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© 2014 SKP Business Consulting LLP. All rights reserved. Privileged and confidential

No change in tax rates

Basic exemption limit increased from INR 200,000 to INR 250,000, and increased from INR 250,000 to INR 300,000 for resident senior citizens

Rate of surcharge and education cess remain unchanged


Individuals earning more than INR 10 million 33.99%

Corporate Tax – Domestic Company

Income less than INR 10 million 30.90%

Income from INR 10 million to INR 100 million 32.445%

Income more than INR 100 million 33.99%

Corporate Tax – Foreign Company


Income from INR 10 million to INR 100 million 42.024%

Income more than INR 100 million 43.26%

Firm/Limited Liability Partnership


Income up to INR 10 million 33.99%


Special provision introduced, providing deduction on investment in plant and machinery for manufacturing companies

Introduced to promote medium-size investments in the manufacturing sector

Eligible for investment in new plant and machinery of INR 0.25 billion or more for each year

Benefit available between April 2014 to March 2017

15% of the actual cost of machinery allowed as an investment allowance

Benefit introduced in the Finance Act, 2013 continues until March 2017


100% deduction for capital expenditure incurred extended to the following specified businesses (presently available for 11 types):

Setting up and operating a semiconductor wafer fabrication manufacturing unit (notified by board)

Laying and operating of slurry pipelines for transportation of iron ore

Deduction would be allowed for operations commencing on or after 1 April 2014

Capital asset for which deduction is claimed to be used for a minimum of 8 years in the specified business

Asset not used for specified business taxable as business profits under section 35AD as under:

Deduction allowed under section 35AD (-) depreciation allowable under section 32

No other incentive or deduction to such businesses

To calculate Alternate Minimum Tax (AMT), such capital expenditure should be added back after a deduction for depreciation under section 32


Payments to non-residents brought at par to residents – eligible to claim a deduction in expenses if withholding taxes are paid upto due date of filing of returns

In case of payment made to a resident, disallowance of expenses on account of non-deduction/non-payment of taxes restricted to 30% instead of 100%

Disallowance of salary payments if defaulting in withholding tax payments


Period of holding for qualifying as long-term capital asset increased from 12 months to 36 months

Tax rate of 20% applicable in case of debt fund – 10% tax without indexation has been done away with


In case of Foreign Institutional Investors (FIIs), ambiguity in characterisation of income from transfer of securities (business income or capital gains) has been removed

Definition of ‘capital asset’ includes security held by FIIs in accordance with the regulations of the Securities and Exchange Board of India (SEBI)

Transfer by Foreign Institutional Investor (FII) of such security would be taxable as capital gains


Dividend amount distributed = INR 85

Increase by INR 15 [i.e. (85*0.15)/(1–0.15)]

Increased amount = INR 100

DDT @ 15% of INR 100 = INR 15

Tax payable under section 115-O = INR 15

Dividend distributed to shareholders = INR 85


Two categories of investment vehicles introduced – Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (INVIT) to be formed by way of trusts

Interest received by REIT/INVIT will not be taxed at trust level

Withholding by trust on interest paid to investor

5% if paid to non-resident (no PAN required)

10% if paid to resident

Beneficial rate of 5% withholding tax on loan taken from a non-resident investor – subject to satisfying ECB conditions

Beneficial tax rate not applicable to Sponsor (even where STT is paid)

REIT/INVIT

REAL ESTATE COMPANY

20%

SPONSOR

TRANSFER OF SHARES OF 20% IN LIEU OF UNITS

80%

RESIDENT/ NON-RESIDENT

INVESTOR

UNITS


Dividend will be exempt in the hands of trust and unit holders as Dividend Distribution Tax (DDT) would be paid at SPV level

Capital gains on traded units of listed trusts will have the same tax treatment as listed equity shares in the hands of investors

LTCG – exempt (when STT paid)

STCG – taxable at 15% (holding period of 12

months or less)

Capital gains tax applicable to trust on transfer of its assets – not taxable in hands of unit holder

Transfer of shares by Sponsor to trust not treated as taxable transfer – taxed at the time of sale of units

Other income will be taxed at the trust level at Maximum Marginal Rate

REIT/INVIT

REAL ESTATE COMPANY

20%

SPONSOR

TRANSFER OF SHARES OF 20% IN LIEU OF UNITS

80%

RESIDENT/ NON-RESIDENT

INVESTOR

UNITS


Corporate Social Responsibility (CSR) expenses – not an allowable business expenditure

Any sum received as advance will be taxable as Other Sources if

An advance received is forfeited

There is no transfer of Capital Asset

Loans given/received through the use of Electronic Clearance System (ECS) would not subject to provisions of sections 269SS and 269T

Tax holiday for the power sector is extended up to 31 March 2017

Exemption from capital gain on investment in residential house restricted to only one house

Exemption from capital gains on investment in certain specified bonds restricted to INR 50,00,000 (even if the investment is in two financial years)

Limit for deduction of interest on self-occupied property has been increased from INR 150,000 to INR 200,000

Limit of investment under section 80C is revised from INR 100,000 to INR 150,000


Arm’s Length Pricing (ALP) or method determined in Advance Pricing Agreements (APAs) can be applied to previous years

Can go up to four preceding years from the first year of an APA

Detailed rules procedure and conditions to be prescribed

Substantial relief to the taxpayer and a great boost to the APA program

Would result in significant reduction in litigation

Effective from 1 October 2014


Currently, a deemed international transaction covers transactions with a third party if the terms or affairs are arranged between them by the associated enterprise

Question was on whether it would apply in cases where the third party is resident in India

By way of an amendment, transactions with a third party, whether resident or non-resident, have been brought under the purview of this definition

Overrules tribunal rulings

Widens the scope of deemed international transaction

Applicable from assessment year 2015-16


Transfer Pricing Officer (TPO) gets power to levy a penalty for failure to maintain documentation


SILENT ON CERTAIN ASPECTS


Introduction of range concept for arm’s length price

Alignment with best global practices

Takes care of extreme results of comparables

Concept of arithmetic mean will continue in circumstances where adequate comparables are not available

Rules may be prescribed in the future

Use of multiple-year data is allowed

Based on current law, many tribunals have ruled against the use of multiple-year data

Evens out extreme financial results due to economic ups and downs

Rules may be prescribed in the future

Advance ruling for domestic taxpayers

Proposition to allow domestic taxpayers to seek advance rulings

To set up multiple benches for speedy decision-making

Approaching Settlement Commission – one-time settlement


Service tax rate remains unchanged at 12.36%

Tax base widened to include following:

Effective from a date to be notified after Presidential assent

Sale of space or time for advertisements through online and mobile advertising

Services provided by radio taxis or radio cabs, whether or not air-conditioned

Exemption withdrawn with effect from 11 July 2014

Services of clinical research on human participants

Services rendered by air-conditioned contract carriages like buses

Meaning of auxiliary educational service narrowed to grant exemption only to specified services rendered to educational institutions

Exemption available to renting of immovable property given to educational institutions withdrawn


Ambit of exemptions widened to include the following

Effective 11 July 2014

Transport of organic manure by vessel, rail or road (by GTA)

Loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton, ginned or baled

Specialised financial services received by the Reserve Bank of India (RBI) from global financial institutions in the course of management of foreign exchange reserves

Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India


Key measures proposed to rationalise service tax provisions:

In case of works contract such as maintenance, repairs, completion and finishing service (other than original works) the value of the service portion is amended from 60% to 70% of the total contract value (effective 1 October 2014)

Effective rate of service tax in case of transport of goods by vessel reduced from 6.18% to 4.94% (effective 1 October 2014)

Rules to be prescribed for change in the method of calculation of taxable value in case of export/import transactions

Power to waive 50% penalty for offences specified in section 78(1) of the Finance Act, 1994 removed (effective from the date of enactment of the Finance Bill)


Key measures proposed to rationalise service tax provisions:

E-payment of service tax is now mandatory without any threshold limit (effective 1 October 2014)

Interest rates now linked to the extent of delay in service tax payment as under (effective 1 October 2014)

Extent of Delay Rate (per annum)

Upto six months 18%

From six months upto one year 24%

More than one year 30%


Rationalisation of CENVAT credit provisions

A cap of six months inserted for claiming CENVAT credit on inputs and input services from the date of issue of invoice, bill or challan (effective 1 September 2014)

The term “place of removal” is now defined and is applicable from 11 July 2014

Effective immediately

Condition of making payment of invoice value to the service provider withdrawn for availing the credit in case of full reverse charge

Re-credit of CENVAT credit allowed in cases where the export proceeds are received within a period of one year from the specified period on fulfilment of prescribed conditions

Service receiver of GTA service can avail abatement without obtaining certificate of non-availment of CENVAT credit from service providers

For rent-a-cab services and tour operator services, credit of service tax paid to sub-contractor would be available to the main service provider

Going forward, there will be a restriction on transfer of credit by a large taxpayer from one unit to another


Amendments in Place of Provision of Service Rules, 2012

Effective 1 October 2014

Place of performance of service would not be criteria for repairs carried out on temporarily imported goods that are exported after repairs (without being put to use)

Meaning of intermediary amended to include intermediary of goods within its ambit

Service of hiring of vessels and aircraft would now be taxable as per general Rule 3, i.e. place where service receiver is located

Amendments in Point of Taxation Rules

Effective 1 October 2014

Determination of point of taxation in case of reverse-charge transactions has been changed and would be the earlier of the following:

Date of payment, or

First day after three months from the date of invoice


Reverse Charge Mechanism

Ambit of Reverse Charge Mechanism widened


Services provided by a Director to any body corporate (body corporate to be liable to pay service tax)

Services provided by recovery agents to banks, financial institutions and non-banking financial companies

Change in the portion of taxable value

The extent of service tax payable under reverse charge by the receiver of a rent-a-cab service will now be 50% as compared to the earlier 40% - where abatement is not claimed (effective 1 October 2014)


Miscellaneous


Changes are proposed in the service tax rules to simplify the procedural compliance in relation to special economic zones (SEZs)

Resident private limited company now eligible to apply for the purpose of advance ruling. Same is applicable for Central Excise and Customs legislations.

Effective after Presidential Assent

A mandatory fixed pre-deposit of 7.5% and 10% of the duty demanded/penalty is introduced before filing of appeal with the Commissioner (Appeals) or the Tribunal at the first stage and second stage, respectively with a ceiling of INR 100 million (similar change introduced in Excise and Customs regulations)


Rate of excise duty changed (effective 11 July 2014) for various products manufactured. Some of the products are:

Products Change

Specified food processing and packaging machinery From 10% to 6%

Recorded smart cards (without or with CENVAT benefit) From 2%/6% to 12%

Aerated waters containing added sugars Additional duty of excise of 5%

Writing or printing paper for printing of educational textbooks (with CENVAT benefit)

From 2% to 6%

Machinery for the preparation of meat, poultry, fruits, nuts or vegetables; and on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages; and on packaging machinery

From 10% to 6%


Goods exempted from Excise Duty (effective 11 July 2014)

EVA sheets and solar back sheets and specified inputs used in their manufacture

Solar tempered glass used in the manufacture of solar photovoltaic (PV) cells and modules

Flat copper wire for the manufacture of PV ribbons for use in solar cells and modules

Machinery and equipment required for setting up of a project for solar energy production


Other amendments

Introduction of abatement of 35% on MRP in case of parts of filtering or purifying machinery and apparatus of gases (effective 11 July 2014)

Every assessee is now required to pay duty electronically through internet banking from 1 October 2014

In case the assessee fails to pay duty as declared in the return within a period of one month from the due date then penalty at the rate of 1% per month or part thereof is payable for the period of failure with effect from 11 July 2014

In case if the price is not the sole consideration for sale of excisable goods and they are sold by the assessee at a price less than manufacturing cost and profit, and no additional consideration is flowing directly or indirectly from the buyer to such assessee, the value of such goods shall be deemed to be the transaction value (effective 11 July 2014)

It is clarified that Excise Duty exemption available to goods supplied against International Competitive Bidding (ICB) contracts is also available to sub-contractors for manufacture and supply of goods for or on behalf of the main contractor (who has won the bid for the project through ICB) for execution of the project


Amendments in CENVAT Credit Rules, 2004

The term “place of removal” is now defined and the same is applicable from 11 July 2014

Amendments in Central Excise Act, 1944

(Effective from the date of enactment of the Finance Bill 2014)

Education cess and secondary and higher education cess (Customs component) is being exempted on goods cleared by an Export Oriented Unit (EOU) into the Domestic Tariff Area (DTA)

Applications are now allowed for settlement before the settlement commission in cases where the applicant has not filed the returns after recording reasons for the same


Rate of Basic Customs Duty (BCD) reduced effective 11 July 2014 for various imported products. Some of the products are:

Products Change

Crude glycerine From 12.5% to 7.5%

Specified raw materials such as EVA resin, polyvinyl fluoride, etc. used in the manufacture of solar back sheet and EVA

From 10% to Nil

Flat copper wire used in the manufacture of PV ribbons for solar PV cells/modules

From 5% to Nil

Coal tar pitch, battery waste and battery scrap From 10% to 5%

LCD, LED TV panels and colour picture tubes of cathode ray TV From 10% to Nil

eBook readers From 7.5% to Nil


Rate of BCD enhanced effective 11 July 2014 for various imported products, some of which are:

Education cess and secondary and higher education cess on countervailing duty (CVD) portion of customs duty leviable on imported specified IT products

CVD exemption on portable X-ray machines/systems withdrawn

Products Change

Stainless steel flat products From 5% to 7.5%

Telecommunication products not covered under the Information Technology Agreement

From Nil to 10%


BCD on machinery, equipment, components appliance and auxiliary instruments required for initial setting up of solar energy production projects is being reduced to 5%

Exemption from Special Additional Duty (SAD) on inputs/components used in the manufacture of personal computers (laptops/desktops) and tablet computers

Exemption from SAD on specified inputs (PVC sheet and ribbon) used in the manufacture of smart cards

No requirement of certification by Ministry of Road Transport (or National Highways Authority of India) for availing customs duty exemption on specified goods required for road construction

Full exemption on HIV/AIDS drugs and diagnostic kits imported under the National AIDS Control Program (NACP)


Baggage rules amended to increase the limit for duty-free baggage allowance (effective 11 July 2014)

Passengers Old Limit New Limit

Passengers of and above 10 years of age and returning from stay abroad of > 3 days

INR 35,000 INR 45,000

Passengers of and above 10 years of age and returning from stay abroad of < 3 days

INR 15,000 INR 17,500


Changes to be effective from the date of enactment of the Finance Bill

Safeguard duty has been imposed on that portion of goods imported by a 100% Export Oriented Unit (EOU) and Special Economic Zones (SEZs) when such goods are cleared as such in a Domestic Tariff Area (DTA) or used in manufacture of goods cleared in the DTA (effective immediately)


The Finance Minister (FM), Arun Jaitley, assured the House that the debate on the Goods and Services Tax (GST) should come to an end and before the year ends, the government would endeavour to approve the legislative scheme

However, there was no firm commitment on the proposed date of introduction of GST

Also, the FM assured that all States would be taken on board for a fair consensus on GST

It appears that the government would consider a step-by-step approach to introduce GST

First, CenGST (CGST) would be first introduced at Central level and then SGST will be introduced to replace the State-level indirect taxes

In particular, CGST would consolidate the following indirect taxes: Central Excise Duty, Service Tax, additional Excise Duties, etc.

GST may streamline the tax administration, avoid harassment of the business and may result in higher revenue collection both for the Centre and the States

The above approach seems simple, but could pose a challenge to the industries as it will involve two-level consolidation i.e.; first the introduction of CGST and later, the introduction of SGST

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mumbai | pune | hyderabad | new delhi | chennai | bangalore · service tax rate remains unchanged...

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