vgglobal highlights of finance budget 2013

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©VGGlobal Advisors Private Limited

Dear All, We are pleased to launch our publication summarizing the major amendments proposed in the Finance Budget 2013 for the financial year 2013-14. The Union Budget is not the only instrument available with the Centre to guide the economy. It has other options also, including transfer and tax-relief measures through the Finance Commission. Of course, the latest Economic Survey and the 2013-14 Budget speech of the finance minister have recognised the importance of policy instruments and have also indicated the Centre's willingness to reconsider the criteria for determining states that deserve a special category status. I am glad that Finance Minister P Chidambaram has said that he will revisit the criteria for special status. The attempt by the finance minister to reduce fiscal deficit through additional resource mobilisation has been minimal. The surcharge of 10% on income tax at the highest slab and a few other additional tax proposals are just not enough to raise required revenues. Had the finance minister been really serious about resource mobilisation, he could have also thought of collecting litigated and unpaid taxes through reasonable settlement of those litigations. About five years ago, such taxes amounted to Rs 1.75 lakh crore while the present volume may be about Rs 2.5 lakh crore. We hope that the you will the budget publication useful. Thanks and regards, Ved Parkash Gupta Partner VGGlobal

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Contents

1. DIRECT TAX ........................................................................................................................................ 4

A. INCOME TAX .................................................................................................................................. 4

I. Amendments in Tax Rates and Surcharge: ........................................................................... 4

II.Amendments in Chapter VI-A Deductions: ............................................................................ 4

III. New Section Introduced: ......................................................................................................... 5

IV. Tax on Distribution of Income: .............................................................................................. 5

V. Amendments in TDS Provisions: ........................................................................................... 6

VI. Other Amendments: ................................................................................................................. 6

B. WEALTH TAX: ................................................................................................................................ 7

I. New Section Introduced ............................................................................................................ 7

2. INDIRECT TAXES ............................................................................................................................... 7

A. CUSTOM DUTY .............................................................................................................................. 7

I. Amendments in the Custom Act, 1962 ................................................................................... 7

II. General Amendments ............................................................................................................... 7

B. EXCISE DUTY ................................................................................................................................. 9

I. Amendments in the Central Excise Act, 1944 ....................................................................... 9

II. General Amendments: .............................................................................................................. 9

C. SERVICE TAX ............................................................................................................................... 11

I. Amendment in Service Tax ..................................................................................................... 11

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TAX PROPOSALS IN FINANCE BUDGET 2013-14

1. DIRECT TAX

A. INCOME TAX

I. Amendments in Tax Rates and Surcharge: ü No change in personal and corporate tax slab rates. ü Individuals, HUFs, firms and entities with similar tax status now have to pay a surcharge of

10 percent on taxable income exceeds Rs. 1 crore per year. ü Increase the surcharge from 5 percent to 10 percent on domestic companies whose

taxable income exceeds Rs. 10 crore per year. In the case of foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2 percent to 5 percent.

ü In all other cases where surcharge is levied, such as dividend distribution tax or tax on

distributed income, increase in the current surcharge of 5 percent to 10 percent. The additional surcharges will be in force for only one year, that is Financial Year 2013-14.

ü Surcharge of 10% introduced on cooperative societies, partnership firms and local

authorities where income exceeds Rs. 1 crore.

ü Amendment of section 115A & 115BBD, Increase in the rate of tax on payments by way of royalty and fees for technical services respectively to non-residents from 10 percent to 25 percent. However, the applicable rate will be the rate of tax stipulated in the DTAA shall be inserted with effect from the 1st April, 2014.

II. Amendments in Chapter VI-A Deductions: ü Amendment of section 80C, for persons suffering from disability or a person with serve

disability referred to in section 80U, or suffering from disease or ailments referred in the rules made under section 80DDB increasing the permissible premium rate from 10 percent to 15 percent of the sum assured. This relaxation shall be available in respect of policies issued on or after 1.4.2013.

ü In section 80CCG of the Act, with effect from the 1st day of April, 2014, Modification in the Rajiv Gandhi Equity Saving Scheme, enabling the first time investor to invest in mutual funds as well as listed shares and they can do so, not in one year alone, but in three successive years. The income limit will be raised from Rs. 10 lakhs to Rs. 12 lakhs.

ü Contributions made to the Central Government Health Scheme are eligible for deduction under section 80D of the Income-tax Act. Extention the same benefit to similar schemes of the Central Government and State Governments.

ü New section 80EE shall be inserted with effect form 1st day of April, 2014, tax benefit to the first-home buyer who takes a loan for an amount not exceeding Rs. 25 lakhs & for the residential property does not exceeds Rs. 40 lakhs. Propose to allow such home buyers an additional deduction of interest of Rs. 1 lakh to be claimed in AY 2014-15. If the limit is not exhausted, the balance may be claimed in AY 2015-16.

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ü Amendment of section 80G, propose to make deduction to Donations made to the National Children’s Fund will now be eligible for 100 percent deduction.

ü Amendment of section 80GGB & 80GGC, provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.

III. New Section Introduced:

ü After section 32AB of the Act, Section 32AC shall be inserted with effect from the 1st day

of April, 2014. Section 32AC provide an investment allowance at the rate of 15 percent beside from depreciation to a manufacturing or production companies that invests more than Rs. 100 crore in plant and machinery after the 31st day of March, 2013 but before the 1st day of April, 2015.

ü After section 43C of the Act, Section 43CA shall be inserted with effect from the 1st day of

April, 2014. Where the consideration received or receivable as a result of the transfer of an asset (other than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or receivable as a result of such transfer.

ü A new section 87A after section 87 of the Act shall be inserted with the effect from the 1st day of April, 2014, that provides a rebate of Rs. 2,000 for individual resident in India, whose total income does not exceed Rs. 500,000, from the amount of income- tax (as computed before allowing deduction under this section) on his total income.

IV. Tax on Distribution of Income:

ü As per amendment in section 115TA, Exemption to the Securitisation Trust from income

tax. Tax shall be levied only at the time of distribution of income by the Securitisation Trust at the rate of 30 percent in the case of companies and at the rate of 25 percent in the case of an individual or HUF. No further tax will be levied on the income received by the investors from the Securitisation Trust.

ü In section 115R of the Act, with effect from 1st day of June, 2013, any amount of income

distributed by the specified company or a Mutual Fund to its unit holders shall be chargeable to tax and such specified company or Mutual Fund shall be liable to pay additional income-tax o such distributed income at the rate 25% in the place of 12.5% for any person being an individual or a HUF & income distributed by a mutual fund under an infrastructure debt fund scheme to a non-resident or a foreign company, the mutual fund liable to pay additional income-tax @5% on income so distributed.

ü Dividend received by an Indian company from its foreign subsidiary company, the tax is payable by the Indian company under section 115BBD on such dividend. Further, the Indian company shall not be liable to pay dividend distribution tax on the distribution to its shareholders of that portion of the income received from its foreign subsidiary.

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ü In section 115QA of the Act, Any income distributed by the domestic company by way of buy back of shares (not being shares listed on a recognized stock exchange) from a shareholder shall be charged to tax & such company shall be liable to pay additional income-tax @ 20% on such distributed income & also liable to pay surcharge on distributed income @10%. Consequently, such income shall be exempt in the hands of the shareholder.

V. Amendments in TDS Provisions:

ü TDS at the rate of 1% on the value of the transfer of immovable property where the

consideration exceeds Rs. 50 lakhs. However, agricultural land will be exempt. VI. Other Amendments:

ü Changes in the Securities Transaction Tax (STT): Equity futures : from 0.017 to 0.01 percent MF/ETF redemptions at fund counters: from 0.25 to 0.001 percent MF/ETF purchase/sale on exchanges : from 0.1 to 0.001 percent, only on the seller

ü Commodities Transaction Tax (CTT) to be levied on non-agricultural commodities futures

contracts at the same rate as on equity futures that is at 0.01 percent of the price of the trade. Trading in commodity derivatives will not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if the income from such transaction forms part of business income.

ü Modified provisions of GAAR will come into effect from 1.4.2016. ü Investor Protection Fund set up by a depository for the protection of interest of beneficial

owners will be exempt from income tax. ü Income earned by companies and trust registered as VCF under the AIF Regulations

under sub category of Category I AIF to be exempt, subject to fulfillment of certain conditions.

ü Keyman insurance policy assigned to any person with or without consideration during its

term to be now treated as keyman insurance policy not eligible for exemption. ü Sunset clause for commencement of business for claiming tax holiday in power sector

extended from 31 March 2013 to 31 March 2014. ü Section 139, a return of income shall be regarded as a defective return unless self

assessment tax together with interest is paid on or before the date of furnishing return of income.

ü Section 142, Revenue authorities enabled to direct special audit of accounts of taxpayer in case of voluminous accounts, doubts about correctness of accounts, multiplicity of transactions or specialized nature of business activities.

ü Period of limitation for completion of assessment/ reassessment to exclude the period up

to the date on which the order of the court is received by the Revenue authorities, in case of challenge before a court of the direction of special audit.

ü Penalty for non-furnishing of Annual Information Return pursuant to a notice issued by the

Revenue authority leviable at Rs. 500 for each day of default.

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B. WEALTH TAX

I. New Section Introduced After section 14 of the Wealth-tax Act, new sections 14A and 14B shall be inserted with effect from the 1st day of June, 2013, which clarifies certain classes of persons (to be notified), will be required to file to return of net wealth in electronic form without enclosing annexures. The annexures will be required to be produced before the assessing officer on demand. 2. INDIRECT TAXES A. CUSTOM DUTY I. Amendments in the Custom Act, 1962

ü Amendment in section 47 of the Act, Interest free period for payment of duty reduced to

two days from the date of bill of entry returned after assessment. ü In section 135(1) of the Act, limit of evasion or attempted to evasion of duty fraudulently

availing of or attempting to avail of drawback or any exemption from duty in connection with export of goods, has been increased from Rs. 30 lakhs to Rs. 50 lakhs.

ü Section 129C of the Act is being amended to enhance the monetary limit of the Single

Bench of the Tribunal to hear & dispose of appeals from Rs. 10 lakhs to Rs. 50 lakhs.

II. General Amendments ü Baggage Rules are being amended to:-

1. Raise the duty free allowance in respect of jewellery for an Indian passenger who has

been residing abroad for over one year or a person who is transferring his residence to India from Rs. 10,000 to Rs. 50,000 in case of a gentleman passenger and from Rs. 20,000 to Rs. 1,00,000 in case of a lady passenger.

2. Raise the duty free allowance for crew member of vessel/aircraft from Rs. 600 to Rs.

1,500. ü Proposals involving changes in rates of duty

1. Agriculture/agro processing/plantation sector

i. Basic customs duty on dehulled oat grain is being reduced from 30% to 15%.\

ii. Basic customs duty on hazel nuts is being reduced from 30% to 10%.

iii. Export duty of 10% on de-oiled rice bran oil cake is being withdrawn.

2. Automobiles

i. Basic customs duty on new passenger cars and other motor vehicles (high end cars) with

CIF value more than US$ 40,000 and/or engine capacity exceeding 3000cc for petrol run vehicles and exceeding 2500 cc for diesel run vehicles is being increased from 75% to 100%.

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ii. Basic customs duty on motor cycle with engine capacity of 800cc or more is being increased

from 60% to 75%. 3. Metals

i. Export duty is being levied on ilmenite unprocessed at 10% and on ilmenite, upgraded at 5%

ii. Export duty is being levied on bauxite at 10%.

iii. Basic customs duty is being reduced from 10% to 5% on stainless steel wire cloth stripe and

from 7.5% to 5% on wash coat for use in the manufacture of catalytic convertors and their parts.

iv. Full exemption from export duty is being provided to galvanized steel sheets falling under

certain sub-headings, retrospectively w.e.f. 01.03.2011.

4. Precious metals

i. Basic customs duty is being reduced from 10% to 2% on pre-forms of precious and semi precious stones.

5. Capital goods/infrastructure

i. Basic customs duty on steam coal is being increased from Nil to 2% and CVD from 1% to 2%.

ii. Basic customs duty on bituminous coal is being reduced from 5% to 2% and CVD from 6% to 2%.

iii. Basic customs duty is being reduced from 7.5% to 5% on 20 specified machinery for use in

leather and footwear industry.

6. Aircrafts & ships

i. Basic Customs Duty on yachts and motor boats is being increased from 10% to 25%.

ii. Time limit for consumption of imported goods by ship repair units is being extended from 3

months to 1 year.

iii. Time period for consumption/installation of parts and testing equipments imported for maintenance, repair and overhaul (MRO) of aircrafts by units engaged in such activities is being extended from 3 months to 1 year.

iv. Presently, the basic customs duty exemption is available to parts and testing equipments for

maintenance, repair and overhaul of aircrafts. This exemption is now being extended to parts and testing equipments for maintenance, repair and overhaul of aircrafts and parts thereof.

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7. Environment protection

i. Full exemption from basic customs duty is being provided to lithium ion automotive battery for manufacture of lithium ion battery packs for supply to the manufacturers of hybrid and electric vehicles.

ii. Time period of exemption (Nil BCD, CVD of 6% and Nil SAD) for the specified parts of electric and hybrid vehicles is being extended by 2 more years up to 31st March, 2015.

8. Textiles

i. Basic customs duty on raw silk (not thrown), of all grades is being increased from 5% to 15%.

ii. Basic customs duty is being reduced from 7.5% to 5% on textile machinery & parts. 9. Electronics/hardware

i. Basic customs duty on Set Top Boxes for TV is being increased from 5% to 10%.

10. Miscellaneous

i. Full exemption from basic customs duty and additional customs duty is being provided to

trophy imported by National Sports Federation recognized by the Department of Sports and Youth Affairs or any Sports Body registered under Societies Registration Act, in connection with any international tournament held in India.

ii. Withdrawal of exemption from education cess and secondary & higher education cess on aircraft and aircraft parts, soyabean oil, olive oil etc.

B. EXCISE DUTY

I. Amendments in the Central Excise Act, 1944

ü Section 9 of the Act provides that, an offence case involving evasion in which the duty leviable

exceeds thirty lakh rupees shall be punishable with a term of imprisonment extending to seven years with fine. This section is being amended so as to substitute the amount of thirty lakh rupees with fifty lakh rupees.

ü A new proviso is being inserted in sub-section (2A) of section 35C so as to provide that in

cases where delay in disposing of the appeal is not attributable to the appellant, the Tribunal may extend the period of stay by a period not exceeding 185 days subject to the condition that if the appeal is not disposed of within the total period of 365 days from the date of order, the stay shall stand vacated.

ü Section 35D is being amended to enhance the monetary limit of the Single Bench of the Tribunal to hear and dispose of appeals from "Rs. 10 lakhs" to "Rs. 50 lakhs”.

II. General Amendments

ü Proposals involving changes in rates of duty:

1. Agriculture/agro processing/plantation sector

i. Full exemption from excise duty is being provided on tapioca sago (sabudana) and tapioca

starch manufactured and consumed captively in the manufacture of tapioca sago.

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ii. Full exemption from excise duty is being provided on henna powder or paste, not mixed with

any other ingredient. 2. Automobiles

i. Excise duty on SUVs is being increased from 27% to 30%.

ii. Excise duty on truck chassis (8706 00 42) is being reduced from 14% to 13%.

iii. Sports Utility Vehicles registered solely for use as taxis will not suffer additional excise duty

consequent to the increase in excise duty on SUVs from 27% to 30%. Taxi refund in respect of SUVs is being adjusted accordingly.

3. Metals

i. Excise duty of 4% is being levied on silver manufactured from zinc/lead smelting.

ii. Compounded levy on stainless steel "Patta Patti" is being increased from Rs. 30,000 per machine per month to Rs. 40,000 per machine per month.

iii. It is being clarified that the item "trimmed or untrimmed sheets or circles of copper intended

for use in the manufacture of handicrafts or utensils" presently leviable to excise duty at Rs. 3500 per MT includes copper and copper alloys including brass.

4. Aircrafts & ships

i. Full exemption from excise duty is being provided on ships and other vessels. Consequently, there will be no CVD on these ships and vessels when imported.

5. Textiles

i. Full exemption from excise duty is being provided on hand made carpets and carpets and other textile floor coverings of coir or jute, whether or not handmade.

ii. 'Zero excise duty route', as existed prior to Budget 2011-12, is being restored in respect of branded readymade garments and made ups. In the case of cotton there will be zero duty at the fibre stage and, in the case of spun yarn of man made fibres, there will be a duty of 12% at the fibre stage. The 'Zero excise duty route' will be in addition to the CENVAT route now available.

6. Health

i. Branded Ayurvedic medicaments and medicaments of Unani, Siddha, Homeopathic or bio chemic system are being brought under MRP based assessment with abatement of 35% from MRP.

7. Electronics/Hardware

i. Excise duty on mobile phones of retail sale price exceeding Rs. 2000/- is being increased from 1% to 6%.

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8. Miscellaneous

i. Excise duty on cigarettes is being increased by about 18% on all cigarettes except cigarettes of length not exceeding 65 mm. Cigars and cigarillos duty is also being similarly raised.

ii. Excise duty on marble tiles and slabs is being increased from Rs. 30 per sq. mtr to Rs. 60 per sq. mtr.

iii. Full exemption from excise duty is being provided to intermediate goods manufactured and

consumed captively by exempted units under Area Based Exemption Scheme in Himachal Pradesh and Uttarakhand.

C. SERVICE TAX

I. Amendment in Service Tax

ü Two services included in the negative list. One being, vocational courses offered by institutes affiliated to the State Council of Vocational Training and second being testing activities in relation to agriculture and agricultural produce.

ü Full exemption of service tax was granted on copyright on cinematography. The benefit of

exemption to films exhibited in cinema halls. ü Levy of service tax on all air conditioned restaurants.

ü Homes and flats with a carpet area of 2,000 sq.ft. or more or of a value of Rs. 1 crore or

more are high-end constructions where the component of ‘service’ is greater. Hence, propose to reduce the rate of abatement for this class of buildings from 75 percent to 70 percent. Existing exemptions from service tax for low cost housing and single residential units will continue.

ü Amnesty scheme, i.e. Service Tax Voluntary Compliance Encouragement Scheme, 2013 introduced to recover unpaid taxes for the period October 2007 to December 2012.

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Thank You

VGGlobal

About VGGlobal

VGGlobal is a leader in assurance, tax, transaction and advisory services. We believe in increasing the potentials of our clients through our expertise.

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24/4818, Prahlad Street, Ansari Road, Daryaganj, New Delhi - 110002

Contacts:

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Mobile: +91 9868187674

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Telephone: 011 23280059, 011 23269472

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vgglobal highlights of finance budget 2013

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