Sandeep Ahuja & Co.

Established in the year 1986, we are a leading chartered accountancy firm based in Delhi & NCR rendering comprehensive professional services which include statutory audit, internal audit, direct tax, transfer pricing, GST, bank audit, propriety audit, cost accounting, internal financial controls and risk advisory.

Friday, March 15, 2013

New Norms for Credit & Debit Cards


Reserve Bank of India (RBI) vide Circular dated 28.02.2013 on “Security and Risk Mitigation Measures for Electronic Payment Transactions” has directed banks to put in place the following safety measures for Credit and Debit Card Transactions :

• All new debit and credit cards to be issued only for domestic usage unless international use is specifically sought by the customer. Such cards enabling international usage will have to be essentially EMV Chip and Pin enabled. (By June 30, 2013).

• Issuing banks should convert all existing Magstripe cards to EMV Chip card for all customers who have used their cards internationally at least once (for/through e-commerce/ATM/POS) (By June 30, 2013).

• All the active Magstripe international cards issued by banks should have threshold limit for international usage. The threshold should be determined by the banks based on the risk profile of the customer and accepted by the customer (By June 30,2013).

• Banks should ensure that the terminals installed at the merchants for capturing card payments (including the double swipe terminals used) should be certified for PCI-DSS (Payment Card Industry – Data Security Standards) and PA-DSS (Payment Applications – Data Security Standards) (By June 30,2013).

• Bank should frame rules based on the transaction pattern of the usage of cards by the customers in coordination with the authorized card payment networks for arresting fraud (By June 30, 2013).

• Banks should ensure that all acquiring infrastructure that is currently operational on IP (internet protocol) based solutions are mandatorily made to go through PCI-DSS and PA-DSS certification. This should include acquirers, processors/aggregators and large merchants (By June 30, 2013).

• Banks should move towards real time fraud monitoring system at the earliest.

• Banks should provide easier methods (like SMS) for the customer to block his card and get a confirmation to that effect after blocking the card.

• Banks should move towards a system that facilitates implementation of additional facilitates implementation of additional factor of authentication for cards issued in India and used internationally (transactions acquired by banks located abroad).

After discussions with Banks, the RBI had issued the guidelines vide Circular dated 28.02.2013 on “Security and Risk Mitigation Measures for Electronic Payment Transactions”.

Budget 2013-14: Sec. 80G 100% deduction for donation to National Children’s Fund


Under the existing provisions of section 80G an assessee is allowed a deduction from his total income in respect of donations made by him to certain funds and institutions. The deduction is allowed at the rate of fifty per cent of the amount of donations made except in the case of donations made to certain funds and institutions specified in clause (i) of sub-section (1) of section 80G, where deduction is allowed at the rate of one hundred per cent. In the case of donations made to the National Children’s Fund, deduction is allowed at the rate of fifty per cent of the amount so donated.

Donations to Funds which are of national importance have been generally provided a deduction of one hundred per cent of the amount donated. Since the National Children’s Fund is also a Fund of national importance, it is proposed to allow hundred per cent deduction in respect of any sum paid to the Fund in computing the total income of an assessee.

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

Budget 2013-14: Direction for special audit under sub-section (2A) of section 142


The existing provisions contained in sub-section (2A) of section 142 of the Income-tax Act, inter alia, provide that if at any stage of the proceeding, the Assessing Officer having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the approval of the Chief Commissioner or Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.The expression “nature and complexity of the accounts” has been interpreted in a very restrictive manner by various courts.

It is, therefore, proposed to amend the aforesaid sub-section so as to provide 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, with the previous approval of the Chief Commissioner or the Commissioner, direct the assessee to get his accounts audited by an accountant and to furnish a report of such audit.

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

Budget 2013-14: Sec.161: Taxation of Securitisation Trusts


Section 161 of the Income-tax Act provides that in case of a trust if its income consists of or includes profits and gains of business then income of such trust shall be taxed at the maximum marginal rate in the hands of
trust.

The special purpose entities set up in the form of trust to undertake securitisation activities were facing problem due to lack of special dispensation in respect of taxation under the Income-tax Act. The taxation at the level of trust due to existing provisions was considered to be restrictive particularly where the investors in the trust are persons which are exempt from taxation under the provisions of the Income-tax Act like Mutual Funds.

In order to facilitate the securitisation process, it is proposed to provide a special taxation regime in respect of taxation of income of securitisation entities, set up as a trust, from the activity of securitisation. It is proposed to amend section 10 and also insert a new Chapter XII-EA for providing a special tax regime. The salient features of the special regime are :-

(i)      In case of securitisation vehicles which are set up as a trust and the activities of which are regulated by either SEBI or RBI, the income from the activity of securitisation of such trusts will be exempt from taxation.

(ii)    The securitisation trust will be liable to pay additional income-tax on income distributed to its investors on the line of distribution tax levied in the case of mutual funds. The additional income-tax shall be levied @ 25% in case of distribution being made to investors who are individual and HUF and @ 30% in other cases. No additional income-tax shall be payable if the income distributed by the securitisation trust is received by a person who is exempt from tax under the Act.

(iii)         Consequent to the levy of distribution tax, the distributed income received by the investor will be exempt from tax.

(iv) The securitisation trust will be liable to pay interest at the rate of one percent. for every month or part of the month on the amount of additional income-tax not paid within the specified time .

(v) The person responsible for payment of income or the securitisation trust will be deemed to be an assessee in default in respect of amount of tax payable by him or it in case the additional income-tax is not paid to the credit of Central Government.

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

Budget 2013-14: 1% TDS on Transfer of Immovable Property Exceeding Rs.50 Lakh


There is a statutory requirement under section 1 39A of the Income-tax Act read with rule 11 4B of the Income-tax Rules, 1962 to quote Permanent Account Number (PAN) in documents pertaining to purchase or sale of immovable property for value of Rs.5 lakh or more. However, the information furnished to the department in Annual Information Returns by the Registrar or Sub-Registrar indicate that a majority of the purchasers or sellers of immovable properties, valued at Rs.30 lakh or more, during the financial year 2011-12 did not quote or quoted invalid PAN in the documents relating to transfer of the property.

Under the existing provisions of the Income-tax Act, tax is required to be deducted at source on certain specified payments made to residents by way of salary, interest, commission, brokerage, professional services, etc. On transfer of immovable property by a non-resident, tax is required to be deducted at source by the transferee. 

However, there is no such requirement on transfer of immovable property by a resident except in the case of compulsory acquisition of certain immovable properties. In order to have a reporting mechanism of transactions in the real estate sector and also to collect tax at the earliest point of time, it is proposed to insert a new section 194-IA to provide that every transferee, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident transferor, shall deduct tax, at the rate of 1% of such sum.

In order to reduce the compliance burden on the small taxpayers, it is further proposed that no deduction of tax under this provision shall be made where the total amount of consideration for the transfer of an immovable property is less than fifty lakh rupees.
This amendment will take effect from 1st June, 2013.

Budget 2013-14: TRC necessary but not sufficient to claim DTAA benefit


Submission of a tax residency certificate is a necessary but not sufficient condition for claiming DTAA benefit
Section 90 of the Income Tax Act empowers the Central Government to enter into an agreement with the Government of any foreign country or specified territory outside India for the purpose of –

(i) granting relief in respect of avoidance of double taxation,
(ii)  exchange of information and
(iii)   recovery of taxes.

Further section 90A of the Income-tax Act empowers the Central Government to adopt any agreement between specified associations for above mentioned purposes.

In exercise of this power, the Central Government has entered into various Double Taxation Avoidance Agreements (DTAAs) with different countries and has adopted agreements between specified associations for relief of double taxation. The scheme of interplay between DTAA and domestic legislation ensures that a taxpayer, who is resident of one of the contracting country to the DTAA, is entitled to claim applicability of beneficial provisions either of DTAA or of the domestic law. Sub-section (4) of sections 90 and 90A of the Income-tax Act inserted by Finance Act, 2012 makes submission of Tax Residency Certificate containing prescribed particulars, as a condition for availing benefits of the agreements referred to in these sections.

It is proposed to amend sections 90 and 90A in order to provide that submission of a tax residency certificate is a necessary but not a sufficient condition for claiming benefits under the agreements referred to in sections 90 and 90A. This position was earlier mentioned in the memorandum explaining the provisions in Finance Bill, 2012, in the context of insertion of sub-section (4) in sections 90 & 90A.

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

Budget 2013-14: Sec. 80EE Additional Deduction of Interest upto Rs.1 Lakh on Home Loan for First Home Buyer


Under the existing provisions of section 24 of the Income-tax Act, income chargeable under the head ‘Income from House Property’ is computed after making the deductions specified therein. The deductions specified under the aforesaid section are as under:-

A sum equal to thirty per cent of the annual value;

Where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital.

It has also been provided that where the property consists of a house or part of a house which is in the occupation of the owner for the purposes of his own residence or cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him, then the amount of deduction as mentioned above shall not exceed one lakh fifty thousand rupees subject to the conditions provided in the said section.

Keeping in view the need for affordable housing, an additional benefit for first-home buyers is proposed to be provided by inserting a new section 80EE in the Income-tax Act relating to deduction in respect of interest on loan taken for residential house property.

The proposed new section 80EE seeks to provide that in computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, interest payable on loan taken by him from any financial institution for the purpose of acquisition of a residential house property.

It is further provided that the deduction under the proposed section shall not exceed one lakh rupees and shall be allowed in computing the total income of the individual for the assessment year beginning on 1st April, 2014 and in a case where the interest payable for the previous year relevant to the said assessment year is less than one lakh rupees, the balance amount shall be allowed in the assessment year beginning on 1st April, 2015.

It is also provided that the deduction shall be subject to the following conditions:- (i) the loan is sanctioned by the financial institution during the period beginning on 1st April, 2013 and ending on 31st March, 2014; (ii) the amount of loan sanctioned for acquisition of the residential house property does not exceed twenty-five lakh rupees; (iii) the value of the residential house property does not exceed forty lakh rupees; (iv) the assessee does not own any residential house property on the date of sanction of the loan.

It is also provided that where a deduction under this section is allowed for any assessment year, in respect of interest referred to in sub-section (1), deduction shall not be allowed in respect of such interest under any other provisions of the Income-tax Act for the same or any other assessment year.

It is also proposed to define the term “financial institution”.

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

Budget 2013-14: TDS Rates for FY 2013-14 / AY 2014-15


Applicable TDS Rates are same as were in force for F.Y. 2013-13 except the changes specified below:-

I. Rates for deduction of income-tax at source during the financial year 2013-14 from certain incomes other than “Salaries”.

The rates for deduction of income-tax at source during the financial year 2013-14 from certain incomes other than “Salaries” have been specified in Part II of the First Schedule to the Bill. The rates for all the categories of persons will remain the same as those specified in Part II of the First Schedule to the Finance Act, 2012, for the purposes of deduction of income-tax at source during the financial year 2012-13, except that in case of certain payments made to a non-resident (other than a company) or a foreign company, in the nature of income by way of royalty or fees for technical services, the rate shall be twenty-five percent of such income.

(1)   Surcharge—
The amount of tax so deducted, in the case of a non-resident person (other than a company), shall be increased by a surcharge at the rate of ten per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees .
The amount of tax so deducted, in the case of a company other than a domestic company, shall be increased by a surcharge at the rate of two per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds one crore rupees but does not exceed ten crore rupees and it shall be increased by a surcharge at the rate of five per cent. of such tax, where the income or the aggregate of such incomes paid or likely to be paid and subject to the deduction exceeds ten crore rupees.

No surcharge will be levied on deductions in other cases.
(2)   Education Cess—
“Education Cess on income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent. and one per cent. respectively, of income tax including surcharge wherever applicable, in the cases of persons not resident in India including companies other than domestic company.

II. Rates for deduction of income-tax at source from “Salaries”, computation of “advance tax” and charging of income-tax in special cases during the financial year 2013-14.

The rates for deduction of income-tax at source from “Salaries” during the financial year 2013-14 and also for computation of “advance tax” payable during the said year in the case of all categories of assessees have been specified in Part III of the First Schedule to the Bill. These rates are also applicable for charging income-tax during the financial year 2013-14 on current incomes in cases where accelerated assessments have to be made , for instance, provisional assessment of shipping profits arising in India to non-residents, assessment of persons leaving India for good during the financial year, assessment of persons who are likely to transfer property to avoid tax, assessment of bodies formed for a short duration, etc.

Budget 2013-14: Introduction of Commodity Transaction Tax (CTT)


A new tax called Commodities Transaction Tax (CTT) is proposed to be levied on taxable commodities transactions entered into in a recognised association.

It is proposed to define ‘taxable commodities transaction’ to mean a transaction of sale of commodity derivatives in respect of commodities, other than agricultural commodities, traded in recognised associations.

The tax is proposed to be levied at the rate, given in the Table below, on taxable commodities transactions undertaken by the seller.

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

This tax is proposed to be levied from the date on which Chapter VII of the Finance Bill, 2013 comes into force by way of notification in the Official Gazette by the Central Government.

Further, it is proposed to amend section 36 of the Income-tax Act to provide that an amount equal to the commodities transaction tax paid by the assessee in respect of the taxable commodities transactions entered into in the course of his business during the previous year shall be allowable as deduction, if the income arising from such taxable commodities transactions is included in the income computed under the head “Profits and gains of business or profession”.

It is also proposed to insert an Explanation to provide that for the purposes of this clause, the expressions “commodities transaction tax” and “taxable commodities transaction” shall have the meanings respectively assigned to them under Chapter VII of the Finance Act, 2013.

This amendment in section 36 of the Income-tax Act will take effect from 1st April, 2014 and will, accordingly, apply in relation to the assessment year 2014-15 and subsequent assessment years.

Budget 2013-14: Modified GAAR to Come into effect from A.Y. 2016-17


The General Anti Avoidance Rule (GAAR) was introduced in the Income-tax Act by the Finance Act, 2012. The substantive provisions relating to GAAR are contained in Chapter X-A (consisting of sections 95 to 102) of the Income-tax Act. The procedural provisions relating to mechanism for invocation of GAAR and passing of the assessment order in consequence thereof are contained in section 144BA. The provisions of Chapter X-A as well as section 144BA would have come into force with effect from 1st April, 2014.

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

In order to give effect to the recommendations the following amendments have been made in GAAR provisions currently provided in the Act:-

(A)           The provisions of Chapter X-A and section 1 44BA will come into force with effect from April 1, 2016 as against the current date of April 1, 2014. The provisions shall apply from the assessment year 2016-17 instead of assessment year 2014-15.

(B) An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement. The current provision of section 96 providing that it should be “the main purpose or one of the main purposes” has been proposed to be amended accordingly.

(C) The factors like, period or time for which the arrangement had existed; the fact of payment of taxes by the assessee; and the fact that an exit route was provided by the arrangement, would be relevant but not sufficient to determine whether the arrangement is an impermissible avoidance arrangement. The current provisions of section 97 which provided that these factors would not be relevant has been proposed to be amended accordingly.

(D) An arrangement shall also be deemed to be lacking commercial substance, if it does not have a 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 Chapter X-A. The current provisions as contained in section 97 are proposed to be amended to provide that an arrangement shall also be deemed to lack commercial substance if the condition provided above is satisfied.

(E) The Approving Panel shall consist of a Chairperson who is or has been a Judge of a High Court; one Member of the Indian Revenue Service not below the rank of Chief Commissioner of Income-tax; and one Member who shall be an academic or scholar having special knowledge of matters such as direct taxes, business accounts and international trade practices. The current provision of section 144BA ,that the Approving Panel shall consist of not less than three members being income-tax authorities and an officer of the Indian Legal Service has been proposed to be amended accordingly.

(F)  The directions issued by the Approving Panel shall be binding on the assessee as well as the income-tax authorities and no appeal against such directions can be made under the provisions of the Act. The current provisions of section 144BA providing that the direction of the Approving Panel will be binding only on the Assessing Officer have been proposed to be amended accordingly.

(G) The Central Government may constitute one or more Approving Panels as may be necessary and the term of the Approving Panel shall be ordinarily for one year and may be extended from time to time up to a period of three years. The provisions of section 144BA have been proposed to be amended accordingly.

(H) The two separate definitions in the current provisions of section 102, namely, “associated person” and “connected person” will be combined and there will be only one inclusive provision defining a ‘connected person’. The provisions of section 102 have been proposed to be amended accordingly.

Consequential amendments in other sections relating to procedural matters are also proposed.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

Budget 2013-14: Retrn of Income filed without payment of self assessment tax to be treated as defective return


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

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

It has been noticed that a large number of assessees are filing their returns of income without payment of self-assessment tax.

It is, therefore, proposed to amend the aforesaid Explanation so as to provide that the return of income 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 of the return.

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

Budget 2013-14: Deduction u/s 80JJAA only to Indian Company deriving profits from manufacture of goods in its factory


The existing provisions contained in section 80JJAA of the Income-tax Act provide for a deduction of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed in any previous year by an Indian company in its industrial undertaking engaged in manufacture or production of article or thing. The deduction is available for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

No deduction under this section is allowed if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking.

The tax incentive under section 80JJAA was intended for employment of blue collared employees in the manufacturing sector whereas in practice, it is being claimed for other employees in other sectors also. It is, therefore, proposed to amend the provisions of section 80JJAA so as to provide that the deduction shall be available to an Indian Company deriving profits from manufacture of goods in its factory. The deduction shall be of an amount equal to thirty per cent of additional wages paid to the new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided.

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

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

Budget 2013-14: Raising limit of the % of eligible premium for life insurance policies of persons with disability or disease


Under the existing provisions contained in clause (10D) of Section 10, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, is exempt, subject to the condition that the premium paid for such policy does not exceed ten per cent of the ‘actual capital sum assured’. Similarly as per the existing provisions contained in sub­section (3A) of section 80C, the deduction under the said section is available in respect of any premium or other payment made on an insurance policy of up to ten per cent of the ‘actual capital sum assured’.

The above limit of ten per cent was introduced through the Finance Act, 2012 and applies to policies issued on or after 1st April, 2012. Some insurance policies for persons with disability or suffering from specified diseases provide for an annual premium of more than ten per cent of the actual capital sum assured. Due to the limit of ten per cent, these policies are ineligible for exemption under clause (10D) of section 10. Moreover, the deduction under section 80C is eligible only to an extent of the premium paid up to 10 % of the ‘actual capital sum assured’.

It is proposed to provide that any sum including the sum allocated by way of bonus received under an insurance policy issued on or after 01 .04.2013 for the insurance on the life of any person who is
(i)     a person with disability or a person with severe disability as referred to in section 80U, or
(ii)    suffering from disease or ailment as specified in the rules made under section 80DDB,
shall be exempt under clause (10D) of section 10 if the premium payable for any of the years during the term of the policy does not exceed 15% of the actual capital sum assured.

It is also proposed to amend sub-section (3A) of section 80C so as to provide that the deduction under the said section on account of premium paid in respect of a policy issued on or after 01.04.2013 for insurance on the life of a person referred to above shall be allowed to the extent the premium paid does not exceed 15% of the actual capital sum assured.

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

Budget 2013-14: Penalty u/s. 271FA for non-filing of Annual Information Return


Section 285BA mandates furnishing of annual information return by the specified persons in respect of specified transactions within the time prescribed under sub-section (2) thereof. Sub-section (5) of the section empowers the Assessing Officer to issue notice if the annual information return has not been furnished by the due date.

The existing provisions contained in section 271 FA of the Income-tax Act provide that if a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA, fails to furnish such return within the time prescribed under that sub-section, the income-tax authority prescribed under the said sub-section may direct that such person shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues.

It is proposed to amend the aforesaid section so as to provide that if a person who is required to furnish an annual information return, as required under sub-section (1) of section 285BA, fails to furnish such return within the time prescribed under sub-section (2) thereof, the income-tax authority prescribed under sub-section (1) of the said section may direct that such person shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues.

It is further proposed to provide that where such person fails to furnish the return within the period specified in the notice under sub-section (5) of section 285BA, he shall pay, by way of penalty, a sum of five hundred rupees for every day during which the failure continues, beginning from the day immediately following the day on which the time specified in such notice for furnishing the return expires.

This amendment will take effect from 1st April, 2014.

Budget 2013-14: Increase in Tax on income distributed by Mutual Funds


Under the existing provisions of section 115R any amount of income distributed by the specified company or a Mutual Fund to its unit holders is chargeable to additional income-tax. In case of any distribution made by a fund other than equity oriented fund to a person who is not an individual and HUF, the rate of tax is 30% whereas in case of distribution to an individual or an HUF it is 12.5% or 25% depending on the nature of the fund.

In order to provide uniform taxation 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% in all cases where distribution is made to an individual or a HUF.

Further in case of an Infrastructure debt fund (IDF) set up as a Non-Banking Finance Company (NBFC) the interest payment made by the fund to a non-resident investor is taxable at a concessional rate of 5%. However in case of distribution of income by an IDF set up as a Mutual Fund the distribution tax is levied at the rates described above in the case of a Mutual Fund.

In order to bring parity in taxation of income from investment made by a non-resident Investor in an IDF whether set up as a IDF-NBFC or IDF-MF, it is proposed to amend section 1 15R to provide that tax @ 5% on income distributed shall be payable in respect of income distributed by a Mutual Fund under an IDF scheme to a non-resident Investor.

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

Budget 2013-14: Tax Relief of Rs. 2000 for Taxpayer having income upto Rs. 5 Lakh


With a view to provide tax relief to the individual tax payers who are in lower income bracket, it is proposed to provide rebate from the tax payable by an assessee, being an individual resident in India, whose total income does not exceed five lakh rupees. The rebate shall be equal to the amount of income-tax payable on the total income for any assessment year or an amount of two thousand rupees, whichever is less.

Consequently any individual having income up to Rs 2,20,000 will not be required to pay any tax and every individual having total income above Rs. 2,20,000/- but not exceeding Rs. 5,00,000/- shall get a tax relief of Rs. 2000/-.

Section 87 has also been consequentially amended.

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

Budget 2013-14: Income Tax Surcharge Rate Hiked for Higher Income Assessees


The Finance Bill 2013-14 proposes a surcharge of 10 per cent on persons whose taxable income exceed Rs. 1 crore per year. This will apply to individuals, HUFs, firms and entities with similar tax status. Presenting the Union Budget in the Lok Sabha today, the Finance Minister Shri P.Chidambaram said that he also proposes to increase the surcharge from 5 per cent to 10 per cent on domestic companies whose taxable income exceeds Rs.10 crore per year. In the case of foreign companies, the surcharge will increase from 2 per cent to 5 per cent.

In all other cases, such as dividend distribution tax or tax on distributed income, the current surcharge of 5 per cent is being increased to 10 per cent. The additional surcharges will be imposed for only one year, i.e., financial year 2013-14. The education cess for all taxpayers shall continue at 3 per cent. The Finance Minister said that he expects the relatively prosperous to bear a small burden for one year.

Budget 2013-14: Rajiv Gandhi Equity Savings Scheme: Period, Income Limit Liberalised, Allowed to Invest in MF


The existing provisions of section 80CCG, inter-alia, provide that a resident individual who has acquired listed equity shares in accordance with the scheme notified by the Central Government, shall be allowed a deduction of fifty per cent of the amount invested in such equity shares to the extent that the said deduction does not exceed twenty five thousand rupees.

The deduction is a one-time deduction and is available only in one assessment year in respect of the amount so invested. The deduction is available to a new retail investor whose gross total income does not exceed ten lakh rupees. Rajiv Gandhi Equity Savings Scheme has been notified under section 80CCG.

With a view to liberalize the incentive available for investment in capital markets by the new retail investors, it is proposed to amend the provisions of section 80CCG so as to provide that investment in listed units of an equity oriented fund shall also be eligible for deduction in accordance with the provisions of section 80CCG. It is proposed to provide that “equity oriented fund” shall have the meaning assigned to it in clause (38) of section 10.

It is further proposed to provide that the deduction under this section shall be allowed for three consecutive assessment years, beginning with the assessment year relevant to the previous year in which the listed equity shares or listed units were first acquired by the new retail investor whose gross total income for the relevant assessment year does not exceed twelve lakh rupees.

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

Budget 2013-14: No Change in the Normal Rates of Excise Duty and Service Tax

There is no change in the peak rate of basic customs duty of 10% for non-agricultural products. Presenting the Union Budget in Lok Sabha today, the Finance Minister announced that there will be no change in the normal rate of excise duty of 12% and the normal rate of service tax of 12%.

Budget 2013-14: Amendment in Custom Duty


AMENDMENTS IN THE CUSTOMS ACT, 1962:

1) Clause (n) of sub-section (2) of section 11 is being amended to include “designs and geographical indications” so as to provide for protection of these rights. [Clause 54]

2) Section 27 is being amended to provide that if the amount of refund claimed is less than rupees hundred, the same shall not be refunded. [Clause 55]

3) Section 28 is being amended to provide that show cause notice will not be served where the amount demanded is less than rupees one hundred. [Clause 56]

4) Section 28BA is being amended to provide for provisional attachment of property belonging to any person to whom notice under sub-section (4) of section 28 has been served. [Clause 57]

5) Clause (a) of section 28E is being substituted so as to include any new business of import or export proposed to be undertaken by the existing importer or exporter within the meaning of “activity”. [Clause 58]

6) Section 29 is being amended to empower the Board to permit landing of vessels and aircrafts at any place other than customs port or customs airport. [Clause 59]

7) Section 30 is being amended to provide for electronic filing of import manifest and also to provide that the Commissioner of Customs may, in cases where it is not feasible to deliver the import manifest by presenting electronically, allow the same to be delivered in any other manner. [Clause 60]

8) Section 41 is being amended to provide for electronic filing of export manifest and also to provide that the Commissioner of Customs may, in cases where it is not feasible to deliver the export manifest by presenting electronically, allow the same to be delivered in any other manner. [Clause 61]

9) Sub-section (2) of section 47 is being amended to reduce the interest free period for payment of import duty from five days to two days. [Clause 62]

10) Section 49 is being amended to restrict the period of storage of imported goods, pending clearance, in a public or private warehouse to thirty days and to provide that the Commissioner of Customs may extend the period of storage for further period not exceeding thirty days at a time. [Clause 63]

11) Section 69 is being substituted to provide that any warehoused goods may be exported to a place outside India without payment of import duty if a shipping bill or a bill of export in prescribed form or label or declaration accompanying the goods as referred to in section 82 has been presented in respect of such goods. [Clause 64]

12) Under the existing sub-section (6) of section 104, all offences under the Act are bailable. Sub-section (6) is being substituted with sub-section (6) and (7). Sub-section (6) provides that the following specified offences punishable under section 135 shall be non-bailable, namely:-
(a) evasion or attempted evasion of duty exceeding Rs.50 lakh;
(b) prohibited goods notified under section 11 which are also notified under sub-clause (C) of clause (i) of sub-section (1) of section 135;
(c) import or export of any goods which have not been declared in accordance with the provisions of this Act and the market price of which exceeds Rs. 1 crore;
(d) Fraudulently availing of or attempt to avail of drawback or any exemption from duty provided under this Act, if the amount of drawback or exemption from duty exceeds Rs.50 lakh.
Sub-section (7) provides that all other offences except those specified in sub-section (6) shall be bailable. [Clause 65]

13) A proviso is being inserted in sub-section (2A) of section 129B to provide that in cases where the delay in disposing of the appeal is not attributable to the appellant, the Tribunal may extend the period of stay by a period not exceeding 185 days  subject to the condition that if the appeal is not disposed of within the total period of 365 days from the date of order, the stay order shall stand vacated. [Clause 66]

14) Section 129C is being amended to enhance the monetary limit of the Single Bench of the Tribunal to hear and dispose of appeals from Rs.10 lakh to Rs.50 lakh. [Clause 67]

15) In sub-clauses (B) and (D) of clause (i) of section 135(1), the threshold limit for punishment in an offence relating to evasion or attempted evasion of duty or fraudulently availing of or attempting to avail of drawback or any exemption from duty in connection with export of goods, has been increased from Rs.30 lakh to Rs.50 lakh. [Clause 68]

16) A new clause (d) is being inserted in section 142 to provide (i) for recovery of money due to the Central Government from any other person other than the defaulter after giving such other person a notice in writing, (ii) that the person to whom such notice has been issued shall be bound to comply, and (iii) that if the person to whom the notice is issued fails to comply, he shall be deemed to be a defaulter in respect of the amount specified in the notice. [Clause 69]

17) Section 143A is being omitted. [Clause 70]

18) Sub-section (3) of section 144 is being amended to remove the duty liability on any sample of goods which is consumed or destroyed during the course of testing or examination. [Clause 71]

19) Section 146 is being substituted to change the nomenclature of “customs house agents” to “customs brokers” considering the global practice and internationally accepted nomenclature. [Clause 72]

20) Section 146A is being amended so as to:
(a) substitute the phrase “customs house agent” with the phrase “customs broker”;
(b) include any offence committed under the Finance Act, 1994 as a disqualification for person to act as an authorized representative in customs matters. [Clause 73]

21) Sub-section (3) of section 147 is being amended to expand the scope of the liability of agents of the owner, importer or exporter of any goods. [Clause 74]

22) Full exemption from export duty is being given retrospectively on flat rolled products of iron or non-alloy steel, plated or coated with zinc falling under headings 7210 and 7212 vide notification No. 27/2011-Customs, dated 01 .03.2011 from 01.03.2011. [Clause 75]

AMENDMENTS IN THE SCHEDULES TO THE CUSTOMS TARIFF ACT, 1975:

1) The First Schedule is being amended to:
(a) change the present description of tariff item 03022400 and 03033400 to “Turbots (Psetta maxima)”
(b) omit the tariff item 1517 90 20 (Peanut butter).
(c) insert Supplementary Note in Chapter 48.
(d) enhance the tariff rate against items under heading 8703 from 100% to 125%.
(e) enhance the tariff rate against items under heading 8903 from 10% to 25%. [Clause 76]

2) The Second Schedule is being amended as follows:
(a) to substitute the entry in column (2) against Sl. No. 43, with the entry “7210, 7212″, retrospectively with effect from 01 .03.2011.
(b) Entry 9A is being inserted to prescribe a tariff rate of export duty of 20% on raw sugar, white or refined sugar under heading 1701. However, no export duty is proposed to be levied presently.
(c) Entries 23A and 23B are being inserted to prescribe a tariff rate of export duty of 30% on Bauxite (natural), not calcined and Bauxite (natural), calcined under heading tariff items 26060010 and 26060020 respectively. Effective rate is being prescribed at 10%
(d) Entries 24A and 24B are being inserted to prescribe a tariff rate of export duty of 30% on Ilmenite, unprocessed and Ilmenite, upgraded (beneficiated Ilmenite including Ilmenite ground) under heading tariff items 26140010 and 26140020 respectively. Effective rate is being prescribed on unprocessed Ilmenite at 10% and on upgraded Ilminite at 5%.
The changes at para 1) and 2) (b), (c), (d) will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931. [Clause 77]

CUSTOMS

A. General
1) Baggage Rules are being amended to,-
(i) raise the duty free allowance in respect of jewellery for an Indian passenger who has been residing abroad for over one year or a person who is transferring his residence to India from Rs.10,000 to Rs.50,000 in case of a gentleman passenger and from Rs.20,000 to Rs.1 ,00,000 in case of a lady passenger.
(ii) raise the duty free allowance for crew member of vessel/aircraft from Rs.600 to Rs.1500.

B. Proposals involving changes in rates of duty
I. AGRICULTURE/AGRO PROCESSING/PLANTATION SECTOR:
1) Basic customs duty on dehulled oat grain is being reduced from 30% to 15%.
2) Basic customs duty on hazel nuts is being reduced from 30% to 10%. 3) Export duty of 10% on de-oiled rice bran oil cake is being withdrawn.

II. AUTOMOBILES:
1) Basic customs duty on new passenger cars and other motor vehicles (high end cars) with CIF value more than US$ 40,000 and/or engine capacity exceeding 3000cc for petrol run vehicles and exceeding 2500 cc for diesel run vehicles is being increased from 75% to 100%.
2) Basic customs duty on motor cycle with engine capacity of 800cc or more is being increased from 60% to 75%.

III. METALS:
1) Export duty is being levied on ilmenite unprocessed at 10% and on ilmenite, upgraded at 5%.
2) Export duty is being levied on bauxite at 10%.
3) Basic customs duty is being reduced from 10% to 5% on stainless steel wire cloth stripe and from 7.5% to 5% on wash coat for use in the manufacture of catalytic convertors and their parts.
4) Full exemption from export duty is being provided to galvanized steel sheets falling under certain sub-headings, retrospectively w.e.f. 01.03.2011.

IV. PRECIOUS METALS:
1) Basic customs duty is being reduced from 10% to 2% on pre-forms of precious and semi-precious stones.

V. CAPITAL GOODS/INFRASTRUCTURE:
1) Basic customs duty on steam coal is being increased from Nil to 2% and CVD from 1% to 2%.
2) Basic customs duty on bituminous coal is being reduced from 5% to 2% and CVD from 6% to 2%.
3) Basic customs duty is being reduced from 7.5% to 5% on 20 specified machinery for use in leather and footwear industry.

VI. AIRCRAFTS & SHIPS:
1) Basic Customs Duty on yachts and motor boats is being increased from 10% to 25%.
2) Time limit for consumption of imported goods by ship repair units is being extended from 3 months to 1 year.
3) Time period for consumption/installation of parts and testing equipments imported for maintenance, repair and overhaul (MRO) of aircrafts by units engaged in such activities is being extended from 3 months to 1 year.
4) Presently, the basic customs duty exemption is available to parts and testing equipments for maintenance, repair and overhaul of aircrafts. This exemption is now being extended to parts and testing equipments for maintenance, repair and overhaul of aircrafts and parts thereof.

VII. ENVIRONMENT PROTECTION:
1) Full exemption from basic customs duty is being provided to lithium ion automotive battery for manufacture of lithium ion battery packs for supply to the manufacturers of hybrid and electric vehicles.
2) Time period of exemption (Nil BCD, CVD of 6% and Nil SAD) for the specified parts of electric and hybrid vehicles is being extended by 2 more years up to 31st March, 2015.

VIII. TEXTILES:
1) Basic customs duty on raw silk (not thrown), of all grades is being increased from 5% to 15%.
2) Basic customs duty is being reduced from 7.5% to 5% on textile machinery & parts.

IX. ELECTRONICS/HARDWARE:
1) Basic customs duty on Set Top Boxes for TV is being increased from 5% to 10%.

X. MISCELLANEOUS:

1) Full exemption from basic customs duty and additional customs duty is being provided to trophy imported by National Sports Federation recognized by the Department of Sports and Youth Affairs or any Sports Body registered under Societies Registration Act, in connection with any international tournament held in India.
2) Withdrawal of exemption from education cess and secondary & higher education cess on aircraft and aircraft parts, soyabean oil, olive oil etc.

Note: (a) “Customs Duty” means the customs duty levied under the Customs Act, 1962.
(b)       “CVD” means the Additional Duty of Customs levied under sub-section (1) of section 3 of the Customs Tariff Act, 1975.
(c)       “SAD” means the Special Additional Duty of Customs levied under sub-section (5) of section 3 of the Customs Tariff Act, 1975.
(d)       “Export duty” means duty of customs leviable on goods specified in the Second Schedule to the Customs Tariff Act, 1975.
(e)       Clause nos. in square brackets [ ] indicate the relevant clause of the Finance Bill, 2013.
Amendments carried out through the Finance Bill, 2013 come into effect on the date of its enactment unless otherwise specified.

Budget 2013-14: Amendment in Excise Duty


AMENDMENTS IN THE CENTRAL EXCISE ACT, 1944:

1) Section 9 provides that an offence case involving evasion in which the duty leviable exceeds thirty lakh rupees shall be punishable with a term of imprisonment extending to seven years with fine. This section is being amended so as to substitute the amount of thirty lakh rupees with fifty lakh rupees. [Clause 78]

2) Section 9A is being amended to make an offence cognizable and non-bailable where the duty liability exceeds Rs.50 lakh and punishable under clause (b) or clause (bbbb) of sub-section (1) of section 9. [Clause 79]

3) Section 11 is being amended so as to provide for
(i) recovery of money due to the Government from any person other than from whom money is due after giving a proper notice, if that other person holds money for or on account of the first person;
(ii) the other person to whom such notice has been issued is bound to comply and (iii) if the other person to whom the notice is served fails to comply, he shall face all the consequences under this Act. [Clause 80]

4) Section 11A is being amended to insert sub-section (7A) providing that service of a statement containing details of duty not paid, short levied or erroneously refunded shall be deemed to be a service of notice under sub-section (1) or (3) or (4) or (5) of this section. [Clause 81]

5) Reference to sub-section (1) in section 11DDA is being omitted. [Clause 82]

6) Section 20 is being amended so as to make the provisions applicable only to offence which is non-cognizable. [Clause 83]

7) Section 21 is being amended so as to make the provisions regarding release of arrested person on bail or personal bond applicable only to offence which is non-cognizable. [Clause 84]

8) Clause (a) of section 23A is being amended to expand the definition of the term “activity” to include any new business of production or manufacture proposed to be undertaken by the existing producer or manufacturer. [Clause 85]

9) The existing sub-section (2) of section 23C provides for the admissibility of application for advance ruling, inter alia, for credit of excise duty paid or deemed to have been paid. The scope of admissibility has been expanded to include credit of service tax paid or deemed to have been paid on input services. [Clause 86]

10) Reference to section 28-I in section 23F is being substituted with section 23D. [Clause 87]

11) A new proviso is being inserted in sub-section (2A) of section 35C so as to provide that in cases where delay in disposing of the appeal is not attributable to the appellant, the Tribunal may extend the period of stay by a period not exceeding 185 days subject to the condition that if the appeal is not disposed of within the total period of 365 days from the date of order, the stay shall stand vacated. [Clause 88]

12) Section 35D is being amended to enhance the monetary limit of the Single Bench of the Tribunal to hear and dispose of appeals from “ten lakh rupees” to “fifty lakh rupees”. [Clause 89]

13) Section 37C is being amended to specify additional modes of delivery of specified documents i.e. by speed post with proof of delivery or through courier approved by the Central Board of Excise & Customs. [Clause 90]

14) Third Schedule is being amended to:
(a) insert S. No. 31A to include branded and generic Ayurvedic, Unani, Siddha, Homeopathic or Bio-chemic medicaments.
(b) substitute the present tariff item in S. No. 64 relating to pressure cooker with tariff item “7615 10 11″
The changes at para 14) will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931. [Clause 91]

AMENDMENTS IN CENTRAL EXCISE TARIFF ACT, 1985:
1) First Schedule is being amended to:
(a) change the present description of tariff items 03022400 and 03033400 to “Turbots (Psetta maxima)”.
(b) omit the tariff item 1517 90 20 (Peanut butter).
(c) substitute the existing tariff rates for various lengths of cigarettes and cigars of heading 2402 with the enhanced rates.
(d) enhance the tariff rate of specified tariff items of heading 8703 to 30%.
The changes at para 1) will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931. [Clause 92]
Proposals involving changes in rates of duty

I. AGRICULTURE/AGRO PROCESSING/PLANTATION SECTOR:
1) Full exemption from excise duty is being provided on tapioca sago (sabudana) and tapioca starch manufactured and consumed captively in the manufacture of tapioca sago.
2) Full exemption from excise duty is being provided on henna powder or paste, not mixed with any other ingredient.

II. AUTOMOBILES:
1) Excise duty on SUVs is being increased from 27% to 30%.
2) Excise duty on truck chassis (8706 00 42) is being reduced from 14% to 13%.
3) Sports Utility Vehicles registered solely for use as taxis will not suffer additional excise duty consequent to the increase in excise duty on SUVs from 27% to 30%. Taxi refund in respect of SUVs is being adjusted accordingly.

III. METALS:
1) Excise duty of 4% is being levied on silver manufactured from zinc/lead smelting.
2) Compounded levy on stainless steel “Patta Patti” is being increased from Rs 30,000 per machine per month to Rs 40,000 per machine per month.
3) It is being clarified that the item “trimmed or untrimmed sheets or circles of copper intended for use in the manufacture of handicrafts or utensils” presently leviable to excise duty at Rs. 3500 per MT includes copper and copper alloys including brass.

IV. AIRCRAFTS & SHIPS:
1) Full exemption from excise duty is being provided on ships and other vessels. Consequently, there will be no CVD on these ships and vessels when imported.

V. TEXTILES:
1) Full exemption from excise duty is being provided on hand made carpets and carpets and other textile floor coverings of coir or jute, whether or not handmade.
2) ‘Zero excise duty route’, as existed prior to Budget 2011-12, is being restored in respect of branded readymade garments and made ups. In the case of cotton there will be zero duty at the fibre stage and, in the case of spun yarn of man made fibres, there will be a duty of 12% at the fibre stage. The ‘Zero excise duty route’ will be in addition to the CENVAT route now available.

VI. HEALTH:
1) Branded Ayurvedic medicaments and medicaments of Unani, Siddha, Homeopathic or bio-chemic system are being brought under MRP based assessment with abatement of 35% from MRP.

VII. ELECTRONICS/HARDWARE:
1) Excise duty on mobile phones of retail sale price exceeding Rs 2000/- is being increased from 1% to 6%.

VIII. MISCELLANEOUS:
1) Excise duty on cigarettes is being increased by about 18% on all cigarettes except cigarettes of length not exceeding 65 mm. Cigars and cigarillos duty is also being similarly raised.
2) Excise duty on marble tiles and slabs is being increased from Rs 30 per sq. mtr to Rs 60 per sq. mtr.
3) Full exemption from excise duty is being provided to intermediate goods manufactured and consumed captively by exempted units under Area Based Exemption Scheme in Himachal Pradesh and Uttarakhand.