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UNION BUDGET 2013 CA Verendra Kalra VenueDehradun Branch of CIRC of ICAI CityDehradun OnMarch 4, 2013.

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Presentation on theme: "UNION BUDGET 2013 CA Verendra Kalra VenueDehradun Branch of CIRC of ICAI CityDehradun OnMarch 4, 2013."— Presentation transcript:

1 UNION BUDGET 2013 CA Verendra Kalra VenueDehradun Branch of CIRC of ICAI CityDehradun OnMarch 4, 2013

2 DIRECT TAX PROPOSALS

3 INCOME TAX Paragraph A of part III of the first schedule AY 2014-2015 Personal tax rates There are no changes to the personal tax rates and they continue as under: The minimum amount not chargeable to tax shall continue to be Rs 2.50 lacs in case of every individual, being a resident, who is of the age of sixty years or more but not more than eighty years, at any time during the PY. The minimum amount not chargeable to tax shall continue to be Rs 5.00 lacs in case of every individual, being a resident, who is of the age of eighty years or more at any time during the previous year. Surcharge at the rate 10 per cent where the income exceeds Rs 1.0 crore. Section 87A has been inserted w.e.f. April 1, 2014 to provide rebate of Rs 2,000 for taxpayers in the income bracket of Rs 2 lacs and Rs 5 lacs. Income up to Rs 200,000NIL Rs 200,001 to Rs 500,00010% Rs 500,001 to Rs 1,000,00020% Rs 1,000,001 and above30% Nangia & Co. Union budget 2013

4 INCOME TAX Paragraph E of part III of the first schedule AY 2014-2015 Corporate tax rates There are no changes in the tax rates for corporate tax payers. However, surcharge rate (%) shall be levied as under: Dividend distribution tax: No change in rate. With increase in levy of surcharge from 5 per cent to 10 per cent, it will translate into effective rate of DDT of 16.995 per cent. Nangia & Co. Union budget 2013 IncomeDomestic companiesOther companies ExistingProposedExistingProposed Up to Rs 1 croreNil Rs 1 crore to 10 crore5522 Rs 10 crore and above51025

5 INCOME TAX Securities Transaction Tax (STT) Applicable with effect from June 1, 2013 It is proposed to amend the securities transaction tax. The comparative chart of proposed rate with the existing rates is as under: Nangia & Co. Union budget 2013 Nature of taxable securities transactionPayable byExisting rateProposed rate Delivery based purchase of units of an equity oriented fund entered into through a recognized stock exchange Purchaser0.10Nil Delivery based sale of equity shares in a company / units of an equity oriented fund entered into through a recognized stock exchange in India Seller0.100.001 Sale of a future in securitiesSeller0.0170.01 Sale of a unit of an equity oriented fund to the mutual fund Seller0.250.001

6 INCOME TAX Commodities Transaction Tax Applicable with effect from date on which Ch VII of Finance Bill 2013 is notified A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions. CTT will be charged on the seller at the rate 0.01 per cent on taxable commodities transactions. ‘Taxable commodities transactions’ shall mean a transaction of sale of commodity derivatives in respect of commodities, other than agriculture commodities, traded in recognized associations. CTT shall be allowed as an expenditure under section 36(1)(xvi) of the Income Tax Act, 1961, if income arising from commodity derivative is shown as profit and gains from business and professions. Commodity transactions in future markets (derivative, F & O) will not be considered as speculative transactions and it will be considered as normal business income. (However, as per the bill, there is no change in Section 43(5) of the IT Act which defines speculative transactions and exceptions) Nangia & Co. Union budget 2013

7 INCOME TAX General Anti Avoidance RulesAY 2016-2017 Section 144BA An arrangement to be treated as an impermissible avoidance arrangement only if the main purpose is to obtain tax benefit. (Earlier position: the main purpose or one of the main purpose-however, onus cast on the assessee instead of AO) Factors like time period of the arrangement, payment of taxes (directly or indirectly) and exit route to be relevant but not sufficient from commercial substance perspective. ( Earlier position: these factors would not be relevant) An arrangement deemed to lack commercial substance if it has no significant effect on the business risks or net cash flows of any party to the arrangement other than tax benefit attached. The directions issued by the Approving Panel to be binding on the assessee as well as the tax authorities without any right to appeal. (Earlier position: only binding upon AO- now only writ will be an option) The two separate definitions of ‘associated person’ and ‘connected person’ combined into one inclusive definition. Nangia & Co. Union budget 2013

8 INCOME TAX INTERNATIONAL TAXATIONAY 2014-2015 Section 115A Enhancement of tax rate for royalties and fees for technical services Section 115A of the Income-tax Act provides for determination of tax in case of a non-resident taxpayer where the total income includes any income by way of Royalty and Fees for technical services (FTS) received under an agreement entered after 31.03.1976 and which are not effectively connected with permanent establishment, if any, of the non-resident in India. The present structure provides taxation at different rates ranging from 30% to 10% depending upon the date of the agreement. In view of the fact that the existing rate of taxation for royalty / fees for technical services is 10% for current contracts which is lower than most DTAA rates, it is proposed that the tax rate for such income will be increased from 10% to 25%. Nangia & Co. Union budget 2013

9 INCOME TAX INTERNATIONAL TAXATIONAY 2013-2014 Furnishing of Tax Residency Certificate necessary but not sufficient in itself It is proposed that submission of a tax residency certificate shall be a necessary but not sufficient condition for claiming benefits under a DTAA India has with a foreign country / territory. This amendment will apply retrospectively from 1 st April, 2013. However, a clarification to the effect that TRC will continue to be conclusive evidence has already been issued post budget and this amendment will in all probability be withdrawn during the passage of the bill. Nangia & Co. Union budget 2013

10 INCOME TAX Corporate TaxationAY 2014-2015 Section115BBD Dividend from specified foreign companies Dividend received by an Indian company from a specified foreign co.(in which it has a holding of 26 per cent or more) are taxed at the rate 15 per cent if such dividend is included in the total income. Low tax rate of taxation was applicable up to AY 2013-2014. This beneficial tax rate on dividend income from specified foreign company is extended by one year till March 31, 2014 i.e. AY 2014-2015. Section115O Removal of cascading effect of DDT Dividend distribution tax not payable on dividends payable out of dividends received from a foreign company being a subsidiary. This amendment will take effect from June 1, 2013. Nangia & Co. Union budget 2013

11 INCOME TAX Corporate TaxationAY 2014-2015 Section 32AC Deduction for investment in new plant and machinery New section 32AC has been inserted in the Income Tax Act to provide deduction for investment in new plant and machinery. This deduction is available to an assessee, being a company is engaged in the business of manufacture of an article or thing; and invests a sum of Rs 100 crores in new assets during the period beginning from April 1, 2013 and ending on March 31, 2015. New asset has been defined under sub section (4) of the section. The transfer of assets is restricted for a period of 5 years. However, this restriction shall not apply in a case of amalgamation or demerger but shall continue to apply to the amalgamated or the resulting company, as the case may be. Whether installation and commissioning costs will be covered has not been clarified Nangia & Co. Union budget 2013

12 INCOME TAX Corporate TaxationAY 2014-2015 Deduction for investment in new plant and machinery (Continued) Deduction shall be allowed as under: Nangia & Co. Union budget 2013 For AYQuantum of deduction 2014-201515 per cent of aggregate amount of actual cost of new assets acquired and installed during the FY 2013-2014, if the cost of such assets exceeds Rs 100 crores 2015-201615 per cent of aggregate amount of actual cost of new assets, acquired and installed during the period beginning on April 1, 2013 and ending on March 31, 2015, as reduced by the deduction allowed, if any, for the AY 2014-2015.

13 INCOME TAX Corporate TaxationJune 1, 2013 Section 179 Recovery of tax from the directors of a private company Where tax due from a private company cannot be recovered from such company, then the director shall be jointly and severally liable for payment of such tax. The expression ‘tax due’ includes penalty, interest or any other sum payable under the Act. This amendment shall apply with effect from June 1, 2013. Some of the decisions overruled as a result are:  Maganbhai H Patel 26 taxmann 226 (guj)  Dinesh T tailor 326 ITR 85 ( mum)  H Ebrahim V DCIT 332 ITR 122 ( kar) Nangia & Co. Union budget 2013

14 INCOME TAX Corporate TaxationAY 2014-2015 Section 40(a)(iib) Deductibility of expenditure of State Government undertakings Section 40 (a) (iib) has been inserted to provide that any amount paid by way fee, charge, etc., which is levied exclusively on, or any amount appropriated, directly or indirectly, from a State Government undertaking, by the State Government, shall not be allowed as deduction for the purposes of computation of income under the head ‘Profits and gains of business or profession’. This amendment shall apply with effect from April 1, 2014. Nangia & Co. Union budget 2013

15 INCOME TAX DeductionsAY 2014-2015 Extension of sunset clause for power sector Section 80IA has been amended to extend sunset date for the power sector to commence eligible activity from March 31, 2013 to March 31, 2014. Deduction of addition wages for the manufacturing sector Section 80JJAA has been amended to provide that the deduction shall now be available only to an Indian Company deriving profits from manufacture of goods in its factory. The deduction shall be an amount equal to 30 per cent of additional wages paid to the new regular workmen employed by the assesse in such factory in the previous year. The deduction shall be available for three assessment years including the assessment relevant to the previous year in which such employment is provided. This amendment shall apply with effect from April 1, 2014. Nangia & Co. Union budget 2013

16 INCOME TAX DeductionsAY 2014-2015 Section 80G Donation made to National Children’s Fund Donations to the National Children’s Fund are eligible for 100 per cent deduction in computing the taxable income (relevant section 80G). Deduction to political parties Section 80GGB/80GGC has been amended to provide that the no deduction shall be eligible to an Indian Company or specified taxpayers in respect of sums paid in cash to any political party or electoral trust. Nangia & Co. Union budget 2013

17 INCOME TAX ExemptionsAY 2014-2015 Section 10(23ED) Exemption to income of Investor Protection Fund of Depositories This amendment has been made to provide exemption to income of Investor Protection Fund of depositories set up in accordance with regulations prescribed by SEBI. In case any amount standing to the credit of the fund and not charged to income tax during any year is shared wholly or partly with a depository, such amount shall be deemed to be the income of the previous year in which such amount is shared. Exemption to National Financial Holding Company Limited Section 10(49) has been inserted to provide that any income the National Financial Holding Company Limited, being a company set up by the Central Government, of any previous year relevant to assessment year commencing on or before April 1, 2014.This is to ensure that it enjoys the same tax benefits as SUUTI (Specified undertaking of UTI), to whom NFHCL was formed to succeed. This amendment will take retrospectively from April 1, 2013. Nangia & Co. Union budget 2013

18 INCOME TAX ExemptionsAY 2014-2015 Expalanation1 of clause (1DD) of Section 10 Keyman insurance policy Sum received under a Keyman insurance policy is taxable in the hands of the recipient, even where the policy has been assigned as a life insurance policy to the recipient during its term, with or without consideration. The amendment has been made to state that despite such assignment, the policy shall continue to remain Key man insurance policy. Decisions overruled as a result are: -CIT V Rajan Nanda 205 Taxmann 138 ( Delhi) Nangia & Co. Union budget 2013

19 INCOME TAX ExemptionsAY 2014-2015 Expalanation1 of clause (1DD) of Section 10 Extracts from judgment giving benefit ( 2012) 6 TaxCorp (DT) 51593 (DELHI) -Held that, The insurance company has itself clarified that on assignment, it does not remain a keyman policy and gets converted into an ordinary policy. It is not open to the Revenue to still allege that the policy in question is keyman policy and when it matures, the advantage drawn there from is taxable; no doubt, the parties here, viz., the company as well as the individual taken huge benefit of these provisions, but it cannot be treated as the case of tax evasion. It is a case of arranging the affairs in such a manner as to avail the state exemption as provided in Section 10(10D); law is clear. Every assessee has right to plan its affairs in such a manner which may result in payment of least tax possible, albeit, in conformity with the provisions of Act. It is also permissible to the assessee to take advantage of the gaping holes in the provisions of the Act. The job of the Court is to simply look at the provisions of the Act and t see whether these provisions allow the assessee to arrange their affairs to ensure lesser payment of tax. If that is permissible, no further scrutiny is required and this would not amount to tax evasion Nangia & Co. Union budget 2013

20 INCOME TAX Income from house propertyAY 2014-2015 Section 80EE Deduction in respect of housing loan Section 80EE has been inserted to provide additional benefit for first home buyers. Deduction shall allowed to an individual in respect of interest payable to a specified financial institution. Deduction shall not exceed Rs 1 lac. However, where interest payable for the relevant assessment year is less than Rs 1 lac the balance shall be allowed in the next assessment year. This amendment will take effect from April 1, 2014 and apply in relation to AY 2014- 15 and subsequent year. Nangia & Co. Union budget 2013

21 INCOME TAX Income from house propertyAY 2014-2015 Deduction in respect of housing loan (Cont..) The deduction shall be subject to the following conditions: o Loan sanctioned by the financial institution during the period April 1, 2013 to March 31, 2014 o Amount sanctioned for acquisition of the residential house does not exceed Rs 25 lacs. o The value of residential house does not exceed does not exceed Rs 40 lacs o The assessee does not own any residential house property on the date of sanction of loan Nangia & Co. Union budget 2013

22 INCOME TAX Personal taxationAY 2014-2015 Section 10(10D)/80C(3A) Premium paid for life insurance policy Deduction towards premium paid on life insurance polices, for persons with prescribed disability or specified disease, has been increased to 15 per cent of capital sum assured from 10 per cent(within overall limit of Rs 1 lac). The policy should be issued on or after April 1, 2013 for insurance on life of any person, who is- o A person with disability or a person with severe disability as referred to in section 80U, or o suffering from disease or ailment as specified in the rules made under section 80DDB Nangia & Co. Union budget 2013

23 INCOME TAX Personal taxationAY 2014-2015 Section 80D(2) Extension of benefit under health schemes Presently, this deduction is available to any contribution made by an individual to Central Government Health Scheme. There has been amendment in section 80D of the Income Tax Act to extend benefit of this deduction. The deduction shall also be allowed in respect of any payments as do not exceed the aggregate of Rs 15,000, to such other health scheme as may be notified by the Central or State Government. Nangia & Co. Union budget 2013

24 INCOME TAX Personal taxationAY 2014-2015 Section 80CCG Eligible investment in RGESS Eligible investments in Rajiv Gandhi Equity Savings Scheme to include listed units of equity oriented funds in addition to listed equity shares. Benefit of deduction under Rajiv Gandhi Equity Savings Scheme is now available to resident individual having gross total income of Rs 12 lacs from earlier limit of Rs 10 lacs. Deduction under Rajiv Gandhi Equity Savings Scheme shall now be allowed for three consecutive years (previously one year) from the year in which eligible investments were first acquired. Nangia & Co. Union budget 2013

25 INCOME TAX Anti tax avoidance measuresAY 2014-2015 Section 194-IA Transfer of immovable property All transfers of immovable properties (other than agricultural land) the value of which is not less than Rs 50 lacs, the purchaser shall have to deduct tax at the rate of 1 per cent of the consideration paid for such a transfer. This amendment will take effect from June 1, 2013. Whether TAN has to be obtained has not been clarified. Section 56(vii)(b) Transfer of immovable property for inadequate consideration Where any immovable property is received for a consideration which is less than the stamp duty value of the property by an amount exceeding Rs 50,000. The excess shall be chargeable to tax in the hands of recipient as income from other sources. Cases of inadequate consideration were not covered earlier. Nangia & Co. Union budget 2013

26 INCOME TAX Anti tax avoidance measuresAY 2014-2015 Section 43CA Transfer of immovable property held as stock in trade New section 43CA has been inserted to provide special provision for full value of consideration for transfer of assets other than capital assets in certain cases. Where the consideration for transfer of an immovable property is less than the stamp value, the stamp duty value shall be deemed to be the full value of consideration for the purpose of computing income under the head ‘Profit and gains of business or profession’. The date of agreement and date of transfer are not the same, the stamp duty value may be taken as the date of the agreement for transfer and not as on the date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration or a part thereof for the transfer has been received by any mode other than cash on or before the agreement. Nangia & Co. Union budget 2013

27 INCOME TAX Anti tax avoidance measuresAY 2014-2015 Section 43CA Transfer of immovable property held as stock in trade Some of the decisions overruled as a result are: CIT V KAN Constructions (ALL) 20 taxmann381 CIT V Tiruvendgudem investment p limited 320 ITR 345( mad) ACIT v excellent land developers Limited ( 1 ITR 563 (trib) (Delhi) Nangia & Co. Union budget 2013

28 INCOME TAX Anti tax avoidance measuresAY 2014-2015 Section 271FA Penalty for non-filing of AIR Section 271FA of Income Tax Act has been substituted to provide penalty for failure to furnish annual information return. Person who is required to furnish AIR, fails to furnish such return within the time prescribed the tax authorities may direct that such person shall pay, by way of penalty, a sum of Rs 100 for every day during which such failure continues. Where person fails to furnish the return within the period specified in a notice sent specifically for this purpose, he shall pay, by way of penalty a sum of Rs 500 for every day during which the failure continues, beginning from the day immediately following the day on which the time specified in such notice for furnishing such return expires. Nangia & Co. Union budget 2013

29 INCOME TAX MiscellaneousAY 2014-2015 Section 2 Definition of capital asset with respect to agriculture land Amendment in item (b) of section 2(14)(iii) so as provide that situated in any within the distance, measured aerially (shortest aerial distance) being o Not being more than 2 km from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 100,000; o Not being more than 6 km from the local limits of any municipality or cantonment board and which has a population of more than 100,000 but not exceeding 10,00,000; or o Not being more than 8 km from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000. shall form part of capital asset. Population mean population according to the last preceding census of which the relevant figures have been published before the first day of previous year. Nangia & Co. Union budget 2013

30 INCOME TAX MiscellaneousAY 2014-2015 Definition of capital asset with respect to agriculture land o Similar amendments are proposed to be made in the definition of “ agricultural income” and in definition of “ Urban land” in Wealth Tax Act o Some of the decisions overruled as a result:  CIT V satinder pal singh 188 taxmann 54 ( P & H)  139 ITD 666 ITO V Ashok Shukla ( Indore )  105 ITD 657 ( num) Lokik Developers V CIT  33 TTJ 68 C Y mall & co Vs. IAC Nangia & Co. Union budget 2013

31 INCOME TAX Miscellaneous-Taxation of securitization trustJune 1, 2013 Section 10(23DA)/115TA-TC Income of Securitization Trust regulated by SEBI/RBI to be tax exempt. Income distributed to bear distribution tax at the rate 25 per cent (individual/HUF) and 30 per cent (others) and Nil in cases where recipients income is exempt, such as non-residents. Income distributed by the Securitization trust is to be consequently exempt in hands of investors of the said trust. The securitization trust will be liable to pay interest at the rate of 1 per cent for every month or part of the month on the amount of additional income-tax not paid within the specified time. These amendments will take effect from June 1, 2013. Only income relating to securitization is exempt. Other incomes will be taxable. Nangia & Co. Union budget 2013

32 INCOME TAX MiscellaneousAY 2013-2014 Pass through status to certain Alternative Investment Funds Section 10(23FB) has been amended to provide: The SEBI( Alternative Investment Funds) Regulations 2012 have replaced the SEBI ( Venture Capital Fund) Regulations 1996 from 21 st may 2012. It has been clarified that the existing VCFs and VCCs (registered before May 21, 2012) and regulated by the VCF regulations, would continue to avail pass through status as currently available. In the context of AIF regulations, the Venture Capital Company shall be defined as a company and Venture capital fund shall be defined as a fund set up as a trust, which has been granted a certificate of registration as Venture Capital Fund being a sub-category of Category I Alternative Investment Fund and satisfies the following conditions:- Nangia & Co. Union budget 2013

33 INCOME TAX MiscellaneousAY 2013-2014 Pass through status to certain Alternative Investment Funds  That at least two-thirds of its investible funds are invested in unlisted equity shares or equity linked instruments of venture capital undertaking.  No investment has been made by such AIFs in a VCU which is an associate company.  Units of a trust set up as AIF or shares of a company set up as AIF, are not listed on a recognized stock exchange. Nangia & Co. Union budget 2013

34 INCOME TAX Miscellaneous Tax distributed by Mutual fund ( other than an equity oriented fund) Increase in rate of tax on distributed income from 12.50 per cent to 25 per cent in all cases where distribution is made to an individual or a HUF. It is 30 per cent in other cases. The downside to this is that that all the recipients, irrespective of their slab status, will suffer deduction at flat rates. This tax deduction does not apply to growth funds. It is further proposed to levy tax on the income distributed by a mutual fund under an IDF scheme to a non resident investor @ 5%. Earlier, this concessional rate was applicable only to income distributed by IDF-NBFC. This is a rationalizing provision. This amendment is applicable wef June 1, 2013. Nangia & Co. Union budget 2013

35 INCOME TAX Miscellaneous-buyback of shares Section 115QA-C Any amount of distributed income by a domestic company on account of buyback of shares (not being shares listed on a recognized stock exchange) from a shareholder will be charged tax @ 20%. Such tax shall be payable by the company and consequently the income received will be exempt in the hand of such shareholders. Some of the decisions overruled as a result are:  Armstrong world India 349 ITR 303 (AAR)  A in re 343 ITR 455 (AAR)  (2012) TaxCorp (INTL) 4300 (AAR) -Held that the capital gains arising out of the proposed buyback of shares is not taxable in India in view of paragraph 4 of Article 13 of the DTAC between India and Mauritius.  It is not clear how benefit of cost of acquistion will be allowed to shareholder. Nangia & Co. Union budget 2013

36 INCOME TAX MiscellaneousJune 1, 2013 Filing of tax returns Section 139(9) : The return shall be regarded as defective unless the tax together with interest, if any, payable in accordance with the provisions of section 140A has been paid on or before the date of furnishing the return. Section 14A-B/46: Wealth tax: Provisions shall be enacted in order to facilitate electronic filing of annexure less return of net wealth. This amendment is applicable wef June 1, 2013. Nangia & Co. Union budget 2013

37 INCOME TAX Miscellaneous Section 153-153D Exclusion of time in computing period of limitation for completion of assessment/ reassessment It is proposed that in addition to the existing provisions, where such direction for audit is challenged before a court, the period ending with the date on which the order setting aside such direction is received by the Commissioner, shall be excluded in computing the period of limitation for completing an assessment / reassessment. Section 194LC Concessional rate of withholding tax on interest on long term infrastructure bonds It is proposed that this benefit shall be extended where a non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilized for subscription to a long-term infrastructure bond issue of an Indian company. This means that foreign investors can give loans in Indian Rupees This amendment is applicable wef June 1, 2013. Nangia & Co. Union budget 2013

38 INCOME TAX Miscellaneous-Application of seized assetsAY 2014-2015 Section 132B Presently, any assets seized in a search and seizure operation may be adjusted against any existing liability under the Income-tax Act, Wealth-tax Act, the Expenditure-tax Act, the Gift-tax Act and the Interest-tax Act and the amount of liability determined on completion of assessments pursuant to search, including penalty levied or interest payable and in respect of which such person is in default or deemed to be in default. It is proposed to amend the aforesaid section so as to clarify that the existing liability does not include advance tax. This overrules some contrary judgments on this issue. This amendment is applicable wef June 1, 2013. Decisions overruled as a result are:  Vishwanath Khanna V Union of India 335 ITR 548 ( Delhi)  Ram sarda V DCIt 50 SOT 121 ( raj)  Sudhakar Shetty 130 ITD 197 ( MUM) Nangia & Co. Union budget 2013

39 INCOME TAX MiscellaneousJune 1, 2013 Special audit It is proposed to broaden the reasons for directing an audit by providing that if at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialized nature of business activity of the assessee, and the interests of the revenue, is of the opinion that it is necessary so to do, he may direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit. Reasons covered earlier are highlighted in bold. This amendment is applicable wef June 1, 2013. Some of the decisions overruled are: 212 Taxman.com 43 DLF Commercial projects V ACIT ( Delhi) Nangia & Co. Union budget 2013

40 INCOME TAX Miscellaneous-Approval of Provident FundsAY 2014-2015 Fourth Schedule With a view to provide further time to the EPFO to decide on the pending applications seeking exemption under section 17 of the EPF & MP Act, it is proposed to amend the first proviso, so as to extend the time limit from March 31, 2013 to March 31, 2014. This amendment is applicable wef June 1, 2013. Nangia & Co. Union budget 2013

41 SERVICE TAX

42 An overview INCLUSIONS/ EXCLUSIONS IN THE NEGATIVE LIST (Applicable from the date of enactment of Finance bill 2013) Proposed Inclusion o Amendment in Section 65B(11) regarding scope of ‘approved vocational education course’: Course run by an industrial training institute (ITI) or industrial training centre affiliated to State Council of Vocational Training are also now covered under the negative list. o Expansion in Section 65B(40) regarding definition of ‘process amounting to manufacture or production’ to also include those under Medicinal and Toilet Preparations (Excise Duties) Act,1955. Hence such process will not get covered as a service henceforth. Nangia & Co. Union budget 2013

43 SERVICE TAX An overview INCLUSIONS/ EXCLUSIONS IN THE NEGATIVE LIST o The word, 'seed' is being omitted from the expression 'seed testing' mentioned in Section 66D (d)(i). As a result, scope of service relating to agriculture or agricultural produce is widened to include all kinds of testing carried out in relation to agriculture or agricultural produce. Proposed Exclusion o Amendment in Section 65B(11) regarding scope of ‘approved vocational education course’: Course run by an institute affiliated to the National Skill Development Corporation set up by the Government of India has been excluded from Negative list. This being done as NSDC is not an affiliating body. Nangia & Co. Union budget 2013

44 SERVICE TAX An overview1 st March 2013 ABATEMENT- CONSTRUCTION OF COMPLEX SERVICE Changes in rate of abatement in the case of services relating to construction of residential complex are as follows: o The abatement is reduced from 75 per cent to 70 per cent. o The above provisions are applicable with effect from March 1, 2013. o Construction of residential properties should have:  Carpet area >2000 Sq ft; or  The amount charged to the buyer >=Rs 1 crore. o All other constructions, including commercial construction, can now claim abatement up to the level of 70% only. Nangia & Co. Union budget 2013

45 SERVICE TAX Modification/ extension of the existing sections1 st April 2013 EXEMPTIONS wide Notification No. 25/2012 Exemptions introduced o Retrospective exemption is being extended to the Indian Railways under proposed Section 99 in respect of notices issued upto 28 th Feb 2013 under section 73, in respect of taxable services provided up to 1 st day of July 2012. o Services provided by Goods Transport Agency for transportation of agricultural produce; food stuff; fertilizers; oil cakes; newspapers; relief material; or defense /military equipments w.e.f. April 1, 2013. Nangia & Co. Union budget 2013

46 SERVICE TAX Modification/ extension of the existing sections1st April 2013 In EXEMPTIONS wide Notification No. 25/2012 Exemptions withdrawn(w.e.f. April 1,2013) o Exemption available in respect of services provided by (and not “to”) Educational Institution by way of auxiliary education service or renting of immovable property. o Services by way of transportation of specified petroleum products; postal mails or mail bags; or household effects in a rail or vessel. o Exemption available for temporary transfer or permitting the use or enjoyment of a copyright of cinematograph film to any person, now shall be available only for film to be exhibited in a cinema hall or theatre. This shall allow service providers to pass the input tax credit to taxable end users. Nangia & Co. Union budget 2013

47 SERVICE TAX Modification/ extension of the existing sections1 st April 2013 In EXEMPTIONS wide Notification No. 25/2012 Exemptions withdrawn (w.e.f. April 1,2013) o Service by way of providing vehicle parking facilities to general public. o Repair or maintenance of government aircrafts. Only government vessels continue to be exempt. o Exemption available in relation to charitable activities narrowed to exclude activities relating to advancement of general public utility which was up to the value of Rs 25 taxable. Now, the threshold exemption will be available up to Rs 10 lacs. o Exemption to AC restaurants not having a bar license. Now all the air conditioned restaurants are covered under the net of service Tax, whether having license to serve alcoholic beverage or not. Nangia & Co. Union budget 2013

48 SERVICE TAX Modification/ extension of the existing sectionsFY 2013-2014 POLICY CHANGES (Applicable from the date of enactment of Finance bill 2013) Benefit of advance ruling extended to the resident public limited company (Notification no. 4/2013 dt. 1 st March,2013) o The scope of advance ruling has now been extended and the resident limited companies are also covered under this head. The definition of company for this purpose is same as defined in the Section 3(1)(iv) of the Companies Act, 1956 and the definition of resident is same as defined in Section 2(42) of the Income Tax Act,1961. o Relevant definitions assigned from the Income Tax Act and the Customs Act Nangia & Co. Union budget 2013

49 SERVICE TAX Modification/ extension of the existing sectionsFY 2013-2014 POLICY CHANGES (Applicable from the date of enactment of Finance bill 2013) Introduction of new scheme – the Voluntary Compliance Encouragement Scheme 2013 o Scheme provides one time amnesty by waiver of interest, penalty and prosecution proceedings. o Scheme can be availed by non-filer or non-registrant or person who has not made complete declaration in the service tax return (‘Defaulter’). o Scheme not applicable to persons against whom any inquiry or investigation is pending by issue of search warrant or summon or audit. o A person cannot file declaration for tax dues in respect of which notice or order of determination of liability is issued or made before March 1. 2013. Nangia & Co. Union budget 2013

50 SERVICE TAX Modification/ extension of the existing sections POLICY CHANGES o Scheme is available for the tax pertaining to period beginning from October 1, 2007 to December 31, 2012. o A declaration for the tax due should be made on or before 31 st December,2013 before the designated authorities. o Defaulter is required to pay at least half of pending tax dues before December 31,2013 and remaining half to be paid by June 30,2014 without interest or by an extended period till December 31,2014 with interest from July 1,2014. Nangia & Co. Union budget 2013

51 SERVICE TAX Modification/ extension of the existing sections POLICY CHANGES Introduction of provisions relating to power to arrest in following circumstances: Introduction of section 91 which seeks to empower the officer of the rank of superintendent and above to arrest for following offences under sec 89 for: o Intentional evasion of Service tax o Availment/utilization of CENVAT credit without actual receipt of input or input services. o Maintaining incorrect books of accounts o Providing incorrect information or failure to provide information o Failure or delay in depositing the amount collected as service tax within a period of 6 months from the relevant due date. o The maximum term of imprisonment is increased to 7 years from 3 years. Nangia & Co. Union budget 2013

52 SERVICE TAX Modification/ extension of the existing sections POLICY CHANGES Other Policy changes o Section 73(2A): In case where the appellate authorities conclude that no fraud, collusion etc was present for invoking extended period of 5 years, then in order to save the notices for the period of 18 months, it is now provided that such notices shall be deemed to have been issued under sub-section (1) o Section 77: Maximum penalty for failure to obtain registration restricted to Rs. 10,000. Nangia & Co. Union budget 2013

53 SERVICE TAX Modification/ extension of the existing sections POLICY CHANGES o Section 78A: Penalty up to Rs 1 lac will be levied on directors/ managers/secretaries or other officers of the company for knowingly being involved in case of following offences:  Evasion of service tax.  Issuance of invoice without provision of service.  Availment/utilization of CENVAT credit without actual receipt of input or input services whether fully or partially.  Delay or failure to pay any amount collected as service tax beyond a period of 6 months from the due date of payment. Nangia & Co. Union budget 2013

54 SERVICE TAX Modification/ extension of the existing sections POLICY CHANGES Other Policy changes o Appellate Tribunal may condone delay in filing of appeal or cross objection by assessee also (earlier benefit was only for the department) on sufficient cause being shown by the assessee. o The maximum term of imprisonment for failure to deposit amount collected as service tax within a period of 6 months of relevant due date is increased to 7 years from 3 years Nangia & Co. Union budget 2013

55 SERVICE TAX Modification/ extension of the existing sections CENVAT CREDIT (W.e.f the date of publication in the official gazette. ) Payment/reversal of CENVAT credit as required under sub-rules(5), (5A) and (5B) of Rule 3 of the Cenvat Credit Rules 2004 to be paid along with interest o Service tax in following cases shall be payable along with interest:  Removal of inputs or capital (on which CENVAT credit was availed) as such or after use;  Inputs or capital goods (on which CENVAT credit was availed) before being put to use, are written off fully or partially or where any provision to write off fully or partially has been created in the books of accounts. o Recoveries in such cases to be made as per stipulated provisions under Central Excise Act and Finance Act. Nangia & Co. Union budget 2013

56 THANK YOU


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