribution of income.
Buy backs were finding favor as a
means of profit distribution
without having to incur the
burden of dividend distribution
tax. This additional levy seeks to
close such loop-holes. The amount
so received by the shareholder
will be exempt in their hands.
Direct Taxes
Change Impact/Comments
Additional investment allowance of 15% to be allowed
to manufacturing companies that invest upward Rs 100
crores on plant and machinery during the period
1.4.2013- 31.3.2015
To encourage expansion and
investment in new machinery an
additional deduction of 15% has
been introduced. This shall be
available in addition to
depreciation regularly available.
Sunset clause for commencement of business for
undertakings set up for generation, distribution,
transmission of power extended to 31st March 2014
from 31st march 2013
Direct Taxes
Change Impact/Comments
Incomes of specified securitization trusts to be exempt
from income tax. Incomes earned by investors from
securitization trusts have also been exempt from tax.
Further such trusts would have to pay distribution tax
at the time of distribution of income, at the following
rates:
25% of individuals and HUFs
30% for all other cases
Long term infrastructure bonds issued by an Indian
company and subscribed to by a non resident using
foreign currency in designated account will be deemed
to be subscribed in foreign currency and a lower
withholding rate of 5% will apply to interest earned
from such bonds.
Direct Taxes
Change Impact/Comments
Where consideration received from sale of immovable
property is less than stamp duty value by a difference
of more than Rs 50,000 the excess of stamp value over
consideration shall be taxable as income from other
sources.
A withholding tax of 1% has been applied on transfer
of immovable property where consideration is in excess
of Rs 50 lakhs
Even in cases where immovable property has been held
as stock in trade, the stamp duty value shall be
considered to be consideration for transfer of such
property if such consideration is less than applicable
stamp duty
These moves collectively indicate
a broad initiative to curb the
presence of black money in real
estate transactions and to further
increase the tax collections from
such real estate transactions.
It is important to note that TCS of
1% on real estate transactions had
been imposed in the previous
finance act.
Direct Taxes
Change Impact/Comments
Agricultural land to be considered a capital asset if :
It lies within 2 kms of limits municipality of cantonment
with population in excess of 10,000
It is Where consideration received from sale of immovable
property is less than stamp duty value by a difference of
more than Rs 50,000 the excess of stamp value over
consideration shall be taxable as income from other
sources.
No change in tax slabs for individual taxation.
However an additional credit of Rs 2000 has been
provided for individuals with income below Rs
5,00,000.
Direct Taxes
Change Impact/Comments
Surcharge of 10% will be applicable on all non
corporate entities whose taxable income exceeds Rs 1
Crore. This also includes partnerships and LLPs
Additional Deduction of interest upto Rs 1 Lakh will be
available for individuals availing Home Loans of value
up to Rs 25 Lakh during period 1.04.2013 to 31.03.2014
for the first time. The value of the property for which
such loan has been availed should be less that Rs 40
lakhs.
For persons suffering from disabilities or specified
ailments as mentioned in the rules the threshold of
insurance premium deductible under section 80C has
been increased from 10% to 15% of sum assured.
Thanks to this surcharge LLPs and
partnerships will end up paying
more tax as compared to
companies
Direct Taxes
Change Impact/Comments
Contribution to Schemes of Central and State
Government similar to Central Government Health
Scheme will be eligible for deduction under section
80D which provides for deductions on eligible
mediclaim insurance schemes.
Donations to National Children Fund are also eligible
for 100% deduction under section 80G, contributions to
NCF earlier attracted a deduction of upto 50% of the
amount of donation.
Keyman insurance policies assigned to any person
without consideration shall be considered as keyman
insurance policies not eligible for exemption
Direct Taxes
Change Impact/Comments
Banks would be able to claim deductions in respect of
bad debts written off without having to make
distinctions between rural advances and other
advances.
Imposition of Commodities trading tax (CTT) at the
rare of 0.01% on the sale of non agro commodity
derivatives. Assessees paying CTT will be able to claim
deduction of such tax from their profits.
Rates of STT have been reduced for various delivery
based transactions in units of equity oriented funds,
sale of futures, and sale of equity oriented fund units to
the fund
Direct Taxes
Change Impact/Comments
Incomes distributed by a mutual fund not being a
money market fund, equity oriented fund or a liquid
fund shall be taxable in the hands of an Individual or
HUF at the rate of 25%, up from 12.5%
Revenue authorities can conduct direct special audit of
accounts of tax payer in cases of voluminous accounts,
doubts about correctness, multiplicity of transactions or
specialized nature of business activities
Returns filed to be considered “defective” if entire
amount of self assessment tax along with interest due is
not paid on or before date of furnishing return of
income.
More power in the hands of tax
authorities
Indirect Taxes
Indirect Taxes - Customs
Change Impact
Exemption available to Aircraft MRO operations has
been extended to private aircraft and aircraft parts.
Products for which rates have been hiked include set
top boxes, yatchs, motor cars and bikes, steam coal and
raw silk.
Products for which rates have been decreased include
Lithium Ion batteries for hybrids, textile machinery and
parts, bituminous coal, Pre-forms of precious and semi
precious stones, wash coats etc.
Indirect Taxes - Customs
Change Impact
Exemptions from Excise Duty enlarged to
include Parts of aircraft and testing equipment
used in manufacture, repair and overhauling of
aircraft
Duty on branded garments reduced by 20%
Exemption for ships and vessels if obtained
under general license.
Duty at 1/120 factor upon conversion of general
license to coastal license.
Service tax
Service Tax
Change Impact
No change in rate of Service tax
Changes to Negative list
approved vocational education course now
includes courses run by an industrial training
institute / centre affiliated with the State Council
for Vocational Training. Institutions associated
with NSDC have been excluded
Testing activities related to agriculture are now
included
Processes under the Medicinal and Toilet Preparations
(Excise Duties) Act are now included in definition of
manufacture
Service Tax
Change Impact
Chnages to exemption list :
Auxiliary edu services and renting of immovable property by
educational institutions has been excluded
Temporary transfer in relation to cinamatorgraphs is now
limited to exhibition of films in theatres and cinema halls
Service tax is now applicable to all air-conditioned retaurants
Transportation of petroleum and petroleum products, postal
mail and household effects by goods or a vessel is now taxable
Transportation of agriculture produce, foodstuff, relief material
for specified purposes, chemical fertilisers and oil cakes,
registered newspaper or magazines and defence equipments by
goods transport agencies is exempt
Exemptions for vehicle parking, repair of government aircraft
and have been removed
The activity “advancement of other activity” has been removed
from definition of charitable services.
Service Tax
Change Impact
Abatement with respect to complex, building or civil
structures has been reduced from 75% to 70% for non
residential properties where amount charged is less
than Rs 1 crore and floor area is less than 2000 sq feet
Voluntary compliance scheme has been introduced to
encourage compliance from eligible assessees.
Failure to pay service tax collected, to the credit of the
Government of India within 6 months may attract
punishment of imprisonment for a term which shall not
be less than 6 months but may extend up to 7 years, if
such non payment exceeds Rupees 50 lakhs;
You can read more about the
scheme here
Such increase in power in the
hands of the revenue is a worrying
development. We hope these will
be toned down by the time the bill
is enacted.
Service Tax
Change Impact
Maximum penalty for failure to obtain registration
shall be Rs 10,000
Penalty to the extent of Rupees 1 lakh can been
imposed on a director, manager, secretary or any other
officer of a company, for specified offences in cases of
willful actions
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This presentation provides general information existing at the time of preparation. The presentation is intended as a news update and Arkay & Arkay, Chartered Accountants neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this presentation. It is recommended that professional advice be taken based on the specific facts and circumstances. This presentation does not substitute the need to refer to the original pronouncements.