Budget 2014
R.Vijayaraghavan, Senior Partner
Vikram Vijayaraghavan, Advocate
M/s Subbaraya Aiyar, Padmanabhan & Ramamani
Advocates, Chennai
Agenda
• Income Tax
– Business Trusts
– Investment Allowance
– Capital Expenditure
– TDS
– Power Sector
– Dividend & Income Distribution Tax
– Capital Gains
– Speculation-related Provisions
– Trusts
– AMT
– Tax Authorities & Procedural Aspects
– Transfer Pricing
– Personal Taxation
• Central Excise & Customs
• Service Tax
Budget 2014
Income Tax amendments
Budget 2014 : Business Trusts
• Aimed towards promoting investment in real
estate and infrastructure in India via PPP model
• Clause 3 of Finance Bill proposes to insert new
definition S.2(13A) to define “Business Trusts” to
mean a trust registered as an Infrastructure
Investment Trust (Invits) or Real Estate
Investment trust (REITs), the units of which are
required to be listed on a recognized stock
exchange, in accordance with SEBI Act, 1992 and
notified by Central Government in this behalf
Budget 2014 : Business Trusts
• Income-investment model of REITs and Invits:
– Trust would raise capital by way of issue of units (to be listed on
recognized stock exchange) and can also raise debts directly
from both resident & non-resident investors
– Income bearing assets would be held by the trust by acquiring
controlling or other specific interest in an Indian company (SPV)
from the Sponsor
• Business Trust (Chapter XII-FA) shall file Return of Income
(S.139(4E)) and furnish Income & Expenditure Statement to its unit
holders (S.115UA(4))
• In case of ECBs by the trust, the TDS will be 5% for such period as
provide in S. 194LC.
• These provisions supply the taxation regime for the Draft
Regulations, 2013 (put up for public comments till October 2013)
issued by SEBI on REITs and Invits.
Business Trusts
Investor
Sponsor
REIT
Manager
Trustee
SPV
Real estate assets
• SPV: All entities that REIT has majority
interest will qualify as SPV. Explanation
to S.10(23FC) “an Indian company in
which the business trust holds
controlling interest and any specific
percentage of shareholding or interest,
as may be required by the regulations
under which such trust is granted
registration
• Investors: Unit holders of the REIT
• Trustees: Holds property on behalf of
the investor
• Sponsor (Transferor): Required to hold
minimum 15% (25% for first 3 years) of
total outstanding units of REIT at all
times to show “skin-in the game”
• Distribution: 90% of net distributable
income after tax of REIT is required to
be distributed to unit holders after 15
days of declaration
Budget 2014 : Business Trusts
Taxable Event
For
REIT/Invit
For Unit Holders
(Investors)
For Sponsor
(Transferor)
For SPV
Capital Gain on
sale of units of
business trust
N/A
Subject to STT and given tax
N/A
treatment similar to equity shares of
company (S.10(38))
Dividend income
from SPV on
shares held by
Business Trust
Dividend
received
exempt
from tax
Dividend component distributed by
Business Trust exempt from tax
DDT will be
payable by SPV
Other income
(S.115UA(2))
Taxable at
maximum
marginal
rate
Any distributed income from
Business Trust (other than interest
income) will be exempt from tax
(S.10(23FD))
N/A
Budget 2014 : Business Trusts
Taxable Event
For
REIT/Invit
For Unit Holders
(Investors)
For Sponsor (Transferor)
For SPV
Capital gains on
exchange of
shares of SPV for
units of business
trust
N/A
N/A
•
N/A
•
•
•
No capital gains at
time of exchange
(S.47(xvii))
CG taxable at time of
sale of units received
in exchange of shares
even if transaction of
sale of units carried
out on a recognized
stock exchange
Cost of shares
exchanged will be
cost of units
(S.49(2AC))
Period of holding of
shares will be
included for period of
holding of units
Budget 2014 : Business Trusts
Taxable Event
For REIT/Invit
For Unit
For Sponsor
Holders
(Transferor)
(Investors)
For SPV
Interest
income from
SPV on money
lent by
Business Trust
(S.10(23FC))
• Interest received
exempt in hands of
Business Trust
• SPV not required to
withhold tax
(S.194A(3)(xi))
• Business Trust to
withhold at time of
distribution of its
income (S.194LBA)
- 5% in case of nonresident unit holders
- 10% in case of resident
unit holders
Interest component
distributed taxable in
hands of unit holders:
- 5% in case of nonresident unit holders
- At normal income-tax
rates for resident unit
holders
Deduction
will be
available to
SPV as per
normal
provisions
of IT Act
Budget 2014: Investment Allowance
Section 32AC
• To encourage companies engaged in business of
manufacture or production of an article or thing to invest
substantial amount in acquisition and installation of new
machinery
• Finance Act 2013 inserted S.32AC in the IT Act to provide
that where an assessee, being a company, is engaged in the
business of manufacture of an article or thing and invests a
sum of more than Rs.100 crore in new assets (plant and
machinery) during the period beginning from 1st April,
2013 and ending on 31st March, 2015, then the assessee
shall be allowed a deduction of 15% of cost of new assets
for assessment years 2014-15 and 2015-16.
• Proposed to extend the deduction u/S. 32AC up to to
31.3.2017
Budget 2014: Investment Allowance
Section 32AC
• To make medium size investments in plant and machinery
eligible for deduction, it is proposed that deduction under S.
32AC of shall be allowed if company on or after 1st April, 2014
invests more than Rs.25 crore in plant and machinery in a
previous year.
• Also proposed that assessee who is eligible to claim deduction
under existing combined threshold limit of Rs.100 crore for
investment made in FYs 2013-14 and 2014-15 shall continue to
be eligible to claim deduction under existing provisions
contained in sub-section (1) of section 32AC EVEN IF its
investment in year 2014-15 is below proposed new threshold
limit of investment of Rs. 25 crore during previous year
• Phrase “acquired and installed” – is it necessary for both to be in
same year? This might not be practical!
Budget 2014: Investment Allowance
Section 32AC
Amendments will take effect from 1st April 2015 (>= AY 15-16)
Budget 2014: Capital Expenditure
Section 35AD
• Two new business in the list of “specified business” u/S. 35AD
so as to promote investment in these sectors
– Laying and operating a slurry pipeline for transportation of
iron ore
– Setting up and operating a semiconductor wafer fabrication
manufacturing unit (notified by Board)
• Date of commencement of operations for S.35AD deduction for
these specified businesses shall be from 1st April, 2014
• Sub-section (7A) inserted in S.35AD to provide that any asset in
respect of which a deduction is claimed & allowed under
S.35AD, shall be used only for the specified business for a period
of eight years beginning with previous year in which such asset is
acquired or constructed
Budget 2014: Capital Expenditure
Section 35AD
• New sub-section (7B) to provide that if asset is used for any
purpose other than the specified business, total amount of
deduction so claimed and allowed in any previous year in
respect of such asset, as reduced by the amount of
depreciation allowable in accordance with the provisions of
S.32 as if no deduction had been allowed under section 35AD,
shall be deemed to be income of the assessee chargeable
under the head “Profits and gains of business or profession”
of the previous year in which the asset is so used.
• Example:
– Deduction under section 35AD on capital asset : Rs. 100
– Depreciation eligible on such asset u/S. 32 : Rs. 15
– Profit chargeable to tax under S.35AD(7B) : Rs. 85
Budget 2014: Capital Expenditure
Section 35AD
• Sub-section (7B) to S.35AD not applicable to sick
industrial company
• Where any deduction has been availed of by the assessee
on account of capital expenditure u/s 35AD, no
deduction under section 10AA shall be available to the
assessee in the same or any other assessment year in
respect of such specified business. (Section 10AA also
has been suitably amended to reflect if S.10AA deduction
is claimed no deduction u/s 35AD can be availed)
• Amendments will take effect from 1st April 2015
Budget 2014: TDS
Overview of changes
• S.40(a)(i) - Deduction allowed if paid before filing of
return
• S.40(a)(ia) - Restriction of disallowance to 30% of sum
payable to resident
• S.194DA – TDS on life insurance policy
• S.194LC – Concessional rate on bonds
• S.200 & S.200A - Correction statement
• S.201(3)(i) & S.201(3)(ii) - Time limits for proceedings
• S.271H – Penalty on failure to furnish TDS statements
• Amendments made with effect from 1st October 2014.
Budget 2014: TDS
S.40(a)(i)
• The existing provisions of S.40(a)(i) provide that certain
payments such as interest, royalty and FTS services made to
non-resident shall not be allowed as deduction if tax on such
payments was not deducted, or after deduction, was not paid
within time prescribed under S.200(1)
• Also, under Section 40(a)(ia) of the Act, in case of payments
made to resident, the deductor is allowed to claim deduction
for payments as expenditure in the previous year of
payment, if tax is deducted during the previous year and
same is paid on or before due date under section 139(1)
• Now, as in S.40(a)(ia), similar extended time limit of
payments of tax deducted from payments to non-residents is
proposed u/S. 40(a)(i)
Budget 2014: TDS
S.40(a)(ia)
• S.40(a)(ia) disallowance under section shall extend to all
expenditure on which tax is deductible under Chapter
XVII-B of the Act (salary, Director’s fee etc.)
• Disallowance u/S. 40(a)(ia) shall be restricted to “thirty
per cent. of any sum payable to a resident”
– Word “payable” retained. SC recently dismissed SLP
in CIT vs. Vector Shipping Services (CC Nos.8068/2014
arising out ITA No.122/2013 dated 09/07/2013 passed
by Allahabad HC)
– What happens to earlier disallowance of 100% on
which TDS is now paid?
Budget 2014 : TDS
S.194DA – TDS on Life Insurance Policy
• It is proposed to insert a new S.194DA to provide for
deduction of tax at the rate of 2% on sum paid under
a life insurance policy, including the sum allocated
by way of bonus, which are not exempt under
section 10(10D)
• Proposed that no deduction under this provision
shall be made if the aggregate sum paid in a financial
year to an assessee is less than Rs.1,00,000/-.
• Amendment with effect from 1st October, 2014.
Budget 2014 : TDS
S.194LC
• Proposed to amend S. 194LC to extend the benefit of 5%
concessional rate of withholding tax to borrowings by way
of issue of any long-term bond, and not limited to a long
term infrastructure bond
– Benefit extended to Business Trusts also
• Proposed to extend by two years the period of borrowing
for which the said benefit shall be available i.e, this rate will
now be available in respect of borrowings made before
1.7.2017.
• Consequential amendment proposed in S.206AA to ensure
this benefit of exemption is extended to payment of
interest on any long-term bond referred to in S.194LC.
• Amendments with effect from 1st October, 2014.
Budget 2014 : TDS
Section 200 & 201
• Currently, a deductor is allowed to file correction statement
for rectification/updation of the information furnished in the
original TDS statement vide Notification No. 03/2013 dated
15th January 2013. Section 200 and 200A to be amended
accordingly
• S.201(3)(i) which refers to two years from end of FY in which
statement is filed in a case where statement referred to in
S.200 has been filed is to be omitted
• In order to align the time limit provided under section 201
(3)(ii) and section 148 of the Act, it is proposed that time limit
provided under section 201 (3)(ii) of the Act for passing
order under section 201(1) of the Act shall be extended by
one more year.
Budget 2014 : TDS
Section 271H
• The existing provisions of section 271 H of the Act provides for
levy of penalty for failure to furnish TDS/TCS statements in
certain cases or furnishing of incorrect information in TDS/TCS
statements.
• However existing S.271 H does NOT specify the authority
which would be competent to levy the penalty under the said
section. Therefore, provisions of section 271H are proposed
to be amended to provide that the penalty under section
271H shall be levied by the Assessing officer
Budget 2014: Power sector
S.80-IA
• With a view to provide further time to the
undertakings to commence the eligible
activity u/s 80-IA to avail the tax incentive, it is
proposed to amend provisions of S.80-IA to
extend the terminal date for a further period
up to 31st March, 2017 i.e. till the end of the
12th Five Year Plan.
• Amendment will take effect from 1st April
2015
Budget 2014 : Dividend & Income Distribution Tax
S.115-O & S.115R: Grossing-up of DDT
• S.115-O: Earlier dividend tax was paid on the amount of
dividend distributed. However from the time of amendment
i.e 1st Ocotber 2014, the Dividend distributed shall be
considered as 85% and shall be increased to 100%. The DDT is
computed on such grossed up amount.
• Example:
– Dividend amount distributed = Rs.100
– DDT payable u/s 115-O is Rs.17.64 (as 15% of Rs.117.64 is
Rs.17.64 and net amount is Rs.117.64-Rs.17.64 = Rs.100)
• Sec 115R: This section deals with distribution tax in case of
UTI, tax has to be deducted at 10%. Here also, as in the case
of 115-O, distributed amount should be increased by 10%
(grossed-up by 11.11%).
Budget 2014 : Dividend & Income Distribution Tax
S.115BBD - Extension
• Existing provisions of S.115BBD provide that where total income of
an Indian company for the previous year relevant to AY beginning
on 1.4.2012 or 1.4.2013 or 1.4.2014, includes any income by way of
dividends by a specified foreign company, the income-tax payable
shall be the aggregate of the amount of income-tax calculated on
the income by way of such dividends at the rate of fifteen per cent
and amount of income-tax with which the assessee would have
been chargeable had its total income been reduced by amount of
aforesaid dividend income
• No deductions in respect of any expenditure or allowance shall be
allowed for computing its dividend income.
• It is proposed to amend S.115BBD to provide its provisions of
taxation shall continue to apply to foreign dividends received
during the financial year 2014-15 and subsequent years.
• Amendment will take effect from 1st April, 2015
Capital Gains
• S.2(14) – Characterization of Income in case of FII
• S.2(42A) – Period of Holding of unlisted securities & units of
debt funds
• S.45(5) – Capital Gains on Compulsory Acquisition
• S.47(viib) – Transfer of Govt. Securities between NR’s
• S.48 – Indexation computation for CG
• S.54EC – Investment of Rs.50 lakhs
• S.54F – Investment in one residential house in India
• S.56(2)(ix), S.51 and S.2(24)(xvii) – Advance received in for
transfer of capital asset
• S.111A – Tax at concessional rate for Business Trusts
• S.112 – Long-term Capital Gains for debt funds
Budget 2014 : Capital Gains
S.2(14)
• Proposed to amend the definition of “capital asset” to
provide that any “securities” held by an FII which have
been invested in accordance with the regulations made
under the SEBI Act will be considered as “capital asset”.
– Aimed to end uncertainity in characterization of
income arising out from transactions in securities by
foreign portfolio investors as to whether it is Capital
Gains or Business Income
• Consequently, the income arising from the transfer of
such “securities” will be subject to tax as capital gains.
Budget : Capital Gains
S.2(42A) – Period of holding
• Currently, in case of shares held in a company and units of
Mutual Funds, the minimum holding period for qualifying
as ‘long-term capital asset’ is 12 months.
• Proposed that to qualify as ‘long-term capital asset’, the
minimum holding period for unlisted securities and units
of Mutual Funds (other than equity-oriented funds) will
be at par with other capital assets at 36 months.
– Respite for investors in debt-oriented Mutual Funds
likely? Complaints of retrospective amendment by
industry since debt mutual fund units already sold this
year so far and which were held for less than 36 months
will now give rise to STCG
Budget 2014 : Capital Gains
S.45(5) – Compulsory acquisition
• With respect to CG arising from transfer by compulsory
acquisition, it is proposed to provide that the amount of
compensation received in pursuance of an interim order of
the Court, Tribunal or other authority shall be deemed to be
income chargeable under the head ‘Capital gains’ in the
previous year in which the final order of such court, Tribunal
or other authority is made
– What happens if interim award is contested and
subsequently reversed?
– Note that this is applicable only to awards for
compensation on compulsory acquisition and not for other
awards such as damages or for withdrawing litigation
• Amendment effective from 1st April 2015
Budget 2014 : Capital Gains
S.47(viib) – Transfer of Govt. Securities between NR’s
• With a view to facilitate trading of Government securities
outside India, it is proposed to insert S.47(viib) so as to
provide that any transfer of a capital asset, being a
Government Security carrying a periodic payment of
interest, made outside India through an intermediary
dealing in settlement of securities, by a non-resident to
another non-resident shall not be considered as transfer
for the purpose of charging capital gains.
– Therefore before redemption there would be transfer
between associates at redemption price to avoid CG
• This amendment will take effect from 1st April, 2015 and
will, accordingly, apply in relation to AY >= 2015-16
Budget 2014 : Capital Gains
S.48 - Indexation
• The release of Consumer Price Index (CPI) for Urban NonManual Employees has been discontinued. Hence it is
proposed to amend clause (v) of the Explanation to S.48 to
provide that “Cost Inflation Index” (CII) in relation to a
previous year means such index as may be notified by the
Central Government having regard to seventy-five percent
of average rise in the Consumer Price Index (Urban) for the
immediately preceding previous year to such previous year.
– Expected amendment to bring forward optional year of
acquisition to 2010 has not happened
• This amendment will take effect from 1st April, 2016 and
will, accordingly, apply in relation to AY >= 2016-17
Budget 2014 : Capital Gains
S.54EC – Investment in specified bonds
• Earlier it was contended that for transfer of one asset two
investments of Rs. 50 lakhs in two successive previous years,
within 6 months of sale, can be invested:
– Aspi Ginwala, Shree Ram Engg. & Mfg. Industries v. ACIT
[2012] 20 taxmann.com 75/52 SOT 16 (Ahd.)
– Vivek Jairazbhoy v. Dy. CIT (ITA No.236/Bang/2012)
– Smt. Sriram Indubal v. ITO (32 taxmann.com 118 Chennai)
– ITO v. Ms. Rania Faleiro (33 taxmann.com 611 Panaji)
• New Proviso in 54EC(1), applicable from 1st April 2015, so as to
provide that investment made by assessee in long-term
specified asset, out of CG, arising from transfer of original asset,
during FY in which original asset(s) are transferred and in
subsequent FY does not exceed fifty lakh Rupees.
Budget 2014 : Capital Gains
S.54F
• S.54 and S.54F now specify “one residential house in India”
instead of “a residential house”
– Investments in houses outside India no longer entitled to
exemption. Overrules decisions such as
• Mrs. Prema P. Shah, Sanjiv P. Shah vs ITO (2006) 282 ITR
(AT) 211 (Mumbai)
• Vinay Mishra vs. Asstt.CIT –ITA NO.895(Ban) of 2012order dated 12-10-12-[2012] 79 DTR (Bang) (Trib.) 1
– Partially retrospective as it applies for transactions from 1st
April 2015 (for the Budget presented in June and not
February)
Budget 2014 : Capital Gains
S.54F
• Will the wording “one residential house” effect judgments which
allowed multiple flats to be construed as “a residential house”?
• Number of decisions have construed phrase “a residential house”
liberally in favour of assessee:
– CIT vs. D. Ananda Basappa (2009) 180 Taxman 4 (Karnataka HC)
held that exemption u/S.54 available when 2 flats purchased
combined into 1 residential unit
– Followed in CIT vs. Smt. Rukminiamma 196 Taxman 87 and CIT
vs. Jyoti K.Mehta ITA No.194 of 2010 (Karnataka HC)
– Dr. (Smt.) P.K. Vasanthi Rangarajan vs. CIT [2012] 23
taxmann.com 299 Madras HC followed the same and held “four
residential flats” constituted “a residential house”
– Smt. V.R. Karpagam vs. ITO 34 taxmann.com 98 (Chennai - Trib.).
– CIT vs. Syed Ali Adil (2013) 33 taxmann.com 212 (AP High Court)
(overturning ITO vs. Sushila M. Jhaveri 107 ITD 327 SB decision)
Budget 2014
S.56(2)(ix), S.51 and S.2(24)(xvii) – Advance
received in for transfer of capital asset
• Any sum of money, advance or otherwise, received in the
course of negotiation of transfer of capital asset is to be
made chargeable to income-tax under the head ‘income
from other sources’ if such sum is forfeited and
negotiations do not result in transfer of such capital asset.
• Consequential amendment in S.2(24) is also being made to
include such sum in the definition of the term 'income'.
• S.51 also modified to provide that any such amount which
has been included in the total income of the assessee as
per S.56(2)(ix) shall not deducted from the cost for which
the asset was acquired or the WDV or fair market value, as
case may be, in computing cost of acquisition.
Budget 2014 : Capital Gains
S.111A - Tax at concessional rate
• S. 111A(1) provides for levy of tax at concessional rate of
15% in certain cases. It is proposed to amend the said
sub-section so as to provide that concessional rate of tax
shall apply to the transfer of a unit of a business trust as
they apply in case of a unit of an equity oriented fund.
• Proposed that provisions of S.111A(1) shall not apply in
respect of any income arising from transfer of units of a
business trust which were acquired by assessee in
consideration of transfer referred to in S.47 (xvii)
• Amendment will take effect from 1st April, 2015 and will
apply in relation to AY 2015-16 and subsequent years.
Budget 2014 : Capital Gains
S.112
• Currently, as per provisions of S.112, long-term capital gains
arising on transfer of units of mutual funds are eligible for
concessional tax rate of 10% without indexation.
• It is now proposed by Finance Bill 2014 to withdraw this
concessional tax rate of 10% without indexation for units of
mutual funds (other than equity oriented funds)
• This amendment will take effect from 1st April, 2015 and will,
accordingly, apply in relation to the assessment year 2015-16
and subsequent years.
Budget 2014 : Speculation provisions
Overview of changes
• S.73 : Speculation Business
• S.43(5) : Commodities Transaction Tax
Budget 2014 : Speculation Provisions
S.73 – 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 its business consists of purchase or sale of
shares, such business shall be deemed to be speculation business
• It is proposed to amend aforesaid Explanation so as to provide that
the provision of Explanation shall also not be applicable to a
company the principal business of which is the business of trading
in shares. This amendment will take effect from 1st April, 2015
• Hence, there is some relief from the ridiculous treatment of loss on
sale of shares from business of purchase and sale of shares as
speculative loss .
• However what is the meaning of “principal business”?.....
Budget 2014 : S.43(5)
• Finance Act, 2013 made provision for levy of commodities
transaction tax (CTT) on commodity derivatives in respect of
commodities other than agricultural commodities.
• As a consequence to levy of CTT, clause (e) was inserted in the
proviso to S.43(5) to provide that eligible transaction in respect of
trading in commodity derivatives carried out in recognised
association shall not be considered as speculative transaction.
• Circular No. 3 dated 24-01-2014 clarified eligible transaction shall
include only those commodity derivatives transactions which are
liable to CTT.
• Accordingly, clause (e) of proviso to S.43(5) will provide that eligible
transaction in respect of trading in commodity derivatives carried
out in recognised association and chargeable to commodities
transaction tax under Chapter VII of the Finance Act, 2013 shall
not be considered to be a speculative transaction. This
amendment will take effect retrospectively from 1st April, 2014
Budget 2014 : Trusts
Overview of Changes
• S.10(23C) –Depreciation
• S.10(23C) – Exempt Income
• S.10(23C)(iiiab)/(iiiac) – “Substantially
financed by Government”
• S.12A/S.12AA – Applicability of Registration
granted to a Trust in earlier years
• S.12AA - Cancellation of Registration
Budget 2014 : Trusts
Section 10(23C) - Depreciation
• Existing scheme of section 11 as well as section 10(23C) provides
exemption in respect of income when it is applied to acquire a capital
asset. Subsequently, while computing the income for purposes of these
sections, notional deduction by way of depreciation etc. is claimed and
such amount of notional deduction remains to be applied for charitable
purpose. Therefore, a “double benefit” is claimed by the trusts and
institutions under the existing law.
– MANY judgments on this issue in favour of assessee such CIT vs.
Market Committee, Pipli 20 taxmann.com 559(Punj. &Har.) , CIT vs.
Rao Bahadur Calavala Cunnan Chetty Charities (135 ITR 845Mad.) etc.
• Amendment proposed to section 11 and section 10(23C) so that income
for the purposes of application shall be determined without any
deduction or allowance by way of depreciation or otherwise in respect of
any asset, acquisition of which has been claimed as an application of
income under these sections in the same or any other previous year.
Budget 2014 : Trusts
Section 10(23C) – Exempt Income
• Proposed to amend the Act to provide specifically that
where a trust or an institution has been granted
registration for purposes of availing exemption under
section 11, and the registration is in force for a previous
year, then such trust or institution cannot claim any
exemption under any provision of section 10 [other
than that relating to exemption of agricultural income
and income exempt under section 10(23C)].
– In short, exempt income also has to be applied; if you don’t that
becomes taxable
• Amendment will take effect from 1st April 2015
Budget 2014 : Trusts
S.10(23C)(iiiab) / (iiiac)
• Absence of a definition of the phrase “substantially
financed by the Government” has led to litigation and
varying decisions of judicial authorities relying on other
provisions and judicial decisions (such as in Santosh
Hazari Vs Purushotham Tiwari 25 ITR 84 SC)
• Proposed to amend section 10(23C) by inserting an
Explanation that if Government grant to an institution
during relevant previous year exceeds percentage (to be
prescribed) of total receipts) then such institution shall
be considered as being substantially financed by
Government for that previous year.
• This amendment will take effect from 1st April, 2015
Budget 2014 : Trusts
Applicability of Registration granted to a Trust in earlier years
• Currently, charitable trust or institution can claim exemption
under section 11 of the Act only after obtaining registration
under section 12A / 12AA of the Act.
• Benefits of exemption now available by Provisos to S.12A(2) to
such trust in respect of its income for any earlier FY for which
assessment proceedings are pending before AO as on date of
registration, provided that objects and activities in such earlier
years are same as those for which registration has been granted.
• Furthermore no action for reopening of an assessment will be
taken by the AO for any FY preceding the FY for which
registration is obtained merely for reason that such trust or
institution has not obtained registration for said year.
• Amendment will take effect from 1 October 2014.
Budget 2014 : Trusts
Cancellation of Registration
• Currently, Registration of charitable trust granted under Section
12A/12AA can be cancelled by the Commissioner if activities of trust
are not genuine or activities not carried out in accordance with its
objects.
• It is proposed that the registration may be withdrawn even in those
cases where its income is not exempt due to the operation of subsection (1) of section 13 of the Act i.e.:
– Where any part of its income does not endure for the benefit of
general public, or,
– If it is created for the benefit of any particular religious community
or caste, or,
– Where any part of its income endures or is used or applied for the
benefit of specified persons, or,
– Its funds are invested in prohibited modes.
• The proposed amendment will take effect from 1 October 2014.
Budget 2014 : AMT
Overview of changes
• S.115JC : Computation of adjusted total income
• S.115JD : AMT Credit
Budget 2014 : AMT
S.115JC / S.115JD
• Earlier Book Profits applicable to companies & LLPs.
Extended to all persons who claim deduction Chapter VIA,
S.10AA and now S. 35AD
– It will not apply to HUF, Individuals etc. if adjusted total
income is < Rs. 20 lakhs
– Deductions u/s Chapter VIA, 10AA, S.35AD will be
added back to compute adjusted total income for AMT
• S.115JD – Credit for such AMT will be available for ten
years.
– By this amendment tax credit has been made easier in
that even if in subsequent year person does not attract
S.115JC, tax credit will be available
Budget 2014 : AMT
S.115JC – Total adjusted income
• Proposed to amend S.115JC to provide that total income shall
be increased by the deduction claimed under S.35AD for
purpose of computation of adjusted total income.
• The amount of depreciation allowable under section 32 shall,
however, be reduced in computing the adjusted total income.
• Example:
–
–
–
–
–
Total income
: Rs.50
Deduction under Chapter VI-A : Rs. 30
Deduction u/S.35AD
: Rs. 100
Total
: Rs. 180
Adjusted total income for AMT : Rs.50 + Rs. 30 + (Rs.100– Rs.15 being
depreciation u/S.32)
: Rs.165/-
Budget 2014 : Tax Authorities & Procedural Aspects
Overview of Changes
• S.133(2A) & S.133A : Survey
• S.133C : Information with Department
• S.139(4C) : Mutual Funds, Securitization Trusts, VC Companies
& Funds to file Return of Income
• S.140A : Signing and verification of Return
• S.142A, S.153 & S.154B : Reference to Valuation officer
• S.145(2) : Accounting Standards
• S.153C : Third Party information during search
• S.220(1) : Interest on demand
• S.285BA : Furnishing of statement by financial institution
• S.271FA, S.271FAA : Penalty related to S.285BA
Budget 2014 : Tax Authorities
S.133(2A) & S.133A – Survey
• Proviso to clause (b) of S.133A(3)(ia)
– Books of accounts or documents impounded during a
survey can be retained for a period of up to 15 days ,
exclusive of holidays, without the approval of the higher
authorities (as opposed to 10 days before)
• S.133(2A)
– An Income Tax authority may conduct survey of a business
premises to verify compliance with the TDS and TCS
provisions.
– However, in such cases, the authority will not impound the
books of account or documents so inspected or make an
inventory of cash, stock or other valuables.
• These amendments applicable from 1st October, 2014
Budget 2014 : Tax Authorities
S.133C
• With view to verify information in the possession of
prescribed Income-tax authority relating to any person,
proposed to insert a new section 133C in the Act so as to
provide that for the purposes of verification of
information in its possession relating to any person,
prescribed income-tax authority, may, issue a notice to
such person requiring him, on or before a date to be
therein specified, to furnish information or documents,
verified in the manner specified therein which may be
useful for, or relevant to, any enquiry or proceeding
under this Act.
• This amendment will take effect from 1st October, 2014.
Budget 2014 : Procedural Aspects
Mutual Funds, Securitization Trusts, VC Companies or Funds
to file Return of Income
• Sub-section (4C) of section 139 to be amended to provide
that Mutual Fund (S.10(23D)), securitization trust
(S.10(23DA)) and Venture Capital Company or Venture
Capital Fund (S.10(23FB)) shall be required to file Return of
Income (as if it were a return required to be furnished
u/S.139(1))
• Further, in the case of the Mutual Funds and securitisation
trusts referred to above, the requirement of filing of
statements before an income-tax authority is proposed to
be dispensed with by omitting sub-section (3A) of section
115R and sub-section (3) of section 115TA.
• These amendments will take effect from 1st April, 2015.
Budget 2014 : Procedural Aspects
S.140A – Signing and verification of Return of Income
• With a view to enable the verification of
returns either by a sign in manuscript or by
any electronic mode, it is proposed to amend
section 140 of the Act so as to provide that
the return shall be verified by the persons
specified therein.
• The manner of verification of return is
prescribed under section 139 of the Act
Budget 2014 : Tax Authorities
S.142A : Reference to Valuation Officer
• Section 142A to be amended so as to provide that the AO
may, for the purposes of assessment or reassessment, require
the assistance of a Valuation Officer to estimate the value, of
any asset, property or investment. The AO may refer whether
or not AO is satisfied about correctness or completeness of
the accounts of the assessee.
• Valuation Officer required to estimate the value after taking
into account the evidence produced by the assessee and any
other evidence in his possession gathered, after giving an
opportunity of being heard to the assessee.
• If the assessee does not co-operate or comply with the
directions of the Valuation Officer, the VO may, estimate the
value of the.
Budget 2014 : Tax Authorities
S.142A, S.153 & S.154B
• Valuation Officer (VO) shall send a copy of estimate to AO
and the assessee within a period of six months from the end
of the month in which the reference is made. T
• AO on receipt of the report from the VO may, after giving the
assessee an opportunity of being heard, take into account
such report in making the assessment or reassessment.
• Proposed to amend S. 153 & 153B so as to provide that time
period beginning with date on which reference is made to VO
and ending with date on which his report is received by the
AO shall be excluded from time limit provided under aforesaid
section for completion of assessment/reassessment.
• Amendments will take effect from 1st October, 2014.
Budget 2014 : Tax Authorities
S.145(2) – Accounting Standards
• CBDT constitued Accounting Standard Committee in 2010
– Committee recommended that the AS notified under
the Act should be made applicable only to computation
of taxable income and taxpayer not required to maintain
books of account on basis of AS notified under the Act
• Proposed to provide that the Central Government may
notify in Official Gazette income computation & disclosure
standards to be followed in respect of any class of income.
• Also proposed to provide that AO may make an assessment
u/S. 144 of Act, if income has not been computed in
accordance with standards notified under S.145(2)
• Amendment with effect from 1st April 2015
Budget 2014 : Tax Authorities
S.153C
• When in the course of search, papers are found which
belong to a third party, the papers are to be forwarded to
the AO who has jurisdiction over the third party.
Thereafter the assessment of third party is made.
– Now the assessment of third party is to be made only
if the AO of the third party is satisfied that seized
papers etc. have a bearing on determining the income
of the third party.
– Here the AO of the third party may have to record
satisfaction that the seized papers have a bearing in
determining the income of the third party.
Budget 2014 : Tax Authorities
S.220(1) – Interest on demand
• This section charges interest for delay in payment of tax.
Earlier the section provided that if the tax is reduced on
appeal the interest also will be reduced. There was no
provision for increasing the same if the tax is subsequently
restored on appeal (as present in 234B).
– Thus there was a dispute whether on restitution of
demand by higher Appellate authority, S.220 interest
should be charged from original date or from
subsequent date of giving-effect to the Appellate order
by which the tax was restored.
• Now this amendment states that whenever tax is increased
by orders of appellate authority, S.220 interest also will be
increased from original date of assessment.
Budget 2014 – Tax Authorities
S.285BA
• Amendment provides for furnishing of statement by
prescribed reporting financial institution in respect of a
specified financial transaction or reportable account to the
prescribed income-tax authority (ITA)
– Inaccuracy to be reported within ten days
• It is also proposed that rules may be made to specify,(a) the persons referred to in S. 285BA(1) to be registered
(b) the nature of information and the manner in which such
information shall be maintained by such persons
(c) the due diligence to be carried out by such persons for
purpose of identification of any reportable account referred
to in S.285BA(1)
Budget 2014 – Tax Authorities
S.271FA, S.271FAA - Penalty
• S. 271FA of the Act currently provide for penalty for
failure to furnish an annual information return. It is
proposed to amend the said section so as to provide for
penalty for failure to furnish statement of information
or reportable account.
• Proposed to insert new section 271FAA so as to provide
that if a person referred to in clause (k) of sub-section (1)
of section 285BA provides inaccurate information (as
listed in S.271FAA(a), (b) and (c)) in the statement then,
such person shall pay a sum of fifty thousand rupees.
• These amendments will take effect from 1st April 2015
Budget 2014 : Miscellaneous Issues
•
•
•
•
CSR – Corporate Social Responsibility
S.115BBC – Anonymous donation
S.269SS & S.269T – Mode of repayment
S.13(1) - SUUTI
Budget 2014 : CSR
• Under the Companies Act, 2013 certain companies (which
have net worth of Rs.500 crore or more, or turnover of
Rs.1000 crore or more, or a net profit of Rs.5 crore or more
during any financial year) are required to spend certain
percentage of their profit on activities relating to Corporate
Social Responsibility (CSR).
• Under the existing provisions of the Act (S.37), expenditure
incurred wholly and exclusively for the purposes of the
business is allowed as a deduction for computing taxable
business income.
• Government view is that CSR cannot come under the ambit of
S.37 - wholly and exclusively used for purpose of business
Budget 2014: CSR
• It is thus proposed that for purposes of section 37(1) any
expenditure incurred by an assessee on the activities
relating to corporate social responsibility referred to in
section 135 of the Companies Act, 2013 shall NOT be
deemed to have been incurred for the purpose of business
and hence shall not be allowed as deduction under S.37.
• However, the CSR expenditure which is of the nature
described in S.30 to S.36 of the Act shall be allowed deduction
under those sections subject to fulfillment of conditions, if
any, specified therein.
• Amendment with effect from 1st April, 2015 and will,
accordingly, apply in relation to the AY >= 2015-16
Budget 2014 : Anonymous Donation
S.115BBC
• Proposed to amend section 115BBC to provide that the
income-tax payable shall be the aggregate of
– the amount of income-tax calculated at rate of thirty
per cent on aggregate of anonymous donations
received in excess of five per cent of total donations
received by the assessee or one lakh rupees,
whichever is higher, and
– Amount of income-tax with which assessee would
have been chargeable had his total income been
reduced by aggregate of anonymous donations which
is in excess of five per cent of the total donations
received by the assessee (or one lakh rupees)
Budget 2014 : S.269SS & S.269T
• Currently no person is allowed to repay any deposit or
loan otherwise than by an Account Payee cheque / bank
draft, if the amount of such loan or deposit or aggregate
of such loans or deposit is Rs.20,000 or more.
• It is proposed to permit acceptance or repayment of
any loan or deposit by use of electronic clearing system
through a bank account.
• This amendment will be effective from 1st April 2015
Budget 2014 : SUUTI
S.13(1) – Extension
• Special Undertaking of the Unit Trust of India (SUUTI) was
created vide the Unit Trust of India (Transfer of Undertaking
and Repeal) Act, 2002. SUUTI is the successor of UTI.
– The mandate of SUUTI is to liquidate Government
liabilities on account of the erstwhile UTI.
• Vide section 13(1) of the said Repeal Act, SUUTI is exempt
from income-tax or any other tax or any income, profits or
gains derived, or any amount received in relation to the
specified undertaking for a period of five years, computed
from the appointed
• day, i.e. 1st day of February, 2003.
– Exemption extended for further period of five years that is
upto 31st March, 2019
Transfer Pricing
Budget 2014: Transfer Pricing
Overview of changes
• S.92CC (APA) - Rollback provision introduced
• S.92B (International Transaction) – “Rationalization”
of definition
• Rule 10B(4) - Use of Multiple year Data
• Introduction of range concept for ALP determination
• S.271G - TPO empowered to levy Penalty
• Amendments to take place with effect from 1st
October 2014
Budget 2014: Transfer Pricing
APA “Roll-back”
• Many countries (such as UK, USA etc.) provide “roll back”
mechanism for dealing with APA for dealing with issues
relating to transactions entered into period prior to APA
• The “roll back” provisions refers to the applicability of
methodology of determination of ALP, or the ALP, to be
applied to such (ie., pre-APA) international transactions.
• IT Act to be amended to provide such roll back mechanism in
Indian APA scheme by determining ALP in relation to an
international transaction entered into by a person during any
period not exceeding FOUR previous years preceding the
FIRST of the previous years for which APA applies in respect of
the international transaction to be undertaken in future
Budget 2014: Transfer Pricing
S.92B – Definition of International Transaction
• S.92B(2) extends scope of international transaction by
providing that a transaction entered into with an unrelated
person shall be deemed to be a transaction with an AE, if
there exists a prior agreement in relation to the transaction
between such other person and the AE, or the terms of the
relevant transaction are determined in substance between
the other person and the AE.
• Whether unrelated person should also be a non-resident?
Yes, according to taxpayer view and as affirmed by
Swarnandhra IJMII Integrated Township Development
Company Pvt. Ltd (ITA No 2072/Hyd/2011)
Budget 2014 : Transfer Pricing
S.92B – Definition of International Transaction
• Proposed amendment includes transactions between
domestic Parties if the terms of contract are determined by
the AE
– Therefore irrespective of fact the transaction occurs
between resident enterprises it can now, under certain
circumstances, be deemed to be an international
transaction!
• This amendment will take effect from 1st April, 2015 and will,
accordingly, apply in relation to AY 2015-16 and subsequent
assessment years.
Budget 2014 : Transfer Pricing
Use of Multiple year data
• Proposed that use of multiple year data (instead of single
year data) would be allowed for comparability analysis
– The detailed rules in this regard would be notified
subsequently
• Rule 10B(4) of the current Income Tax Rules, 1962 specifies
that the data to be used in comparability analysis shall be the
data of that particular year in which the subject transaction is
entered
• The proviso to current Rule 10B(4) allows use of multiple
year data (previous two years data) in the instances where
such data reveals facts which have an influence on the
determination of transfer prices for the current year
– However in practice this is seldom accepted.
Budget 2014 : Transfer Pricing
Use of Multiple year data
• Number of judicial decisions aginst the
taxpayer for use of multiple year data:
–
–
–
–
–
–
–
–
–
Aztech software Technology [294 ITR (AT) 32 (Bang)(SB)]
Honey Well Automation India Ltd. [2009-TIOL-104-ITAT-Pune]
Customer Services India (P) Ltd. [2009-TIOL-424-ITAT-Del]
Global Vantedge Pvt. Ltd. [2010-TIOL-424-ITAT-Del]
Panasonic India Pvt. Ltd. [2010-TII-47-ITAT-DEL-TP]
Haworth (India) Pvt. Ltd. AY: 2006-07 [ITA No. 5341/DEL/2010]
ST Micro Electronics [ITA Nos. 1806, 1807/DEL/2008, ITAT DELHI]
Deloitte Consulting India Pvt. Ltd. [2011-TII-88-ITAT-HYD-TP)
Actis Advisers Pvt. Ltd. [2012-TII-136-ITAT-DEL-TP]
Budget 2014 : Transfer Pricing
Introduction of range concept for ALP
• The range concept is proposed to be introduced for determination
of ALP to align Indian TP regulations international best practices
(OECD advocates usage of “inter-quartile range”)
– At least seventeen developed & developing countries use interquartile ranges
• Using Arithmetic Mean vitiates comparability analysis, as extreme
results, being outliers, distort the comparable set. An “interquartile range” provides a more accurate result for ALP, as extreme
results or outliers are left out as part of the first and fourth
quartiles
– If a taxpayer’s result falls outside the “inter-quartile range”,
then TP adjustment is made with reference to the median
• The current concept of arithmetic mean is proposed to be
continued in cases where the number of comparables is inadequate
• The detailed rules in this regard would be notified subsequently
Budget 2014: Transfer Pricing
S.271G – Penalty for failure to furnish
information or document u/s 92D
• Existing provisions of 271G provide that if any person who has
entered into an international transaction or specified
domestic transaction fails to furnish any such document or
information as required by sub-section (3) of section 92D,
then such person shall be liable to a penalty which may be
levied by the Assessing Officer or the Commissioner
(Appeals).
• It is proposed to amend section 271G of the Act to include
TPO, as referred to in Section 92CA, as an authority
competent to levy the penalty under section 271G in
addition to AO and CIT(A)
• Amendment will take place with effect from 1st October 2014
Personal Taxation
Budget 2014 : Personal Taxation
Income Tax Slabs
• New proposed slabs (Clause 2 of Finance Bill)
Tax rate
Current Slabs (INR)
Finance Bill 2014 (INR)
NIL
Upto 2 lakhs
Upto 2.5 lakhs
10%
2lakhs+ - 5 lakhs
2.5lakhs+ - 5 lakhs
20%
5lakhs+ - 10 lakhs
5lakhs+ - 10lakhs
30%
10 lakhs+
10lakhs+
• Exemption limit is Rs.3 lakhs for senior citizens who are
of the age 60 or more but less than 80 years
• Exemption limit is Rs.5 lakhs for senior citizens who are
of the age 80 or more
Budget 2014 : Personal taxation
S.80C, S.80CCD & S.80CCE
• Limit of deduction of interest on housing loan taken on
or after 1st April 1999 for self-occupied property now
increased to Rs.2,00,000/– Second Proviso to clause (b) of Section 24 amended
with effect from 1st April 2014
• S.80C limit of deduction increased to Rs.1.5 lakhs from
Rs.1 lakh. Same consequential amendments made to
S.80CCD and S.80CCE.
– Also S.80CCD joining date of 1.1.2004 removed for
private sector employees
– Amendments will take effect from 1st April 2015
Budget 2014
Customs Duty & Central Excise amendments
Budget 2014 : Customs Duty
• Standard rate of BCD is maintained at 10%
• BCD is being increased on import of the following goods:
– Cut and polished diamonds including lab-grown diamonds and colored
gemstones from 2% to 2.5%
– Half-cut or broken diamond from ‘Nil’ to 2.5%
– Specific stainless steel flat products from 5% to 7.5%
– Specified telecommunication products, not covered under Information
Technology Agreement, from ‘Nil’ to 10%
• Export duty on bauxite is being increased from 10% to 20%
• Free baggage allowance is increased from `35,000 to `45,000
• Inputs / raw materials imported by EOU and cleared into DTA as such or
used in manufacture of final products and cleared into DTA to attract
safeguard duty, as was leviable when the same was imported into India
• Customs duties on mineral oils including petroleum and natural gas
extracted or produced in the continental shelf of India or the exclusive
economic zone of India shall not be recovered for the period prior to 7
February 2002
Budget 2014 : Customs Duty
• BCD is being reduced on import of the following goods:
– Fatty acids, crude palm stearin, RBD and other palm stearin and
specified industrial grade crude oil for manufacture of soaps and
oelochemicals subject to actual user condition from 7.5% to ‘Nil’
– Crude glycerine for manufacture of soaps from 12.5% to ‘Nil’ and for
any other purpose subject to actual user condition from 12.5% to 7.5%
– Denatured ethyl alcohol from 7.5% to 5%
– Steel grade dolomite and steel grade limestone from 5% to 2.5%.
– Crude naphthalene from 10% to 5%
– Machinery, equipments, etc. required for initial setting up of
– Compressed biogas plant (Bio-CNG) to 5%
– Ships imported for breaking up from 5% to 2.5%
– LCD and LED TV panels of below 19 inches from 10% to ‘Nil’
– Colour picture tubes for manufacture of CR TVs from 10% to ‘Nil’
– E-Book readers from 7.5% to ‘Nil’
Budget 2014 : Customs Duty
• Custom duty on import of various types of agglomerated coal is
rationalized to BCD of 2.5% and CVD of 2% to keep the rate of customs
duty uniform
• BCD and CVD on machinery, equipment, etc. required for initial setting up
of solar energy production projects is reduced to 5% and ‘Nil’, respectively
• Full exemption from BCD is provided on import of specified parts of LCD
and LED panels for TVs
• Exemption from Special Additional Duty is being provided on following:
– Parts and raw materials required for use in the manufacture of ‘wind
operated’ electricity generators
– inputs/components used in the manufacture of Personal Computers
(laptops/desktops) and tablet computers, subject to actual user
condition
– Specified inputs (PVC sheet & Ribbon) used in the manufacture of
smart cards
Budget 2014 : Central Excise
• Excise duty increased on the following:
– On cigarettes in the range of 11% to 72%
– Pan masala from 12% to 16%
– Unmanufactured tobacco from 50% to 55%
– Jarda scented tobacco, gutkha, chewing tobacco from 60% to
70%
– Recorded smart cards from 2% (without CENVAT credit) and 6%
(with CENVAT credit) to uniform 12%
• Additional duty of excise at 5% on aerated water containing added
sugar
• Clean Energy Cess increased from `50 per tonne to `100 per tonne.
Budget 2014 : Central Excise
• Excise duty reduced on the following:
– Branded Petrol from `7.50 per litre to `2.35 per litre
– Footwear of (retail price between `500 per pair to `1000 per
pair) from 12% to 6%
• Concessional excise duty of 2% (without CENVAT credit) and 6%
(with CENVAT credit) is extended to following products:
– Gloves specially designed for use in sports
– Polyester Staple Fiber and Polyester Filament Yarn
• Education cess and secondary and higher education cess (customs
component) is exempted on goods cleared by an EOU into DTA
• Third Schedule to the Central Excise Act, 1944 aligned with
notification issued for assessment based on Retail Sale Price (RSP)
Budget 2014 : Central Excise
• Appeal against Tribunal orders in matters relating to taxability
or excisability of goods would lie before the Supreme Court
(Section 35L – in line with CCE vs. Kerala State Beverages 300
ELT 2017 and other such decisions)
• Transfer of credit by a Large Taxpayer Unit (LTU) from one unit
to another unit discontinued
• Subject to certain exceptions, e-payment mandatory for all
• In case of default in payment of duty, assessee shall on his
own pay a penalty of 1% per month on the amount of duty
not paid for each month or part thereof
• Definition of ‘place of removal’ pari materia to definition
given in Section 4 of Central Excise Act, 1944 included in the
CENVAT Credit Rules, 2004
Budget 2014 : Central Excise
• In case of service tax paid under full reverse charge, the
condition of payment of invoice value to the service provider
for availing credit of input services is being withdrawn
• Re-credit of CENVAT credit reversed on account of non-receipt
of export proceeds within the specified period or extended
period, to be allowed, if export proceeds are received within
one year from the period so specified or the extended period.
This can be done on the basis of documents evidencing
receipt of export proceeds
• With effect from September 2014, a manufacturer or a
service provider shall take credit on inputs and input
services within a period of six months from the date of issue
of invoice, bill or challan
Budget 2014 : Central Excise
Amendment to Rule 6
• Assessment of excise duty to be done on transaction value in
the cases where excisable goods are sold at a price below
the manufacturing cost and profit and there is no additional
consideration flowing from the buyer to the assessee
directly or from a third person on behalf of the buyer
– Following case of CCE vs. Fiat India Pvt. Ltd. (283 ELT 161)
wherein company was selling cars at price lower than cost
of manufacture to pentrate market. The issue before Court
was whether such a methodology adopted for competing
can be considered “extra commercial consideration” and
thus affecting the value. Supreme Court held in favour of
assessee dissenting from CCE vs. Guru Nanak Refrigeration
Corp (153 ELT 249)
Budget 2014 : Central Excise, Customs Duty
Settlement Commission
• Section 32E of Central Excise Act and Section 127A &
127B of Customs Act
• Settlement Commission scope is widened whereby the
Commission if it is satisfied the circumstances exist for
not filing return, the Commission may allow the applicant
to make the application after recording reasons
• 180 day cooling period after seizure before making an
application has been removed
• Section 127B of Customs Act is being amended to widen
the scope
Budget 2014 : Central Excise, Customs Duty & Service Tax
Section 15A – Furnishing of Information
• New Section 15A in terms of which furnishing
of information return in format specified to
such authority or agency as may be prescribed
• Similar to S.285BA of Income Tax Act
– Difference is that S.15A also covers any authority
of the State Government responsible for collection
of VAT or Sales Tax; an income tax authority;
banking company; RoC; State Electricity Board
Budget 2014 : Central Excise, Customs & Service Tax
Advance Ruling
• Advance Ruling was earlier confined to non-residents,
wholly owned Indian subsidiaries, joint ventures, public
sector companies and resident public limited companies
• Scope is being widened through issue of notification to
make resident private companies eligible to seek
advance ruling (Notification No.18/2004-C.E.(NT) and
Notification No.51/2014-Cus.(NT) dated 11.07.2014
have been issued)
• Note that Advance Ruling not allowed where question
raised is already pending in applicant’s case before any
Tribunal or Court or the question is the same as in a
matter already decided by Tribunal or Court
Budget 2014
Central Excise, Customs & Service Tax
Pre-deposit
• S.35F of Central Excise Act & S.129E of Customs Act – In respect of
appeal before Commissioner (Appeals) it shall not be entertained
unless Appellant has deposited 7.5% of duty demanded or penalty
imposed or both in pursuance of an order passed by an officer
lower in rank than Commissioner CE/Customs
• In respect of appeal to Tribunal against order of Commissioner,
7.5% of duty demanded or penalty imposed or both
• In respect of appeal to Tribunal against the order of the
Commissioner (Appeals), 10% of duty demanded or penalty
imposed or both
• Amount required to be deposited shall not exceed Rs.10 crores;
provisions NOT applicable to stay petitions and appeals pending
before any appellate authority prior to the commencement of
Finance No 2 Act 2014
Budget 2014
Service Tax amendments
Budget 2014 : Service Tax
Changes effective from 11.07.2014
• New exemption for services provided by operators of common BioMedical Waste Treatment Facility to a clinical establishment
• Transportation through Rail, Vessel and GTA of organic manure, cotton
ginned or baled has been exempted
• Exemption withdrawn for technical testing or analysis of new developed
drugs including vaccines and herbal remedies by human participants
• Transportation of passengers by a non Air-conditioned contract carriage
other than radio taxi for transporting passengers, excluding tourism,
conducted tour, charter or hire is exempted from service tax
• Services provided to Government, local authority by way of water supply,
public health, sanitation conservancy, solid waste management, slum
improvement and upgradation is exempted. (Confusion with earlier
“ordinarily entrusted to a municipality” is cleared now)
• Originally under Entry 26A, services of life insurance business provided
under certain schemes were exempted. Now, life Micro-insurance
products (as defined/approved by IRDA) comes under this purview
Budget 2014 : Service Tax
Changes effective from 11.07.2014
Educational Institutions – Exemption Modified
• Entry 9 which dealt with services provided to an educational institution
exempted from service tax by way of auxiliary educational services and
renting of immovable property, has been substituted. New entry deals
with services provided:
– By an educational institution to its students, faculty, staff
– To an educational institution by way of
• Transportation of students, faculty or staf
• Catering, including any Govt. mid-day meals
• Security, cleaning or house-keeping services
• Services relating to admission to or conduct of examination of
examination by such institution
– The debate with reference to scope of auxiliary educational services is
now put to rest; this new format will affect service providers who
provide service to educational institutions; renting services provided
to an educational institution originally exempt is now taxable
Budget 2014 : Service Tax
Changes effective from 11.07.2014
• Loading and unloading, tour operator and RBI
services – new exemptions (Notification
No.25/2012)
– Services by way of loading, unloading, packing,
storage or warehousing of rice, cotton, ginned or
baled
– Services received by RBI, from outside India, in
relation to management of forex reserves
– Services provided by a tour operator to a foreign
tourist in relation to a tour conducted wholly
outside India
Budget 2014 : Service Tax
Changes effective from 11.07.2014
• SEZ procedures for claiming exemption for procurement of input
services have been simplified (Notification No. 7/2014 dated
11.07.2014 – Amendment to Notification No. 12/2013)
• S.No 7 of Notification No 26/2012 has been amended in order to
provide that abatement of 75% in respect of services of GTA in
relation to transportation of goods is available on condition that
CENVAT credit used for providing taxable service has not been taken
by service provider
• S.No 8 of Notification No 26/2012 has been amended where
abatement of 70% granted to services provided in relation to chit
is available on condition that CENVAT credit used for providing
taxable service has not been availed
• S.No. 9A introduced in Notification No 26/2012 to provide for
taxable value of 40% after abatement in respect of transport by
contract carriage other than a motor cab with condition that
CENVAT credit is not available on inputs, capital goods & services
Budget 2014 : Service Tax
Changes effective from 11.07.2014
• Service of recovery agent to banking company
or financial institution or NBFC has been
brought under ambit of reverse-charge
mechanism where 100% of service tax is
payable by service receiver w.e.f. 11.07.2014
• Similarly services of a director of a company or
a body corporate w.e.f. 11.07.2014
Budget 2014 : Service Tax
Changes with effect from 1.10.2014
• Renting of Motorcab – modified in S.No. 9 of Notification
No 26/2012. Also portion of service tax payable by the
service provider and service receiver will be 50% each for
renting of motor vehicle, where the service provider does
not claim abatement.
• Transportation of Goods in a Vessel – taxable value
reduced from 50% to 40% subject to condition of nonavailability of CENVAT credit
• Restriction of non-availability of cenvvat credit in
context of input services is with reference to services
other than input service of tour operator
Budget 2014 :Service Tax
Changes with effect from 1.10.2014
Works Contract Services
• Rule 2A(ii) of Works Contract Service modified from
01.10.2014 in following manner:
– Works contract of execution of original work – service
tax on 40% of total amout charged
– Maintenance or repair or re-conditioning or
completion and finishing services… Service tax on 70%
of total amount charged
– All other conditions remain as before
• Erstwhile 60% and 70% categories merged into 70%
(however old provisions refer to “other contracts” not
covered by 60%)
Budget 2014 : Service Tax
Changes effective after Finance Act (No. 2) Act comes into force
• Negative List – Selling of space and time slots for
advertisements removed – Section 66D(g)
– Includes only “selling of space for advertisements in
print media”
– New clause defines “print media” specifically
excluding business directories, yellow pages and trade
catalogues
– Entry 55 of State List empowers state to levy tax on
advertisements other than advertisements published
in newspapers and broadcast by radio/TV. The TN
Advertisements Tax Act 1983 provides for tax on
advertisement exhibited on a screen
Budget 2014 : Service Tax
Changes effective after Finance Act (No. 2) Act comes into force
• Rate of Exchange – Defined – Section 67 – To be
determined in accordance with such rules as may be
prescribed
• Adjudication – Central Excise Officer to adjudicate
wherever it is possible to do so within period of one year
from date of notice in respect of cases where extended
period of limitation is invoked and in other cases within
six months
• S.80 : Discretionary power available to authority to
waive penalty under S.78 for non-payment of ST due to
reasonable cause has been deleted
Budget 2014 : Service Tax
Changes effective after Finance Act (No. 2) Act comes into force
• Power to search and seize – Section 82 is
being substituted to provide that JC or AC of
Central Excise or other officer as may be
notified may authorize in writing any Central
Excise Officer to search and seize or may
himself search and seize documents etc.
– Following Chitra Constructions Madras HC case
which allowed search action by an AC
Budget 2014 : Service Tax
Changes effective after Finance Act (No. 2) Act comes into force
• Distraining & Sale of Property - Section 87 : Where
Service Tax recoverable from person (called as
“predecessor”) and such person transfers his business or
effects change in ownership and consequently succeeded
in such business by any other person, all goods in custody
of successor canbe attached and sold by officer
empowered by Board after written approval of Commr.
– There are provisions to protect ransfers which have
been made for adequate consideration and without
notice of pendency of proceedings or without notice
of tax payable by assessee or with previous
permission of AO
Budget 2014 : Service Tax
• Section 94 : Power of Central Govt. to make rules for executing
Finance Act extended to matters like:
– Imposition of duty of furnishing information
– Making provisions for withdrawal of facilities or imposition of
restrictions
– Authorization of officers for implementation of provisions of Act
– Any other matter which by this Chapter may be prescreib ed
• ESIC : Service tax shall not levied or collected in respect of taxable
services provided by ESIC during period prior to 1.7.2012 (post that
Entry 36 of exemption list covers this)
• Section 95: Removal of difficulty orders has been extended to any
difficulty arising in giving effect to Section 106 (Service Tax
amendment)- time is available for 1 year from the Act receives
assent of President
Budget 2014 : Service Tax
• Interest : Notification No.11/2014 dated 11.07.2014
– Upto 6 months, 18%
– 6 months upto 1 year – 18% upto first 6 months, 24%
for delay beyond 6 months
– More than one year – 18% for first 6 months, 24% for
6 months to 1 year and 30% for any delay beyond 1
year
– New interest regime from 1.10.2014
• E-payment – 11.07.2014
– Every assesse has to make payment of tax
electronically
Budget 2014 : Service Tax
• Point of Taxation Rules:
– Rule 7 proviso substituted to provide that if payment is not
made within period of 3 months from date of invoice, point of
taxation shall be date immediately following the said period of 3
months
– Rule 10 is introduced to facilitate transition whereby if invoice in
respect of reverse charge mechanism has been issued prior to
1.102014 but payment has not been made as on said date, point
of taxatioon shall:
• Be the date on which payment is made, if payment is made
within period of six months from date of invoice
• Determined as Rule 7 and Rule 10 did not exist in case of
payment is not made within period of 6 months of date of
invoice
– Changes effective from 01.10.2014
Budget 2014 : Service Tax
• Place of provision of service:
– Scope of “intermediary” is widened to cover
“intermediaries who arrange or facilitate supply of goods”
– Second proviso of Rule 4(a) is being substituted to
liberalize scope of exclusion of applicability of Rule 4(a).
Thus if goods are temporary imported in India for repairs
and exported without being put to any use in taxable
territory other than for repair, Rule 4(a) would not apply
– Rule 9(d) which covers service consisting of hiring by
means of transport upto a period of one month is being
substituted to cover service consisting of hiring of all
means of transport other than aircrafts, vessels except
yachts upto period of month
Budget 2014
Introduction of GST
• Commitment towards early introduction of GST reemphasised by Finance Minister
• Legislative changes required for implementation of
GST expected to be approved during the course of
this Financial Year
Thanks!
Subbaraya Aiyar, Padmanabhan & Ramamani (SAPR) Advocates
New No 75-A, Dr.Radhakrishnan Salai, Chennai – 4
http://www.saprlaw.com
office@saprlaw.com
rvijayaraghavan@saprlaw.com
vvikram@saprlaw.com