bdo budget analysis 2013-14

7/27/2019 BDO Budget Analysis 2013-14

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BUDGET ANALYSIS2013-14


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Budget Analysis 2013-14


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FOREWORD

The pre-budget Economic Survey 2013-14 was tabled in the Parliament of India(Parliament) on 27th February, 2013 and it summarized WORST IS OVER. Thevery 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 facesthe country. It is quite a contrasting picture being presented before the citizensof India.

Union Budget 2013 was tabled by none other than Mr. P Chidambaram, who isconsidered to be the most popular Finance Minister of India. It was the 8th UnionBudget presented by Mr. Chidambaram. It was the 5th and the last budget bythe current government before the General Election 2014. Given that, it musthave been a difficult choice for Mr. Chidambaram to lay emphasis on FiscalConsolidation which directly impacts the plan and non-plan expenditure of thegovernment. However, Mr. Chidambaram has very tactfully balanced the sameby taking a bold step by drastically reducing the petroleum subsidy by `31,888crores. Otherwise, there has been 29.4% increase in the plan expenditure and16.39% increase in the overall spending. The major source of funding the increasein 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 bigchallenge for the government to ultimately meet the target of reducing fiscaldeficit from 5.2% to 4.8%.

Even on the budgetary allocations, out of total expenditure of`16,65,297 crores, incomparison 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), externalaffairs (`8,719 crores), etc., there is miniscule outlays for growth oriented plans agriculture (`2,723 crores), atomic energy (`3,953 crores), commerce andindustry (`3,380 crores), telecommunications (`5,903 crores), food processing(`11 crores), heavy industries and public enterprise (`453 crores), human resourcedevelopment (`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 emphasison meeting the basic needs of common man (food and healthcare) rather thanregaining 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 increaseof inflow of foreign exchange through FDI, FII and ECB to balance out the CADand 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 onthe overall investment sentiments and climate and the tax regime. However,the budget has done very little to address the main concern of severe economicslowdown with GDP growth hovering at all time low of 5% and uncertainty intax 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 onlybe a wishful thinking. Secondly, there is not much that can be done to cut downon import of oil and coal as that would adversely impact the automobile andpower industries, which is already reeling under extreme pressures. Further, toassume that the gold consumption can be curtailed by generating other avenuesof 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. Chidambarams mool mantra of higher growth leading to inclusive andsustainable development is merely a statement of good intent in the budgetwhich is not backed by any long term and sustainable policy directions.

Mr. Chidambaram quoted Swami Vivekananda - All the strength and succouryou want is within yourself. Therefore, make your own future. We hope thatthe non-dramatic and average Budget proposals put forth by Mr. Chidambaram,

provide the strength and succour that is needed for the nations future!

TeamBDOPlace: Mumbai

Date: 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 Significant Proposals

2.5 TDS Rates2.6 Compliance Calendar2.7 DTAA rates2.8 Comparative tax rates of G 20 countries2.9 Wealth Tax

7121825

2933364445

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 INDICATORS

Growth rate slowed down to 6.2% and 5.0% for 2011-12 and 2012-13 respectivelyprimarily because of high inflation rate and slowdown in Investments as well aspolicy constraints.

Indian agriculture has performed well in terms of output growth, despite weatherand 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 manufacturingcompanies in the private sector declined to 11.4 per cent in the second quarterof 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 hascontributed significantly to slowdown in the overall growth of the economy.

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

External sector imbalances remain a worry. Rising gold imports have worsenedthe current account deficit. Domestic savings have been falling. Moreover, alower 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 privateinvestment declined as a share of GDP. Within private investment, investmentby the private corporate sector registered a sharper decline owing to high policyrates and lower demand.

Expenditure on social services by the general government has increased in recentyears. As a proportion of GDP, expenditure on social services increased from 6.8per 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 downturnis 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 economys outlook for 2013-14

Reduced demand and easing of supply side constraints should lead to lowerinflation

Due attention is to be given to adequate capitalization of Banks

To focus on incentivizing food production through measures other than pricesupports

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

Indias dependency ratio as measured by the share of the young and the elderly asa fraction of the populations expected to come down more sharply in the comingdecades.

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

Government is considering issues like programme leakages and funds not reachingthe targeted beneficiaries. Direct benefit transfer (DBT) with the help of theUnique 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 andeducation which could lead to Faster, more inclusive and sustainable growth asemphasized by the Twelfth Five-Year Plan

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


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2. DIRECT TAX PROPOSALS

2.1 Tax Rates

2.1.1 Rates of Income-tax at a glance

Individual, HUF, AOP, BOIThe 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 toindividuals, 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 years

Proposed 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 FY2012-13.

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

The education cess and Secondary and Higher education cess shall continue to belevied 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 foreigncompanies. There is modification in rate of surcharge. The applicable rates of taxare as under:

SrNo.

Particulars BasicTax 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 AlternativeTax (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 incomeis more than`1,00,00,000 or`10,00,00,000.

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

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

India has tax treaties with 84 countries. Most of the tax treaties allowIndia 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. Insome cases, this has resulted in taxation at a lower rate of 10% even if thetreaty 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 beapplicable 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 ofagreements entered after 31st March, 1976 are as under:


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Sr.No.

Gross amount of royalty and FTSExistingRate (%)

ProposedRate (%)

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

30% 25%

2 In respect of agreements entered after31st May, 1997 but before 1st June, 2005

20% 25%

3 In respect of agreements entered on orafter 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 assessmentyears.

2.1.3 Lower rate of tax on dividends received from foreign companies

Section 115BBD provides for taxation of gross dividends received byan Indian company from a specified foreign company (in which it hasshareholding of 26% or more) @ 15% if such dividend is included in thetotal 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 inrespect of income by way of dividends received from a specified foreigncompany 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 dividenddistributed by the company as reduced by the amount of dividendreceived from its subsidiary if such subsidiary has paid the DDT. Thisensures removal of cascading effect of DDT in a multi-tier structure wheredividend received by a domestic company from its subsidiary (which is alsoa domestic company) is distributed to its shareholders.

The Bill proposes to amend Section 115-O in order to remove the cascadingeffect in respect of dividend received by a domestic company from its

foreign subsidiary. It is proposed that where the tax on dividends receivedfrom the foreign subsidiary is payable under Section 115BBD by the holdingdomestic 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 toDDT.

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 aspecified company or a Mutual Fund to an individual or a HUF unit holderis chargeable to additional income tax @ 12.5% or 25% depending on thenature 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 anindividual or a HUF.

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

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

In order to bring parity in taxation of income from investment made bya 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 theconcessional tax rate of 5% shall also be applicable in respect of incomedistributed 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 thanagricultural land)

Under the existing provisions, IT Act requires PAN to be quoted in documentsrelating to purchase or sale of immovable property for value of immovableproperty of `5,00,000 or more. However, the majority of purchaser orseller 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 thetransferee on payments made to resident transferor in relation to transfer


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of immovable property, where consideration for transfer of immovableproperty 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 arecognized association.

The term taxable commodities transaction is defined to mean atransaction 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, furnishingof returns, assessment procedure, power of AO, chargeability of interest,levy of penalty, institution of prosecution, filing of appeal, power to theCentral Government, etc. have also been provided.

CTT is proposed to be levied from the date on which Chapter VII of theFinance 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 adeduction equal to the amount of CTT paid by the assessee in respectof taxable commodities transactions, which is included under the headProfits & 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 transactionsas under:

Sr.No.

Nature of TaxableSecurities transaction

Payable By ExistingRate

ProposedRate

1 Delivery based purchase ofunits of an equity orientedfund entered into in arecognized stock exchange

Purchaser 0.10% Nil

2 Delivery based sale of units

of an equity oriented fundentered into in a recognizedstock exchange

Seller 0.10% 0.001%

3 Sale of a futures insecurities

Seller 0.017% 0.01%

4 Sale of a Unit of an equityoriented fund to the mutualfund

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 FY2013-14 for acquiring residential house property

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

As per the Section 80EE, an individual would be provided deduction up tomaximum of`1,00,000/- in computing its total income for AY 2014-15,being interest payable on loan taken by him from a specified financialinstitution for the purpose of acquisition of a residential house property. Ina 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 periodbeginning on 1st April, 2013 and ending on 31st March, 2014;

The amount of loan sanctioned for acquisition of the residentialhouse 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 thedate 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 ofsuch interest under any other provisions of the IT Act for the same or anyother 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 assessmentyear.

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 encouragemanufacturing company to substantially invest in plant or machinery.As per the said section, an assessee, being a company, should fulfill thefollowing conditions:

Should be engaged in the business of manufacture of an article orthing;

Should invest a sum of more than`100 crores in new assets (plantor machinery) during the period beginning from 1st April, 2013 andending on 31st March, 2015;

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

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

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


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For AY 2015-16 - a deduction of 15% of aggregate amount of actualcost of new assets acquired and installed during 1st April, 2013 and31st 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 withina period of five years, the deduction provided in this section would beconsidered as income of the assessee or of the amalgamated companyor of the resulting company, as the case may be, as business income ofthe previous year in which such asset is sold or otherwise transferred, inaddition 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 butdoes not include:

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

Any plant or machinery installed in any office premises or anyresidential accommodation, including accommodation in the natureof 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 isallowed as deduction (whether by way of depreciation or otherwise)in computing the income chargeable under the head Profits andgains 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 assessmentyears.

2.2.3 Raising the limit of percentage of eligible premium for lifeinsurance 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 suchpolicy, is exempt, subject to the condition that the premium paid for suchpolicy does not exceed 10% of the actual capital sum assured.

Similarly, the existing provisions of Section 80C(3A) allow a deduction inrespect of any premium or other payment made for a insurance policy ofup 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 providea higher limit of 15% of the actual capital sum assured to any personwith disability/severe disability as referred to in Section 80U or a personsuffering from disease or ailment as specified in the rules made underSection 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 respectof a policy issued on or after 1st April, 2013 for insurance on the life of aperson referred to above shall be allowed to the extent the premium paiddoes 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, whohas acquired listed equity shares in accordance with Rajiv GandhiEquity Savings Scheme (RGESS), shall be allowed a deduction of 50% ofthe amount invested in such equity shares or `25,000/-, whichever islower. The deduction is a one-time deduction and is available only in oneassessment year in respect of the amount so invested. The deduction isavailable to a new retail investor whose gross total income is not morethan`10,00,000/-.

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

Investment in listed units of an equity oriented fund [as definedin 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 consecutiveassessment years beginning with the assessment year in which thelisted equity shares or listed units were first acquired;

The deduction is available to a new retail investor whose gross totalincome 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 assessmentyears.


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2.2.5 Deduction for contribution to health schemes similar to CentralGovernment 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 contributionmade towards the CGHS or amount paid on account of preventive healthcheck-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 madeto any other health scheme as may be notified by the Central Government.

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

2.2.6 100% deduction for donation to the National Childrens Fund

As per the existing provisions of Section 80G, an assessee is alloweda deduction @ 50% of the amount of donations made except in thecase 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 Childrens Fund, deduction is allowed@ 50% of the amount so donated.

It is proposed to allow 100% deduction in respect of any sum paid to theNational Childrens 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 subsequentassessment years.

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

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

Is set up for the generation and distribution of power, if it begins togenerate power at any time during the period beginning on 1st April1993 and ending on 31st March, 2013;

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


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

With a view to provide further time to the undertakings to commence theeligible activity to avail the tax incentive, it is proposed to amend theabove provisions so as to extend the terminal date by a further period ofone 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 paidto the new regular workmen employed in any previous year by its industrialundertaking engaged in manufacture or production of article or thing. Thededuction is available for 3 assessment years including the assessmentyear relevant to the previous year in which such employment is provided.

The tax incentive under section 80JJAA was intended for employment ofblue 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 thededuction shall be available to an Indian Company deriving profits frommanufacture of goods in its factory as defined under section 2 (m) ofthe Factories Act 1948 . The deduction shall be of an amount equal to 30%of additional wages paid to the new regular workmen employed by theassessee in such factory, in the previous year, for three assessment yearsincluding the assessment year relevant to the previous year in which suchemployment is provided.

It is also proposed to provide that the deduction under this section shall notbe available, if the factory is hived off or transferred from another existingentity or acquired by the assessee company as a result of amalgamationwith another company.

This amendment 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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2.2.9 Rebate of`2,000/- in case of certain individuals having totalincome up to`5,00,000/-

In order to provide tax relief to the individual tax payers who are in lowerincome 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 newSection 87A, which seek to provide a rebate to the extent of amount ofincome-tax payable or`2,000/-, whichever is lower. Consequently anyresident individual having income up to`2,20,000/- will not be requiredto 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/-.

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

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 regardedas impermissible avoidance arrangements and enable the tax authorities,to inter alia re-characterize such arrangements/transactions so as to denytax benefits.

A number of representations were received against the provisions relatingto GAAR. An Expert Committee under the Chairmanship of Dr. ParthasarathiShome was constituted by the Government with broad terms of reference

including consultation with stakeholders and finalising the GAARguidelines and a road map for implementation. The Expert Committeesrecommendations included suggestions for legislative amendments,formulation of rules and prescribing guidelines for implementation ofGAAR. The major recommendations of the Expert Committee have beenaccepted by the Government, with some modifications. Some of therecommendations accepted by the Government require amendment in theprovisions of Chapter X-A and Section 144BA.


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Certain key existing provisions, recommendations of the Shome Committeeand corresponding amendment proposed in the Bill are summarisedhereunder:

Particulars Existing

Provisions of the

IT Act

Recommendation of

Shome Committee

Report

Proposed

Amendment

Effective date GAAR provisions

to apply from

AY 2014-15

GAAR provisions to

apply from

AY 2017-18

GAAR provisions

to apply from

AY 2016-17

Meaning of

impermissiblearrangement

Defined to include

an arrangementthe main purpose

or one of the

main purposes

is to obtain tax

benefit

Defined to include

an arrangement themain purpose is to

obtain tax benefit

Defined to

include anarrangement

the main

purpose is

to obtain tax

benefit

Determining

factors whether an

arrangement

lacks

commercial

substance

Factors like

period ofexistence of

arrangement,

payment of

taxes under the

arrangement and

exit route shall

not be taken intoaccount

The committee

recommendedthat these factors

(mentioned in

Finance Act, 2012)

are relevant but may

not be sufficient to

prove commercial

substance. Thesefactors will be taken

into account in

forming a holistic

assessment to

determine whether

an arrangement

lacks commercialsubstance or not

It has been

proposed thatthese factors

(mentioned in

Finance Act,

2012) may

be relevant

but shall not

be sufficientto determine

whether an

arrangement

lacks

commercial

substance or not.


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Provisions of the

IT Act

Recommendation of

Shome Committee

Report

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

significant effect

upon the business

risks, or net cash

flows of any party

to the arrangement

apart from any

effect attributable

to the tax benefit

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 fromthe Government

Approving panel of 5

members including

one Chairperson

who should be aretired judge of

the High Court

and two members

from outside the

Government

Approving panel

consisting of

3 members

including oneChairperson,

who is or has

been the retired

judge of High

Court has been

recommended


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Provisions of the

IT Act

Recommendation of

Shome Committee

Report

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 befor one year and

may be extended

from time to

time to a period

of three years.


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Provisions of the

IT Act

Recommendation of

Shome Committee

Report

Proposed

Amendment

Meaning of

the term

Associated

person and

Connected

person

The term

Associated

person and

Connected

person are

separately

defined 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, accordinglyapply in relation to the AY 2016-17 and subsequent AYs.

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

Under the existing provisions, buy-back of shares by a company is deemedto 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 ofdividends in order to avoid payment of tax by way of DDT particularly wherethe capital gains arising to the shareholders are either not chargeable totax or are taxable at a lower rate. Such buy-back of shares used to resultin 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 taxeswithheld 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-DAcontaining sections 115QA to Section 115QC. This chapter provides that

the consideration paid by a domestic unlisted company for buy-back ofits shares, which is in excess of the sum received by such company at thetime of issue of such shares (distributed income) will be charged to taxand the company would be liable to pay additional income-tax @ 20% (plus


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applicable surcharge and education cess) of the distributed income paid tothe shareholder. The additional income-tax payable by the company shallbe 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 shareholderon 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 asstock in trade

Under the existing provisions of Section 50C of the IT Act, stamp dutyvalue is taken as full value of consideration in case transfer of a capitalasset being land or building or both is at a consideration less than thestamp duty value of such capital asset. Section 50C of the IT Act is notapplicable on transfer of immovable property held as stock-in-trade.

It is proposed to insert a new Section 43CA to provide that where theconsideration for the transfer of an asset (other than capital asset), beingland 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 ofthe 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 fixingthe value of consideration for the transfer of the asset and the date ofregistration of the transfer of the asset are not same, the stamp dutyvalue may be taken as on the date of the agreement for transfer and notas on the date of registration for such transfer. However, this exception

shall apply only in those cases where amount of consideration or a partthereof for the transfer has been received by any mode other than cash onor before the date of the agreement.

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

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


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2.3.4 Taxability of immovable property received for inadequateconsideration

Under the existing provisions of Section 56(2)(vii)(b) of the IT Act, inthe 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 tobe income in the hands of the individual or the HUF as income from othersources.

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

In order to bring such transactions into tax net, it is proposed to extendthe scope of provisions of Section 56(2)(vii)(b) to transfer of immovable

property for inadequate consideration i.e. in cases the difference betweenthe stamp value and transaction value exceeds`50,000.

It is also proposed to provide that where the date of an agreement fixingthe value of consideration for the transfer of the asset and the date ofregistration of the transfer of the asset are not same, the stamp dutyvalue may be taken as on the date of the agreement for transfer and notas on the date of registration for such transfer. However, this exceptionshall 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 onor before the date of the agreement.

Thus, if no part of consideration is received otherwise than cash on orbefore the date of the agreement, the stamp duty value as on the date ofregistration would be applicable. If there is increase in stamp duty valueat the time of registration, it can affect (increase) the computation ofincome 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 sumreceived under a life insurance policy other than a keyman insurancepolicy.

Keyman insurance policy is defined to mean a life insurance policy takenby 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 whatsoeverwith the business of the first-mentioned person.


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There have been instances where the policies taken as keyman insurancepolicy are being assigned to the keyman before its maturity. The keymanpays the remaining premium on the policy and claims the sum receivedunder the policy as exempt on the ground that the policy is no longer akeyman insurance policy. Thus, the exemption under Section 10(10D) is

being claimed for policies, which were originally keyman insurance policiesbut during the term, these were assigned to the keyman. The Courts havealso noticed this loophole.

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

This amendment will take effect from 1

st

April, 2014 and will, accordingly,apply in relation to assessment year 2014-15 and subsequent assessmentyears.

2.4 Other Significant Proposals

2.4.1 Widening of definition of urban land

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

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

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

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

It is also proposed to define the expression population to mean populationaccording to the last preceding census of which the relevant figures havebeen 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 capitalassets, respectively.

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


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road distance. Based on the above proposal, now distance of land has tobe only measured by aerial distance. Owing to the above amendment, thefollowing 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 1stApril, 2014 and will, accordingly,apply in relation to assessment year 2014-15 and subsequent assessmentyears.

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

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

7.5% of the total income computed before making any deductionunder 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 partthereof written off in the books of accounts subject to condition thatamount of deduction should be restricted to difference between theamount of bad debts written off and credit balances of provision for baddebts 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 anddoubtful debt.

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

There has been a spat of controversy on the point that whether whileclaiming deduction under Section 36 (1)(vii), each provision i.e. for ruraladvances or urban advances should be considered separate instead of

considering aggregate while claiming deduction of respective advancewritten off as bad debts under Section 36(1)(vii).


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In the backdrop of judgment of Honble Supreme Court in the case ofCatholic Syrian Bank Ltd. vs. CIT (343 ITR 277 (SC), a scheduled bank canmaintain a separate provision for doubtful advances made by rural branchesand accordingly claim any write off of urban advances irrespective of thefact 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 impactof ruling of Cathllic Syrian Bank, it is proposed to incorporate a newexplanation 2 to Section 36(vii) whereby it is clarified that there shall beonly 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 andSection 90A of the IT Act inserted by Finance Act, 2012, submission ofTRC containing the prescribed particulars was a condition precedent foravailing benefits of the DTAA.

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

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

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

The existing provisions of Section 139(9) provide that where the AOconsiders 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 rectifiedwithin the time allowed by the AO, the return is treated as an invalidreturn. The conditions, the non-fulfilment of which renders the returndefective, have been provided in the Explanation to Section 139(9).

Section 140A provides that where any tax is payable on the basis of anyreturn, after taking into account the prepaid taxes, the assessee shall beliable to pay such tax together with interest for any delay in furnishingthe 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


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of income without payment of self-assessment tax.

It is proposed to amend section 139(9) to provide that if self-assessmenttax along with interest payable under provisions of Section 140A has notbeen 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 certainrupee denominated long-term infrastructure bonds

As per the provisions of Section 194LC, concessional rate of tax @ 5% isapplicable on the interest payment to a non-resident person if an Indiancompany borrows money in foreign currency either under loan agreement

or by way of issue of long-term infrastructure bonds approved by theCentral Government.

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

The designated bank account should be solely for the purpose of deposit ofmoney in foreign currency and such money is to be used, after conversion,for subscription to a rupee denominated long-term infrastructure bondissue 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 incertain cases

As per Section 179 of the IT Act, where the tax due from a privatecompany cannot be recovered from such company, then the director shallbe jointly and severally liable for payment of such tax unless he provesthat 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 inSection 179 to hold that it does not include penalty, interest and othersum 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)].


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To keep the above ambiguity to rest, it is now proposed to amend Section179 of the IT Act so as to clarify that the expression tax due includespenalty, 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 withliability 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 InformationReturn (AIR)

Under the existing provisions of Section 271FA, if a person fails to furnishthe AIR as required under Section 285BA(1), within the prescribed time,

the Income-tax authority may direct such person to pay penalty of`

100for every day during which the failure continues.

The Bill proposes to provide that where such person fails to furnish thereturn 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 failurecontinues, beginning from the day immediately following the day on whichthe 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 Existingthreshold

Rate at whichTax is to beDeducted

ProposedThreshold for

Deductionw.e.f 1st April

2013

Proposed rate atwhich Tax is to be

Deducted

1. Salary 192 As per slab rates prescribed for individuals

2. Interest onspecifiedsecurities

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

3. Interest otherthan intereston securities

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

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

10%

4. Winningsfrom lotteryor crosswordpuzzle or card

game or othergame

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

5. Winnings fromhorse race

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


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2013


Deducted

6. Payments to

contractors

194C Payment

exceeding`30,000 percontract or

`75,000 p.a.in aggregate

2% (1% for

individual andHUFs)

Payment

exceeding`30,000 percontract or

`75,000 p.a.in aggregate

2% (1% for

individual andHUFs)

7. Insurancecommission

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

8. Payments toNon-residentsportsmen/sports

association

194E Notapplicable

20%

Notapplicable

20%

9. Paymentsof depositsunder NSS toany person

194EE `2,500payments tolegal hiers

exempt

20% `2,500payments tolegal hiers

exempt

20%

10. Commission/Remunerationon sale oflottery ticketsto any person

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

11. Commissionor brokerage 194H `

5,000 p.a 10% `

5,000 p.a 10%

12a. Rent of Land/Building/Furniture

194I `1,80,000p.a

10% `1,80,000p.a

10%

12b. Rent of Plant,Machinery orEquipment

194I `1,80,000p.a

2% `1,80,000p.a

2%

12c. Considerationfor transferof any

immovableproperty

194IA NotApplicable

Not Applicable Payment inexcess of`50,00,000

1%

13. Fees forprofessionaland technicalservices /royalty

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


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2013


Deducted

14 Compensation

to residenton acquisitionof certainimmovablepropertyother thanspecifiedagriculturalland

194LA `2,00,000

p.a.

10% `2,00,000

p.a.

10%

15 Incomeby way of

interest frominfrastructuredebt fund

194LB NotApplicable

5% NotApplicable

5%

16 Incomeby way ofinterestfrom Indiancompanyto a non-resident frominvestment

in foreigncurrency aswell as Indiandenominatedrupees

194LC NotApplicable

5% NotApplicable

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 bankaccount and such money as converted in rupees is utilised for subscriptionto a long-term infrastructure bond issue of an Indian company, then, forthe purpose of this section, the borrowing by the company shall be deemedto be in foreign currency.

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

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


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the government on or before 30th April.

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

TDS Return: Person responsible for deducting tax is required to filequarterly 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 and15th May respectively. Form 26Q and Form 24Q are to be filed electronicallywhile 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 dateof 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 isrequired to be issued on annual basis by 31st May of the FY immediatelyfollowing 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 higherof the rates specified in the relevant provision of the IT Act or at the ratesin force or 20%.

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

Above rates (except 194E Section) are not applicable in case of paymentsmade to foreign companies and non-residents except in case of sections192, 194B, 194BB, which are also applicable to non-residents.

Every transferee, at the time of making payment or crediting any sumby way of consideration for transfer of immovable property (other thanagricultural land), shall be required to deduct the tax. The transfereewould not be required to obtain TAN and also not required to furnish TDSreturn.

Tax is required to be deducted on remuneration paid to a director which isnot in the nature of salary.

2.6 Compliance Calendar


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

Nature of Compliance

Person

CompanyPartnership Firm/LLP

Individual and HUF

1. Due Dates for filing of Return of Income (ROI), Return of Wealth (ROW) and obtainingTax Audit Report (Note 1)

Person covered underTax Audit

(other than those towhom transfer pricing is

applicable)

30 September

Person covered undertransfer pricing

(For furnishing ofTransfer Pricing Reportin Form 3CEB same duedate is applicable

30 November

Other Persons 30 September 31July 31July (Note2)

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

1st Installment- on orbefore 15 June

15% Not Applicable Not Applicable

2nd Installment- on orbefore 15 September

45% 30% 30%

3rd Installment- on orbefore 15 December

75% 60% 60%

4th Installment- on or

before 15 March 100% 100% 100%

3. Tax Deducted at Source (TDS)


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Person


Individual and HUF

Tax must be deducted

at the time of payment,in case of salary

Applicable

Applicable, only ifperson is coveredunder tax auditin the precedingprevious year

In case of Paymentsother than salary, at thetime of making paymentor credit, whichever isearlier

Tax deducted must bedeposited in the bankby 7th day of the follow-

ing month except taxdeducted for paymentor credit made in Marchmust be deposited by30th April

4. Tax Collected at Source (TCS)

Tax Collected must bedeposited within oneweek from the end ofmonth of tax collection

Applicable

5. Due Dates for Filing of TDS/TCS Returns

TDS Quarterly State-ment for quarter endedJune

15 July

TDS Quarterly State-ment for quarter endedSeptember

15 October

TDS Quarterly State-ment for quarter endedDecember

15 January

TDS Quarterly State-ment for quarter endedMarch

15 May

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

Issue of Form 16 An-

nually

31 May

Issue of Form 16A/ 27Dfor quarter ended June

30 July


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Person


Individual and HUF

Issue of Form 16A/

27D for quarter endedSeptember 30 October

Issue of Form 16A/27D for quarter endedDecember

30 January

Issue of Form 16A/ 27Dfor 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 arerequired to be audited under section 44AB of the IT Act, the date of fillingof ROI is 30th September.

Advance tax payment for income-tax is applicable to every person wherethe 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 TRACESwebsite (www.tdscpc.gov.in).

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


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2.7 DTAA RATES

Sr.No.

Country

Dividend Interest Royalty FTS

Remarks

Tax rate Tax rate Tax rate Tax rate

Rate as per the ITAct

Nil[Note 1]

20%[Note 6]

10%[Note 3and 6]

10%[Note 3and 6]

Rate as per the IT Act (to befurther increased by applicablesurcharge and education cess)or DTAA rate, whichever is morebeneficial shall apply

1 Armenia 10% 10%[Note 4]

10% 10%

2 Australia 15% 15% Note 5 Coveredunder

Article forRoyalty

3 Austria 10% 10%[Note 4]

10% 10%

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

10% Noseparateprovision

10% tax on dividends if at least10% of the capital is owned bycompany; in any other case 15%

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

15% 15% 10% tax on dividends if at least25% of the shares are owned bycompany; in any other case 15%

6 Belgium 15% 15% / 10% 10% 10% 1. Interest taxable at 10% ifrecipient is bank; in any other

case 15%.2. MFN clause with respect toRoyalty and FTS.

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

10% 10% 7.5% tax on dividends if at least25% of the capital is owned bycompany; in any other case 10%

8 Brazil 15% 15%[Note 4]

15%(25% for

trademark)

Coveredunder

Article forRoyalty

15% tax on dividends if paid toa company; in any other case asper domestic tax laws

9 Bulgaria 15% 15%

[Note 4]

15% / 20% 20% 15% tax on royalties if relating

to copyrights of literary, artisiticor scientific works, other thancinematograph films or films ortapes used for radio or televisionbroadcasting; in any other case20%

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

Note 5 Note 5 15% tax on dividends if at least10% of the voting power is ownedby company; in any other case25%

11 China 10% 10%

[Note 4]

10% 10%


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Sr.No.

Country


Remarks


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

15% 15% / 10% 1. 10% tax on dividends if atleast 10% of the shares are

owned by company; in any othercase 15%.2. Technical fees are taxable @10% under Article 13 and Fees forIncluded Services is chargeable @15% under Article 12.

13 CzechRepublic

10% 10%[Note 4]

10% 10%

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

20% 20% 1. 15% tax on dividends if atleast 25% of the shares areowned by the company; in anyother case 25%2. Interest taxable at 10% ifrecipient is bank; in any othercase 15%

15 Estonia 10% 10%[Note 4]

10% 10%

16 Finland 10% 10%[Note 4]

10% 10% MFN clause with respect toDividend, Interest, Royalty andFTS

17 France 10% 10%[Note 4]

10% 10% MFN clause with respect toDividend, Interest, Royalty and

FTS18 Georgia 10% 10%

[Note 4]10% 10%

19 Germany 10% 10%[Note 4]

10% 10%

20 Greece Taxable as per domestic laws in sourcecountry

Noseparateprovision

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 least10% of the shares are owned bycompany; in any other case 25%


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Sr.No.

Country


Remarks


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 ofManagement and Professionalfees.

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

15% 15% 1. 15% tax on dividends if atleast 20% of the capital is owned

by the company; in any othercase 20%2. Interest taxable at 10% ifrecipient is bank; in any othercase 15%

32 Kuwait 10% 10%[Note 4]

10% 10%

33 KyrgyzRepublic

10% 10%[Note 4]

15% 15%

34 Libya Taxable as per domestic laws in sourcecountry

Noseparate

provision35 Lithuania 5% /15% 10%

[Note 4]10% 10% 5% tax on dividends if at least

10% of the shares are owned bythe company; in any other case15%

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 areowned by company; in any othercase 15%2. FTS, ancilliary and subsidiaryto Royalty under Article 12, aretaxable @ 10% under Article 13and Fees for Included Services ischargeable @ 15% under Article12.

39 Mauritius 5% / 15% Taxableas per

Domestic

Laws[Note 4]


5% tax on dividends if at least10% of the capital is owned bycompany; in any other case 15%

40 Mongolia 15% 15%[Note 4]

15% 15%


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Sr.No.

Country


Remarks


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

10% 10% 5% tax on dividends if at least25% of the capital is owned

by company (other than apartnership); in any other case15%

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 least10% of the shares are owned bythe company; in any other case10%

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 least10% of the shares are owned bythe company; in any other case12.50%

51 Philippines 15% / 20% 15% / 10% 15% Noseparateprovision

1. 15% tax on dividends if atleast 10% of the shares areowned by the company; in any

other case 20%.2. Interest taxable @ 10% ifrecipient is Financial Institution(including an insurance company)and where the interest ispayable by the company residentof Philippines to a resident ofIndia in respect of public issuesof bonds, debentures or similarobligations. In any other case15%.3. Royalty taxable @ 15% if

it is payable in pursuance ofany collaboration agreementapproved by the Government ofIndia. No rates prescribed in anyother case.


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Sr.No.

Country


Remarks


52 Poland 15% 15%[Note 4]

22.5% 22.5%

53 PortugueseRepublic

10% / 15% 10%[Note 4]

10% 10% 10% tax on dividends if at least25% of the capital stock isowned by the company for anuninterrupted period of 2 yearsprior 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 least10% of the shares are owned bythe company; in any other case10%

55 Romania 15% / 20% 15%

[Note 4]

22.5% 22.5% 15% tax on dividends if at least

25% of the shares are owned bythe company; in any other case20%

56 RussianFederation

10% 10%[Note 4]

10% 10%

57 Saudi Arabia 5% 10%[Note 4]


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

10% 10% 5% tax on dividends if at least25% of the capital is ownedby company (other than a

partnership); in any other case15%

59 Singapore 10% / 15% 10% / 15% 10% 10% 1. 10% tax on dividends if atleast 25% of the shares areowned by the company; in anyother case 15%2. Interest taxable @ 10% ifrecipient is bank or similarFinancial Institution including aninsurance company; in any othercase 15%

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

10% 10% 5% tax on dividends if at least10% of the capital is owned bycompany; 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 paidfor the use or right to useany industrial, commercial orscientific equipment; in anyother case 20%2. MFN clause with respect to

Royalty and FTS.63 Sri Lanka 15% 10%

[Note 4]10% No

separateprovision


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Sr.No.

Country


Remarks


64 Sudan 10% 10%[Note 4]

10% 10%

65 Sweden 10% 10%[Note 4]


66 SwissConfederation

10% 10%[Note 4]


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


5% tax on dividends if at least10% of the shares are ownedby company (other than apartnership); in any other case10%

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


5% tax on dividends if at least25% of the capital is ownedby company (other than apartnership); in any other case10%

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

12.50%[10%]

[Note 4]

20% [10%] Noseparateprovision

1. 10% [5%] tax on dividends ifat least 10% [25%] of the sharesare owned by company during aperiod of 6 months immediatelypreceeding the date of paymentof dividend; in any other case

15% [10%]. Condition of 6 monthshas been removed in revisedDTAA.2. Rates provided in bracket areapplicable from 1st April, 2012.3. Upto 31st March, 2012management or professional feesis taxable @ 20%, w.e.f1st April, 2012, this clause shallbe deleted.

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

15% Noseparate

provision

1. 15% tax on dividends if atleast 10% of the voting shares are

owned by the payee companyand the payer is an industrialcompany, 20% if payer companyis an industrial company or thepayee company owns at least25% of the voting shares; in anyother case as per the domesticlaws of the payer company.2. Interest taxable @ 10% ifrecipient is Financial Institutionincluding an insurance company;in any other case 25%

71 Trinidad andTobago

10% 10%[Note 4]

10% 10%


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Sr.No.

Country


Remarks


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

15% 15% Interest taxable @ 10% ifrecipient is bank, insurance

company or similar FinancialInstitution; 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]

10% 10% 10% tax on dividends if at least25% of the capital is ownedby company (other than apartnership); in any other case15%

76 United ArabEmirates

10% 12.50%/ 5%

[Note 4]


Interest taxable @ 5% if recipientis bank or similar FinancialInstitutio ; in any other case12.50%

77 United ArabRepublic(Egypt)

As perdomestic

law

As perdomestic

law

Taxablein sourcecountryas per

domestictax rate

Noseparateprovision

78 United

Kingdom

15% 15% / 10%

[Note 4]

Note 5 Note 5 Interest taxable at 10%, if

recipient is bank; in any othercase 15%

79 UnitedMexicanStates

10% 10%[Note 4]

10% 10%

80 United Statesof America

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

Note 5 Note 5 1. 15% tax on dividends if atleast 10% of the voting stock isowned by the company; in anyother case 25%.2. Interest taxable @ 10% ifrecipient is bonafide bank or

Financial Institution including aninsurance company; in any othercase 15%

81 Uzbekistan 10% 10%[Note 4]

10% 10% Interest received fromtransaction approved by sourcecountrys government will beexempt. In any other case,normal provisions of domesticlaw will apply.

82 Vietnam 10% 10%[Note 4]

10% 10%


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Sr.No.

Country


Remarks


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

10% 10% 5% tax on dividends if at least25% of the shares are owned by

the company during a period of6 months immediately precedingthe date of payment of dividend;in any other case 15%

New DTAAs not yet notified

84 Colombia 5% 10% 10% Noseparateprovision

Press release dated 13th May,2011

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

86 Uruguay 5% 10% 10% Noseparateprovision

Press release dated8th September, 2011

Notes:

1. As per the Section 115-O of the IT Act, subject to certain exceptions, any amount declared, distributedor 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 thehands of the recipient shareholders in India. The rates mentioned in the table are applicable to dividendsother than the dividends declared, distributed or paid by Indian companies [such as deemed dividend underSection 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 theFinance 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 orcertain institutions like the RBI or Central Bank of other State or any other institution as may be agreedupon, 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 subsidiarythereto. 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 rateof 20% shall apply even if rate prescribed under DTAA is lower. As such, to this extent, the provision of theIT 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 ANDPERSONAL TAX RATES

The G-20 economies comprising of 19 countries and the EU, account for almost90% 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 andin order to provide an indicative overview of the prevailing tax rates in these keyeconomies, a brief comparative matrix is given below.

Sr. No. CountryCorporate 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 respectivecountries.

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

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


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4. An additional special social security surcharge for French residents isapplicable 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 taxrates of the respective states.

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

2.9 Wealth Tax

2.9.1 Enabling provisions for facilitating electronic filing of annexureless return of net wealth

Section 139C and Section 139D of the IT Act contain provisions forfacilitating filing of annexure-less return of income in electronic formby certain class of income-tax assessees. In order to facilitate electronic

filing of annexure-less return of net wealth, it is proposed to insert newSection 14A and Section 14B in the WT Act on similar lines.

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

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


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3. INDIRECT TAX PROPOSALS

3.1 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 CSTcompensation has been provided in the budget.

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

The Finance Minister in his Budget speech has stated that a GST Law draftedby the State Finance Ministers and the GST Council will be placed beforethe 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 yearsincreased

Section 9 provided for imprisonment extending upto 7 years for specificoffences involving duty evasion exceeding`30 lakh. The section is beingamended

bdo budget analysis 2013-14

Documents