BUDGET 2014 HIGHLIGHTS

Table of Contents


Direct Tax es

Indi vi dual Taxati on


Corporate Taxati on


Internati onal Taxati on



Indirect Taxes


Servi ce Tax
Exci se Duty
Customs Duty




Direct Tax
Individual Taxation
Income Tax Rates for the year ending March 31, 2015,
effective upon the enactment by the parliament:

Individuals (resident as well as non residents):
Total income Rate
Not exceeding Rs 250,000 Nil
Over Rs 250,000 but not exceeding Rs 500,000 10%
Over Rs 500,000 but not exceeding Rs 1,000,000 20%
Over Rs 1,000,000 30%

Residents above the age of sixty years but less than eighty
years:
Total income Rate
Not exceeding Rs 300,000 Nil
Over Rs 300,000 but not exceeding Rs 500,000 10%
Over Rs 500,000 but not exceeding Rs 1,000,000 20%
Over Rs 1,000,000 30%

Residents above the age of eighty years:
Total income Rate
Not exceeding Rs 500,000 Nil
Over Rs 500,000 but not exceeding Rs 1,000,000 20%
Over Rs 1,000,000 30%


Surcharge and education cess rates are the same as was in
previous year.

The investment limit for deduction under section 80C has been
increased from Rs. 100,000 to Rs. 150,000.

The deduction on account of interest paid on housing loan for
self-occupied property has been increased from Rs. 150,000 to
Rs. 200,000.

Earlier, in case, an individual or a HUF was not be liable to
capital gain tax if he/it invested the gain arising from transfer
of resident property or any other capital assets, in a residential
house. Now it has been proposed that investment can be made
only in one resident and that only in India.
Corporate Taxation:
There is no change in the corporate tax rates.
It has been clarified that expenditure incurred by the assessee
for corporate social responsibility clause of the Companies Act,
2013 shall not be allowed as deduction from business income.
Relief to FIIs: Any security held by FIIs in accordance with
SEBI regulations shall be treated as capital assets and
therefore, any gain arising from transfer of such securities shall
be liable to capital gain tax. So the profit shall be categorised
as capital gain or business income has now been resolved.

Business Income
Deduction in respect of Investment in new plant or machinery:
In order to boost the manufacturing sector, it has been
proposed to allowed additional deduction of 15% to a
manufacturing company, on the amount of actual cost of new
plant & machinery, if the investment in such new assets
exceeds Rs. twenty five crores (Indian rupees 250 million).
Earlier the limit was Rs one hundred crore (Indian rupees one
billion). The deduction is available only in the year when the
new assets have been acquired. Further, this deduction shall
be available only up to Financial Year 2016-17.
Section 35AD allows deduction in respect of the whole of
capital expenditure incurred wholly or exclusively, for the
purpose of specified business. Now the business in the nature
of laying and operating a slurry pipeline for the transportation
of iron ore and setting up and operating a semi-conductor
wafer fabrication manufacturing unit have also been proposed
to be included in the category of specified business. Besides
an additional condition regarding use of such capital assets for
a minimum period of eight years has also been proposed.
It has been proposed that the deduction under section 80IA
shall be available to an undertaking, which (i) is setup for
generation or generation and distribution of power, (ii) starts
transmission or distribution lines, or (iii) undertakes substantial
renovation and modernization of existing network of
transmission or distribution lines, on or before 31st March
2017. Earlier the dead line was 31st March 2014.
MAT: It has also been proposed that In case of MAT (as
applicable to an assessee other than a company), the
deduction allowed under Section 35AD (after reducing the
amount of allowable depreciation) shall be added back in total
income for the purpose of calculating MAT.
Transfer Pricing
It has been proposed that the advance pricing agreement
entered between the CBDT and assessee may provide for the
conditions, procedure and manner, so that it can also apply for
determining the arms length price during any period not
exceeding four previous years preceding the first previous year
for which the agreement is being effective.
Withholding Tax
Earlier, no deduction of expense was allowable while
calculating business profit, in case the assesse fails to withhold
tax while making payment of such expenses or fails to deposit
the tax so withheld. Now, it has been proposed that in case of
payment to non-resident, the payment can be made on or
before the due date for filing the income tax return. Further, in
case of payment to a resident, only 30% of such expense shall
be disallowed as deduction instead of 100% of the expense
provided earlier.
The money (including the bonus) to be received under a life
insurance policy, if not exempt from tax shall be liable to
withholding of tax at the rate of 2%. However, no withholding
shall be made if the money does not exceed Rs. one (1) lakh
(Indian rupees hundred thousand)
The Indian company is liable to withholding tax at the rate of
5% on the interest payable in respect of money borrowed in
foreign currency, under a loan agreement or long-term
infrastructure bonds, on or before 1st July 2015. Now the
benefit of lower tax has been extended to loan or long term
bonds (including infrastructure bonds) taken on or before 1st
July 2017.
Capital Gain
Earlier any transfer of shares, listed securities or units etc.,
which is held by the assessee for less than twelve (12) months
were treated as short term capital assets. Now, only the listed
securities and the units of equity oriented fund, which is held
for less than twelve (12) months were treated as short term
capital assets. In all other cases, the time period shall be thirty
six (36) months.

Earlier the long term capital gain in case of listed securities or
units or zero coupon bonds was liable to 10% capital gain tax
in case the benefit of indexation is not availed. Now, this
benefit is restricted only to listed securities (other than units)
or zero coupon bonds. It means that units (mutual funds units)
shall be liable to capital gain tax at normal rate i.e. 20%.

The transfer of capital asset, being government security
carrying periodic interest, by a non-resident to a non-resident
outside India, shall not be treated as transfer and therefore,
shall not be liable to capital gain tax.
Other Provisions
Dividend From a Foreign Company: The dividend income
received by an Indian company, up to Financial Year 2013-14,
from a foreign company in which the Indian company holds
26% or more shares was chargeable to tax at the rate of 15%
in the hands of Indian company. Now it has been proposed to
done away with this sunset date.
Dividend Distribution Tax: It has been proposed that for the
purpose of calculating DDT or the tax on distributed income to
the unit holders by a mutual fund, the tax shall be grossed up
for the purpose of calculating tax.
Forfeited Advance Money: Any money, taken as advance for
transfer of capital assets, in case forfeited, shall be treated as
income from other source. Now, this advance so forfeited
shall not be deducted from the cost of acquisition for the
purpose of calculating capital gain.

It has been proposed that every mutual fund, securitization
trust, venture capital company or venture capital fund shall be
liable to file its return of income, if its income exceeds
maximum amount which is not chargeable to tax without
giving effect to the exemption under Section 10 of the Income
Tax Act.
Business Trust
A trust registered as an infrastructure investment trust or a
real estate investment trust under the SEBI regulations and
whose units are listed on a recognized stock exchange shall be
termed as Business Trust. Such trust shall acquire the income
bearing assets by acquiring controlling or other specified assets
in an Indian SPV from the sponsor.
The units of Business Trust to be allotted to the sponsor in
exchange of shares of SPV shall not be regarded as transfer
and therefore, shall not be liable to capital gain tax.
For the purpose of calculating capital gain, at the time of
transfer of units of Business Trust by the sponsor, the time
period of holding the shares in the SPV shall be added in the
time period of holding the units in the Business Trust. Similarly,
the cost of acquisition of the Units in the Business Trust, shall
be the cost at which the shares in the SPV were acquired by
the sponsor.
In case of transfer of units of the Business Trust by the
sponsor is liable to security transaction tax (STT):
the long term capital gain shall not be exempt from tax
the short term capital gain shall be liable to normal rate of
tax (and not he reduced rate of 15%)

The income to be distributed by the Business Trust to the unit
holder shall have the pass through status. That means:

Interest Income shall be exempt in the hands of Business
Trust, but shall be liable to tax in the hands of unit holder.
The capital gain shall be chargeable in the hands of
Business Trust at the maximum marginal rate, however the
portion of capital gain (as distributed to the unit holders)
shall be exempt in the hands of unit holders.
The interest income to be distributed to unit holder by the
Business Trust shall be liable to withholding of tax at the rate
of:
5% - where the interest is distributed to a non-resident; or
10% - where the interest is distributed to a resident.
The Business Trust shall be liable to file income tax return.
The transfer of units of Business Trust by the unit holder shall
be liable to capital gain tax in the same manner as are listed
securities.













Indirect Tax

Service Tax

Rate of Service Tax has not been changed.
The basic threshold limit has not been changed.

Legislative changes

Amendments in Exemption Notification No. 25/2012
dated 20.06.2012(w.e.f. 11.07.2014):

Services provided by operators of the common Bio Medical
Waste Treatment Facility to a clinical establishment are
now exempted.

Services provided by Indian tour operator to a foreign
tourist in relation to tour conducted wholly outside India
are included in the exemption notification.

Services provided by way of technical testing or analysis of
newly developed drugs by a clinical research institute
approved by Drug Controller General of India is made
taxable.

Services provided to RBI from outside India in relation to
management of foreign exchange services.

Exemption is extended to services of accommodation for
residential purpose by any non-commercial dharamshalas
etc. which have declared tariff less than Rs. One thousand
per day.

Changes in Negative List (w.e.f. notification after
assent of president):

Service provided by radio taxis is included in the service
tax net. Service tax will be charged on abated value of
40%.

Selling of space for advertisement in any form other than
print media is brought under the service tax net. (Print
media does not include business directories, yellow pages
and trade catalogues meant for commercial purpose)

Service Tax Rule (w.e.f. 01.10.2014)

Every Service Tax assessee has to pay service tax through
internet banking.

Reverse Charge (w.e.f. 11.07.2014)

Services by a non-executive director to any company were
under reverse charge. Now the scope has been widened to
include non-executive directors of Body Corporate.

Services provided by recovery agents to banks and NBFC
are covered under reversed charge to the extent of 100%.

In respect of non-abated renting of motor vehicle for
transporting passenger, the ratio of payment of service tax
has been made 50% by service provider and 50 % by
service receiver.

Rate of Interest on Delayed Payment of Service Tax
(w.e.f. 01.10.2014)

The rate of interest on delayed payment of Service Tax has
been revised as under:

Sr. No. Period Of delay Rate of simple interest
1. Upto 6 months 18 %
2. More than 6 months
and upto 1 year
18 % for the first six
months and 24 % for the
delay beyond 6 months.
3. More than one year 18 % for the first six
months and 24 % for the
delay beyond 6 months and
30% for any delay beyond
1 year.

All pending dues (whether in litigation or not) will be
applied new interest rates after 01.10.2014. Thus, any
dues which are pending payment since one year as on
01.10.2014 will attract 30% interest rate.

3% concession to small scale service providers is retained.

Point of Taxation (w.e.f. 01.10.2014)

The point of taxation in respect of reverse charge will be
payment date or the first day after a period of three
months from the date of invoice, whichever is earlier.
(Applicable to invoices issued after 01.10.2014 only)

For the invoices issued prior to 01.10.2014, if payment is
made in 6 months, the point of taxation shall be date of
payment. Otherwise, the date of invoice shall be the point
of taxation.

Place of Provision of Service Rules (w.e.f. 01.10.2014)

Under Rule 4, a machine temporarily imported for repair in
India continues to enjoy exemption and the procedure is
further simplified.

In Rule 9(c), changes have been made to include
intermediary of goods. Thereby, commission agent or
consignment agent will now be covered under Rule 9(c)
and the place of provision of service shall be location of
such commission or consignment agent.

Services consisting of hiring of vessels & aircrafts
(excluding yachts) will be covered under general rule 3 and
place of provision shall be location of service receiver.

Determination of Value Rules, 2006 (w.e.f. 01.10.2014)

In Rule 2A, value of service portion in works contract of
repair maintenance of movable and immovable property
OR any other works contract (other than original works
contract) has been reconciled and the same shall be 70%
of the total amount.

Amendments in Act (w.e.f. notification after assent of
president):-

Under Section 80 of the Finance Act, 1994 benefit of
waiver of penalty under Section 78 has been withdrawn.

The definition of Private Limited Company has been
adopted for Service tax from Companies Act, 2013.
Similarly definition of resident has been adopted from
Income Tax Act, 1961.

Input Service Distribution

Rule 7 of the CENVAT Credit Rules has been clarified to
state that the accumulated credit can be distributed to all
the units of the assessee irrespective of fact that the
service was not used in any particular unit, subject to
compliance of other conditions.

Central Excise

Rate of Duty

Peak rate of Excise Duty has been not been changed.

Legislative changes

Section 15A has been inserted in the Act so as to empower
the Central Government to create a Nodal Agency to seek
information regarding an assessee from any other specified
Government agency/office like Income Tax Authority, VAT
Authorities, Electricity Board, Registrar of Companies etc.
in a specified time limit. It is also proposed to insert
Section 15B, which provides for imposition of penalty to
the extent of Rs. 100 for each day of default, if desired
information is not submitted.

Section 23A of the Act has been amended so as to include
the resident private limited company to apply for advance
ruling before the Advance Ruling Authority. Earlier the said
facility was available to the non-residents.

Similar amendments have been carried out in the
corresponding provisions of Customs Act.

Section 32E has been amended to allow filing of
applications before Settlement Commission subject to its
satisfaction in cases where applicant has not filed the
return. Earlier it was prohibited under the Act.

Section 35B has been amended so as to increase the
discretionary powers of the tribunal to refuse to hear the
appeal involving duty amount less than Rs. 2 Lakhs.
Earlier, the prescribed amount was Rs. 50,000.

Similar amendments have been carried out in the
corresponding provisions of Customs Act.

New Section 35F has been inserted whereby, a
requirement of mandatory pre-deposit of 7.5% of the duty
demanded or penalty imposed or both have been made for
the purpose of filing of appeal before the first appellate
authority and a deposit of 10% of the aforesaid amount for
filing before the 2nd appellate authority has been made. A
cap of Rs.10 crores has been placed on such pre-deposit.
As a result of this amendment, mechanism of filing stay
applications before Commissioner (Appeals) and Tribunal
has been done away with.

Similar amendments have been carried out in the
corresponding provisions of Customs Act.

An amendment has been made in Section 35L which
relates to filing of appeal before the Supreme Court of
India. Now it has been clarified that determination of
disputes related to taxability or excisablity of goods is
covered under the term determination of any-question
having a relation to rate of duty. The said amendment
would help in avoiding uncalled for litigation before the
High Courts on the issue related to excisability.

Other Amendments

Amendment has been made in Rule 8(1B) of Central Excise
Rules, 2002, so as to make it mandatory for every assesse
to pay duty electronically through internet banking w.e.f
October 1, 2014. The Assistant Commissioner upon
satisfaction may allow payment through any other mode.

Further amendment has been made in Rule 8(3A) to make
provisions for imposition of penalty at the rate of 1% on
duty not paid for each month or part thereof during the
default period, which has been declared as payable in the
returns.

Amendment is made in Rule 6 of Central Excise Valuation
Rules. It has been provided that in cases where the
excisable goods are sold at a price less than the
manufacturing cost and profit and no additional
consideration is flowing, the value of such goods will be
treated as the transaction value for the purpose of
payment of excise duty. Primarily, this amendment has
been made effective to get over the ruling of Supreme
Court of India in the case of Fiat India.

Rule 2 (qa) has been inserted in the CENVAT Credit Rule,
2004, in order to define place of removal.

Rule 4 of the said rules has been amended w.e.f.
September 1, 2014, so as to provide that the manufacturer
or the output service provider shall not take the CENVAT
Credit after 6 Months of the date of issue of invoice/
document. Henceforth, there will be a limitation of 6
months to avail the credit, which was not present prior to
the amendment.

Rule 4 has been further amended so as to provide that in
case of services where service recipient is liable to pay
service tax, credit shall be allowed after the service tax is
paid. Further, in cases where service tax liability is partially
on the provider and partially on the recipient, credit in
respect of such services shall be allowed on or after the
day on which payment is made of the value of input
service and the service tax paid or payable.




Impact on Industry

Automobiles

Excise duty is being exempted on parts of tractors
removed from factories of a tractor manufacturer to
another factory of the same manufacturer.

Tobacco Products

Excise duty increased from 12 percent to 16 percent on
pan masala, from 50 percent to 55 percent on
unmanufactured tobacco and from 60 percent to 70
percent on gutkha and chewing tobacco.

Agriculture/ Agro- Processing

Basic excise duty is being reduced from 10% to 6% on
machinery for the preparation of meat, poultry, fruits, nuts
and vegetables and on similar machinery used in the
manufacture of wine, cider, fruit juices and similar
beverages, etc.

Textile

Excise duty on polyester staple fibre and polyester filament
yarn manufactured from plastic waste and scrap is being
exempted retrospectively w.e.f. June 29, 2010 to May, 5,
2012 and intermediate product Toe w.e.f. June 29, 2010
to July 10, 2014. Further, excise duty at the rate of 2%
(without CENVAT) or 6% (with CENVAT) has been imposed
on PSF and PFY manufactured from plastic waste and
scrap w.e.f. July 11, 2014.

Electronics

Excise duty on recorded smart cards has been increased to
12%.

Excise duty on Metal Core PCB and LED Driver used in the
manufacture of LED Lights has been reduced from 12% to
6%.

Renewable Energy

Full exemption from excise duty has been granted in
respect of machinery/ equipment, etc. required for setting
up solar energy production projects.

Exemption from excise duty has also been provided on
machinery, equipment etc., required for setting up of
compressed biogas plant (Bio-CNG).

Miscellaneous

Optional excise duty of 2% (without CENVAT) on writing
and printing paper for printing of educational textbooks
has been withdrawn and instead a uniform excise duty of
6% has been levied.

The scope of excise duty exemption, all goods supplied
against International Competitive Bidding has been
clarified, so as to state that the said exemption is also
available to the sub-contractors for manufacture and
supply of goods to the main contractor for the execution of
said product.

Full exemption from education cess and secondary &
higher education cess/ customs component is being
exempted on goods cleared by an EOU into the DTA

Customs

Rate of Duty

Peak rate of Basic Customs Duty has been not been
changed.

Legislative Changes

Section 8B of the Customs Tariff Act, 1975 has been
amended so as to provide for levy of safeguard duty on
inputs/ raw materials imported by an EOU and cleared into
DTA as such or are used in the manufacture of final
products, which are cleared into DTA.

Baggage rules have been amended to raise the free
baggage allowance to Rs. 35000 to Rs. 45000. Further,
duty free allowance has been reduced on cigarettes from
200 to 100, of cigars from 50-25 and of tobacco from 250
gms. to 125 gms.

Impact on Industry

Textile Industry

The BCD on raw materials for manufacture of spandex
yarn has been done away with.

The list of specified goods required by handicraft
manufacturer-exporter has been expanded to include wire
rolls.

Steel Industry

BCD on stainless steel flat products has been increased
from 5%-7.5%.

BCD on ships imported for breaking up has been reduced
from 10% to 5%.

Electronics

BCD on LCD and LED TV panels of below 19 inches has
been done away with. Further, BCD on specified parts of
LCD and LED Panels of TVs has also been exempted.

BCD on specified telecommunication products not covered
under the Information Technology Agreement has been
increased to 10%.

Special Additional Duty on all inputs/ components used in
the manufacture of personal computer (laptops/ desktops)
and tablet computers has been exempted subject to actual
user components.




Renewable Energy

Full exemption from Special Additional Duty has been
provided on parts and components required for the
manufacture of wind operated electricity generators.

BCD on machinery, equipment, etc., required for setting up
of solar energy production project has been reduced to
5%.

Concessional Custom Duty of 5% has been provided on
machinery, equipment, etc., required for setting up of
compressed biogas plant (Bio-CNG).

Infrastructure

State governments concerned are being notified as
sponsoring authority for Metro Rail Projects covered under
the Project Import Regulations, 1986.

The requirement of certification Ministry of Road Transport
or National Highway Authority of India for availing custom
duty exemption on specified goods required for
construction of roads has been done away with.

















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