union budget 2014 15 - for the common man

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Important Amendments Presented by Ameet N. Patel 16 th July, 2014

Author: ameet-patel

Post on 17-Aug-2014



Economy & Finance

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The Union Budget of India always evokes a great amount of interest. This time, it was even more keenly awaited since it was the 1st Budget of the new Modi government. This presentation contains a few important pointers on how the Budget affects the common man.


  • Important Amendments Presented by Ameet N. Patel 16th July, 2014
  • 2 What the Aam Aadmi expected from the #ModiBudget? Achche Din!
  • 3 What were the most important expectations? Reduction in tax rates / changes in slabs Simplification of law Steps for reducing inflation Introduction of GST Changes in subsidies doled out Spurring economic growth No more populism Removal of retrospective amendments of past Push back of GAAR provisions Clear signal to foreign investors to come to India
  • And what did the Finance Minister give us? A marathon Budget Speech with a 5 minute break thrown in Not too many heavy duty policy decisions No indication of what is being done about inflation No roll back on retrospective amendments A few changes aimed at reducing litigation Quite a few changes affecting stock markets Resolve to push GST forward Committee to review Expenditure of the Govt Resolve to reduce wastage of food grains And lots more
  • No change in rates of taxes No abolition of / changes in Surcharge & Education Cesses DDT to be grossed up Tax slabs increased For Resident senior citizens (above 60 years but below 80 years) threshold limit increased from Rs. 2,50,000 to Rs. 3,00,000 For others threshold limit increased from Rs. 2,00,000 to Rs. 2,50,000 Individuals above 80 years No change. Rs 5,00,000 continues Tax Rates
  • Tax Rates Slab Rates: For persons other than Resident senior citizens (below 60 years) Slabs Tax Rate Up to Rs 2,50,000 NIL Rs 2,50,001 to Rs 5,00,000 10% Rs 5,00,001 to Rs 10,00,000 20% Above Rs 10,00,000 30%
  • Tax Rates Slab Rates: For Resident senior citizens (60 years and above but below 80 years) Slabs Tax Rate Upto Rs 3,00,000 NIL Rs 3,00,001 to Rs 5,00,000 10% Rs 5,00,001 to Rs 10,00,000 20% Above Rs 10,00,000 30%
  • Effective Tax Rates Individuals earning more than INR 1 crore 33.99% Corporate Tax Domestic Company Income less than INR 1 crore 30.90% Income from INR 1 crore to INR 10 crore 32.445% Income more than INR 10 crore 33.99% Corporate Tax Foreign Company Income less than INR 1 crore 41.20% Income from INR 1 crore to INR 10 crore 42.024% Income more than INR 10 crore 43.26% Firm/LLPs Income less than INR 1 crore 30.90% Income up to INR 1 crore 33.99%
  • Two important changes The limit for deduction of interest on Self Occupied Property has been increased from 1.5 lakh to 2 lakh Limit of Investment under section 80C has been increased from 1 lakh to 1.5 lakh PPF Limit to be increased to Rs 1.5 lakh (look at past experience when limit was raised from 70,000 to 100,000)
  • NET IMPACT OF 3 IMPORTANT CHANGES Increase in threshold limits Increase in 80C limit Increase in deduction for Interest on Housing Loans As a result of the above, if you are having taxable income exceeding Rs. 10 lakh but less than Rs. 1 crore, then you will pay a lower tax and save about Rs. 36,050. Eg: Present Amended Gross Income 1,800,000 1,800,000 Less: Interest on Housing Loan 150,000 200,000 Less: 80C deduction 100,000 150,000 Taxable Income 1,550,000 1,450,000 Tax payable 295,000 260,000 Education Cess 8,850 7,800 Total tax payable 303,850 267,800 Net Saving 36,050
  • Exemptions From Long Term Capital Gains by investing in Residential House Property Sections 54 / 54F When a residential house or any other long term capital asset is sold, exemption is available if a new residential house is purchased or constructed within the specified time limit and subject to conditions Controversy on whether exemption is available if 2 residential houses are constructed/purchased Amendment : Exemption available only in respect of one residential house purchased / constructed Additional condition now laid down: The new house should be in India
  • Exemptions From Long Term Capital Gains by investing in Specified Bonds Section 54EC If any long-term capital asset is sold, an exemption is available if the amount of Capital Gains is invested within 6 months in o REC Bonds o NHAI Bonds Maximum deduction was prescribed as Rs. 50 Lakh per financial year Tax planning : To pace 6 months in such a way that 2 financial years fall within the period - exemption claimed : Rs. 1 Crore Amendment: Rs. 50 Lakh is maximum exemption that can be claimed over both years (what about exemption for gain earned in next year?)
  • Period of holding for qualifying as long-term capital asset increased from 12 months to 36 months This will immediately impact FMPs Tax rate of 20% applicable in case of debt fund - 10% tax without indexation has been done away with This will also immediately impact FMPs Does this amount to retrospective amendment? What about the redemptions that have already taken place post 1st April, 2014 ? Unlisted Securities & Units of Debt Funds
  • Advance Money Forfeited Money received as an advance in the course of negotiation for transfer of a capital asset is taxable if the negotiation does not result in transfer of such capital asset in the same year Earlier, the same effectively became taxable as part of capital gains when the asset for which negotiation was unsuccessful was actually sold Now, it will be treated as income from other sources. Hence exemptions available for capital assets shall not be available
  • DDT to be Grossed Up After Amendment Dividend Distributed : 85 Increased by Rs 15 [85*0.15)/(1-0.15)] Increased amount : Rs 100 DDT @ 15% of Rs 100 = Rs 15 Total outgo for company: Rs. 100 (Sur charge and EC not considered above) Before Amendment Dividend Distributed : 85 DDT Rate : 15% DDT @ 15% paid by company on Rs 85 = 85*15% = 12.75% Total outgo for company : Rs. 97.75 (Sur charge and EC not considered above)
  • DDT to be Grossed Up The impact is even more dramatic and disastrous for income distributed on units of mutual fund Mutual fund industry is shaken up Present Amended DDT Companies 15% 17.65% DDT Mutual Funds Individuals and HUF 25% 33.33% DDT Mutual Funds Others 30% 42.86% Plus applicable surcharge and cess. The provisions is effective from 1st October, 2014.
  • Are there any positives out of this amendment ? Possibility of getting out of the web of Section 14A Possibility of getting a credit for the tax in another country (in case of Non Residents from a DTAA country)
  • Disallowance of expenses in case of non- withholding of tax Payments to non residents brought at par with payments to residents - eligible to claim deduction of expenses if withholding taxes paid upto due date of filing of Return. In case of payment made to a resident, disallowance of expenses on account of non-deduction/non-payment of taxes restricted to 30% instead of 100% Disallowance of salary payments if default in withholding tax payments
  • Corporate Social Responsibility (CSR) Expenses not an allowable business expenditure Sec 32AC (1A):- Investment Allowance Special provision introduced providing deduction on investment in plant and machinery for manufacturing companies Introduced to promote investments in medium size entities Eligible for investment in new plant and machinery of more than INR 25 crore for each year Benefit available between April 2014 to March 2017 Investment allowance of 15% of the actual cost of machinery allowed Other Amendments
  • Other Amendments Returns no longer required to be signed? Amendment in section 140 Does this mean that ITR-V is now not required to be sent to CPC? If yes, this is a big change
  • Ambiguity in case of Foreign Institutional Investors (FII) of characterization of income from transfer of securities (business income or capital gains) has been removed Definition of capital asset includes security held by FII in accordance with the regulations of SEBI Transfer by Foreign Institutional Investors (FII) of such security would be taxable as capital gains Question for FM: What about domestic investors? Why can they not have the same clarity? Characterisation of Income in case of FIIs
  • Every time the Government lost an important case in the Supreme Court, the law was amended Post Vodafone defeat in the Supreme Court, a major retrospective amendment was made There was an expectation that the amendment would be removed by Mr Jaitley However, he has not touched the amendment But, he has said that in principle, he is not very much in favour of making such amendments in future He has also said that any action sought to be taken on the basis of the retrospective amendments made 2 years ago will be scrutinised by a High Level Committee to be constituted by the CBDT Retrospective Amendments
  • Loans given/ received through use of Electronic Clearance System (ECS) not subject to provisions of sections 269SS & 269T (in future, hopefully, even book entries will be excluded) New provisions introduced for REITs and INVITs APA - Roll back mechanism introduced ALP or method determined in APA can be applied to the past years Can go up to four preceding years from the first year of APA Detailed rules procedure and conditions to be prescribed Substantial relief to taxpayer and great boost to APA program Would result in significant reduction in litigation Effective from 1 October 2014 Maturity of LIC policies TDS to be deducted by Insurance companies in some cases good move to curb tax evasion Other Amendments
  • Service Tax Service Tax rate remains unchanged at 12.36% Tax base widened to include following (Effective from a date to be notified after Presidential assent) Sale of space or time for advertisements through online and mobile advertising Services provided by radio taxis or radio cabs, whether or not air- conditioned Exemption withdrawn with 11 July 2014 - Services of Clinical research on human participants Services rendered by Air-conditioned contract carriages like buses Meaning of auxiliary educational service narrowed to grant exemption only to specified services rendered to educational institutions Exemption available to renting of immovable property given to educational institutions withdrawn
  • Service Tax Ambit of exemptions widened to include the following Effective 11 July 2014 Transport of organic manure by vessel, rail or road (by GTA) Loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton, ginned or baled Specialized financial services received by RBI from global financial institutions in the course of management of foreign exchange reserves Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India
  • Other Changes Color picture tubes exempted from Basic Custom Duty to make cathode ray TV cheaper and more affordable to weaker sections To encourage production of LCD and LED TVs below 19 inches, Basic custom duty reduced from 10% to NIL Specific rates of excise duty increased on cigarettes in the range of 11% to 72% Additional excise duty of 5% on aerated waters containing added sugar
  • Customs Duty Baggage rules amended to increase the limit for duty-free baggage allowance (effective 11 July 2014) Passengers Old Limit New Limit Passengers of and above 10 years of age and returning from stay abroad of > 3 days INR 35,000 INR 45,000 Passengers of and above 10 years of age and returning from stay abroad of < 3 days INR 15,000 INR 17,500
  • GST Finance Minister assured the House that debate on GST should come to end and before year end the Government would endeavour to approve legislative scheme Though no firm commitment on proposed date of introduction of GST It appears that the Government would considered step-by-step approach to introduce GST First, CenGST (CGST) would be introduced at Central level and then SGST will be introduced to replace the State level indirect taxes In particular, CGST would consolidate the following indirect taxes viz; Central Excise Duty, Service Tax, additional Excise Duties, etc GST may streamline the tax administration, avoid harassment of the business and may result in higher revenue collection both for the Centre and the States The above approach seems simple, but could pose a challenge to the industries as it will involve two level consolidations namely; Introduction of CGST and later, SGST introduction
  • BIG TAKE AWAYS Several moves to reduce litigation INDIRECT TAXES: Scheme of Advance Rulings is being extended to resident private limited companies Amendments proposed in the appeal procedures by making mandatory fixed pre-deposit for appeals to be entertained by the Commissioner (Appeals) and Tribunals. DIRECT TAXES: CBDT has issued circular increasing limit for non filing of appeals to ITAT by the department Assurance on retrospective amendments AAR & Settlement Commission related changes mentioned but not enacted
  • BIG TAKE AWAYS Clarity / stability being brought in Several sunset clauses extended either indefinitely or for few more years eg: 80IA 32AC Classification of income for FIIs REITs & INVITs new Chapter brought in Amendments to sections 54, 54F, 54EC
  • Achche Din So, Coming Soon!
  • Thank You! You can contact me on [email protected]