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BUDGET ANALYSIS2013-14

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Budget Analysis 2013-14


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FOREWORDThe pre-budget Economic Survey 2013-14 was tabled in the Parliament of India (Parliament) on 27th February, 2013 and it summarized ‘WORST IS OVER”. The very next day the Union Budget was stabled in the Parliament which summarized that “Getting back to the growth rate of 8% or more is the challenge that faces the country”. It is quite a contrasting picture being presented before the citizens of India.

Union Budget 2013 was tabled by none other than Mr. P Chidambaram, who is considered to be the most popular Finance Minister of India. It was the 8th Union Budget presented by Mr. Chidambaram. It was the 5th and the last budget by the current government before the General Election 2014. Given that, it must have been a difficult choice for Mr. Chidambaram to lay emphasis on “Fiscal Consolidation” which directly impacts the plan and non-plan expenditure of the government. However, Mr. Chidambaram has very tactfully balanced the same by taking a bold step by drastically reducing the petroleum subsidy by ` 31,888 crores. Otherwise, there has been 29.4% increase in the plan expenditure and 16.39% increase in the overall spending. The major source of funding the increase in government spending is expected to come from 19.12% rise in tax revenue. Considering that there was shortfall of 3.75% in tax revenue, it would a big challenge for the government to ultimately meet the target of reducing fiscal deficit from 5.2% to 4.8%.

Even on the budgetary allocations, out of total expenditure of ̀ 16,65,297 crores, in comparison to the major outlays for defence (` 253,345 crores), interest payments (` 370,684 crores), police (` 43,603 crores), economic affairs (` 25,837 crores), petroleum & natural gas (` 65,145 crores), railways (` 26,000 crores), external affairs (` 8,719 crores), etc., there is miniscule outlays for growth oriented plans – agriculture (` 2,723 crores), atomic energy (` 3,953 crores), commerce and industry (` 3,380 crores), telecommunications (` 5,903 crores), food processing (` 11 crores), heavy industries and public enterprise (` 453 crores), human resource development (` 13,594 crores), labour and employment (` 2,635 crores), MSME (` 312 crores), mines (` 537 crores), new and renewable energy (` 15 crores), power (` 431 crores), road, transport & highways (` 5,442 crores), rural development (` 57 crores), science & technology (` 1,982 crores), shipping (` 867 crores), space (` 1,177 crores), steel (` 67 crores), textiles (` 800 crores), tourism (` 75 crores), water resources (` 577 crores), etc. It clearly brings out the emphasis on meeting the basic needs of common man (food and healthcare) rather than regaining growth momentum.

Next on the agenda is reduction of whopping Current Account Deficit (CAD) (almost estimated at USD 75 billion) and the budget lay over emphasis on increase of inflow of foreign exchange through FDI, FII and ECB to balance out the CAD and cutting down on import of oil, coal and gold. This again is nothing but highly


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wishful assumption. Firstly, the inflow of FDI, FII and ECB primarily depends on the overall investment sentiments and climate and the tax regime. However, the budget has done very little to address the main concern of severe economic slowdown with GDP growth hovering at all time low of 5% and uncertainty in tax regime. Unless there is visibility of achieving 8% plus growth and there is complete clarity on tax matters, the huge inflow of foreign exchange will only be a wishful thinking. Secondly, there is not much that can be done to cut down on import of oil and coal as that would adversely impact the automobile and power industries, which is already reeling under extreme pressures. Further, to assume that the gold consumption can be curtailed by generating other avenues of investments for general public is again nothing but a big misconception.

With some promising announcement towards developments in infrastructure, financial services and capital markets and some cosmetic changes in the tax laws, there is too much left out to address the real concerns plaguing the economy – slowdown of growth and inflation.

Mr. Chidambaram’s mool mantra of ‘higher growth leading to inclusive and sustainable development’ is merely a statement of good intent in the budget which is not backed by any long term and sustainable policy directions.

Mr. Chidambaram quoted Swami Vivekananda - “All the strength and succour you want is within yourself. Therefore, make your own future.” We hope that the non-dramatic and average Budget proposals put forth by Mr. Chidambaram, provide the strength and succour that is needed for the nation’s future!

TeamBDOPlace: MumbaiDate: 28th February, 2013


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BDO


Para no. Particulars Page

No.

1. ECONOMIC INDICATORS 4

2. DIRECT TAX PROPOSALS2.1 Tax Rates2.2 Allowances/ Rebates/ Deductions2.3 Widening of tax base and anti tax avoidance measures2.4 Other Signifi cant Proposals2.5 TDS Rates2.6 Compliance Calendar 2.7 DTAA rates2.8 Comparative tax rates of G – 20 countries2.9 Wealth Tax

71218252933364445

3. INDIRECT TAX PROPOSALS3.1 Goods and Service Tax3.2 Central Excise3.3 Service Tax3.4 Customs3.5 Cenvat Credit3.6 Compliance Chart

464651566161

4. REGULATORY PROPOSALS4.1 Foreign Direct Investment4.2 Companies Bill 20114.3 SEBI4.4 Reserve Bank of India

65676768

5. INDUSTRY ANALYSIS5.1 Impact on IT/ITES5.2 Impact on Infrastructure Sector5.3 Impact on Real Estate Sector5.4 Impact on Financial Services Sector

69707172


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1. ECONOMIC INDICATORSGrowth rate slowed down to 6.2% and 5.0% for 2011-12 and 2012-13 respectively primarily because of high inflation rate and slowdown in Investments as well as policy constraints.

Indian agriculture has performed well in terms of output growth, despite weather and price shocks. It accounted for only 14.1 per cent of the GDP in 2011-12.

Administrative hurdles made rate of growth of sales of the listed manufacturing companies in the private sector declined to 11.4 per cent in the second quarter of 2012-13.

The slowdown in the rate of growth of services, being forms of derived demand, decreased to 8.2 per cent in 2011-12, and to 6.6 per cent in 2012-13. This has contributed significantly to slowdown in the overall growth of the economy.

Headline WPI inflation remained relatively sticky around 8% in current financial year. Elevated food inflation remains an area of concern with gradually inching upwards to double digits in December 2012.

External sector imbalances remain a worry. Rising gold imports have worsened the current account deficit. Domestic savings have been falling. Moreover, a lower proportion of household savings is channeled towards financial products.

As per the Central Statistics Office (CSO), investment rate is estimated at 35.0 percent in 2011-12 as against 36.8 percent in 2010-11. Both public and private investment declined as a share of GDP. Within private investment, investment by the private corporate sector registered a sharper decline owing to high policy rates and lower demand.

Expenditure on social services by the general government has increased in recent years. As a proportion of GDP, expenditure on social services increased from 6.8 per cent in 2010-11 to 7.1 per cent in 2012-13

Foreign exchange reserves were USD 295.5 billion at the end of January 2013 indicating a marginal increase from USD 294.4 billion at the end of March 2012


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Figure 1 gives snapshot of GDP growth and point contribution of different sectors

Note : Data for 2012-13 is as per Advance Estimates released by CSO.

GOVERNMENT REACTION & FUTURE OUTLOOK

Indian economy is likely to grow between 6.1% to 6.7% in 2013-14 as the downturn is more or less over and the economy is looking up

Government predicts that the global economy is also likely to recover in 2013 and various measures will help in improving the Indian economy’s outlook for 2013-14

Reduced demand and easing of supply side constraints should lead to lower inflation

Due attention is to be given to adequate capitalization of Banks

To focus on incentivizing food production through measures other than price supports

Widening of the tax base, and prioritization of expenditure as key ingredients of a credible medium term fiscal consolidation plan

India’s dependency ratio as measured by the share of the young and the elderly as a fraction of the populations expected to come down more sharply in the coming decades.

Government has recently taken a number of initiatives to meet the growing capital needs viz. Rajiv Gandhi Equity Savings Scheme (RGESS), allowing refinancing rupee loans through ECB route in the power sector.

Government is considering issues like programme leakages and funds not reaching the targeted beneficiaries. Direct benefit transfer (DBT) with the help of the Unique Identification (UID) number can help plug some of these leakages


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Special effort is needed in two areas of human development in India – health and education which could lead to ‘Faster, more inclusive and sustainable growth’ as emphasized by the Twelfth Five-Year Plan

From a macroeconomic perspective, a high level of investment in the infrastructure sector is essential for the overall revival of investment climate which may finally lead to sustainable growth in an economy.


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2. DIRECT TAX PROPOSALS2.1 Tax Rates

2.1.1 Rates of Income-tax at a glanceIndividual, HUF, AOP, BOI

The Bill has proposed no change in the existing tax structure for individuals, HUFs, AOPs and BOIs. However, it is proposed to provide rebate up to ` 2,000 to individuals, whose income does not exceed ` 5,00,000. The rate of tax for F.Y. 2013-14 is as under:

Individual (other than those specified below) or HUF, AOPs and BOIs

Limit Tax Rate (%)Upto ` 2,00,000 NIL` 2,00,001 – ` 5,00,000

10%

` 5,00,001 – ` 10,00,000

20%

` 10,00,001 & above 30%

Senior Citizens between the age of 60 years to 80 yearsProposed Limit Tax Rate (%)Upto ` 2,50,000 NIL` 2,50,001 – ` 5,00,000

10%

` 5,00,001 – ` 10,00,000

20%

` 10,00,001 & above 30%

Very Senior Citizens above the age of 80 years

Proposed Limit Tax Rate (%)Upto ` 5,00,000 NIL` 5,00,001 – ` 10,00,000

20%

` 10,00,001 & above 30%

Co-operative Society, Firms, Local Authorities

The rates of income tax will continue to be the same as those specified for FY 2012-13.

Surcharge shall be levied @ 10% where the taxable income exceeds ` 1,00,00,000 in case of individuals, HUF, AOP & BOI, co-operative society, local authority and firms.

The education cess and Secondary and Higher education cess shall continue to be levied at the rate of 2% and 1% respectively.


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Corporate Tax

Corporate basic tax rates remain unchanged for both domestic as well as foreign companies. There is modification in rate of surcharge. The applicable rates of tax are as under:

Sr No.

Particulars Basic Tax Rate

Surcharge

Total Income (`)

Below ` 1,00,00,000

Between ` 1,00,00,001 to ` 10,00,00,000

Above ` 10,00,00,001

1. Domestic Company

Normal Tax Rate 30% Nil 5% 10%

Minimum Alternative Tax (MAT) 18.50% Nil 5% 10%

2. Foreign Company

Normal Tax Rate 40% Nil 2% 5%

The marginal relief in tax will continue to be allowed in the cases where income is more than ` 1,00,00,000 or ` 10,00,00,000.

2.1.2 Taxation of Income by way of Royalty or Fees for Technical Services (FTS)

Section 115A provides for determination of tax on income by way of Royalty and FTS in case of a non-resident.

India has tax treaties with 84 countries. Most of the tax treaties allow India to levy tax on gross amount of royalty at rates ranging from 10% to 25%, whereas the rate as per Section 115A is 10% on gross amount of royalty and FTS in respect of agreements entered after 1st June, 2005. In some cases, this has resulted in taxation at a lower rate of 10% even if the treaty allows the income to be taxed at a higher rate.

The Bill proposes to amend Section 115A to increase the tax rate to 25% on gross amount of royalty and FTS. The proposed rate of tax would be applicable to any agreement entered after 31st March, 1976.

The existing and proposed rates of tax on gross amount of royalty and FTS not effectively connected with PE of non-resident in India in respect of agreements entered after 31st March, 1976 are as under:


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Sr. No. Gross amount of royalty and FTS Existing

Rate (%)Proposed Rate (%)

1 In respect of agreements entered on or before 31st May, 1997

30% 25%

2 In respect of agreements entered after 31st May, 1997 but before 1st June, 2005

20% 25%

3 In respect of agreements entered on or after 1st June, 2005

10% 25%

This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.

2.1.3 Lower rate of tax on dividends received from foreign companies

Section 115BBD provides for taxation of gross dividends received by an Indian company from a specified foreign company (in which it has shareholding of 26% or more) @ 15% if such dividend is included in the total income for the FY 2012-13 i.e. AY 2013-14.

In order to continue the tax incentive for one more year, it is proposed to amend Section 115BBD to extend the applicability of this section in respect of income by way of dividends received from a specified foreign company in FY 2013-14 also, subject to the same conditions.

This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15.

2.1.4 Removal of cascading effect of DDT

Section 115-O provides for payment of DDT on the amount of dividend distributed by the company as reduced by the amount of dividend received from its subsidiary if such subsidiary has paid the DDT. This ensures removal of cascading effect of DDT in a multi-tier structure where dividend received by a domestic company from its subsidiary (which is also a domestic company) is distributed to its shareholders.

The Bill proposes to amend Section 115-O in order to remove the cascading effect in respect of dividend received by a domestic company from its foreign subsidiary. It is proposed that where the tax on dividends received from the foreign subsidiary is payable under Section 115BBD by the holding domestic company then, any dividend distributed by the holding company


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in the same year, to the extent of such dividends, shall not be subject to DDT.

The above amendment will take effect from 1st June, 2013.

2.1.5 Rationalization of tax on distributed income by the mutual funds

Under the existing provisions of Section 115R, any income distributed by a specified company or a Mutual Fund to an individual or a HUF unit holder is chargeable to additional income tax @ 12.5% or 25% depending on the nature of the fund.

In order to streamline the rate of tax chargeable for all types of funds, other than equity oriented fund, it is proposed to increase the rate of tax on distributed income from 12.5% to 25% where distribution is made to an individual or a HUF.

The above amendments will take effect from 1st June, 2013.

Further, under the existing provisions of Section 115R, in case of an Infrastructure Debt Fund (‘IDF’) set up as NBFC, the interest payment made by the fund to a non-resident investor is taxable at a concessional rate of 5%. However, if the said income is distributed by an IDF set up as a Mutual Fund, it is taxable at the rates in case of Mutual Fund.

In order to bring parity in taxation of income from investment made by a non-resident investor in an IDF whether set-up as a IDF-NBFC or IDF-Mutual Fund, it is proposed to amend Section 115R to provide that the concessional tax rate of 5% shall also be applicable in respect of income distributed to non-resident by an IDF-Mutual Fund.

The above amendments will take effect from 1st June, 2013.

2.1.6 TDS on Transfer of Immovable Properties (other than agricultural land)

Under the existing provisions, IT Act requires PAN to be quoted in documents relating to purchase or sale of immovable property for value of immovable property of ` 5,00,000 or more. However, the majority of purchaser or seller have refrained from quoting the PAN or quoted incorrect PAN.

In order to collect tax at the earliest point of time and reporting of Real Estate transactions, the Finance Bill propose to introduce new section 194-IA in the IT Act.

According to the proposed section, tax @1% shall be deducted by the transferee on payments made to resident transferor in relation to transfer


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of immovable property, where consideration for transfer of immovable property exceeds ` 50,00,000.

This amendment is proposed to take effect from 1st June, 2013

2.1.7 Commodities Transaction Tax

The Bill proposes to insert a new tax called Commodities Transaction Tax (‘CTT’) to be levied on taxable commodities transaction entered into in a recognized association.

The term ‘taxable commodities transaction’ is defined to mean a transaction of sale of commodity derivative in respect of commodities, other than agricultural commodities, traded in recognized associations.The proposed rate of CTT, which is payable by Seller on sale of commodity derivative is 0.01%.

The provisions with regard to collection and recovery of CTT, furnishing of returns, assessment procedure, power of AO, chargeability of interest, levy of penalty, institution of prosecution, filing of appeal, power to the Central Government, etc. have also been provided.

CTT is proposed to be levied from the date on which Chapter VII of the Finance Bill relating to CTT comes into force by way of notification in the Official Gazette by the Central Government.

It is further proposed to amend Section 36 of the IT Act to provide a deduction equal to the amount of CTT paid by the assessee in respect of taxable commodities transactions, which is included under the head “Profits & gains of business or profession”.

The amendment to Section 36 will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.


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2.1.8 Securities Transaction Tax (‘STT’)

The Bill proposes to reduce STT rates in the taxable securities transactions as under:

Sr. No.

Nature of Taxable Securities transaction

Payable By Existing Rate

Proposed Rate

1 Delivery based purchase of units of an equity oriented fund entered into in a recognized stock exchange

Purchaser 0.10% Nil

2 Delivery based sale of units of an equity oriented fund entered into in a recognized stock exchange

Seller 0.10% 0.001%

3 Sale of a futures in securities

Seller 0.017% 0.01%

4 Sale of a Unit of an equity oriented fund to the mutual fund

Seller 0.25% 0.001%

This amendment will take effect from 1st June, 2013 and will, accordingly, apply to any transaction made on or after that date.

2.2 Allowances/Rebates/Deductions

2.2.1 Deduction in respect of interest on loan sanctioned during FY 2013-14 for acquiring residential house property

In order to provide additional incentive to first-home buyers, it is proposed to insert a new Section 80EE relating to deduction in respect of interest on loan taken for residential house property.

As per the Section 80EE, an individual would be provided deduction up to maximum of ` 1,00,000/- in computing its total income for AY 2014-15, being interest payable on loan taken by him from a specified financial institution for the purpose of acquisition of a residential house property. In a case where the interest payable for AY 2014-15 is less than ` 1,00,000/-, then the balance amount shall be allowed in AY 2015-16.


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The deduction under Section 80EE of the IT Act would be allowed subject to the following conditions:

The loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014;

The amount of loan sanctioned for acquisition of the residential house property does not exceed ` 25,00,000/-;

The value of the residential house property does not exceed ` 40,00,000/-;

The assessee does not own any residential house property on the date of sanction of the loan.

Further, where a deduction for interest under this section is allowed for any assessment year, then deduction shall not be allowed in respect of such interest under any other provisions of the IT Act for the same or any other assessment year.

This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment year.

2.2.2 Incentive for acquisition and installation of new plant or machinery by manufacturing company

A new Section 32AC is proposed to be inserted so as to encourage manufacturing company to substantially invest in plant or machinery. As per the said section, an assessee, being a company, should fulfill the following conditions:

Should be engaged in the business of manufacture of an article or thing;

Should invest a sum of more than ` 100 crores in ‘new assets’ (plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015;

The new assets should not be transferred within a period of 5 years except in case of amalgamation or demerger.

Subject to the fulfilment of the above conditions, the assessee is entitled for deduction as under:

For AY 2014-15 - a deduction of 15% of aggregate amount of actual cost of new assets acquired and installed during FY 2013-14, if the cost of such assets exceeds ` 100 crores;


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For AY 2015-16 - a deduction of 15% of aggregate amount of actual cost of new assets acquired and installed during 1st April, 2013 and 31st March, 2015, as reduced by the amount of deduction, if any, allowed in AY 2014-15.

In case of violation of condition relating to transfer of new assets within a period of five years, the deduction provided in this section would be considered as income of the assessee or of the amalgamated company or of the resulting company, as the case may be, as business income of the previous year in which such asset is sold or otherwise transferred, in addition to the taxability as gain on account of transfer of such new asset.

The phrase “new asset” has been defined as new plant and machinery but does not include:

Any plant or machinery, which before its installation by the assessee was used either within or outside India by any other person;

Any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;

Any office appliances including computers or computer software;

Any vehicle;

Ship or aircraft; or

Any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

2.2.3 Raising the limit of percentage of eligible premium for life insurance policies of persons with disability or disease

As per the existing provisions contained in Section 10(10D) of the IT Act, any sum received under a life insurance policy including bonus on such policy, is exempt, subject to the condition that the premium paid for such policy does not exceed 10% of the ‘actual capital sum assured’.

Similarly, the existing provisions of Section 80C(3A) allow a deduction in respect of any premium or other payment made for a insurance policy of up to 10% of the ‘actual capital sum assured’.


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It is proposed to insert a new proviso to Section 10(10D) so as to provide a higher limit of 15% of the ‘actual capital sum assured’ to any person with disability/severe disability as referred to in Section 80U or a person suffering from disease or ailment as specified in the rules made under Section 80DDB.

Further, it is also proposed to insert a new proviso to the Section 80C(3A) so as to provide that the deduction on account of premium paid in respect of a policy issued on or after 1st April, 2013 for insurance on the life of a person referred to above shall be allowed to the extent the premium paid does not exceed 15% of the ‘actual capital sum assured’.

This amendment is proposed to take effect from 1st April, 2014 and will, accordingly, apply for assessment year 2014-15 and subsequent assessment years.

2.2.4 Expanding the scope of deduction and its eligibility under Section 80CCG

As per existing provision of Section 80CCG, a resident individual, who has acquired listed equity shares in accordance with Rajiv Gandhi Equity Savings Scheme (‘RGESS’), shall be allowed a deduction of 50% of the amount invested in such equity shares or ` 25,000/-, whichever is lower. The deduction is a one-time deduction and is available only in one assessment year in respect of the amount so invested. The deduction is available to a new retail investor whose gross total income is not more than ` 10,00,000/-.

With a view to liberalize the aforesaid incentive, it is proposed to amend the provisions of Section 80CCG so as to provide for the following:

Investment in listed units of an equity oriented fund [as defined in Section 10(38) of the IT Act] shall also be eligible for deduction under this section;

Deduction under this section shall be allowed for 3 consecutive assessment years beginning with the assessment year in which the listed equity shares or listed units were first acquired;

The deduction is available to a new retail investor whose gross total income in relevant assessment year does not exceeds ` 12,00,000/-.

This amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.


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2.2.5 Deduction for contribution to health schemes similar to Central Government Health Scheme (‘CGHS’)

As per existing provision of Section 80D, a deduction up to maximum of ` 15,000/- is allowed to an individual in respect of amount paid towards premium for health insurance for himself and family or for contribution made towards the CGHS or amount paid on account of preventive health check-up of self or family.

It is proposed to amend Section 80D to allow the benefit of a deduction, within the specified limit, in respect of amounts paid or contributions made to any other health scheme as may be notified by the Central Government.


2.2.6 100% deduction for donation to the National Children’s Fund As per the existing provisions of Section 80G, an assessee is allowed

a deduction @ 50% of the amount of donations made except in the case of donations made to certain funds and institutions specified inSection 80G(1)(i), where deduction is allowed @ 100%.

In case of donations made to National Children’s Fund, deduction is allowed @ 50% of the amount so donated.

It is proposed to allow 100% deduction in respect of any sum paid to the National Children’s Fund in computing the total income of an assessee.

The proposed amendment will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.

2.2.7 Extension of sunset date for tax holiday under Section 80-IA for the power sector

Under the existing provisions of Section 80IA(4)(iv), a deduction from the profits and gains is allowed to an undertaking which:

Is set up for the generation and distribution of power, if it begins to generate power at any time during the period beginning on 1st April 1993 and ending on 31st March, 2013;

Starts transmission or distribution by laying a network of new transmission or distribution lines at any time during the period beginning on 1st April, 1999 and ending on 31st March, 2013;


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Undertakes substantial renovation and modernisation of the existing network of transmission or distributions lines at any time during the period beginning on 1st April, 2004 and ending on 31st March, 2013.

With a view to provide further time to the undertakings to commence the eligible activity to avail the tax incentive, it is proposed to amend the above provisions so as to extend the terminal date by a further period of one year i.e. up to 31st March, 2014.

This amendment will take effect from 1st April, 2014 and will, accordingly, apply for assessment year 2014-15 and subsequent assessment years.

2.2.8 Deduction for additional wages in certain cases

Under the existing provisions of Section 80JJAA, an Indian Company is eligible for deduction of an amount equal to 30% of additional wages paid to the new regular workmen employed in any previous year by its industrial undertaking engaged in manufacture or production of article or thing. The deduction is available for 3 assessment years including the assessment year relevant to the previous year in which such employment is provided.

The tax incentive under section 80JJAA was intended for employment of blue collared employees in the manufacturing sector whereas in practice, it is being claimed for other employees in other sector also. It is therefore proposed to amend the aforesaid provision so as to provide that the deduction shall be available to an Indian Company deriving profits from manufacture of goods in its “factory” as defined under section 2 (m) of the Factories Act 1948 . The deduction shall be of an amount equal to 30% of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

It is also proposed to provide that the deduction under this section shall not be available, if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company.



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2.2.9 Rebate of ` 2,000/- in case of certain individuals having total income up to ` 5,00,000/-

In order to provide tax relief to the individual tax payers who are in lower income bracket, it is proposed to provide rebate from the tax payable by resident individual assessee whose total income does not exceed ` 5,00,000/-.

For this purpose, it is proposed to amend Section 87 and insert a new Section 87A, which seek to provide a rebate to the extent of amount of income-tax payable or ` 2,000/-, whichever is lower. Consequently any resident individual having income up to ` 2,20,000/- will not be required to pay any tax and every individual having total income above ` 2,20,000/- but not exceeding ` 5,00,000/- shall get a tax relief of ` 2,000/-.


2.3 Widening of Tax Base and Anti Tax Avoidance Measures

2.3.1 General Anti Avoidance Rule (‘GAAR’)

GAAR was introduced by the Finance Act, 2012.

GAAR will be applicable to arrangements/transactions, which are regarded as ‘impermissible avoidance arrangements’ and enable the tax authorities, to inter alia re-characterize such arrangements/transactions so as to deny tax benefits.

A number of representations were received against the provisions relating to GAAR. An Expert Committee under the Chairmanship of Dr. Parthasarathi Shome was constituted by the Government with broad terms of reference including consultation with stakeholders and finalising the GAAR guidelines and a road map for implementation. The Expert Committee’s recommendations included suggestions for legislative amendments, formulation of rules and prescribing guidelines for implementation of GAAR. The major recommendations of the Expert Committee have been accepted by the Government, with some modifications. Some of the recommendations accepted by the Government require amendment in the provisions of Chapter X-A and Section 144BA.


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Certain key existing provisions, recommendations of the Shome Committee and corresponding amendment proposed in the Bill are summarised hereunder:

Particulars Existing Provisions of the IT Act

Recommendation of Shome Committee Report

Proposed Amendment

Effective date GAAR provisions to apply fromAY 2014-15

GAAR provisions to apply fromAY 2017-18

GAAR provisions to apply fromAY 2016-17

Meaning of impermissible arrangement

Defi ned to include an arrangement ‘the main purpose or one of the main purposes’ is to obtain tax benefi t

Defi ned to include an arrangement ‘the main purpose’ is to obtain tax benefi t

Defi ned to include an arrangement ‘the main purpose’ is to obtain tax benefi t

Determining factors – whether an arrangement lacks commercial substance

Factors like period of existence of arrangement, payment of taxes under the arrangement and exit route shall not be taken into account

The committee recommended that these factors (mentioned in Finance Act, 2012) are relevant but may not be suffi cient to prove commercial substance. These factors will be taken into account in forming a holistic assessment to determine whether an arrangement lacks commercial substance or not

It has been proposed that these factors (mentioned in Finance Act, 2012) may be relevant but shall not be suffi cient to determine whether an arrangement lacks commercial substance or not.


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Proposed Amendment

Additional determining factors – whether an arrangement lacks commercial substance

Not in existence The arrangement shall also be deemed to be lacking commercial substance, if it does not have signifi cant effect upon the business risks, or net cash fl ows of any party to the arrangement apart from any effect attributable to the tax benefi t that would be obtained but for the application of provisions of GAAR

The recommendation of Shome Committee has been accepted and accordingly corresponding amendment has been proposed in the Bill.

Composition of Approving panel

Approving panel of 3 members consisting of members from the Government

Approving panel of 5 members including one Chairperson who should be a retired judge of the High Court and two members from outside the Government

Approving panel consisting of 3 members including one Chairperson, who is or has been the retired judge of High Court has been recommended


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Proposed Amendment

Binding nature The direction issued by the approving panel will be binding only on the AO

No comment by the Committee

The direction issued by the approving panel shall be binding on the Assessee and the Commissioner and the income-tax authorities subordinate to him and no appeal against such direction can be made under the provisions of the Act

Term of approving Panel

Not in existence Not in existence Constitution of one or more approving panel the term of which shall be for one year and may be extended from time to time to a period of three years.


22



Proposed Amendment

Meaning of the term ‘Associated person’ and ‘Connected person’

The term ‘Associated person’ and ‘Connected person’ are separately defi ned under the GAAR provisions

The Committee recommended that the term ‘Connected person’ may be restricted only to ‘Associated person’ and ‘Associated Enterprise’.

Both the terms have been merged and only one inclusive term ‘connected person’ has been proposed

The amendment will take effect from 1st April, 2016 and will, accordingly apply in relation to the AY 2016-17 and subsequent AYs.

2.3.2 Introduction of additional income tax on distributed income by company for buy-back of unlisted shares

Under the existing provisions, buy-back of shares by a company is deemed to be a transfer and resulting gain is taxable in the hands of shareholder as capital gains by virtue of Section 46A of the IT Act.

As a tax efficient profit repatriation strategy, closely held unlisted companies have been resorting to buy-back of shares instead of payment of dividends in order to avoid payment of tax by way of DDT particularly where the capital gains arising to the shareholders are either not chargeable to tax or are taxable at a lower rate. Such buy-back of shares used to result in the following tax benefits:

Lower rate of tax on capital gains for resident and non-resident shareholders;

No tax on capital gains under favourable tax treaties i.e. Mauritius, Singapore and Cyprus etc; and

In case of non-resident shareholders, availability of credit of taxes withheld in India, which is not possible in the case of DDT.

In order to curb such practice, it is proposed to insert new Chapter XII-DA containing sections 115QA to Section 115QC. This chapter provides that the consideration paid by a domestic unlisted company for buy-back of its shares, which is in excess of the sum received by such company at the time of issue of such shares (distributed income) will be charged to tax and the company would be liable to pay additional income-tax @ 20% (plus


23

applicable surcharge and education cess) of the distributed income paid to the shareholder. The additional income-tax payable by the company shall be the final tax and would be treated at par with DDT.

As like DDT, this tax will also not be a deductible expense in the hands of company.

Further, it is proposed to insert a new section 10(34A) in Chapter III to provide for exemption in respect of any income in the hands of shareholder on account of buy-back of shares of domestic unlisted company.

The above amendments will be effective from 1st June, 2013.

2.3.3 Computation of income from transfer of immovable property held as stock in trade

Under the existing provisions of Section 50C of the IT Act, stamp duty value is taken as full value of consideration in case transfer of a capital asset being land or building or both is at a consideration less than the stamp duty value of such capital asset. Section 50C of the IT Act is not applicable on transfer of immovable property held as stock-in-trade.

It is proposed to insert a new Section 43CA to provide that where the consideration for the transfer of an asset (other than capital asset), being land or building or both, is less than the stamp duty value, the value so adopted or assessed or assessable, shall be deemed to be the full value of the consideration for the purposes of computing income under the head 'Profits and gains of business of profession'.

It is also proposed to provide that where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement.

Thus, if no part of consideration is received otherwise than cash on or before the date of the agreement, the stamp duty value as on the date of registration would be applicable. If there is increase in stamp duty value at the time of registration, it can affect (increase) the computation of business profit.

These amendments shall take effect from 1st April, 2014 and will, accordingly, apply in relation to the AY 2014-15 and subsequent AYs.


24

2.3.4 Taxability of immovable property received for inadequate consideration

Under the existing provisions of Section 56(2)(vii)(b) of the IT Act, in the case of any immovable property, stamp duty value of which exceeds ` 50,000, is transferred without consideration to an individual or HUF, then, in such case, stamp duty value of immovable property is deemed to be income in the hands of the individual or the HUF as income from other sources.

The existing provisions, however, do not cover a situation wherein the immovable property is transferred for inadequate consideration.

In order to bring such transactions into tax net, it is proposed to extend the scope of provisions of Section 56(2)(vii)(b) to transfer of immovable property for inadequate consideration i.e. in cases the difference between the stamp value and transaction value exceeds ` 50,000.

It is also proposed to provide that where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of the transfer of the asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement.

Thus, if no part of consideration is received otherwise than cash on or before the date of the agreement, the stamp duty value as on the date of registration would be applicable. If there is increase in stamp duty value at the time of registration, it can affect (increase) the computation of income from other sources.

These amendments shall take effect from 1st April, 2014 and will, accordingly, apply in relation to the AY 2014-15 and subsequent AYs.

2.3.5 Keyman Insurance Policy The existing provision of Section 10(10D), inter alia, exempts any sum

received under a life insurance policy other than a keyman insurance policy.

Keyman insurance policy is defined to mean a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person.


25

There have been instances where the policies taken as keyman insurance policy are being assigned to the keyman before its maturity. The keyman pays the remaining premium on the policy and claims the sum received under the policy as exempt on the ground that the policy is no longer a keyman insurance policy. Thus, the exemption under Section 10(10D) is being claimed for policies, which were originally keyman insurance policies but during the term, these were assigned to the keyman. The Courts have also noticed this loophole.

The Bill proposes to amend Section 10(10D) to provide that a keyman insurance policy which has been assigned to any person during its term, with or without consideration, shall continue to be treated as a keyman insurance policy.


2.4 Other Signifi cant Proposals

2.4.1 Widening of defi nition of urban land

It is proposed to amend the existing definition of urban land so as to include the following land situated in any area within the distance, measured aerially:

Not being more than 2 kilometres from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or

Not being more than 6 kilometres from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or

Not being more than 8 kilometres from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000 shall be classified as urban land.

It is also proposed to define the expression ‘population’ to mean population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.

Similar amendments are also proposed in Section 2(1A) and Section 2(14) of the IT Act relating to the definition of ‘agricultural income’ and ‘capital assets’, respectively.

In this respect, it is pertinent to know that earlier there was a dispute as to whether the distance should be measured by aerial route or shortest


26

road distance. Based on the above proposal, now distance of land has to be only measured by aerial distance. Owing to the above amendment, the following judgements in favour of the assessee are now overruled:

CIT v. Satinder Pal Singh [188 taxmann 54 (P & H)];

ITO v. Ashok Shukla [139 ITD 666 (Indore)];

Lokik Developers V CIT [105 ITD 657 (Mum)].

These amendments will take effect from 1st April, 2014 and will, accordingly, apply in relation to assessment year 2014-15 and subsequent assessment years.

2.4.2 Clarification for amount to be eligible for deduction as bad debts in case of banks

Under the existing provisions of Section 36(1)(viia), a scheduled Indian bank is allowed deduction for the provision for bad and doubtful debt subject to the following limitations:-

7.5% of the total income computed before making any deduction under this clause and Chapter-VIA;

10% of aggregate average rural advances made by rural branches;

5% of doubtful assets and loss assets classified as per the guidelines issued by the RBI.

Further, Section 36(1)(vii) provides for deduction of any bad debt or part thereof written off in the books of accounts subject to condition that amount of deduction should be restricted to difference between the amount of bad debts written off and credit balances of provision for bad debts made by the bank under Section 36(1)(viia).

Section 36(2)(v) further provides that for claiming deduction of bad debts under Section 36(1)(vii), it should be debited to provision for bad and doubtful debt.

In the light of above provisions, an Indian bank can claim deduction for provisions for bad and doubtful debts subject to maximum limit as prescribed under Section 36(1)(viia).

There has been a spat of controversy on the point that whether while claiming deduction under Section 36 (1)(vii), each provision i.e. for rural advances or urban advances should be considered separate instead of considering aggregate while claiming deduction of respective advance written off as bad debts under Section 36(1)(vii).


27

In the backdrop of judgment of Hon’ble Supreme Court in the case of Catholic Syrian Bank Ltd. vs. CIT (343 ITR 277 (SC), a scheduled bank can maintain a separate provision for doubtful advances made by rural branches and accordingly claim any write off of urban advances irrespective of the fact that such write off does not exceed the provision created under the Section 36(1)(viia).

In order to clarify the above interpretation issue and nullify the impact of ruling of Cathllic Syrian Bank, it is proposed to incorporate a new explanation 2 to Section 36(vii) whereby it is clarified that there shall be only one account for provisions of rural as well as urban advances.

The above amendment will be effective from 1st April, 2014.

2.4.3 Tax Residency Certificate As per the existing provision of the sub-section (4) of Section 90 and

Section 90A of the IT Act inserted by Finance Act, 2012, submission of TRC containing the prescribed particulars was a condition precedent for availing benefits of the DTAA.

It is proposed to amend the aforesaid section so as to provide that submission of a TRC is a necessary but not a sufficient condition for claiming benefits of DTAA referred to in Section 90 and Section 90A.

These amendments will take effect retrospectively from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

2.4.4 Return of income to treated as defective if filed without payment of self-assessment tax

The existing provisions of Section 139(9) provide that where the AO considers that the return of income furnished by the assessee is defective; he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of 15 days. If the defect is not rectified within the time allowed by the AO, the return is treated as an invalid return. The conditions, the non-fulfilment of which renders the return defective, have been provided in the Explanation to Section 139(9).

Section 140A provides that where any tax is payable on the basis of any return, after taking into account the prepaid taxes, the assessee shall be liable to pay such tax together with interest for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return.

It has been noticed that a large number of assessees are filing their returns


28

of income without payment of self-assessment tax.

It is proposed to amend section 139(9) to provide that if self-assessment tax along with interest payable under provisions of Section 140A has not been paid on or before furnishing return of income, then it will be regarded as defective return.

The above amendment will take effect from 1st June, 2013.

2.4.5 Concessional rate of withholding tax on interest in case of certain rupee denominated long-term infrastructure bonds

As per the provisions of Section 194LC, concessional rate of tax @ 5% is applicable on the interest payment to a non-resident person if an Indian company borrows money in foreign currency either under loan agreement or by way of issue of long-term infrastructure bonds approved by the Central Government.

It is proposed to amend Section 194LC in order to extend the benefit of concessional rate of tax @ 5% to non-residents who deposit foreign currency in a designated bank account and such money as converted in rupees is utilized for subscription to a long-term infrastructure bond issue of an Indian company. The borrowing shall be deemed to be in foreign currency.

The designated bank account should be solely for the purpose of deposit of money in foreign currency and such money is to be used, after conversion, for subscription to a rupee denominated long-term infrastructure bond issue of an Indian company.

The proposed amendment will take effect from 1st June, 2013.

2.4.6 Clarification of the phrase ‘tax due’ for the purposes of recovery in certain cases

As per Section 179 of the IT Act, where the ‘tax due’ from a private company cannot be recovered from such company, then the director shall be jointly and severally liable for payment of such tax unless he proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part.

However, some Courts have interpreted the phrase ‘tax due’ used in Section 179 to hold that it does not include penalty, interest and other sum payable under the IT Act. Few of such decisions are as under:

Maganbhai H Patel v. ACIT [26 taxmann .com 226 (Guj)];

Dinesh T Tailor v. TRO [326 ITR 85 (Mum)];

H Ebrahim v. DCIT [332 ITR 122 (Kar)].


29

To keep the above ambiguity to rest, it is now proposed to amend Section 179 of the IT Act so as to clarify that the expression ‘tax due’ includes penalty, interest or any other sum payable under the IT Act.

Further, amendments on the similar lines for clarifying the expression ‘tax due’ is proposed to be made to the provisions of Section 167C dealing with liability of partners of LLP in liquidation.

These amendments will take effect from 1st June, 2013.

2.4.7 Penalty under Section 271FA for non-filing of Annual Information Return (‘AIR’)

Under the existing provisions of Section 271FA, if a person fails to furnish the AIR as required under Section 285BA(1), within the prescribed time, the Income-tax authority may direct such person to pay penalty of ` 100 for every day during which the failure continues.

The Bill proposes to provide that where such person fails to furnish the return within the period specified in the notice under Section 285BA (5), he shall pay, by way of penalty, ̀ 500 for every day during which the failure continues, beginning from the day immediately following the day on which the time specified in such notice for furnishing the return expires.

The said amendments are proposed to be made with effect from 1st April, 2014.

2.5 TDS Rates

Sr. No. Nature of Payment

Section Existing threshold

Rate at which Tax is to be Deducted

Proposed Threshold for

Deduction w.e.f 1st April

2013

Proposed rate at which Tax is to be

Deducted

1. Salary 192 As per slab rates prescribed for individuals2. Interest on

specifi ed securities

193 ` 5,000 p.a. 10% ` 5,000 p.a. 10%

3. Interest other than interest on securities

194A ` 5,000/ `. 10,000 p.a.

10% ` 5,000/ `. 10,000 p.a.

10%

4. Winnings from lottery or crossword puzzle or card game or other game

194B ` 10,000 30% ` 10,00 30%

5. Winnings from horse race

194BB ` 5,000 30% ` 5,000 30%


30






2013


Deducted

6. Payments to contractors

194C Payment exceeding

` 30,000 per contract or

` 75,000 p.a. in aggregate

2% (1% for individual and

HUFs)

Payment exceeding

` 30,000 per contract or

` 75,000 p.a. in aggregate

2% (1% for individual and

HUFs)

7. Insurance commission

194D ` 20,000 10% ` 20,000 10%

8. Payments to Non-resident sportsmen/sports association

194E Not applicable

20%

Not applicable

20%

9. Payments of deposits under NSS to any person

194EE ` 2,500 payments to legal hiers

exempt

20% ` 2,500 payments to legal hiers

exempt

20%

10. Commission/Remuneration on sale of lottery tickets to any person

194G ` 1,000 10% ` 1,000 10%

11. Commission or brokerage

194H ` 5,000 p.a 10% ` 5,000 p.a 10%

12a. Rent of Land/Building/Furniture

194I ` 1,80,000 p.a

10% ` 1,80,000 p.a

10%

12b. Rent of Plant, Machinery or Equipment

194I ` 1,80,000 p.a

2% ` 1,80,000 p.a

2%

12c. Consideration for transfer of any immovable property

194IA Not Applicable

Not Applicable Payment in excess of ` 50,00,000

1%

13. Fees for professional and technical services / royalty

194J `. 30,000 p.a 10% `. 30,000 p.a 10%


31






2013


Deducted

14 Compensation to resident on acquisition of certain immovable property other than specifi ed agricultural land

194LA ` 2,00,000 p.a.

10% ` 2,00,000 p.a.

10%

15 Income by way of interest from infrastructure debt fund

194LB Not Applicable

5% Not Applicable

5%

16 Income by way of interest from Indian company to a non-resident from investment in foreign currency as well as Indian denominated rupees

194LC Not Applicable

5% Not Applicable

5%

Notes: It is proposed to insert a new Section 194-IA to provide for TDS on transfer

of immovable property (other than agricultural land) @ 1%.

It is proposed to amend Section 194-LC of the IT Act so as to provide that where a non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilised for subscription to a long-term infrastructure bond issue of an Indian company, then, for the purpose of this section, the borrowing by the company shall be deemed to be in foreign currency.

Time of deduction of tax: Tax is to be deducted at the time of payment or credit, whichever is earlier except in case of salary (where tax is to be deducted at the time of payment).

Time for deposit of tax: All sums deducted shall be deposited with the Government within 7 days from the end of the month in which the deduction is made. However, where the amount is credited or paid to the account of the payee in the month of March, the tax is required to be deposited with


32

the government on or before 30th April.

Mode of making payment of tax: For payment of tax, challan no. ITNS 281 is to be used. All companies and deductors who are liable to tax audit have to make payment of tax by electronic mode. Others can make payment of tax either physically or by electronic mode at their option.

TDS Return: Person responsible for deducting tax is required to file quarterly statements for the quarter ending on 30th June, 30th September, 31st December and 31st March in each FY, in Form 26Q (Form 24Q for Salary) along with Form 27A, on or before 15th July, 15th October, 15th January and 15th May respectively. Form 26Q and Form 24Q are to be filed electronically while Form 27Ais to be filed in physical form.

TDS Certificate in case of non-salary payments: TDS Certificate in Form 16A is required to be issued on quarterly basis within 15 days from the due date of furnishing the statement of TDS i.e. on or before 30th July, 30th October, 30th January and 30th May for quarters ended 30th June, 30th September,31st December and 31st March respectively.

TDS Certificate in case of salary payments: TDS Certificate in Form16 is required to be issued on annual basis by 31st May of the FY immediately following the FY in which the income was paid and tax deducted.

Higher TDS rate of 20% for not furnishing correct PAN: In case the payee is not able to furnish his/her PAN to the payer, tax shall be deducted at higher of the rates specified in the relevant provision of the IT Act or at the rates in force or 20%.

An individual or HUF is not liable to deduct tax. However, an individual or HUF, who is liable to tax audit under Section 44AB during the financial year immediately preceding the FY in which sum is credited or paid, shall be liable to deduct tax under Sections 194A, 194C, 194H, 194I and 194J, as the case may be.

Above rates (except 194E Section) are not applicable in case of payments made to foreign companies and non-residents except in case of sections 192, 194B, 194BB, which are also applicable to non-residents.

Every transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land), shall be required to deduct the tax. The transferee would not be required to obtain TAN and also not required to furnish TDS return.

Tax is required to be deducted on remuneration paid to a director which is not in the nature of salary.

2.6 Compliance Calendar


33

In this chapter, we have provided an overview of the various direct taxes compliance from the perspective of a company, Partnership Firm (including LLP), Individual and HUF.

Nature of Compliance

Person

Company Partnership Firm /LLP Individual and HUF

1. Due Dates for fi ling of Return of Income (‘ROI’), Return of Wealth (‘ROW’) and obtaining Tax Audit Report (Note 1)

Person covered under Tax Audit

(other than those to whom transfer pricing is applicable)

30 September

Person covered under transfer pricing

(For furnishing of Transfer Pricing Report in Form 3CEB same due date is applicable

30 November

Other Persons 30 September 31July 31July (Note2)

2. Advance Tax Payments for Income Tax (Note 3)

1st Installment- on or before 15 June 15% Not Applicable Not Applicable

2nd Installment- on or before 15 September 45% 30% 30%

3rd Installment- on or before 15 December 75% 60% 60%

4th Installment- on or before 15 March 100% 100% 100%

3. Tax Deducted at Source (‘TDS’)


34


Person


Tax must be deducted at the time of payment, in case of salary

Applicable

Applicable, only if person is covered under tax audit in the preceding previous year

In case of Payments other than salary, at the time of making payment or credit, whichever is earlier

Tax deducted must be deposited in the bank by 7th day of the follow-ing month except tax deducted for payment or credit made in March must be deposited by 30th April

4. Tax Collected at Source (‘TCS’)

Tax Collected must be deposited within one week from the end of month of tax collection

Applicable

5. Due Dates for Filing of TDS/TCS Returns

TDS Quarterly State-ment for quarter ended June

15 July

TDS Quarterly State-ment for quarter ended September

15 October

TDS Quarterly State-ment for quarter ended December

15 January

TDS Quarterly State-ment for quarter ended March

15 May

6. Due Dates for issue of Form 16 (for Salaries)/ Form 16A (For other than salaries) and Form 27D (For TCS) (Note 4)

Issue of Form 16 An-nually 31 May

Issue of Form 16A/ 27D for quarter ended June 30 July


35


Person


Issue of Form 16A/ 27D for quarter ended September

30 October

Issue of Form 16A/ 27D for quarter ended December

30 January

Issue of Form 16A/ 27D for quarter ended March 30 May

Notes:

Only Companies, Individuals and HUFs are required to file ROW.

In case of working partner of a partnership firm, whose accounts are required to be audited under section 44AB of the IT Act, the date of filling of ROI is 30th September.

Advance tax payment for income-tax is applicable to every person where the amount of income-tax payable is ` 10,000 or more.

From 1st April 2011 (FY 2011-12) onwards, it is mandatory for companies and banks to issue Form 16A, which is to be downloaded from the TRACES website (www.tdscpc.gov.in).

Every person, being a non-resident having liaison office in India shall, in respect of its activities in a financial year, file a statement in Form No. 49C within 60 days from the end of the financial year i.e. 30th May to the AO.


36

2.7 DTAA RATES

Sr. No. Country

Dividend Interest Royalty FTSRemarks

Tax rate Tax rate Tax rate Tax rate

Rate as per the IT Act

Nil[Note 1]

20%[Note 6]

10% [Note 3 and 6]

10% [Note 3 and 6]

Rate as per the IT Act (to be further increased by applicable surcharge and education cess) or DTAA rate, whichever is more beneficial shall apply

1 Armenia 10% 10% [Note 4]

10% 10%

2 Australia 15% 15% Note 5 Covered under

Article for Royalty

3 Austria 10% 10% [Note 4]

10% 10%

4 Bangladesh 10% / 15% 10% [Note 4]

10% No separate provision

10% tax on dividends if at least 10% of the capital is owned by company; in any other case 15%

5 Belarus 10% / 15% 10% [Note 4]

15% 15% 10% tax on dividends if at least 25% of the shares are owned by company; in any other case 15%

6 Belgium 15% 15% / 10% 10% 10% 1. Interest taxable at 10% if recipient is bank; in any other case 15%.2. MFN clause with respect to Royalty and FTS.

7 Botswana 7.5% / 10% 10% [Note 4]

10% 10% 7.5% tax on dividends if at least 25% of the capital is owned by company; in any other case 10%

8 Brazil 15% 15% [Note 4]

15% (25% for

trademark)

Covered under

Article for Royalty

15% tax on dividends if paid to a company; in any other case as per domestic tax laws

9 Bulgaria 15% 15% [Note 4]

15% / 20% 20% 15% tax on royalties if relating to copyrights of literary, artisitic or scientific works, other than cinematograph films or films or tapes used for radio or television broadcasting; in any other case 20%

10 Canada 15% / 25% 15% [Note 4]

Note 5 Note 5 15% tax on dividends if at least 10% of the voting power is owned by company; in any other case 25%

11 China 10% 10% [Note 4]

10% 10%


37

Sr. No. Country



12 Cyprus 10% / 15% 10% [Note 4]

15% 15% / 10% 1. 10% tax on dividends if at least 10% of the shares are owned by company; in any other case 15%.2. Technical fees are taxable @ 10% under Article 13 and Fees for Included Services is chargeable @ 15% under Article 12.

13 Czech Republic

10% 10% [Note 4]

10% 10%

14 Denmark 15% / 25% 15% / 10% [Note 4]

20% 20% 1. 15% tax on dividends if at least 25% of the shares are owned by the company; in any other case 25%2. Interest taxable at 10% if recipient is bank; in any other case 15%

15 Estonia 10% 10% [Note 4]

10% 10%

16 Finland 10% 10% [Note 4]

10% 10% MFN clause with respect to Dividend, Interest, Royalty and FTS

17 France 10% 10% [Note 4]


18 Georgia 10% 10% [Note 4]

10% 10%

19 Germany 10% 10% [Note 4]

10% 10%

20 Greece Taxable as per domestic laws in source country

No separate provision

21 Hungary 10% 10% [Note 4]


22 Indonesia 10% 10% [Note 4]


Revised DTAA signed on 27th July, 2012

23 Iceland 10% 10% [Note 4]

10% 10%

24 Ireland 10% 10% [Note 4]

10% 10%

25 Israel 10% 10% [Note 4]


26 Italy 15% / 25% 15% [Note 4]

20% 20% 15% tax on dividends if at least 10% of the shares are owned by company; in any other case 25%


38

Sr. No. Country



27 Japan 10% 10% [Note 4]

10% 10%

28 Jordan 10% 10% [Note 4]

20% 20%

29 Kazakstan 10% 10% [Note 4]


30 Kenya 15% 15% [Note 4]


17.50% tax in case of Management and Professional fees.

31 Korea 15% / 20% 15% / 10% [Note 4]

15% 15% 1. 15% tax on dividends if at least 20% of the capital is owned by the company; in any other case 20%2. Interest taxable at 10% if recipient is bank; in any other case 15%

32 Kuwait 10% 10% [Note 4]

10% 10%

33 Kyrgyz Republic

10% 10% [Note 4]

15% 15%

34 Libya Taxable as per domestic laws in source country


35 Lithuania 5% /15% 10% [Note 4]

10% 10% 5% tax on dividends if at least 10% of the shares are owned by the company; in any other case 15%

36 Luxembourg 10% 10% [Note 4]

10% 10%

37 Malaysia 5% 10% [Note 4]

10% 10%

38 Malta 10% / 15% 10% [Note 4]

15% 15% / 10% 1. 10% tax on dividends if at least 25% of the shares are owned by company; in any other case 15%2. FTS, ancilliary and subsidiary to Royalty under Article 12, are taxable @ 10% under Article 13 and Fees for Included Services is chargeable @ 15% under Article 12.

39 Mauritius 5% / 15% Taxable as per

Domestic Laws

[Note 4]


5% tax on dividends if at least 10% of the capital is owned by company; in any other case 15%

40 Mongolia 15% 15% [Note 4]

15% 15%


39

Sr. No. Country



41 Montenegro 5% / 15% 10% [Note 4]

10% 10% 5% tax on dividends if at least 25% of the capital is owned by company (other than a partnership); in any other case 15%

42 Morocco 10% 10% [Note 4]

10% 10%

43 Mozambique 7.5% 10% [Note 4]


44 Myanmar 5% 10% [Note 4]


45 Namibia 10% 10% [Note 4]

10% 10%

46 Nepal 5% / 10% 10% [Note 4]


5% tax on dividends if at least 10% of the shares are owned by the company; in any other case 10%

47 Netherlands 10% 10% [Note 4]


48 New Zealand 15% 10% [Note 4]

10% 10%

49 Norway 10% 10% [Note 4]

10% 10%

50 Oman 10% / 12.50%

10% [Note 4]

15% 15% 10% tax on dividends if at least 10% of the shares are owned by the company; in any other case 12.50%

51 Philippines 15% / 20% 15% / 10% 15% No separate provision

1. 15% tax on dividends if at least 10% of the shares are owned by the company; in any other case 20%.2. Interest taxable @ 10% if recipient is Financial Institution (including an insurance company) and where the interest is payable by the company resident of Philippines to a resident of India in respect of public issues of bonds, debentures or similar obligations. In any other case 15%.3. Royalty taxable @ 15% if it is payable in pursuance of any collaboration agreement approved by the Government of India. No rates prescribed in any other case.


40

Sr. No. Country



52 Poland 15% 15% [Note 4]

22.5% 22.5%

53 Portuguese Republic

10% / 15% 10% [Note 4]

10% 10% 10% tax on dividends if at least 25% of the capital stock is owned by the company for an uninterrupted period of 2 years prior to the payment of dividend; in any other case 15%

54 Qatar 5% / 10% 10% [Note 4]

10% 10% 5% tax on dividends if at least 10% of the shares are owned by the company; in any other case 10%

55 Romania 15% / 20% 15% [Note 4]

22.5% 22.5% 15% tax on dividends if at least 25% of the shares are owned by the company; in any other case 20%

56 Russian Federation

10% 10% [Note 4]

10% 10%

57 Saudi Arabia 5% 10% [Note 4]


58 Serbia 5% / 15% 10% [Note 4]


59 Singapore 10% / 15% 10% / 15% 10% 10% 1. 10% tax on dividends if at least 25% of the shares are owned by the company; in any other case 15%2. Interest taxable @ 10% if recipient is bank or similar Financial Institution including an insurance company; in any other case 15%

60 Slovenia 5% / 15% 10% [Note 4]

10% 10% 5% tax on dividends if at least 10% of the capital is owned by company; in any other case 15%

61 South Africa 10% 10% [Note 4]

10% 10%

62 Spain 15% 15% [Note 4]

10% 10% 1. 10% tax on royalties if paid for the use or right to use any industrial, commercial or scientific equipment; in any other case 20%2. MFN clause with respect to Royalty and FTS.

63 Sri Lanka 15% 10% [Note 4]



41

Sr. No. Country



64 Sudan 10% 10% [Note 4]

10% 10%

65 Sweden 10% 10% [Note 4]


66 Swiss Confederation

10% 10% [Note 4]


67 Syria 5% / 10% 10% [Note 4]


5% tax on dividends if at least 10% of the shares are owned by company (other than a partnership); in any other case 10%

68 Tajikistan 5% / 10% 10% [Note 4]


5% tax on dividends if at least 25% of the capital is owned by company (other than a partnership); in any other case 10%

69 Tanzania 10% / 15%[5% / 10%]

12.50%[10%]

[Note 4]

20% [10%] No separate provision

1. 10% [5%] tax on dividends if at least 10% [25%] of the shares are owned by company during a period of 6 months immediately preceeding the date of payment of dividend; in any other case 15% [10%]. Condition of 6 months has been removed in revised DTAA.2. Rates provided in bracket are applicable from 1st April, 2012.3. Upto 31st March, 2012 management or professional fees is taxable @ 20%, w.e.f1st April, 2012, this clause shall be deleted.

70 Thailand 15% / 20% 25% / 10% [Note 4]


1. 15% tax on dividends if at least 10% of the voting shares are owned by the payee company and the payer is an industrial company, 20% if payer company is an industrial company or the payee company owns at least 25% of the voting shares; in any other case as per the domestic laws of the payer company.2. Interest taxable @ 10% if recipient is Financial Institution including an insurance company; in any other case 25%

71 Trinidad and Tobago

10% 10% [Note 4]

10% 10%


42

Sr. No. Country



72 Turkey 15% 10% / 15% [Note 4]

15% 15% Interest taxable @ 10% if recipient is bank, insurance company or similar Financial Institution; in any other case 15%

73 Turkmenistan 10% 10% [Note 4]

10% 10%

74 Uganda 10% 10% [Note 4]

10% 10%

75 Ukraine 10% / 15% 10% [Note 4]


76 United Arab Emirates

10% 12.50% / 5%

[Note 4]


Interest taxable @ 5% if recipient is bank or similar Financial Institutio ; in any other case 12.50%

77 United Arab Republic (Egypt)

As per domestic

law

As per domestic

law

Taxable in source country as per

domestic tax rate


78 United Kingdom

15% 15% / 10% [Note 4]

Note 5 Note 5 Interest taxable at 10%, if recipient is bank; in any other case 15%

79 United Mexican States

10% 10% [Note 4]

10% 10%

80 United States of America

15% / 25% 10% / 15%[Note 4]

Note 5 Note 5 1. 15% tax on dividends if at least 10% of the voting stock is owned by the company; in any other case 25%.2. Interest taxable @ 10% if recipient is bonafide bank or Financial Institution including an insurance company; in any other case 15%

81 Uzbekistan 10% 10% [Note 4]

10% 10% Interest received from transaction approved by source country’s government will be exempt. In any other case, normal provisions of domestic law will apply.

82 Vietnam 10% 10% [Note 4]

10% 10%


43

Sr. No. Country



83 Zambia 5% / 15% 10% [Note 4]

10% 10% 5% tax on dividends if at least 25% of the shares are owned by the company during a period of 6 months immediately preceding the date of payment of dividend; in any other case 15%

New DTAAs not yet notified

84 Colombia 5% 10% 10% No separate provision

Press release dated 13th May, 2011

85 Ethiopia 7.50% 10% 10% 10% Press release dated 27th May, 2011

86 Uruguay 5% 10% 10% No separate provision

Press release dated8th September, 2011

Notes:

1. As per the Section 115-O of the IT Act, subject to certain exceptions, any amount declared, distributed or paid by a domestic company by way of dividend shall be chargeable to DDT @ 16.2225%. In such cases, dividend distributed (which is subject to DDT) is not subject to any witholding tax and is tax exempt in the hands of the recipient shareholders in India. The rates mentioned in the table are applicable to dividends other than the dividends declared, distributed or paid by Indian companies [such as deemed dividend under Section 2(22)(e) of the IT Act.]

2. Unless otherwise provided in the DTAA, both the countries have the right to tax.

3. In case of Agreements made after 1st June, 2005, the rate of tax under the IT Act on Royalty and/or FTS receivable by a non-resident is reduced to 10% (plus applicable Surcharge and Education Cess) by the Finance Act, 2005. As per Section 90(2) of the IT Act, tax rate as per the provisions of DTAA or the IT Act, whichever is beneficial to the assessee, shall apply.

4. Interest derived and beneficially owned by the Government, a political sub-division or a local authority or certain institutions like the RBI or Central Bank of other State or any other institution as may be agreed upon, is exempt from taxation in the country fo source.

5. Tax rate is 10% in case of Royalties for equipment rental and fees for services ancilliary or subsidiary thereto. For other cases, the tax rate is 15%. However, for the first 5 years of the agreement, the rate is 20% in case of the payer other than the Government or specified institution and 15% for the subsequent years.

6. In case the payee is not able to furnish his PAN to the payer, tax shall be deducted @ 20%. This higher rate of 20% shall apply even if rate prescribed under DTAA is lower. As such, to this extent, the provision of the IT Act will override the provision of DTAA.

7. The proposal to sign DTAAs with Albania, Bhutan, Chile, Croatia, Fiji, Hong Kong, Iran, Latvia, Senegal, Venezuela, Cuba and Macedonia is under process.


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2.8 G-20 COUNTRIES - COMPARATIVE CORPORATE AND PERSONAL TAX RATES

The G-20 economies comprising of 19 countries and the EU, account for almost 90% of the global GDP, 80% of world trade (including EU intra-trade) and two-third of the world population. Considering the significance of these economies and in order to provide an indicative overview of the prevailing tax rates in these key economies, a brief comparative matrix is given below.

Sr. No. Country Corporate Tax Rate [Note 1]

Personal Tax Rate[Note 1 and 2]

1. Argentina 35% 35%

2. Australia 30% 45%

3. Brazil 34% 27.50%

4. Canada (Note 3) 15% 29%

5. China 25% 45%

6. France (Note 4) 36.10% 45%

7. Germany (Note 5) 15.825% 47.50%

8. India 32.445% 30.90%

9. Indonesia 25% 30%

10. Italy [Note 6] 31.4% 43%

11. Japan 38.01% 51.05%

12. Mexico 30% 30%

13. Russia 20% 13%

14. Saudi Arabia [Note 7] 0% 0%

15. South Africa 28% 40%

16. South Korea 24.2% 41.80%

17. Turkey 20% 35%

18. United Kingdom 23% 50%

19. United States [Note 8] 35% 39.60%

Notes:1. The above rates are MMR and inclusive of provincial or local taxes as may

be applicable to domestic companies / resident individuals in respective countries.

2. The taxation regime for personal taxes is progressive for all the G-20 economies except Russia and Saudi Arabia.

3. The corporate as well as personal tax rates would be increased by provincial tax rates of the respective provinces.


45

4. An additional special social security surcharge for French residents is applicable up to maximum of 15.5% over and above the personal tax rate.

5. The corporate tax rate would be increased by the local trade tax.

6. An additional regional tax and 3% solidatary surtax on all income exceeding Euro 3,00,000, is applicable to the personal tax rate.

7. The Corporate tax @ 20% is payable on the pro-rata income to the extent of non-resident shareholding.

8. The corporate as well as personal tax rates would be increased by state tax rates of the respective states.

9. The above rates are general rates to provide a comparative matrix and detailed regulations in the relevant country need to be referred to.

2.9 Wealth Tax

2.9.1 Enabling provisions for facilitating electronic fi ling of annexure less return of net wealth

Section 139C and Section 139D of the IT Act contain provisions for facilitating filing of annexure-less return of income in electronic form by certain class of income-tax assessees. In order to facilitate electronic filing of annexure-less return of net wealth, it is proposed to insert new Section 14A and Section 14B in the WT Act on similar lines.

Consequently, it is also proposed to amend provisions of Section 46 of the WT Act, which provides for rule making powers of the CBDT.

This amendment will take effect from 1st June, 2013.


46

3. INDIRECT TAX PROPOSALS3.1 Goods and Service Tax (GST) – Bulletin

3.1.1. Road Map to GST A sum of ` 9,000 crores towards the first instalment of the balance of CST

compensation has been provided in the budget.

A draft Bill on Constitutional amendment to usher in the GST Law will be placed before the house in a few months.

The Finance Minister in his Budget speech has stated that a GST Law drafted by the State Finance Ministers and the GST Council will be placed before the house in a few months.

3.2 Central Excise - Bulletin

3.2.1 Legislative amendments (Effective from enactment of Finance Bill, 2013)

Threshold for stringent imprisonment provisions extending to 7 years increased

Section 9 provided for imprisonment extending upto 7 years for specific offences involving duty evasion exceeding ` 30 lakh. The section is being amended to substitute this amount with ` 50 lakh.

Specific offences made cognizable and non-bailable

Section 9A has been amended with the insertion of a new sub-section (1A) providing that the offences with respect to evasion in payment of duty/contravention of any provisions in relation to utilisation of cenvat credit wherein the duty amount exceeds ` 50 lakh, shall be cognizable and non-bailable.

Enabling provisions incorporated for recovery of dues from persons other than the assessee

Scope of Section 11 providing for recovery of dues to government has been enlarged:

The jurisdictional central excise authorities have been empowered to require other central excise officer or specified customs officer to deduct the dues from any other moneys owed to the assessee;

The jurisdictional Central Excise authorities have been empowered to recover the duties from any person other than from whom money is due after giving a proper notice, if that other person holds money for or on account of the first person;


47

Such person has to comply with the notice and if required, to pay the dues to the Central Government treasury;

Non-compliance with the notice renders such other person liable for all the consequences under the Act as if such amounts are due from him.

Issuance of statement of dues for subsequent periods on same grounds to be deemed as service of notice

Section 11A deals with the recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded and issuance of notices thereof;

A new sub-section (7A) has been incorporated providing for issuance of a statement, in lieu of notice, by the central excise officer containing the details of duty of central excise not levied/paid or short-levied/short-paid or erroneously refunded for the subsequent periods, provided the ground relied upon for the subsequent period are the same as mentioned in earlier notice(s).

Scope of provisional attachment of property has been widened

Section 11DDA which provides for provisional attachment of property to safeguard revenue interests has been widened by enabling such attachment in respect of notice issued under any of the sub-sections of Section 11A.

Scope of advance ruling provisions extended

The advance ruling provisions have been extended to Resident Public Limited Companies [Public Company as defined underSection 3(1)(iv) of the Companies Act, 1956 resident in India in terms of Section 2(42) of the Income Tax Act, 1961];

Definition of ‘Activity’ has been amended to include any new business of production or manufacture proposed to be undertaken by the existing producer or manufacturer;

Clarificatory amendment has been incorporated providing that advance ruling can be sought on admissibility of service tax paid or deemed to have been paid on input services.

Maximum tenure of stay orders by Tribunal laid down

The proviso to Section 35C(2A) provided that the stay orders shall stand vacated after a period of 180 days from the date of order, if the appeal is not disposed within the said period.

A new proviso has been added empowering the Tribunal to extend the stay orders on an application filed by the party, on being satisfied that the delay in disposal of such appeal is not attributable to the


48

party. However, the total period of stay, including such an extension, cannot exceed a period of 365 days from the date of original stay order.

Interest on refunds arising from finalisation of provisional assessment

The provisions contained in Rule 7(5) of the Central Excise Rules, 2002 providing for interest on refunds consequent to orders for final assessment have been harmonized with Section 11BB of the Act.

Accordingly, the interest in such cases would be now available only for periods exceeding three months from the date of receipt of application till the date of refund of duty.

3.2.2 Rate structure Upward rate movements

Description of Goods Existing Duty/Rate

Revised Duty/Rate

Marble Slabs and Tiles ` 30 per square metre

` 60 per square metre

Silver produced or manufactured during the process of zinc or lead smelting starting from the stage of zinc or lead ore or concentrates

NIL 4%

Motor vehicles of engine capacity exceeding 1500cc, popularly known as Sports Utility Vehicles (SUVs) including Utility Vehicles

27% 30%

Cigarettes (BED ` per 1000 sticks)[Length in mm]:

Non-filter exceeding 65 but not exceeding 70 Filter exceeding 65 but not exceeding 70 Filter exceeding 70 but not exceeding 75 Filter exceeding 75 but not exceeding 85 Other

14631034146319742373

17721249177223902875

Cigar, Cheroots and Cigarillos (BED ` per 1000 sticks)

12% or ` 1370 whichever is higher



49


Revised Duty/Rate

Cigarettes of Tobacco substitutes (BED ` per 1000 sticks)

1258 1511

Cigarillos of Tobacco substitutes or Others 10% or ` 1473 whichever is higher


Compounded duty rate on Stainless Steel ‘patta-patti’

` 30,000/- per machine per month

` 40,000/- per machine per month

Mobile handsets including cellular phones having retail sale price (RSP) more than ` 2000

1% 6%

Downward rate movements


Revised Duty/Rate

Tapioca starch manufactured and captively consumed within the factory of their production, in the manufacture of Tapioca sago (sabudana)

12% NIL

Peanut Butter 6% NIL

Tapioca sago (sabudana) 6% NIL

Sulphur recovered as by-product in refining of crude oil used for the manufacture of bentonite sulphur

12% NIL

Henna powder or paste, not mixed with any other ingredient

6% NIL

Chassis of diesel motor vehicles for the transport of goods

14% 13%


50


Revised Duty/Rate

Carpets and other Textile Floor Coverings: Hand-made carpets Carpets and other textile floor coverings,

knotted, woven, tufted, or flocked of coconut fibres (coir) or jute

Other carpets and other textile floor coverings of coconut fibres (coir) or jute

1% NIL

Ships, boats and floating structures: Cruise ships, excursion boats, ferry boats,

cargo ships, barges and similar vessels for the transport of persons or goods

Tugs and pusher craft Light vessels, fire floats, dredgers, floating

cranes and other vessels Other vessels (excluding warships)

1% NIL

Branded Cotton Garments not containing any other textile material 12% 6%

3.2.3 Other changes in Excise Duty Full exemption from central excise duty has been granted on intermediate

goods, as mentioned in Annexure to the Notification Nos. 49 and 50/2003 CE dated 10th June, 2003, manufactured and consumed captively by exempted units under Area Based Exemption Scheme in Himachal Pradesh and Uttarakhand.

Branded Ayurvedic Medicaments and medicaments of Unani, Siddha, Homeopathic or Bio-chemic systems falling under Chapter Heading 3004, have been brought under MRP based assessment with an abatement of 35% from MRP.


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3.3 Service Tax

No change in Service tax rate.

3.3.1 Negative list amendments (effective from enactment of Finance Bill, 2013)

Education services – scope revised

Education services provided by industrial training institute or centre affiliated to State Council for Vocational Training for specified courses is proposed to be added to the negative list of services.

Education services provided by an institute affiliated to the National Skill Development Corporation, currently under the negative list, are proposed to be made taxable.

Manufacture or production of goods – scope expanded

Any process amounting to manufacture or production under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 is proposed to be covered under the Negative List.

However, there is no clarity on service tax applicability on such processes undertaken for the period from 1st July, 2012 to the date of passing of the Bill.

Agriculture related services – scope expanded

All testing operations in relation to agriculture or production of agricultural produce are proposed to be covered under the Negative List. Earlier the benefit was limited to activity of seed testing only. Now all types of testing activities, e.g. soil testing, water testing, etc. are proposed to be excluded from the levy of service tax.

3.3.2 Exemptions Effective from 1st April, 2013

All restaurants (including eating joints or a mess) providing services in relation to serving of food or beverages with air-conditioning or centralised heating facility (in any part of the premises at any time during the year) have been brought within the ambit of service tax irrespective of whether they possess license to serve liquor or not.

Benefit of exemption restricted to copyrights for cinematograph films exhibited in a cinema hall or theatre. Therefore, if such films are exhibited in any place other than cinema hall or theatre (e.g. film festivals, television channels, online websites, etc.), then service tax would be levied on transfer of such copyrights.


52

Exemption limit prescribed for charitable organisations providing service towards any other object of general public utility upto` 25,00,000/- in previous FY has now been restricted to the threshold exemption limit i.e. upto ` 10,00,000/- in previous FY.

The exemption granted to transportation of goods by road is expanded to harmonise with that of rail or vessel transportation.

The following goods transported by road are now exempt (earlier exemption was available only by transportation by Rail/Vessel):

Relief materials for victims of natural or man-made disasters, calamities, accidents, etc.;

Defence or military equipments;

Newspaper or magazines registered with Registrar of Newspapers;

Agricultural Produce;

Foodstuff including flour, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

Chemical fertilisers and oilcakes.

It is however important to note that disparity still exists on transportation of railway equipments or materials where such transport is exempted only by Rail or Vessel and not by Road.

Rail or vessel transportation of specified petroleum and petroleum products, postal mail or mail bags, and household effects (previously exempted) will now be subject to service tax.

Other exemptions previously available now stand withdrawn for the following services:

Vehicle parking in public places;

Repair or maintenance of government aircrafts;

Auxiliary educational services and renting of immovable property provided by specified educational institutes.

Retrospective Amendment

Any services provided by ‘Indian Railways’ (if such services were subject to service tax under erstwhile Section 66 of the Finance Act, 1994) are proposed to be exempted retrospectively upto 30th June, 2012.


53

3.3.3 Abatement (Effective from 1st March, 2013) Construction services

Description of ServiceCurrent Taxable Portion

Proposed Taxable Portion

Impact

All constructions (except residential units covered below) where value of land is included in the gross amount

25% 30% Increase

Construction of residential unit having carpet area above 2,000 square feet or where amount charged is greater than ` 1,00,00,000/-

25% 30% Increase

Construction of residential unit having carpet area of less than 2,000 square feet or where amount charged is less than ` 1,00,00,000/-

25% 25% Unchanged

3.3.4 Other Legislative Amendments

Show-cause notice (Effective on passing of the Bill)

A new provision is proposed to be inserted in Section 73 of the Finance Act, 1994 wherein if a show cause notice is issued invoking extended period of limitation (i.e. 5 years) and the same is not found sustainable by an appellate authority or Tribunal or Court, it would be deemed to be a notice issued for demand of tax for a shorter period of 18 months only.

This provision is primarily to safeguard the interest of the revenue in cases where at least demand for a period of 18 months would stand good.

Penal Provisions (Effective on passing of the Bill)

Maximum penalty for failure to obtain registration is proposed to be restricted to ` 10,000/-. Earlier the penalty was higher of ` 10,000/- (fixed) or ` 200/- per day for the period of default.

Any director, manager, secretary or other officer of the company, who was in charge of or responsible to the company, for its conduct of business during the period when the company or such persons were knowingly concerned with any of the below specified contraventions, shall be liable to pay maximum penalty of ` 1,00,000/-:


54

Evasion of service tax;

Availment and utilisation of CENVAT credit without actual receipt of taxable service or excisable goods either fully or partially in violation of the prescribed rules;

Issuance of invoice, bill or challan without provision of taxable service in violation of the rules made under the prescribed provisions;

Failure to pay any amount collected as service tax to the credit of the Central Government beyond a period of 6 months from the date on which such payment becomes due.

The benefit of condonation of delay is proposed to be extended to any assessee in respect of filing an appeal or memorandum of cross objections to the Appellate Tribunal, if sufficient reasons for such delay can be proved.

Stringent imprisonment provisions have been proposed for specified offences as below:

Offences Unpaid Liability First Offence

Cognisable/Non

Cognisable

Willful evasion of payment of tax

Availment and utilisation of credit of taxes or duty without actual receipt of taxable services or exisable goods

Maintaining false books of accounts, failure to supply requisite information or supply of false information

Exceeds` 50,00,000/-

Imprisonment upto 3 years (Subsequent Offences upto 3 years)

Non Cognisable and bailable

Failure to pay amount collected as service tax to the credit of the Central Government beyond a period of 6 months from the date on which such payment becomes due

Exceeds` 50,00,000/-

Imprisonment upto 7 years (Subsequent Offences upto3 years)

Cognisable


55

Offences Unpaid Liability First Offence

Cognisable/Non

Cognisable

Any other situation not covered above

No specific limit

Imprisonment upto 1 year (Subsequent Offences upto3 years)

Non Cognisable and bailable

Section 91 is proposed to be introduced to provide for power to arrest to any officer not below the rank of the Superintendent of Central Excise authorised by the Commissioner of Central Excise for specified offences particularly non payment of collected service tax.

Advance Rulings (Effective from 1st March, 2013)

Scope of advance ruling has been extended to cover resident public limited companies. Companies which are ‘public company’ as defined under Section 3(1)(iv) of the Companies Act, 1956 and who are resident in India in terms of Section 2(42) of the Income Tax Act, 1961 would be covered.

These companies could now avail the benefit of advance ruling on any question of law or fact in relation to any service proposed to be provided.

3.3.5 Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES)An amnesty scheme is proposed to be introduced to encourage voluntary compliance with the following main features:

The scheme can be availed of by non-filers or stop-filers or persons who have not made a truthful declaration in their return.

Scheme will not be applicable to following:

Persons against whom any inquiry or investigation is pending by issue of notice or order of determination, or any search warrant or summon or by way of audit.

Persons who have already disclosed the liability in returns but have not paid the same.

The defaulter will be required to make a truthful declaration of all his pending tax dues (from 1st October, 2007 to 31st December, 2012 and unpaid upto 1st March, 2013) and pay at least 50% of the pending tax dues by 31st December, 2013; balance dues to be paid by 30th


56

June, 2014 without interest; or by 31st December, 2014 with interest (from 1st July, 2014 onwards).

Tax dues declared under this scheme but not paid upto 31st December, 2014 would be recovered under the provisions of the present law.

On compliance with all the requirements under this scheme, the person will have immunity from interest (as specified), penalties and other proceedings.

No refund would be available of tax paid under this scheme.

The scheme will come into force when the Finance Bill is enacted. It is clarified that the tax-payers will need to settle their dues for the period after 31st December, 2012 under the present law.

3.4 Customs

3.4.1 Legislative Amendments (Effective on passing of the Bill) Provisional attachment in cases of collusion/wilful misstatement/

suppression of facts - Section 28 BA

Provisional attachment of property belonging to any person to whom the notice has been served under Section 28, has been prescribed.

Advance rulings provisions extended to new businesses of existing importers/exporters - Section 28E(a)

The definition of the term ‘activity’ has been amended to include any new business of import or export proposed to be undertaken by the existing importer or exporter.

Landing of vessels/aircrafts at ports other than customs ports/customs airports - Section 29 (1)

The Central Board of Excise and Customs has been empowered to permit landing of vessels or aircrafts at ports other than customs ports or customs airport.

Electronic Import/Export General Manifest - Sections 30 and 41 respectively

Electronic filing of Import/Export General Manifests has been provided for; Discretionary powers have been granted to the Commissioner of Customs to allow the delivery of such manifests in any other manner if electronic filing is not feasible.


57

Interest payable if duty not paid within 2 days - Section 47(2)

Interest free period has been reduced for payment of import duty from 5 days to 2 days from the return of the Bill of entry for the payment of duty.

Time limit for storage of imported goods in public warehouse - Section 49

Time limit of 30 days has been proposed to be provided for storage of imported goods in warehouse pending clearance in the interest of accountability and early finalisation of assessments. Commissioner of Customs has been granted the discretion to extend the period of storage for a further period of 30 days at a time.

Export of warehoused goods - Section 69

In addition to shipping bill or bill of export, henceforth presentation of postal export document (labels or declarations accompanying goods exported by post) would also be allowed for the purpose of export of warehoused goods without payment of import duty.

Certain offences made non-bailable - Section 104

Following offences punishable with imprisonment under Section 135 will henceforth be non-bailable:

Evasion or attempted evasion of duty exceeding ` 50,00,000/-;

Offences related to prohibited goods notified under Section 11 which are also notified under Section 135(1)(i)(C);

Import or export of goods which are not declared in accordance with the provisions of the Customs Act, 1962 and the market price of which exceeds ` 1,00,00,000/-;

Fraudulent availment or attempt to avail of drawback benefits/exemptions where in the amount of drawback/exemptions exceeds ` 50,00,000/-.

Orders of appellate Tribunal – extension of stay - Section 129B

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

Monetary limits for disposal of appeals by Single Bench - Section 129C

The monetary limit of Single Bench of the Tribunal to hear and dispose of appeals is enhanced from ` 10,00,000/- to ` 50,00,000/-.


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Evasion of duty - Section 135

Evasion of duty or fraudulently availing drawback in connection with export of goods was an offence punishable with an imprisonment for maximum of seven years with fine if the duty involved was exceeding ` 30,00,000/-. This limit has now been increased to ` 50,00,000/-.

Recovery of sums due to Government from person other than the defaulter - Section 142

The Central Government may recover the amounts due by a defaulter from any other person if that other person holds money for or on account of the defaulter e.g. banking company, insurer or post office after giving notice to such person in writing. In such a scenario, such person shall be bound to comply with the notice failing which, he shall be deemed to be the defaulter in respect of the amount specified in the notice.

Authorised Representatives - Section 146A

A person committing an offence under the Finance Act, 1994 shall be disqualified to act as an authorised representative in any customs matter.

Liability of an agent extended - Section 147(3)

Expansion of the scope of the liability of agents of the owner, importer or exporter of any goods; it casts equal responsibility on agents for making correct self-assessment.

Prohibition of import or export of certain goods (either absolutely or subject to certain conditions) - Section 11(2)(n)

Section 11 empowers the Central Government to prohibit the import or export of any goods for specified purposes. This amendment enables the Central Government to protect ‘designs and geographical indications’ along with patents, trademarks and copyrights.

Monetary limits for claims for refund of duty and/or interestSection 27(1)

Refund claims of duty/interest of less than ` 100/- shall not be refunded.

Monetary limits for recoveries of duties not levied/short levied/erroneously refunded - Section 28(1)

No show cause notice shall be served where the amount of duty is less than ` 100/-.

3.4.2 Baggage Rules (Effective from 1st March, 2013) Duty free allowance 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:


59

Existing (In’ `) Revised (In’ `)Male passenger 10,000 50,000

Female passenger 20,000 1,00,000

Duty free allowance of import of items like chocolates, cheese, cosmetics and other petty gift items by crew members of a vessel/aircraft for their personal/family use has been increased from` 600/- to ` 1,500/-.

3.4.3 Rate Structure (Effective from 1st March, 2013) Basic customs duty


Revised Duty/Rate

Agriculture Goods: Dehulled oat grain Hazel nuts

30%30%

15%10%

Automobiles: High end motor vehicles with CIF more

than US$40,000/- and/orEngine capacity exceeding 3000cc for petrol run vehicles/ 2500cc for diesel run vehicles

Motor cycle with engine capacity of 800cc or more

75%

60%

100%

75%

Metals: Stainless steel wire cloth stripe Wash coat for use in the manufacture of

catalytic convertors and their parts

10%7.5%

5%5%

Precious Metals: Pre-forms of precious and semi-precious

stones10% 2%

Capital goods and Infrastructure: Steam coal Bituminous coal 20 specified machinery for use in leather

and footwear industry

NIL5%7.5%

2%2%5%


60


Revised Duty/Rate

Ships: Yachts and motor boats 10% 25%

Textiles: Raw silk (not thrown) Textile Machinery & parts thereof

5%7.5%

15%5%

Electronics: Set top boxes for TV 5% 10%

Additional duty of customs (CVD)


Revised Duty/Rate

Capital goods and Infrastructure: Steam coal Bituminous coal

1%6%

2%2%

Export duty


Revised Duty/Rate

Agricultural goods: De-oiled rice bran oil cake 10% NIL

Metals: Ilmenite unprocessed Ilmenite upgraded Bauxite Galvanized steel sheets (retrospective

w.e.f 01.03.2011)

NILNILNILExempt

10%5%10%Exempt

Changes in time limits

Description ExistingTime Limit

RevisedTime Limit

Consumption of imported goods by ship repair units

3 months 1 year


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Consumption/installation of parts and testing equipments imported for maintenance, repair and overhaul (MRO) of aircrafts by units engaged in such activities

3 months 1 year

Exemption (BCD NIL, CVD of 6% and SAD NIL) for specified parts of electric and hybrid vehicles extended

31st March, 2013

31st March, 2015

Miscellaneous

Full exemption from basic customs duty and additional customs duty is being provided to trophy imported by National Sports Federation recognised 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.

Exemption from education cess and secondary & higher education cess on aircraft and aircraft parts, soyabean oil, olive oil etc. has been withdrawn.

3.5 Cenvat Credit

3.5.1 Legislative amendments (Effective from 1st March, 2013)The amount payable under sub-rules (5), (5A), and (5B) of Rule 3 of the Cenvat Credit Rules, 2004 [viz. on removal of inputs/capital goods as such/after use/partial or full write off] if unpaid shall be recoverable in the manner as provided under Rule 14 of the said Rules.

3.6 INDIRECT TAX COMPLIANCE CALENDARSr. No. Type of Assesee Nature of

Compliance Due Date Form

I. Central Excise

1. All Assesses (Other than SSI)

Payment of Excise Duty

6th of every month

GAR-7

for March – 31st March


62

Sr. No. Type of Assesee Nature of


2. SSI units Payment of the Excise Duty – Quarterly – SSI

6th of the month following the quarter

GAR-7


3. All Assesses (other than SSI’s)

Monthly Return 10th of every month

ER-1

4. 100% EOU for removals made in DTA

Monthly Return 10th of every month

ER-2

5. All Assessees Monthly Report on principal inputs

10th of every month

ER-6

6. SSIs assesses availing area based exemption Assesses exclusively engaged in manufacture of goods and availing 1% duty under notification No. 1/2011–C.E dated 1-3-11

Quarterly Report on production and removal of goods

10th of the month following the particular quarter

ER-3 for SSI

ER-8 for 1% duty availment

7. All Registered Dealers

Quarterly Return for Input Service Distributor

15th of the month following the quarter

Form – Annexure 13B

8. All Registered Dealers

Annual Financial Information Statement

30th November of the following year

ER-4


63



9. All Assessees Declaration of Annual Installed capacity of the factory. Substantial expansion of installed capacity (by more than 25%) of one class of product also to be declared within 30 days).

30th April of every succeeding year

ER-7

10. All Persons manufacturing goods which are either chargeable to nil rate of duty or fully exempted

Persons availing SSI exemption – if value of clearances

Declaration Form (for persons exempt from registration)

For the First category before commencement of manufacture of such goods.

For the second category, once value of clearances reach ` 90 lakhs.

Declaration Form

11. All Assessees Annual Information on principal inputs

30th of April every year (for the previous Financial year)

ER-5

II. Service Tax

1. All Assessees (Other than individual/proprietary/partnership firm)

Payment of Service tax

6th of every month in case of e-payment

5th of every month in other case

GAR-7



64



2. Individual/proprietary/partnership firm

Payment of Service tax

6th of the month following the quarter in case of e-payment

5th of the month following the quarter in other case

GAR-7


3. All Assessees Half yearly return 25th of the month following the half year

ST-3


65

4. REGULATORY PROPOSALSThere has seen significant progress in critical institutional reforms during last year including Foreign Direct Investment (‘FDI’) policy, Companies Act, Securities laws, financial market reforms etc.

FDI Policy, 2012 brought various progressive reforms.

Companies Bill has been passed in Lok Sabha and is expected to be passed in this budget session of the Parliament.

Alternative Investment Fund guidelines has been issued by the SEBI.

External Commercial Borrowings conditions has been relaxed.

Guidelines for new bank licences has been issued by the RBI.

The following are the highlights of reforms/changes took place in 2012-13:

4.1 Foreign Direct Investment

4.1.1 Multi brand product retail trading Government has permitted FDI in multi-brand retail trading under approval

route.

Retail sales outlets may be set up only in cities with prescribed population size.

Minimum amount as FDI would be USD 100 million.

At least 50% of total FDI brought in shall be invested in ‘back-end infrastructure’ within three years of the induction of FDI, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units.

At least 30% of the procurement of manufactured/processed products shall be sourced from ‘small industries’.

4.1.2 Single brand product retail trading Government has now permitted FDI up to 100%, which was earlier restricted

up to 51%.

Ambiguity around ownership of the brand has now been clarified.

Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country, for the specific brand.

In case of FDI beyond 51% - 30% of the value of to be sourced from Indian MSMEs.


66

4.1.3 Civil aviation sector Foreign airlines were allowed to make investment up to 49%.

Chairman and at least 2/3 of the Directors of which are to be citizens of India.

Substantial ownership and effective control is to be vested in Indian nationals.

4.1.4 Investments permitted from PakistanGovernment of India has permitted Citizen of Pakistan or an entity incorporated in Pakistan to make investments in India, in sectors/activities other than defence, space and atomic energy.

4.1.5 Foreign venture capital investors and foreign institutional investorForeign Venture Capital Investors (‘FVCIs’) are now permitted to undertake secondary purchases.

Foreign Institutional Investors (‘FIIs’) are now permitted to invest up to sectoral limit.

Earlier, FIIs may invest in the capital of an Indian company under the Portfolio Investment Scheme. which limits the individual holding of an FII to 10% of the capital of the company and the aggregate limit for FII investment to 24%. Now, the said aggregate limit of 24% can be increased to the sectoral cap/statutory ceiling, as applicable, through a resolution by its board of directors and special resolution.

4.1.6 Qualified foreign investorsA new type of a foreign investor—not being a SEBI-registered FII and FVCI—has been inserted in the new FDI policy called a Qualified Foreign Investors (‘QFI’) who would meet SEBI requirements for making investment into India. Such QFIs are permitted to make primary as well as secondary investments in listed companies (i.e. invest in equity shares of listed Indian companies as well as in equity shares of Indian companies, which are offered to public in India).

4.1.7 External commercial borrowing Government has relaxed the norms for External Commercial Borrowing (‘ECB’) to the extent required for boosting the infrastructure/manufacturing/service sector:

As per the new regulation, a company can borrow offshore up to 75% of the average foreign exchange earnings in the immediate past three years or 50% of the highest foreign exchange earnings realised in any of those three years, whichever is higher.

Allowed real estate developers and housing finance companies to raise up to $1 billion through ECBs to promote low cost housing projects.


67

Allowed companies in the civil aviation sector to raise ECBs for a year to meet their working capital needs and also refinance outstanding working capital rupee loans.

The RBI has allowed companies in hotel sector to avail ECBs for repayment of outstanding Rupee loan(s) availed of from the domestic banking system and/or for fresh Rupee capital expenditure.

4.2 Companies Bill 2011

The Lok Sabha has passed the much awaited Companies Bill, 2011. The Bill is all set to replace the 56 year old Act.

The Bill seeks to consolidate and amend the law relating to the companies and intends to improve corporate governance and to further strengthen regulations for corporates.

The Bill is forward looking in its approach, which empowers the Central Government to make rules, etc. through delegated legislation.

Many new chapters have been introduced, viz., Registered Valuers ; Government companies ; Companies to furnish information or statistics ; Nidhis ; National Company Law Tribunal and Appellate Tribunal ; Special Courts etc.

4.3 Alternative Investment Fund

The SEBI notified the SEBI (Alternative Investment Funds) Regulations, 2012 requiring mandatory registration of private collective investment vehicle.

These regulations have replaced existing SEBI (Venture Capital Funds) Regulations, 1996.

Family trusts, Employee benefit trust, ESOP trust are kept out of regulations.

SEBI has classified Alternative Investment Fund (‘AIF’) into the following broad categories:

Category I: Early stage ventures or social ventures or Small Medium Enterprises or infrastructure or other sectors which the government or regulators consider as socially or economically desirable.

Category II: Funds that do not undertake leverage or borrowing other than to meet the permitted day to day operational requirement.

Category III: Funds that employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives, for e.g. Hedge Funds.

General investment conditions and restrictions:

The minimum investment in AIF shall be ` 200 million.

The minimum investment by each investor shall be ` 10 million. In case


68

the investor is a director or employee or manager or sponsor of AIF, the minimum investment threshold is relaxed to ` 2.5 million.

Any AIF/scheme shall not have more than 1,000 investors.

AIF may invest in securities of foreign companies subject to certain conditions.

Un-invested portion of the fund’s corpus may be invested in liquid mutual funds or bank deposits or other liquid assets till deployment of funds in accordance with the investment objective of the fund.

4.4 Guidelines for Licensing of New Banks in Private Sector

Key features of the guidelines recently issued by the RBI are:

Eligible Promoters: Entities/groups in the private sector, entities in public sector and Non-Banking Finance Companies (‘NBFCs’) shall be eligible to set up a bank through a wholly-owned Non-Operative Financial Holding Company (‘NOFHC’).

‘Fit and Proper’ criteria: Entities/groups should have a past record of sound credentials and integrity, be financially sound with a successful track record of 10 years. The RBI may seek feedback from other regulators and enforcement and investigative agencies.

Corporate structure of the NOFHC: The NOFHC shall be wholly owned by the Promoter/Promoter Group. At least 50% of the directors should be independent directors.

Minimum voting equity capital requirements for banks and shareholding by NOFHC: The initial minimum paid-up voting equity capital for a bank shall be `5 billion and need to follow prescribed guidelines.

Foreign shareholding in the bank: The aggregate non-resident shareholding in the new bank shall not exceed 49% for the first 5 years.

Capital requirement: Minimum capital requirement will be ` 5 billion. Subject to this, actual capital to be brought in will depend on the business plan of the promoters. NOHC shall hold minimum 40% of the paid-up capital of the bank for a period of five years from the date of licensing of the bank. Shareholding by NOHC in excess of 40% shall be brought down to 20% within 10 years and to 15% within 12 years from the date of licensing of the bank.

Corporate Governance: At least 50% of the Directors of NOFHC shall be totally independent of the Promoter or Promoter Group entities and their major customers and major suppliers.

Others: The bank shall get its shares listed on the stock exchanges within three years of licensing.


69

Deadlin: Applications for setting up banks in the private sector, along with all the details should reach with RBI on or before 1st July, 2013

5. INDUSTRY ANALYSIS5.1 Impact on IT/ITES Industry

According to Nasscom, the Indian IT industry is expected to do well beyond expectations in 2013-14. The IT sector, which crossed USD 100 billion mark last year, will clock at least double-digit growth this year.

In a recent welcome move, the CBDT has clarified various issues related to tax holiday benefits. The tax holiday provisions contained in Sections 10A, 10B (now no longer available) and 10AA have been subject matter of severe litigation over the past few years. The litigation mainly relate to issues such as applicability of tax benefits for on-site services, deputation of personnel abroad, R&D activities, maintenance of separate accounts, slump sale of units etc. In this backdrop, the Circular No. 01/2013 dated 17th January, 2013 will go a long way in providing certainty to these issues and hopefully should eliminate litigation on high pitched and large tax demand matters. It recognises a number of commercial and business realities.

In addition, the Government indicated that safe harbour provisions for IT and ITeS sector and those for outbound loans and corporate guarantee are also being examined by the CBDT.

Positive proposals/impact: Concessional rate of tax @15% applicable to dividends received from foreign

subsidiaries has been extended to one more year till 31st March, 2014.

Removal of the cascading effect in respect of dividend received by a domestic company from its foreign subsidiary.

Rules on Safe Harbour will be issued after examine the reports of the Rangachary Committee appointed to look into tax matters relating to Development Centres & IT Sector and Safe Harbour rules for a number of sectors. The rules are expected to be announced by 31st March, 2013.

Tax rebate to individual assessee who earn total income up to ` 5,00,000/- and additional interest deduction of ` 1,00,000/- on housing loan would benefit the employees.

Negative proposals/impact: Limitation on incentive for acquisition and installation of new plant or

machinery under the proposed Section 32AC of the IT Act as computers and computer software have been excluded from the definition of ‘new assets’

TDS on payments in the nature of Royalty/FTS to non-residents has been increased from 10% to 25%


70

Surcharge on domestic companies having total income in excess of` 10,00,00,000/- has been increased to 10% from the existing 5% for one year

Deduction under Section 80JJAA for additional wages allowable only in case of manufacture of goods in factory thereby restricting IT/ITES industry for such claim

5.2 Impact on Infrastructure Sector

“While every sector can absorb new investment, it is the infrastructure sector that needs large volumes of investment,” Hon’ble Finance Minister said emphasising on the need to create “new and innovative instruments to mobilise funds” for meeting investments targets in infrastructure sector.

Positive impact/proposals Benefit under Section 80-IA for power plants extended to 31st March, 2014.

Infrastructure Debt Funds (‘IDF’) to be encouraged.

IIFCL to offer credit enhancement 3,000 kms of road projects in Gujarat, Madhya Pradesh, Maharashtra, Rajasthan and Uttar Pradesh will be awarded in the first 6 months of 2013-14.

Raising corpus of Rural Infrastructure Development Fund (RIDF) to ` 20,000 crores.

Reduced tax on interest on long term infrastructure bonds in foreign currency from non-resident investors.

` 5,000 crores to NABARD to finance construction for warehousing.

Plans for new industrial corridors, ports, national waterways .

Import duty rates for bituminous and steam coal (power sector) have been aligned to put at rest classification disputes:

CommodityExisting Rate Revised Rate

BCD CVD BCD CVDBituminous Coal 5% 6% 2% 2%

Steam Coal NIL 1% 2% 2%

On oil and gas exploration policy, the Budget proposes to move from the present profit sharing mechanism to revenue sharing Blocked NELP blocks to be cleared. This move clearly acknowledge need of domestic oil production.

Policy to encourage exploration and production of shale gas will be announced.


71

To reduce dependence on imported coal, it is proposed to devise PPP policy framework with Coal India Limited as one of partners.

Government has decided to constitute a regulatory authority for the road sector.

The Cabinet Committee on Investment (‘CCI’) has been set up to monitor Investment proposals as well as projects under implementation. It has taken decisions in respect of number of oil and gas, power and coal projects and is going to take up more projects shortly.

Negative impact/proposals Increase surcharge from 5% to 10% on domestic companies having taxable

income exceeding ` 10 crores.

Increase in surcharge on DDT from 5% to 10%.

5.3 Impact on Real Estate sector

In comparison to the previous Budget, the Union Budget 2013-14 continued its support for the housing sector. Augmented deductions under Section 80EE on home loans up to ` 25 lakhs and interest subventions of 1% will surely make home loans an attractive option. Additionally, the allocation of ` 2,000 crores for urban housing fund renders affordable low cost housing a key highlight of the Union Budget 2013-14.

Positive proposals/impact A person taking a loan for his first home from a bank or a housing finance

corporation up to ` 25,00,000/- during the period 1st April, 2013 to31st March, 2014 will be entitled to an additional deduction of interest of up to Rs.1,00,000/-.

Enhancing provisions under Rural Housing Fund from ` 4,000 crores to` 6,000 crores.

Setting up of Urban Housing Fund and provision of ̀ 2,000 crores to the said fund.

Announcement of new road projects in Gujarat, Rajasthan, MP and Maharashtra will act as a catalyst in attracting township developments in the long run.

Negative proposals/impact TDS @ 1% on the value of the transfer of immovable property has been

proposed where the consideration exceeds ̀ 50 lakhs. However, agricultural land will be exempt.

Enhancing the scope of Section 56(2)(vii) to cover the situation where immovable property is received for inadequate consideration.


72

Increase surcharge from 5% to 10% on domestic companies having taxable income exceeding ` 10 crores.


Service Tax abatement rate for residential properties having a carpet area of more than 2000 square feet or where the amount charged is ` 1 crore or more and other constructions, for which completion certificate has not been received, has been reduced from 75% to 70% resulting in an increase of effective service tax rate from 3.09% to 3.71% (effective from 1st March, 2013).

Excise duty on marble tiles and slabs increased from ` 30 per square metre to ` 60 per square metre.

5.4 Impact on Financial Service Sector

Positive impact/proposal Tax exemption to securitisation trust.

Extending the tax benefits available to VCF to AIF.

Reduction in STT rates.

Reduced DDT @ 5% on distribution of income by a infrastructure debt fund set up as mutual fund.

FIIs will be permitted to participate in the exchange traded currency.

Derivative segment to the extent of their Indian rupee exposure in India.

FIIs will also be permitted to use their investment in corporate bonds and Government securities as collateral to meet their margin requirements.

SEBI to prescribed requirement for angel investor pools by which they can be recognised as Category I AIF venture capital funds.

A multi-pronged approach to increase the penetration of insurance, both life and General.

Report by Financial Sector Legislative Reforms Commission (‘FSLRC’), which was constituted in the year 2011 for international competitiveness of Indian financial sector is likely to be presented by next month.

Insurance Companies will be empowered to open branches in Tier II cities and below without approval of IRDA.

KYC of banks will be sufficient to acquire insurance policies.

Small and medium companies to be allowed to be listed on SME exchange


73

without making a public offer. These measures will help SME’s to get funds for innovative machinery & methods of production.

FIIs will be allowed to participate in exchange traded currency derivatives.

Designatged depository participants, authorised by SEBI, may register different classes of portfolio investors, subject to compliance with KYC guidelines.

SEBI will simplify the procedures and prescribe uniform registration and other norms for entry of foreign portfolio investors.

Pass through status is proposed to be granted to category I AIF venture capital funds.

Ambiguity in terms of Foreign Direct Investment (‘FDI’) and Foreign Institutional Investment (‘FII’) clarified – It is proposed that stake of 10% or less in a company will be treated as FII and stake of more than 10% will be treated as FDI. Further, committee will be constituted to examine the application of the principle.

Funds provided to technology Incubators located within academic institutions and approved by the Ministry of Science and Technology or Ministry of MSME will qualify as Corporate Social Responsibility (‘CSR’) expenditure. The new Companies Bill obliges company to spend, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR Policy.

Number of proposals finalised, in consultation with IRDA such as empowering insurance companies to open branches in Tier-II cities and below without prior approval of IRDA.

Negative impact/Proposal Introduction of CTT.

Increase in surcharge from 5% to 10% on domestic companies having taxable income exceeding ` 10 crores.


Graphical Representation. Not to scale.

North America

& the Caribbean

Updated as on November 2010

Bahamas

British Virgin Islands

Canada

The Caribbean

Cayman Islands

Jamaica

Mexico

Antilles

Trinidad & Tobago

USA

Latin & South

America

Argentina

Bolivia

Brazil

Chile

Colombia

Dominican Republic

Ecuador

EL Salvador

Guatemala

Panama

Paraguay

Peru

Suriname

Uruguay

Venezuela

Eastern &

Central Europe

Bulgaria

Czech Republic

Estonia

Hungary

Kazakhstan

Latvia

Lithuania

Poland

Romania

Russia

Serbia

Slovakia

Slovenia

Turkmenistan

Ukraine

Western Europe

& the Mediterranean

Austria

Belgium

Cape Verde

Cyprus

Denmark

Finland

France

Germany

Gibralta

Greece

Guernsey

Ireland

Isle of Man

Israel

Italy

Jersey

Liechtenstein

Luxembourg

Malta

Morocco

Netherlands

Norway

Portugal

Spain

Sweden

Switzerland

Turkey

Tunisia

United Kingdom

Sub-Saharan

Africa

Angola

Botswana

Comoros

Mauritius

Madagascar

Mozambique

Namibia

Nigeria

Reunion Islands

Senegal

Seychelles

South Africa

Zambia

Zimbabwe

Asia Pacific

Australia

China

Fiji

Hong Kong

India

Indonesia

Japan

Korea

Malaysia

New Zealand

Pakistan

Philippines

Singapore

Sri Lanka

Taiwan

Thailand

Vanuatu

Vietnam

Middle

East

Bahrain

Egypt

Jordan

Kuwait

Lebanon

Oman

Qatar

Saudi Arabia

UAE

Branch Offices

Mumbai

Jaipur

New Delhi

Hyderabad

Bengaluru

Kolkata

Pune

Ahmedabad

Chennai

Head Office

Coimbatore


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