Key Highlights of Union Budget 2014

1. Key Highlights of Union Budget 2014 CA Jinesh R. Bhagdev Jinesh R. Bhagdev & Co. Chartered Accountants

2. Contents • Direct Tax • Definition • Income from House Property • Income from Business & Profession • Income from Capital Gains • Income from Other Sources • Deductions • Amendment to Transfer Pricing Provisions • Others • Tax Rates • Glossary

3. Direct Tax Amendments

4. Definition • BUSINESS TRUST (Newly Inserted) Sec. 2(13A): Business Trust means a trust registered as an Infrastructure Investment Trust or a Real Estate Investment Trust, the units of which are required to be listed on a recognised stock exchange, in accordance with the regulations made under the Securities Exchange Board of India Act, 1992 and notified by the Central Government in this behalf • CAPITAL ASSET (Amended) Sec. 2(14)(b): Capital Asset includes any securities (other than that held as stock in trade) held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992

5. Income from House Property Our Comments: However, as per the existing provisions, there is no upper cap levied on the Interest on Housing Loan on Let Out Property and the person can claim interest deduction of more than ` 2,00,000 • House Property (Amended) Sec 24(b): Deduction of Interest on Housing Loan on “Self Occupied Property” increased from ` 1,50,000 to ` 2,00,000

6. Income from Business & Profession • INVESTMENT IN NEW PLANT & MACHINERY (Newly Inserted) Sec 32AC(1A): Manufacturing Companies have been granted an incentive by way of additional deduction of 15% of the actual cost of new plant and machinery (new asset) acquired and installed after 31st March 2014 but on or before 31 March 2017, and where the cost of such new assets exceeds ` 25 crore. However, the deduction under this section shall not be allowed to the assessee who are eligible and has claimed the deduction under section 32AC(1).

7. Income from Business & Profession… Our Comments: The idea is to undertake corporate social responsibilities out of distributable profits of the company and accordingly, the deduction from the income tax is denied. • GENERAL DEDUCTION (Newly Inserted) Explanation 2 to Sec 37(1): For the removal of doubts, it is hereby declared that for the purposes of Section 37 (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

8. Income from Business & Profession… • DISALLOWANCE OF EXPENDITURE / PAYMENTS TO RESIDENTS (Amended) Sec 40(ia): Where the assessee has deducted tax at source for any payment to residents and not paid to the account of the government or failed to deduct tax at source on or before the due date specified u/s 139(1), 30 percent of such payments / expenditure / provision shall be disallowed in the Computation of Income of the Assessee. Further, in the subsequent year, upon payment of the tax deducted at source to the account of the government, 30 percent of such payments / expenditure / provision shall be allowed as deduction in the Computation of Income of the Assessee

9. Income from Capital Gains • Certain Transactions Not Included in Transfer Sec 47(viib): any transfer of a capital asset, being a Government Security carrying a periodic payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident. Government Security shall have the same meaning as assigned to it in Section 2(b) of the Securities Contracts (Regulation) Act, 1956 (Newly Inserted) Sect 47(xvii): any transfer of capital asset, being share of a special purpose vehicle to a business trust in exchange of units allotted by that trust to the transferor. (Newly Inserted) Explanation to Section 10(23F): special purpose vehicle” means an Indian company in which the business trust holds controlling interest and any specific percentage of shareholding or interest, as may be required by the regulations under which such trust is granted registration (Newly Inserted)

10. Income from Capital Gains… • Cost of Acquisition (Newly Inserted) Sec 49(2AC): Where the capital asset, being a unit of a business trust, became the property of the assessee in consideration of a transfer as referred to in sec 47(xvii), the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share referred to in the said clause • Investments in Residential House (Amended) Sec 54(1): where, in the case of an assessee being an individual or a Hindu undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or [two years] after the date on which the transfer took place purchased, or has within a period of three years after that date constructed, “ONE” residential house…. (Controversy put to rest)

11. Income from Capital Gains… Our Comments: In case of ACIT vs Raj Kumar Jain & Sons (HUF) ITA No.648/ JP/2011, Hon’ble Jaipur Tribunal held that the investment in specified assets was to be linked with the financial year in which the transfer has taken place and the claim of ` 50 lacs to be restricted to the transaction. However, subsequently in case of Shree AspiGinwala vs ACIT ITA no.3226/Ahd/2011, Hon’ble Ahmedabad Tribunal held that since the wording of the proviso to section 54EC is clear, the benefits which are available to the assessee cannot be denied. Accordingly, the assessee was allowed exemption of `1 crore u/s 54EC as the investment was made within a period of six months even though two financial years were involved. In order to put such controversy to rest, the Finance Bill has put this amendment prospectively w.e.f. 01 April 2015. Accordingly, we need to wait and watch for the action taken by the tax department with respect to the transactions that have already taken effect in the earlier period. • Investments in Long Term Specified Assets (Newly Inserted) Proviso 2 to Sec 54EC: A maximum amount of investment in specified bonds on capital gains arising on transfer of long term capital asset restricted to ` 50,00,000 where the investments are made by the assessee in two financial years.

12. Income from Other Sources… • Section 56(2)(ix) (Newly Inserted) Any sum of money received as advance or otherwise in the course of negotiation for transfer of a capital asset, if such sum is forfeited and the negotiation do not result in transfer of capital asset, then, such sum shall be taxed as income from other sources.

13. Deductions from Total Income • Deductions u/s 80C Investment limit u/s 80 C increased to ` 1,50,000. Further, in order to promote small savings, annual ceiling in PPF scheme has been increased to `1,50,000 from an current ceiling of `1,00,000. Also, to provide additional benefits to small savers, National Savings Certificate with insurance cover will be launched.

14. Amendment to Transfer Pricing Provisions Our Comments: The above amendment clarifies the situation where the transactions is entered into between such other person and the assessee and such other person is a resident Indian. Such transactions shall be deemed to be an international transaction. • Deemed International Transactions (Amended) A transaction entered into by an enterprise with a person other than an associated enterprise shall, for the purposes of Section 92B(1), be deemed to be an international transaction entered into between two associated enterprises, if there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise, or the terms of the relevant transaction are determined in substance between such other person and the associated enterprise where the enterprise or the associated enterprise or both of them are non-residents irrespective of whether such other person is a non-resident or not

15. Amendment to Transfer Pricing Provisions… Our Comments: APA are entered into for a period of 5 years. The above amendment is introduced to encourage assessees to enter into APA with the CBDT. With the roll-back provisions introduced, the assessee can now opt for the 5 years period which includes earlier 4 assessment years preceding the previous year in which the APA is entered into. APA seeks to reduce litigation under transfer pricing there by giving clear picture to the assessee with regards to determinations of ALP of the international transaction that has been entered into with its associated enterprises. This move is a welcome move and we need to see how many assessees are willing to opt for the Roll-back provisions. • Advance Pricing Agreement (Roll-Back Provisions) (Newly Inserted) w.e.f. 01 October 2014 Sec 92CC empowers CBDT (with approval of Central Government) to enter into APA with any person. Sec 92CC(9A) provides for determination of ALP, through an APA, in relation to the international transaction entered into by such person during the period of four years preceding the first previous year referred to in Sec 92CC(4) and the ALP of such international transaction entered into preceding four years shall be determined accordingly.

16. Amendment to Transfer Pricing Provisions… Our Comments: In the Budget Speech Hon’ble Finance Minister proposed to introduce the concept of range and use of multiple year data. In our view Transfer Pricing is not an exact science which can be straight-jacketed into a single ALP using the arithmetic mean concept. ALP needs to be determined “HAVING REGARDS” to various factors like geographical conditions, economic circumstances prevailing the transactions, volume of the transactions, timing of the transactions, etc. With the introduction of Use of Multiple year data and Range Concept, litigation in relation to transfer pricing adjustments would come down drastically • Use of Multiple Year Data (Proposed) • Introduction of Range Concept in Determination of ALP in alignment with best available practices (Proposed)

17. Others Sec 115- O: Change in Method for Calculation of Dividend Distribution Tax: DDT to be levied on gross amount of dividends as against the existing provisions of computing DDT on net dividends (Amended) Sec 115BBD: Dividend received from Foreign Companies: Continued to be taxed as a concessional rate of 15 percent without sunset clause. Advance Authority Ruling: Scope of AAR Expanded with Resident Tax Payers allowed to approach the AAR. The provisions will be notified within period of two months

18. Others… • Sec 133C: Power to Call for Information by Prescribed Authority: The prescribed income-tax authority, may for the purposes of verification of information in its possession relating to any person, issue a notice to such person requiring him, on or before a date to be specified therein, to furnish information or documents verified in the manner specified therein, which may be useful for, or relevant to, any inquiry or proceeding under this Act. (Newly Inserted) • Introduction to Revised Indian Accounting Standards (Ind-AS in-line with IFRS) • Voluntary for companies for FY 2015-16 • Mandatory for companies from FY 2016-17 • Implementation of Ind-AS for Banks and Insurance Companies Shall be Notified Separately.

19. TAX Rates – Individuals & HUFs * The basic exemption limit is ` 250,000 in case of every individual below the age of 60 years, ` 3,00,000 in case of resident individuals of the age of 60 years or more and ` 500,000 for ‘Very Senior Citizen” in case of resident individuals of age 80 years and above. An assessee having taxable income of more than ` 1 crore is liable to pay his tax along with 10% surcharge, provided the surcharge does not exceed the amount equivalent to the income over ` 1 crore

20. TAX Rates – Other than Individuals & HUFs * Above figures are inclusive of Surcharge and Cess

21. Glossary

22. Disclaimer The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

23. Jinesh R. Bhagdev & Co. Chartered Accountants #3, ShyamSadan, Opp. Sairaj Garden, 3rd IraniWadi, Kandivli (West), Mumbai - 400 067 Contact No:     M - +91 99209 22929                         O - +91 22 2892 9733 Email:              jinesh@jbhagdev.com Skype:             jbhagdev Website:          www.jbhagdev.com THANK YOU