Major Amendment in Budget 2014 - Direct Taxes
CPE Date : 15th November 2014
-
Complied by CA Pawankumar Soni
-
FCA , DISA(ICAI),B.Com
Ø Change of Income
Tax Slab:
o
Income tax slab was increased from Rs. 2Lakh to Rs.
2.5Lakhs for individuals.
o
For Senior Citizens increased from Rs. 2.5Lakhs to Rs.
3Lakhs
Ø Increase of limit
U/s. 80C
o
Now you can save extra Rs. 50,000 and get tax relief.
o
Now you have to increase your savings/other instruments to get
this benefit.
o
Note : Corresponding changes in Increase of PPF Limit is also
increased from Rs. 1 Lac to 1.5 Lac (Notification No. GSR 588(E) DT 13/8/2014)
Ø Increase in
Interest on Housing Loan limit
o
Interest on housing loan increased from Rs. 1.5 Lakhs to Rs. 2
Lakhs
Ø Capital Gains Tax
changes
o
Changes in brief: Budget changed taxation related to non-equity mutual funds
like FMPs, Debt Funds, Liquid Funds
o
Need to hold 3 years to become long-term (instead of 1year)
o
Taxed @ 20% (Earlier minimum of 10% without indexation & 20%
with indexation)
o
Impact: Now, return from
these FMP/Funds will be included in your income if holding period is below
3years. Also it will have retrospective effect on your fixed instrument
holdings. For example if you have purchased 1year-FMP in Mar-2014 of Rs.
10,000. The return would be included in your income & taxed based on the
present slab. Means it may be taxed at 30%(plus SC+Cess)!!!…if you are
in 30% slab.
o With these changes – you need to
rethink of investing in Liquid/Debt Funds & FMP of 1 year vis-à-vis Bank
Fixed Deposits.
Ø Forfeited Advance
o
Forfeited advance is now taxable under Other Income instead of
adjusting in capital gains.
Let us discuss
few of the Amendment in Details
Parities &
Anomalies Brought Between Section 40(a)(i) & Section 40(a)(ia) by
Finance Bill has
tried to bring parity regarding the above issue by making both the dates
specified same as due date of return filling of deductor as per section 139(1).
The amendment to section 40(a)(i) has been discussed below in detail
.
Here I am quoting
the law and the amendment made hereunder.
As per
Section40(a)(i) of Income Tax Act 1961, expenses mentioned here under will be
disallowed if
“ any interest,
royalty, fees for technical services or any other sum chargeable
under act , which is payable,
(A) Outside
India or
(B) In
India to a Non Resident, or to a foreign company ,
on which tax is
deductible at source under chapter XVIIB, and such tax has not been deducted
or, after deduction has not been paid during the previous year, or on
or before the due date specified as per section 200(1) or on or
before the due date as per section 139(1).
Provided that where
in respect of any sum, tax has deducted in any subsequent year or, has been
deducted in the previous year but paid after the due date specified as
per section 200(1) after the due date specified in section 139(1) ,
such sum shall be allowed as deduction in computing the income of the previous
year in which such tax has been paid.”
Words in Bold are
substituted by finance Bill 2014.
Meaning thereby
disallowance under Section 40(a)(i) of Income Tax Act 1961 will be attracted
(i)
if the amount paid or payable is interest, royalty ,fees for technical services
or any other sum chargeable under the income tax act and
(ii) Aforesaid
sum is paid/payable Outside India to a Non resident or a foreign company
or In India to a Non resident or a foreign company and
(iii) Sum is
taxable in the hands of the recipient under the income tax and Tax is
deductible at source (TDS) under chapter XVIIB
(iv) And any of the following default takes place,
Default A : Tax at
source has not been deducted or,
Default B: Tax at
source has been deducted but has not been paid during the previous year, or
paid after the due date specified in section 139(1).
In case any of the
two aforesaid defaults take place, then the payer is not allowed
deduction(100%) of such sum paid or payable in that previous year for such
previous year.
However one proviso
(exception) to above case is where
(i) Tax has been
deducted in the subsequent year of credit or payment or,
(ii) Tax has
been deducted in the previous year but paid in any subsequent year after the
time prescribed under section 139(1).
Then such sum will
be allowed as deduction in the year in which such tax has been paid.
Here earlier there
was an anomaly between section 40 (a)(i) and section 40 (a)(ia) [ discussed
later in this article]. Government has tried to bring parity between the two by
bringing amendment to the law by Finance Bill 2014.
Lets understand the
amendment with help of an example, ABC Ltd. [due date of filling of
income tax return is 30th September as per section 139(1)] has
to make a payment of Rs 5,00,000 to MR.B as fees for technical
services availed in July 2015, MR.A has deducted tax at source on the aforesaid
sum but has not deposited due to any reason it with government till 30th September
2016. Prior to the amendment for claiming such payment as expense in the P/Y
15-16 MR. A has to deposit TDS with the government till 30th april
2016(i.e. for any payment credited or paid in any previous year , TDS must be
deposited till 30th April of subsequent year following that
previous year). But as per amendment such time limit has been extended
till due date of filling of return as per section 139(1) of the deductor i.e.
ABC Ltd.
Consequently , as
per amendment ABC Ltd. can not claim such payment as expense for the previous
year 2015-16(500000 is disallowed 100%) . He can claim such sum as expense in
the year in which TDS is deposited by him with the government.
However one major
difference has been introduced between the two sections by the Finance Bill
2014 . Prior to amendment, in case of default under section 40(a)(ia) [
discussed below] takes place then any sum paid under the aforesaid section is
disallowed (100%) in the previous year in which such same is paid or credited
in books.As per the Finance bill 2014, the disallowance in case of default
is changed from 100% to 30%. Now in case of aforesaid default only 30%
of such sum is disallowed and 70% will be given as deduction for the previous
year in which such sum is paid or credited. The 30% of such sum will be allowed
in the year of payment of TDS. Whereas in case of default under section
40(a)(i) the disallowance is 100% itself.
The amendment is
discussed below in detail .
As per
Section40(a)(ia) of Income Tax Act 1961, expenses mentioned here under will be
disallowed if
“ any interest
,commission or brokerage, rent, royalty, fees for technical services , payable
to a RESIDENT, or amounts payable to a contractor or sub- contractor being
Resident for carrying out any work (including supply of labour for carrying out
any work) or any salary payable under section 192 ,
on which tax is deductible at source under chapter XVIIB, and such tax has not
been deducted or, after deduction has not been paid on or before the due date
specified in section 139(1) , thirty percent of any sum payable to a
resident.
Provided that where
in respect of any sum, tax has deducted in any subsequent year or, has been
deducted during the previous year but has been paid after the due date
specified in section 139(1) , thirty percent of such sum shall
be allowed as deduction in computing the income of the previous year in which
such tax has been paid.
Provided further
that where an assessee fails to deduct the whole or any part of the tax in
accordance with the provisions of chapter XVII-B on any such sum is not deemed
to be an assessee in default under the first proviso to section 201(1), then
for the purpose of this sub clause , it shall be deemed that assessee has
deducted and paid the tax on such sum on the date of furnishing of return of
income by the resident payee referred to in the said proviso.”
Words in Bold are
inserted by finance Bill 2014.
Meaning hereby
disallowance will be attracted under section 40 (a)(ia) if the amount payable
isany interest, commission or brokerage, rent, royalty, fees for technical
services , payable to a RESIDENT, or amounts payable to a contractor or sub-
contractor being resident for carrying out any work ( including supply of
labour for carrying out any work) , on which tax is deductible at source under
chapter XVIIB, and tax is not deducted or deducted but not paid to the credit
of central government before the due date as per section 139(1) i.e. is the due
date of filling of income tax return .
However, again
there is an anomaly between the two sections and i.e. in case resident payee (
who has earned the income) has taken such sum for computing income in the
return of income(ROI) under section 139 and resident payee has paid tax due on
income declared by him in ROI, then the payer(who has to make payment) is not deemed
to be defaulted under section 40(a)(ia).
Also salary payable
to resident employees were not covered earlier by the said section which now
stand covered under the same and all provisions of this section will apply same
to salary also as to other nature of payment .
Lets understand
this with the help of an example, say, A Ltd. Whose date of filling of return
is 30th September pays the following sums without deduction of
TDS, Rs. 200000 to MR.B , a resident, as rent(due date of filling of return for
MR.B is 31st July) and Rs. 500000 to XYZ LTD , a resident
company, as professional fees( due date of filling of return for XYZ LTD is 30th September).
The above sum were paid on 1st july, 2015 without deduction of
tax. Also MR.B & XYZ LTD has not added such income in their return of
income.as per law tax has to be deducted and paid till 30th September
i.e. due date of filling of return of A LTD for availing such payment as
expense in P/Y 2015-16. Now as per amendment to Finance Bill 2014, 210000
{30% of (200000+500000)} will be disallowed in the previous year 2015-16 and
490000 (700000-210000) will be allowed as expense previous year 2015-16.
However had this payment is made to NON RESIDENT under section 40(a)(i) and TDS
is not deposited by due date then 100% of amount Rs.700000 would have been
disallowed.
Levy of penalty U/s. 276D mandatory for
willful default U/s. 142(1) or 142(2A
Failure to produce accounts and documents
Levy of penalty made mandatory. It is proposed to remove the monetary limit of
fine and also proposed mandatory levy of fine. The existing provisions of
section 276D of the Act provide that if a person willfully fails to produce
accounts and documents as required in any notice issued under sub-section (1)
of section 142 or willfully fails to comply with a direction issued to him
under sub-section (2A) of section 142, he shall be punishable with rigorous
imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a
rate which shall not be less than four rupees or more than ten rupees for every
day during which the default continues, or with both.
It is proposed to amend the provisions of
the said section so as to provide that if a person willfully fails to produce
accounts and documents as required in any notice issued under sub-section (1)
of section 142 or willfully fails to comply with a direction issued to him
under sub-section (2A) of section 142, he shall be punishable with rigorous
imprisonment for a term which may extend to one year and
with fine.
Mode of acceptance or repayment of loans
and deposits ECS, RTGS and NEFT etc. are now proposed to be allowed as
permissible mode to accept or repay the deposit or loan specified under section
269SS and 269T respectively. -
Levy interest U/s. 220 from the date of expiry of period stated in the notice of demand U/s. 156 -
Levy interest U/s. 220 from the date of expiry of period stated in the notice of demand U/s. 156 -
The existing provision contained in
sub-section (1) of section 220 provides that any amount specified as payable in
a notice of demand under section 156 shall be paid within thirty days of
the service of notice at the place and to the person mentioned in the
notice. Sub-section (2) states that if the amount specified in the notice is
not paid within the period, the assessee shall be liable to pay simple
interest at one per cent for every month or part of a month comprised in the
period commencing from the day immediately following the end of the period
mentioned in sub-section (1) and ending with the day on which the amount
is paid. The proviso to sub-section (2) states that where as a result of
an order under sections 154, 155, 250, 254, 260, 262, 264 or sub-section (4) of
section 245D, the amount on which interest payable under this section had been
reduced, the interest shall be reduced accordingly and the excess
interest paid, if any, shall be refunded.
Liability of the assessee to pay
interest is based on the theory of continuity of the proceedings and the
doctrine of relation back. Accordingly, it is proposed to insert a new
sub-section in section 220 so as to provide that where any notice of demand has
been served upon an assessee and any appeal or other proceeding, as the case
may be, is filed or initiated in respect of the amount specified in the said
notice of demand, then such demand shall be deemed to be valid till the
disposal of appeal by the last appellate authority or disposal of proceedings,
as the case may be and such notice of demand shall have effect as provided in
section 3 of the Taxation Laws (Continuation and Validation of
Recovery Proceedings) Act, 1964.
It is further proposed to provide
that where as a result of an order under sections specified in the first proviso,
the amount on which interest was payable under this section had been reduced
and subsequently as a result of an order under said sections or section 263,
the amount on which interest was payable under section 220 is increased, the
assessee shall be liable to pay interest under sub-section (2) of the said
section on the amount payable as a result of such order, from the day
immediately following the end of the period mentioned in the first notice of
demand referred to in sub section (1) of the said section and ending with the
day on which the amount is paid.
Grants Power of Survey for verification of TDS defaults -
Presumptive income amount increased to Rs. 7500 for Business
of Plying, Hiring or Leasing Goods Carriages -
The existing
provisions of section 44AE of the Act provides for presumptive taxation in
the case of an assessee who is engaged in the business of plying, hiring or
leasing goods carriages and not owning more than ten goods carriages at any
time during the previous year. Income from the said business is calculated as
under:
Type of Goods carriage
|
Amount of presumptive income
|
Heavy goods vehicle (HGV)
|
Rs.5,000 for every month (or part of a month) during
which the goods carriage is owned by the taxpayer.
|
Vehicle other than HGV
|
Rs. 4,500 for every month (or part of a month) during
which the goods carriage is owned by the taxpayer.
|
The amount of
presumptive income was revised by the Finance (No.2) Act, 2009.
Further, the existing provisions make a distinction between HGV and vehicle other
than HGV for specifying the amount of presumptive income.
Considering the
erosion in the real values of the amount of specified presumptive income due to
inflation over the years and also in order to simplify this presumptive
taxation scheme, it is proposed to provide for a uniform amount of
presumptive income of Rs.7,500 for every month (or part of a month) for all
types of goods carriage without any distinction between HGV and vehicle other
than HGV.
Budget 2014 – Capital gains arising from
transfer of an asset by way of compulsory acquisition - :
The existing provisions contained in
section 45 provide for charging of any profits or gains arising from transfer
of a capital asset. Sub-section (5) of the said section provides for dealing
with capital gains arising from transfer by way of compulsory acquisition where
the compensation is enhanced or further enhanced by the court, Tribunal or any
other authority. Clause (b) of the said sub-section provides that where the
amount of compensation is enhanced or further enhanced by the court it shall be
deemed to be the income chargeable of the previous year in which such amount is
received by the assessee. There is uncertainty about the year in which the
amount of compensation received in pursuance of an interim order of the court
is to be charged to tax, due to court orders. Accordingly, it is proposed to
provide that the amount of compensation received in pursuance of an interim
order of the court, Tribunal or other authority shall be deemed to be income chargeable
under the head ‘Capital gains’ in the previous year in which the final order of
such court, Tribunal or other authority is made. –
Trading in derivative by Company mainly
engaged in Trading of Shares will be treated as Speculative -
Losses in Speculation Business The
existing provisions of section 73 of the Act provide that losses incurred in
respect of a speculation business cannot be set off or carried forward and set
off except against the profits of any other speculation business. Explanation
to section 73 provides that in case of a company deriving its income mainly
under the head “Profits and gains of business or profession” (other than a
company whose principal business is business of banking or granting of loans
and advances), and where any part of its business consists of
purchase or sale of shares, such business shall be deemed to be speculation
business for the purpose of this section.
Sub-section (5) of section 43 defines the
term speculative transaction as a transaction in which a contract for purchase
or sale of any commodity, including stocks and shares, is settled otherwise
than by way of actual delivery. However, the proviso to the said section
exempts, inter alia, transaction in respect of trading in derivatives on a recognized
stock exchange from its ambit.
It is proposed to amend the aforesaid
Explanation so as to provide that the provision of the Explanation shall also
not be applicable to a company the principal business of which is the
business of trading in shares.
Exemption U/s. 54EC cannot exceed Rs. 50
Lakh despite investment in two Years -
Capital gains exemption on investment in
Specified Bonds The existing provisions contained in sub-section (1) of section
54EC of the Act provide that where capital gain arises from the transfer of a
long-term capital asset and the assessee has, within a period of six months,
invested the whole or part of capital gains in the long-term specified asset,
the proportionate capital gains so invested in the long-term specified asset,
out of the whole of the capital gain, shall not be charged to tax. The proviso
to the said sub-section provides that the investment made in the long-term
specified asset during any financial year shall not exceed fifty lakh rupees.
However, the wordings of the proviso have created an ambiguity. As a result the
capital gains arising during the year after the month of September were
invested in the specified asset in such a manner so as to split the investment
in two years i.e., one within the year and second in the next year but before
the expiry of six months. This resulted in the claim for relief of one crore
rupees as against the intended limit for relief of fifty lakh rupees.
Accordingly, it is proposed to insert a proviso in sub-section (1) so as to
provide that the investment made by an assessee in the long-term specified
asset, out of capital gains arising from transfer of one or more original
asset, during the financial year in which the original asset or assets are
transferred and in the subsequent financial year does not exceed fifty lakh
rupees.
Benefit U/s. 54 / 54F available only if
investment is made in one residential house situated in India –
Capital gains exemption in case of
investment in a residential house property The existing provisions contained in
sub-section (1) of section 54, inter alia, provide that where capital gain
arises from the transfer of a long-term capital asset, being buildings or lands
appurtenant thereto, and being a residential house, and the assessee within a
period of one year before or two years after the date of transfer, purchases,
or within a period of three years after the date of transfer constructs, a
residential house then the amount of capital gains to the extent invested in
the new residential house is not chargeable to tax under section 45 of the Act.
The existing provisions contained in sub-section (1) of section 54F, inter
alia, provide that where capital gains arises from transfer of a long-term
capital asset, not being a residential house, and the assessee within a period
of one year before or two years after the date of transfer, purchases, or
within a period of three years after the date of transfer constructs, a
residential house then the portion of capital gains in the ratio of cost of new
asset to the net consideration received on transfer is not chargeable to tax.
The benefit was intended for investment in one residential house within India.
Accordingly, it is proposed to amend the aforesaid sub-section (1) of section
54 so as to provide that the rollover relief under the said section is
available if the investment is made in one residential house situated in India.
It is further proposed to amend the aforesaid sub-section (1) of section 54F so
as to provide that the exemption is available if the investment is made in one
residential house situated in India.
Loophole allowing Double deduction to
Charitable Trust Related to Capital Assets and Depreciation plugged –
Existing scheme of section 11 as well as
section 10(23C) provides exemption in respect of income when it is applied to
acquire a capital asset. Subsequently, while computing the income for purposes
of these sections, notional deduction by way of depreciation etc. is claimed
and such amount of notional deduction remains to be applied for charitable
purpose. Therefore, double benefit is claimed by the trusts and institutions
under the existing law. The provisions need to be rationalised to ensure that
double benefit is not claimed and such notional amount does not get excluded
from the condition of application of income for charitable purpose. In view of
the above, it is also proposed to amend the Act to provide that under section
11 and section 10(23C), income for the purposes of application shall be
determined without any deduction or allowance by way of depreciation or
otherwise in respect of any asset, acquisition of which has been claimed as an
application of income under these sections in the same or any other previous
year -
TDS on non-exempt payments made under
life insurance policy -
Under the existing provisions of section
10(10D) of the Act, any sum received under a life insurance policy, including
the sum allocated by way of bonus on such policy is exempt subject to
fulfillment of conditions specified under the said section. Therefore, the sum
received under a life insurance policy which does not fulfill the conditions
specified under section 10(10D) are taxable under the provisions of the Act. In
order to have a mechanism for reporting of transactions and collection of tax
in respect of sum paid under life insurance policies which are not exempted
under section 10(10D) of the Act, it is proposed to insert a new section in the
Act to provide for deduction of tax at the rate of 2 per cent. on sum paid
under a life insurance policy, including the sum allocated by way of bonus,
which are not exempt under section 10(10D) of the Act. In order to reduce the
compliance burden on the small tax payers, it has also been proposed that no
deduction under this provision shall be made if the aggregate sum paid in a
financial year to an assessee is less than Rs.1,00,000/-.
Summary on Changes
of Tax Deduction at Source (TDS)
·
To claim the expenditure, TDS on payment made to non-residents
can be deposited before filing of return [Sec 40(a)(i)]
·
In case of non-deduction or non-payment of TDS from
certain payments made to residents, only 30% of the expenditure shall be
disallowed. [Sec 40(a)(ia)]
·
Disallowance u/s 40(a)(ia) shall extend to all payments on which
tax is deductible
·
Time limit for 2 years to treat payer as assessee in default has
been dispensed with.
·
Time limit of 6 years for TDS Statements not filed, extended to
7 years.
An income tax authority
may for the purpose of checking of compliance of TDS may survey any premises
and enquire about books of accounts etc u/s 133A
Other amendments
Other amendments
·
Corporate Social Responsibility (CSR) expenditure not allowed as
deduction u/s 37
·
Transfer of Government Security (carrying a periodic payment of
interest) by one non-resident to other non-resident shall be exempt from
capital gains tax.
·
Transaction in respect of trading in Commodity derivatives
carried out in recognized association and chargeable to CTT is not speculative
transaction.
·
New Section 133C inserted to empower the prescribed income tax
authority to issue notice to person, whose information is in possession of such
authority, requiring him to furnish information or documents.
·
Sec 285BA includes more transactions and reportable accounts to
be furnished by specified persons to the income tax authority.
·
Assessment of income of a person other than the searched person
u/s 153C only if the Assessing officer of such other person is satisfied that
books etc seized or requisitioned have a bearing on the determination of the
total income of such other person.
·
Credit of Alternate Minimum Tax u/s 115C shall be allowed.
Thank you for your Patience Hearing
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