As soon as the Budget proposals are announced by the Finance Minister, the entire country goes into overdrive for analysing the proposals and the impact they would have on the economy, stock markets, industry, trade and the common man. Our profession is no exception. Therefore, at WIRC we have always strived to provide the most lucid analysis as soon as possible for the benefit of our fraternity, their clients and the people at large.
This year the Budget proposals have been kept limited considering the economic situation, political compulsions, etc. The Finance Minister has done some tight manoeuvring to rein in the fiscal deficit, harness inflation and give some impetus to industry and investments.
We are pleased to give an analytical overview of the Budget proposals and would like to thank all the contributors for their painstaking efforts in giving us their analysis in such a short time.
We trust that you will find the publication useful as a handy guide for better understanding of the Budget proposals.
CA. Shruti Shah CA. Hardik Shah
Chairperson, Direct Tax Committee of Chairman, Indirect Tax Committee of
The last one year has featured internal as well as external influences having affected the economy and hampered the growth. Amidst the slowdown, high inflation and ballooning current account deficit, the Finance Minister has had to tread very carefully to lighten the economic burden of the country while painting an encouraging and balanced picture to attract investors, both domestic & foreign.
Economic activity is expected to be given a boost through higher allocation (29.4%) towards plan expenditure and increased outlays for social infrastructure, education, rural development, health and urban development. The Finance Minister has also emphasized on the development of the youth and empowerment of women, feeling it to be the need of the hour.
The Finance Minister has tried to adopt a carrot and stick approach while trying to get the economy back on track. Taking on the challenge of fiscal deficit headlong the budget aims for fiscal consolidation by curtailing Government expenditure, limiting fuel subsidy, re-looking at disinvestment opportunities apart from other measures. Certain direct tax proposals are intended to be methods of increasing the tax-GDP ratio by augmenting tax revenues. The imposition of surcharge on the “super-rich”, increase in surcharge for the corporate sector, imposition of Commodities Transaction Tax on non-agri commodities are some such measures.
However, incentive for the manufacturing sector in the form of an investment allowance of 15% for new plant and machinery exceeding Rs 100 crore is a welcome move. Proposal for continuation of concession on Dividend Distribution Tax for dividends from foreign subsidiaries and onward removal of cascading effect of tax thereon may help to promote repatriation of more funds to India.
On the one hand, The Finance Minister has seemed to show a softer stance by introducing the Service Tax Voluntary Compliance Encouragement Scheme, where as on the other hand, the stringent provisions of increased penalty and imprisonment gives the message that non-compliances will be seen very seriously.
I sincerely thank Chairperson of Direct Tax Committee, CA. Shruti Shah and Chairman of Indirect Tax Committee, CA. Hardik Shah for their efforts in compiling this publication in a short time. I also thank and acknowledge the untiring commitment and immense contribution made by CA. A. R. Krishnan, CA. S. S. Gupta, CA. Ketan Ved, CA. Paras Savla, CA. N. C. Hegde and CA. Sanjeev Lalan in preparing this publication.
I wish all the members a successful and prosperous new financial year! CA. Mangesh Kinare
Sr. No. Particulars Page Nos.
Foreword ... i
Preface ... ii
DIRECT TAXES I. Rates of Tax ...1
II. Individual Taxation ...9
III. Corporate Taxation ...12
IV. Anti Avoidance Provisions ...18
V. Procedural Provisions ...22
VI. Agricultural Income & Land ...27
VII. Other Major Amendments ...28
INDIRECT TAXES I. CUSTOMS DUTY ... 32
II. CENTRAL EXCISE & CENVAT CREDIT RULES ... 36
Unless otherwise specifically mentioned, the amendments proposed are effective from the Assessment Year (“A.Y.”) 2014-2015 and are, therefore, applicable to income arising on or after 1st April, 2013. Specific mention is made at the relevant places, when the effective date of the proposed amendment is other than A.Y. 2014-15. Reference to the existing provisions means the provisions of the Income-tax Act, 1961 (“Act”) prior to the amendments proposed in the Finance Bill, 2013 (“Bill”). Any reference to sections, unless otherwise stated, is to the sections of the Act.
I. RATES OF TAX
1. The following changes have been proposed in the Bill in the rates of tax.
• No change in individual tax slab rates. However individual earning gross total income up to ` 5,00,000 is entitled for rebate of ` 2,000 or tax amount, whichever is lower.
• Surcharge has been introduced applicable to Individual, HUF, AOP, BOI, AJP, Firm, Local Authority, Co-operative society earning gross income exceeding ` 10 crores.
• Surcharge on companies raised― Domestic Company
a. Total Income upto ` 1 crore – Nil b. Total Income exceeding ` 1 crore but
upto ` 10 crore – 5%
c. Total Income exceeding ` 10 Crore –10% Other than Domestic Company
Total Income up to ` 1 crore – Nil Total Income exceeding `1 crore
but upto ` 10 crore – 2%
Total Income exceeding ` 10 Crore – 5%
DIRECT TAX
• Basic exemption limit for each kind of assessee is as under:
Sr. Persons Amount (`)
No.
1. Individuals, including women (other 2,00,000 than Senior Citizen / Very Senior
Citizen) HUF, BOI, AOP, Artificial juridical person (other than society, local Authority)
2. Senior Citizen (Age from 60 but 2,50,000 less than 80 years)
3. Very Senior Citizen (Age 80 years 5,00,000 and above)
• As a relief to marginal tax payer, it is proposed to introduce new section 87A providing rebate of ` 2,000 or tax amount, whichever is lower. Relief is available to the tax payer whose total income is not exceeding ` 5,00,000.
• There is no change in —
tax rates for Firms, Domestic Companies, Company other than Domestic Company and Co-operative Societies (other than due to levy of surcharge);
educational cess, secondary and higher secondary cess and its applicability;
the rate of Dividend Distribution Tax (“DDT”) (other than due to levy of surcharge);
the rate of Minimum Alternate Tax (“MAT”) (other than due to levy of surcharge).
• Concessional rate of tax of 15% levied on dividend income received from a foreign subsidiary company extended for dividends received upto 31st March, 2014.
• There is no change in Wealth Tax threshold limit and rate of tax.
• Rate of Securities Transaction Tax in sale of a unit of equity oriented fund reduced to 0.001% from 0.1% and sale of futures from 0.017% to 0.01%.
• Commodity Transaction Tax has been introduced @ 0.01% on sale of Commodity Derivative, other than on agricultural commodity derivative.
2. The proposed income-tax rates (including surcharge at the rate applicable, educational cess @ 2% and secondary and higher secondary cess @ 1%) for A.Y. 2014-15 have been given in Table 1. These rates are applicable on income earned during the period 1 April 2013 to 31st March, 2014.
3. The rates of Dividend Distribution Tax, Securities Transaction Tax, Commodities Transaction Tax and Wealth Tax are given in Table 2.
TABLE 1
Threshold Tax Rates Particulars Limit for
Surcharge Without With Surcharge Surcharge Individuals, HUF, AOP & BOI ` 1,00,00,000
Up to ` 2,00,000 NIL NIL
` 2,00,001 – ` 2,50,000*∞ 10.3000% 11.3300% ` 2,50,001 – ` 5,00,000** ∞ 10.3000% 11.3300% ` 5,00,001 – ` 10,00,000 20.6000% 22.6600% ` 10,00,001 – ` 1,00,00,000 30.9000% 33.9900% ` 1,00,00,000 and above N.A. 33.9900% Alternate Minimum Tax # ` 1,00,00,000 19.0550% 20.9605%
* “Nil” Tax Rate in case the assessee is resident aged 60 years and above but below age of 80 years.
** “Nil” Tax Rate in case the assessee is resident and above the age of 80 years. ∞ Resident individual is entitle to claim rebate up to ` 2,000 or tax amount,
whichever is lower.
# Applicable in case of individuals, HUF, AOP and BOI having adjusted total income equal to or exceeding ` 20,00,000 and where a deduction is claimed under sections 80H to 80TTA (except 80P) and section 10AA.
Limited Liability Partnership
Normal tax ` 1,00,00,000 30.9000% 33.9900% Alternate Minimum Tax # ` 1,00,00,000 19.0550% 20.9605%
#Applicable in case of partnership firms where a deduction is claimed
under sections 80H to 80TTA (except 80P) and section 10AA. Domestic company
Normal Tax ` 1,00,00,000 30.9000 % 32.4450% `10,00,00,000 N.A. 33.9900% Minimum Alternate Tax ` 1,00,00,000 19.0550% 20.0078% `10,00,00,000 N.A. 20.9605% Company other than
Domestic company
Normal Tax ` 1,00,00,000 41.2000% 42.0240% `10,00,00,000 N.A. 43.2600% Minimum Alternate Tax ` 1,00,00,000 19.0550% 19.4361% `10,00,00,000 N.A. 20.0078% Local Authority ` 1,00,00,000 30.9000% 33.9900% Co-operative Society ` 1,00,00,000 Up to ` 10,000 10.3000% 11.3300% ` 10,001 – ` 20,000 20.6000% 22.6600% ` 20,001 – ` 1,00,00,000 30.9000% 33.9900% ` 1,00,00,000 onwards N.A. 33.9900% STCG on listed Security Individuals, HUF, ` 1,00,00,000 15.4500 % 16.9950% AOP & BOI
Partnership Firm ` 1,00,00,000 15.4500 % 16.9950% Domestic Company ` 1,00,00,000 15.4500 % 16.2225% `10,00,00,000 N.A. 16.9950% Company other than ` 1,00,00,000 15.4500% 15.7590% Domestic Company `10,00,00,000 N.A. 16.2225%
LTCG*
Individuals, HUF, AOP, & BOI ` 1,00,00,000 20.6000% 22.6600% Partnership Firm ` 1,00,00,000 20.6000% 22.6600% Domestic company ` 1,00,00,000 20.6000% 21.6300% ` 10,00,00,000 N.A. 22.6600% Company other than ` 1,00,00,000 20.6000% 21.0120% Domestic Company ` 10,00,00,000 N.A. 21.6300% *Other than LTCG arising on sale of listed securities (which are sold otherwise then on stock exchange) which, at the option of the tax payer, can be taxed at a concessional tax rate of 10% (ignoring the indexation benefit).
TABLE 2
Particulars Tax Rates
Dividend Distribution Tax
By Domestic Company 16.9950%
By Money Market Mutual Fund or Liquid fund
—For income distributed to Individual/HUF 28.3250% —For income distributed to others 33.9900 % By other Money Market
Mutual Fund or Liquid fund
—For income distributed to 13.5187% &
individuals / HUF 28.325% -
w.e.f. 1st June, 2013
—For income distributed to others 33.9900 % By a Mutual Fund under Infrastructure Debt Fund Scheme
—For income distributed to non-residents / 5.6650% - w.e.f
Foreign Company 1st June, 2013
Note: Equity Linked Mutual Fund continues to be exempt from DDT
Buy Back of Shares 22.6600% w.e.f. 1st June, 2013
Securities Transaction Tax Up to 31st From STT to be May 2013 1st June 2013 paid by Delivery based purchase of 0.1% N.A. Purchaser an Equity Share in
Company or Unit of an equity oriented fund
Delivery based purchase N.A. 0.1% Purchaser of an Equity Share
in Company
Delivery based sale of 0.1% N.A. Seller an Equity Share in
Company or Unit of an equity
oriented fund
Delivery based sale N.A. 0.1% Seller of an Equity
Share in Company
Delivery based sale 0.1% 0.001% Seller of Unit of an
Equity Oriented Fund
Non-Delivery based 0.025% 0.025% Seller sale of an Equity
Share in Company or Unit of an Equity Oriented Fund
Derivatives-Options 0.017% 0.017% Seller Sale of an option in 0.125% 0.125% Purchaser securities where
option is exercised
Derivatives - Futures 0.017% 0.010% Seller Repurchase of Units 0.250% 0.001% Seller of an Equity
Oriented Fund by a Mutual Fund
Sale of an unlisted 0.2% 0.2% Seller Equity Shares under
Commodities Transaction Rate of Tax To be paid
Tax by
Sale of commodity 0.01% (applicable from Seller derivatives, traded in the date to be
recognised associations notified) (Other than
Agricultural commodity derivatives)
Wealth Tax Rate of Tax Threshold limit For every individual, HUF 1% ` 30,00,000 and Company (other than
Section 25 Companies)
Tax on income distributed to unit holders
4. Rate of tax on an income distributed to individual & HUF by a fund other than money market mutual fund or a liquid fund has been raised to 25% from existing 12.5%.
5. Income received by the non-resident from infrastructural debt fund is chargeable to tax at the concessional rate of tax of 5%. It is now proposed to extend concessional rate to income distributed by a mutual fund under an Infrastructure debt scheme. Currently rate of tax on income distributed by a mutual fund under an Infrastructure debt scheme is 12.5% or 30% as the case may be. However, the new proviso states that when any income is distributed by the Mutual Fund under an Infrastructure debt scheme, the mutual fund would be liable to pay additional income tax @ 5% on such distribution. The above amendment is proposed to take effect from 1st June, 2013. Taxability of “royalty” or “fees for technical services”
6. In terms of section 115A of the Act, “royalty” or “fees for technical services” received by a non-resident pursuant to an agreement entered in to on or after 1st June, 2005 is taxable at the rate of 10%. 7. The Bill proposes to amend the said section 115A to provide that
any amount in the nature of “royalty” or “fees for technical services” received by a non-resident on or after 1st April, 2014 in pursuance of
an agreement entered in to after 31st March, 1976 will be taxable at the rate of 25%.
8. It may, however, be noted that in spite of this proposed amendment, if the rate for taxation of “royalty” or “fees for technical services” under the relevant DTAA is lower than 25% then the applicable rate will be that lower rate.
Commodity Transaction Tax
9. Chapter VII of the Finance Bill 2013 introduces new levy in the form of Commodity Transaction Tax (CTT). Brief features of CTT are ― Taxable Transaction: Sale of commodity derivatives in respect of commodities other than agricultural commodities on recognised association. No tax is levied on sale of agricultural commodity derivative and currency derivative.
CTT rate: 0.01% on sale value of commodity derivative (non-agricultural commodity)
CTT paid by: Seller
Collection and payment of STT: It is provided that CTT would be collected by the recognised association from the seller and paid to the credit of Central Government within 7 days from end of calendar month in which it is collected.
Other procedure: Chapter also provides for other procedural requirements like furnishing of return, assessment, rectification of mistake, levy of interest & penalty on delayed payments, penalty for non-filing of return, non-compliance of notice, applicability of certain provisions of Income-tax Act, 1961, appeals, prosecution etc. Date of Applicability: From the date of notification
It has been also provided that CTT would be allowed as deduction u/s 36(xvi) while computing income arising out of commodity derivative transactions under the head ‘Profits and gains of business and profession’.
Similar provisions were also sought to be introduced by Finance Bill, 2008, but were dropped at the time of passage of the Bill. Then rate of CTT proposed was 0.017%.
II. INDIVIDUAL TAXATION
Assigned Keyman Insurance Policies
10. As per clause (10D) of section 10 amount received under a life insurance policy, other than Keyman insurance cover, is exempt on fulfilment of certain conditions. There was an anomaly in the provisions in respect of sums received on maturity of such assigned Keyman insurance policies by the Keyman concerned. It is now proposed to amend the Explanation-1 to the said clause w.e.f. 1st April, 2013, to provide that even a policy which is assigned, with or without consideration, shall continue to mean “Keyman insurance policy”. Thus, any sum received by an assignee in respect of such assigned Keyman insurance policy, whether for consideration or not, shall not be exempt from tax. In effect the Delhi High Court decisions in CIT vs. Rajan Nanda [(2012) 349 ITR 8 (Del)] and Escort Heart
Institute & Research Centre vs. CIT [(2013) 30 taxmann.com 4] are
proposed to be overruled by the amendment. Immovable property received for inadequate consideration
11. Presently as per the provisions of section 56(2)(vii)(b) any immovable property, the stamp duty value of which is less than fifty thousand rupees, which is received without consideration is taxable. However, if the property is received for inadequate consideration, same has held to be not coming within the purview of this provision. In order to bring the immovable property received for inadequate consideration within the purview of this section, it is proposed to replace clause (b) by a new clause. The effect of proposed amendment shall be that receipt of any immovable property for a consideration which is less than the stamp duty value by an amount exceeding fifty thousand rupees, then the difference in stamp duty value and consideration paid shall be considered to be income under section 56(2)(vii).
12. It is also proposed to provide that where the date of an agreement fixing the value of consideration for the transfer of the asset and date of registration of the transfer of the asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of the registration of such transfer. This exception shall apply only in those cases where amount of consideration or part thereof for the transfer has been received by
any mode other than cash on or before the date of the agreement for transfer of asset. These provisions are similar to that introduced in Section 43CA.
13. It is surprising to note that adequate safeguards as contained in sub-sections (2) and (3) of section 50C are not provided in case of this provision.
Premium on life lnsurance policies for persons with disabilities or disease 14. Under the existing provisions of clause (10D) of section 10, any sum
received under a life insurance policy is exempt if the premium for any of years during the term of the policy does not exceed ten per cent of the capital sum assured. However, in respect of policies for persons with disabilities or suffering from disease, the annual premium amount is generally higher. Thus, in respect of following class of persons the said limit of premium being ten per cent of capital sum assured is being proposed to be increased to fifteen per cent for policies issued on or after 1st April, 2013 ―
(i) persons with disabilities or a person with severe disabilities as referred to in section 80U or
(ii) suffering from disease or ailment specified in rule 11DD made under section 80DDB.
The premium on such policy was also not eligible for deduction under section 80C. Now, as per amendment proposed in sub-section (3A) to section 80C, on similar lines such policies issued after 1st April, 2013 shall also be eligible for deduction under section 80C. Extension of benefit for contributions made to health schemes
15. It is proposed to amend section 80D so as to allow the benefit of deduction of amount not exceeding ` 15,000/- in respect of any payment or contribution made by the assessee to such other schemes as may be notified by the Central Government.
Deduction in respect of interest on loan for acquiring residential house property
16. A new section 80EE is proposed to be inserted with a view to provide additional benefit for first time home buyers in respect of interest payment on loan taken from any financial institution for residential house property.
17. It is proposed to provide a deduction of not more than ` 1 lakh in respect of interest payable on loan taken (sanctioned amount not to exceed ` 25 lakhs) by an individual from any financial institution for the purpose of acquisition of a residential house property, the value of which does not exceed ` 40 lakhs. Further, in case, where such interest payment is less than ` 1 lakh in the previous year ending on 31st March, 2014, i.e. A.Y. 2014-15, the balance amount shall be allowed as deduction in A.Y. 2015-16.
18. In order to avail the above deduction, the individual assessee should not own any residential house on the date of sanction of loan. 19. Sub-section (4) of section 80EE provides that, where a deduction
for any interest is allowed under section 80EE(1), deduction shall not be allowed on such interest under any other provisions of the Act for the same or subsequent assessment year. In the explanatory memorandum it is clarified that “Keeping in view the need for
affordable housing, an additional benefit for first-home buyers is proposed…”. Before this clarification the background of deduction
available under section 24 is also given. Thus, it would mean that to the extent of deduction available under section 80EE, no deduction can be claimed under section 24 and not that benefit of section 24 shall be lost in respect of balance portion of interest over and above one lakh rupees.
20. While under sub-section (5) defines the terms “financial institution” and “housing finance company” are defined, there is no reference to
“housing finance company” in any of the preceding sub-sections!
Rajiv Gandhi Equity Savings Scheme
21. As per the present provisions of section 80CCG, a resident individual, being a first time retail investor and whose total income during the previous year does not exceed ten lakh rupees, is eligible to claim a deduction of fifty per cent up to maximum of twenty five thousand rupees in the year of investment, subject to satisfaction of other conditions. This deduction is available only once, i.e. in the year in which investment is made for the first time.
22. As per amendments proposed, the benefit under the said section is proposed to be extended to investment in listed units of an equity oriented fund defined in section 10(38). Further, the benefit
of this section is proposed to be extended over a period of three consecutive assessment years beginning with assessment year in which investment is first made. Also, the condition as to limit of total income of the individual investor in the year in which investment is made is proposed to be enhanced to twelve lakh rupees from ten lakh rupees, by amending clause (i) of sub-section (3).
III. CORPORATE TAXATION
Investment in new assets by manufacturing company
23. A new section 32AC is proposed to be inserted to allow deduction of a sum equal to fifteen per cent of the actual cost of new assets acquired and installed after the 31st March, 2013 but before 1st April, 2015 if the aggregate amount of actual cost of such new assets exceeds one hundred crore. This deduction is available to an assessee which is a company and engaged in manufacture or production of any article or thing. This deduction is available for two years as under ―
(a) for assessment year commencing on 1st April, 2014, of a sum equal to fifteen per cent of the actual cost of assets acquired and installed after 31st March, 2013 but before 1st April, 2014, if the aggregate investment exceeds rupees one hundred crore; and
(b) for assessment year commencing on 1st April, 2015, of a sum equal to fifteen per cent of the actual cost of assets acquired and installed after 31st March, 2013 but before 1st April, 2014, as reduced by deduction allowed, if any, as per (a) above.
24. If any new asset is sold or otherwise transferred within a period of five years after installation, then deduction allowed on such new asset shall be deemed to the income of the year in which such new asset is sold or otherwise transferred as per the proposed sub-section (2) to section 32AC. The issues that would arise here is whether the whole of deduction will be withdrawn or deduction allowed in respect of new asset that is sold or transferred shall only be withdrawn, especially in a case where the actual cost of new asset sold or transferred leads to a situation that the actual cost of new assets in aggregate in the year of acquisition and installation falls below the threshold limit of rupees one hundred crore. It is also interesting to note that the section does not specify the condition of “put to use” for claim of deduction and it would suffice if the new assets are acquired and installed.
25. The deduction shall not be withdrawn under section 32AC(2) where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years. However, the conditions of sub-section (2) shall apply to the amalgamated or resulting company, as the case may be, as it would have applied to the amalgamating company or demerged company as specified in section 32AC(3).
26. This deduction would be available even if such assets are acquired and installed in more than one manufacturing business by the same company assessee if the aggregate value of actual cost of investment exceeds one hundred crore rupees.
27. As per sub-section (4) for the purpose of section 32AC, the new assets shall mean any new plant and machinery (other than ship or aircraft), other than the following ―
(i) any plant or machinery which was earlier used either within or outside India by any other person;
(ii) any plant or machinery installed in any office premises or any residential accommodation including guest house;
(iii) any office appliances including computers or computer softwares;
(iv) any vehicle; or
(v) any plant or machinery in respect of which hundred per cent deduction is allowed, whether by way of depreciation or otherwise, in computing income under the head “Profits and gains of business or profession” of any previous year.
28. It should be noted that “actual cost” has been defined under sub-section (1) to section 43 and therefore actual cost of new assets would have to be computed in accordance with the said provision. Disallowances in case of State Government Undertaking
29. There have been disputes in respect of assessments of some State Government Undertakings regarding deductibility of certain privilege fee, licence fee, royalty, etc., levied or charged by State Government exclusively on its undertakings. In some cases orders have been issued to the effect that surplus arising to such undertakings shall
vest with State Government. As a result it has been claimed that such income by way of surplus is not subject to tax.
30. Section 40 is proposed to be amended, to disallow certain payments made by State Government Undertakings to State Government, by inserting a new sub-clause (iib) in clause (a). Thus, payment of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is exclusively levied on or which appropriated, directly or indirectly from a State Government Undertaking by the State Government will be now disallowable.
31. An explanation is also proposed to be inserted to the said sub-clause to define a State Government Undertaking.
Extension of the sunset date under section 80IA for the power sector 32. Presently under section 80IA(4)(iv), a deduction of profits and gains
is allowed to an undertaking, if it ―
(a) is set up in any part of India for the generation or generation and distribution of power, if it begins to generate power at any time between 1st April, 1993 to 31st March, 2013; (b) starts transmission or distribution by laying a network of
new transmission or distribution lines at any time between 1st April, 1999 to 31st March, 2013;
(c) undertakes substantial renovation and modernisation of existing network of transmission or distribution lines at any time between 1st April, 2004 to 31st March, 2013.
It is proposed to provide further time to the undertakings to commence the above activity, to avail the deduction. Accordingly the terminal date for availing benefit is extended upto 31st March, 2014 for the above entities.
Deduction of additional wages
33. Under the existing provisions of section 80JJAA a deduction of 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 of production of article or thing. This deduction is available for three
assessment years, including the assessment year in which such employment is provided. Also, no deduction is available if the industrial undertaking is formed by splitting up or reconstruction of an existing undertaking or amalgamation with another industrial undertaking.
34. It is now proposed to substitute sub-section (1) of the said section to restrict the benefit of deduction to profits and gains derived from the manufacture of goods in a factory instead of any industrial undertaking engaged in manufacture or production of article or thing. Further, the computation of additional wages will be reckoned with employment provided in factory only and not all the workmen employed by the assessee company.
35. Further, clause (a) of sub-section (2) is also proposed to be amended and the deduction shall not be allowed if the factory is hived off or transferred from another existing entity or acquired by assessee company as a result of amalgamation with another company. 36. The reference to the word “undertaking” wherever it occurs in the
explanation, is proposed to be substituted by “factory” and it is also proposed to insert clause (iv) to the explanation to define factory as per section 2(m) of the Factories Act, 1948.
37. The proposed amendment is to overcome decision of Bangalore Bench of ITAT in ACIT vs. Texas Instruments (India) (P.) Ltd. [(2008)
115 TTJ 976 (URO)].
Additional Income-tax on buy-back of unlisted shares
38. Under the existing provisions of Income-tax Act, gains on buy-back of shares are chargeable to tax under the head capital gains under section 46A. In the explanatory memorandum it is stated that
unlisted companies, as part of tax avoidance scheme, are resorting to buy-back of shares instead of payment of dividends in order to avoid payment of tax by way of dividend distribution tax (DDT), particularly where the capital gains arising to the shareholders are either not chargeable to tax or are taxable at a lower rate. To curb
such practice, a new Chapter XII-DA is proposed to be inserted w.e.f. 1st June, 2013 to provide for taxation of any amount of distributed income by a domestic company on buy-back of shares, which are not listed on a recognised stock exchange, from a shareholder. The
company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income.
39. As per the explanation to sub-section (1) it is proposed to define buy-back to mean purchase by a company of its own shares in accordance with provisions of section 72A of the Companies Act, 1956. The term “distributed income” is proposed to be defined to mean the consideration paid by the company on buy-back of shares as reduced by the amount which was received by the company on issue of such shares. Thus, a company shall have to compute distributed income in respect of such shares, which are offered for buy-back, by taking in to account the amount which was received for every issue, if shares that are offered for buy-back were issued at different point of time at different issue price.
40. The additional income-tax on such buy-back of shares shall have to be deposited within fourteen days from the date of payment of any consideration to the shareholder. In case of delay in deposit of tax, simple interest at the rate of one per cent shall be payable for every month or part thereof on amount of tax not deposited till the time such tax is deposited as per proposed section 115QB. Section 115QC proposes to treat any principal officer, of a domestic company, as an officer in default for failure to deposit the tax as per provisions of section 115QA and all the provisions relating to collection of recovery of tax shall apply accordingly.
41. Further, it is also proposed to insert clause (34A) in section 10 to exempt any income received by a shareholder on account of buy-back of unlisted shares which have been taxed under the provisions of section 115QA. This provision shall come into effect from 1st April, 2014.
TDS on payment of interest to non-resident by Indian Company
42. The section 194LC provides concessional rate of deduction of tax at source @ 5%. Concessional rate is available in respect of interest on money borrowed by an Indian company in foreign currency and such borrowing is either under a loan agreement or by way of issue of long-term infrastructure bonds, as approved by the Central Government.
43. It is now proposed to extend the same benefit to investment made through a designated bank account in rupee denominated long term infrastructure bonds. Designated account means an account in a
bank where foreign currency is deposited for subscribing long term infrastructure bonds of specified company. The above amendment is proposed to take effect from 1st June 2013.
Tax on dividends received from a foreign subsidiary
44. Concessional rate of tax of 15% levied on dividend income received from a foreign subsidiary company extended for dividends received upto 31st March, 2014.
Removal of cascading effect of DDT
45. Section 115-O of the Act provides that dividend declared distributed or paid by a domestic company will be subjected to a Dividend Distribution Tax [“DDT”] at the rate of 15%. It also provides that DDT will not be payable by a company on the dividends received by it from its domestic subsidiary company [wherein the 1st mentioned
company holds more than half in the nominal value of equity shares]
if the subsidiary has paid DDT, thereby removing cascading effect of DDT in case of a domestic subsidiary company.
46. The Bill proposes to remove the cascading effect in respect of dividends received by a domestic company from its foreign subsidiary [where the domestic company holds more than half in the nominal value of equity shares] by providing that dividends received by a domestic company from its foreign subsidiary, which has been subjected to tax at the rate of 15% under section 115BBD, shall not be subjected to DDT under Section 115-O of the Act.
Amount eligible for deduction as bad debts in case of banks
47. As per clause (a) of section 36(1)(viia) in computing business income, of certain categories of banks specified therein, deduction is available for provision of bad and doubtful debts up to the limit of 7.5 per cent of the gross total income (before deduction under this clause or chapter VIA) and 10 per cent of aggregate average advance made by the rural branches of such banks. The limit, in case of banks incorporated outside India referred to in section 36(1)(viia)(b) and financial institution referred to in section 36(1)(viia)(c), is 5 per cent of the total income (before claiming deduction under this clause or chapter VIA).
48. The courts have accepted the proposition that where two separate provisions for bad debts are maintained for rural and urban advances
and if the actual write-off relates to urban advances then same cannot be set-off against provision for bad debts of rural advances. It has been held that provisions of sections 36(1)(vii) and 36(1)(viia) are distinct and independent items of deductions and operate in their respective fields [Catholic Syrian Bank Ltd. vs. CIT (2012) 343
ITR 270 (SC)].
49. To overcome the above judicial interpretation explanation 2 is proposed to be inserted to clarify that for the purposes of proviso to clause (vii) of section 36(1) and clause (v) of section 36(2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches.
Exemption to National Financial Holdings Company Limited
50. National Financial Holdings Company Limited (NFHCL) is a company wholly owned by the Central Government and was incorporated to succeed the Specified Undertaking of Unit Trust of India, which itself was a successor to erstwhile Unit Trust of India. In section 10 a new clause (49) is proposed to be inserted to grant exemption in respect of any income of NFHCL.
IV. ANTI-AVOIDANCE PROVISIONS
Taxation of immovable properties held as stock-in-trade
51. Presently full value of consideration on transfer of any asset, being land or building or both, is taken as per the value adopted for such transfer by any authority of State Government for purpose of payment of stamp duty, as per section 50C. The said section has no applicability in respect of transfer of immovable property which is held as stock-in-trade by an assessee [K.R. Palanisamy vs. UOI (2008)
306 ITR 61 (Mad), CIT-II vs. Kan Construction and Colonizers (P.) Ltd. (2012) 208 Taxman 478 (All)].
52. A new section 43CA is being proposed to be inserted in Chapter IV-D – Profits and gains of business or profession. As per the proposed section where the consideration received or accruing as a result of an asset (other than a capital asset), being land or building or both, is less than the value adopted for stamp duty purpose by an authority of State Government, then the value so adopted for stamp
duty purpose shall be deemed to be the value of the consideration received or accruing as a result of such transfer for computing profits and gains.
53. As per section 43CA(2), the remedies provided for reference to Valuation Officer and treatment of value of stamp duty authority as final, where Valuation Officer’s value exceeds the stamp duty valuation, as contained in sub-sections (2) and (3) section 50C, can also be availed in matters falling within the purview of proposed section 43CA.
54. It is also proposed to provide that where the date of an agreement fixing the value of consideration for the transfer of the asset and date of registration of the transfer of the asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not as on the date of the registration of such transfer. This exception shall apply only in those cases where amount of consideration or part thereof for the transfer has been received by any mode other than cash on or before the date of the agreement for transfer of asset.
TDS on payment for transfer of immovable property
55. It is proposed to introduce a new section 194IA to provide for deduction of tax at source on payment of consideration for transfer of immovable property (excluding agricultural land) by resident in cases other than compulsory acquisition. The proposed new section provides that every transferee, at the time of making payment or crediting any sum by way of consideration for transfer of immovable property, shall deduct tax at the rate of 1% of such sum, if the consideration paid or payable for the transfer of such property is ` 50,00,000 or more. Immovable property means land other than agricultural land or whole / part of the building.
56. Similar provision were also sought to be introduced by Finance Bill 2012, but was dropped at the time of passage of the Bill. The above amendment is proposed to take effect from 1st June 2013.
Cash contribution to any political party or electoral trust ineligible for deduction
57. Presently deduction is available for any contribution made, to any political party or electoral trust, by an Indian company or any person (other than local authority or artificial juridical person wholly or
partly funded by the Government) under sections 80GGB or 80GGC respectively. A proviso is being proposed to be inserted in both the sections to deny the benefit of deduction in respect of any contribution made by way of cash to a political party or electoral trust.
General Anti Avoidance Rule
58. The General Anti Avoidance Rule (GAAR) was introduced in the Income-tax Act by the Finance Act, 2012. These provisions were to come in to force with effect from 1st April, 2014. A number of representations were received against the provisions relating to GAAR. Accordingly, an Expert Committee was constituted with broad terms of reference for finalising the GAAR guidelines and to prepare a road map for implementation thereof.
The major recommendations of the Expert Committee have been accepted. Necessary amendments have been proposed in the GAAR provisions to give effect to the recommendations. Some of these are ―
• It is proposed to make the GAAR provisions effective from the Assessment Year 2016-2017.
• It is proposed that the arrangement will be held to be an impermissible avoidance arrangement only if the main purpose of the arrangement is to obtain a tax benefit. This is against the current provision providing that it should be the main purpose or one of the main purposes.
• 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 which provided that these factors would not be relevant is proposed to be amended accordingly.
• An additional condition has been proposed to be incorporated to provide that 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 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 that the Approving Panel shall consist of not less than three members being income-tax authorities and an officer of the Indian Legal Service is proposed to be amended accordingly.
• 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 providing that the direction of the Approving Panel will be binding only on the Assessing Officer have been proposed to be amended accordingly.
• 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 two separate definitions in the current provisions, namely,
“associated person” and “connected person” will be combined and there will be only one inclusive provision defining a ‘connected person’.
59. Consequential amendments are also proposed in other sections relating to procedural matters of implementing GAAR. These changes were made by the Finance Act, 2012 and were to be made effective from 1st April, 2013, however, the same are now proposed to be made effective from 1st April, 2016.
60. Some important recommendations of the Committee which have not found a place in the GAAR Regime proposed are ―
• While determining whether an arrangement is an impermissible avoidance arrangement, it shall be ensured that
the same income is not taxed twice in the hands of the same tax payer in the same year or in different assessment years. • Investments made before 30st August, 2010, the date of
introduction of the Direct Taxes Code, Bill, 2010 shall be grandfathered.
• GAAR will not apply to such FIIs that choose not to take any benefit under the Treaty. GAAR will also not apply to non-resident investors in FIIs.
• A monetary threshold of ` 3 crore of tax benefits in the arrangement will be provided.
• Where a part of the arrangement is an impermissible avoidance arrangement, GAAR will be restricted to the tax consequence of that part which is impermissible and not to the whole arrangement.
• Where GAAR and Specific Anti-Avoidance Rules are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other.
V. PROCEDURAL PROVISIONS Defective return
61. Explanation to Section 139(9) provides list of case when return of income shall be regarded as defective. It is now proposed that return of income would be treated as defective in case assesse does not pay self-assessment tax along with interest on or before due date of furnishing the return of income. The above amendment is proposed to take effect from 1st June, 2013.
Special Audit
62. During the course of assessment, Assessing Officer having regard to the nature and complexity of the accounts of the assesse can direct assessee to get its accounts audited. Special audit can be ordered by the Assessing Officer irrespective of the fact whether accounts are previously audited or not.
63. There has been long drawn litigation when accounts are subject to special audit. In majority of the cases Courts have ruled in favour
of the assesse. It is now proposed that besides complexity of the accounts and interest of revenue, special audit can be initiated having regard to following:
a. Volume of the accounts,
b. Doubts about correctness of the accounts, c. Multiplicity of transactions in accounts, d. Specialised nature of business.
The above amendment is proposed to take effect from 1st June, 2013. Electronic filing of Wealth-tax returns
64. Return of wealth till date is mandatorily required to be filed in paper form, along with specified documents. It is now proposed to introduce new section 14A empowering Board to notify class or classes of persons who can file return of wealth which is not accompanied by statements, receipts, certificates, audit reports, reports of registered valuer or any other documents, which are otherwise under any other provisions of Wealth-tax Act. It is also proposed to introduce new section 14B empowering Board to notify class or classes of persons who would be mandatorily required to file return of wealth electronically without any documents.
65. It also provided that such assessee would be required to submit the documents on demand made by the Assessing Officer. Consequential amendments in the section 46 – power to make rules by the Board, are also proposed. The above amendment is proposed to take effect from 1st June, 2013.
“Tax due” for the purpose of recovery
66. Sections 167C and 179 provide that, where tax due from a limited liability partnership (LLP)/private company cannot be recovered, then the partner/director (who was the partner/director of such LLP/ private company during the previous year to which tax due relates) shall be jointly and severally liable for payment of such tax, unless he proves that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance or breach of duty on his part. These provisions are intended to recover outstanding demand under the Act from a LLP/private company from the partners/directors of such LLP/private
company in certain cases. The Delhi High Court in the case of Sanjay Ghai [(2012) 26 taxmann.com 203] has interpreted the phrase ‘tax due’ used in section 179 to hold that it does not include penalty, interest and other sum payable under the Act. Similar view has also been taken by Gujarat High Court in Maganbhai Hansrajbhai Patel
vs. ACIT [(2012) 211 Taxman 386].
67. Explanation is proposed to be inserted in sections 167C and 179 to bring within the ambit of expression “tax due” – penalty, interest or any other sum payable under the Act. These amendments will take effect from 1st June, 2013.
Extension of time for approval of recognised provident fund
68. Rule 4 in Part A of Schedule IV to the Act lays down conditions which are required to be fulfilled by the provident fund to receive or retain the status of “Recognised Provident Fund”. Clause (ea) requires provident fund to apply to the Employees’ Provident Fund Organisation to obtain exemption under section 17 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
69. Rule 3 of Part A of Schedule IV provides that in a case where recognition to any provident fund has been accorded on or before the 31st March, 2006 and such provident fund does not satisfy the conditions set out in clause (ea) of rule 4, the recognition to such fund shall be withdrawn, if such fund does not satisfy, on or before the 31st March, 2013, the conditions set out in the said clause and any other condition as specified by the Board.
70. In order to provide time to Employees’ Provident Fund Organisation for processing the application, due date of 31st March, 2013 has been extended to 31st March, 2014.
Annual Information Return
71. Under section 285BA specified person are required to furnish Annual Information Return (AIR) in respect of specified transactions. Section 271FA provide for penalty in case of non-filing of AIR returns. It is proposed to replace existing section to provide penalty as under ―
Event Penalty
Failure to furnish return within ` 100 per day prescribed time limit u/s. 285BA(2)
Failure to furnish return within period ` 500 per day (from specified in notice issued u/s 285BA(5) the date of expiry of
the period specified in the notice)
Tax Residency Certificate
72. The Finance Act, 2012 amended the provisions of section 90 and section 90A of the Act to make the submission of a Tax Residency Certificate [“TRC”] containing prescribed particulars compulsory for non-residents assessee’s to avail benefits under the applicable Double Tax Avoidance Agreement [“DTAA”].
73. It is now proposed to amend the said section 90 and section 90A of the Act to provide that the submission of the TRC is a necessary but not a sufficient condition for claiming benefits under the applicable DTAA.
74. This position was mentioned in the memorandum explaining the provisions in the Finance Bill, 2012 but has now been given statutory force by incorporating it in the section 90 and section 90 of the Act. This amendment is proposed to be made retrospectively and will apply from the Assessment Year 2013-2014.
75. This particular amendment has created a great furore amongst stakeholders and apprehensions have been cast that it will give huge discretion in the hands of the tax authorities who can simply ignore the TRC and deny DTAA benefits to the tax payers.
76. The Finance Minister in a subsequent statement has clarified that appropriate clarifications will be considered to the Finance Bill to ensure that ―
• IT Department not to go beyond TRC and question taxpayers; • CBDT Circular 789 on Indo-Mauritius Treaty still in force. Period of limitation for completion of assessments & reassessments 77. Section 153 of the Act inter-alia provides that the period
commencing from the date on which the AO directs the assessee to get his accounts audited under section 142 (2A) and ending with the last date on which the assessee is required to furnish a report of such audit, is to be excluded while computing the period of limitation for the purposes of assessment or reassessment.
78. It is proposed to amend this provision to provide that the following shall be excluded while computing the period of limitation ― • period commencing from the date on which the AO directs the
assessee to get his accounts audited and ending with the last date on which the assessee is required to furnish a report of such audit; or
• where such direction is challenged before a court, ending with the date on which the order setting aside such direction is received by the Commissioner.
79. Similarly, the said section 153 inter-alia also provides for exclusion of the period commencing from the date on which a reference for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information so requested is received by the Commissioner or a period of one year, whichever is less, in computing the period of limitation.
80. This too is proposed to be amended to provide that the period commencing from the date on which a reference or first of the references for exchange of information is made by an authority competent under an agreement referred to in section 90 or section 90A and ending with the date on which the information requested is last received by the Commissioner or a period of one year, whichever is less, shall be excluded in computing the period of limitation.
81. Similar amendments are also proposed in section 153B of the Act relating to the time limit for completion of a search assessment. These amendments will take effect from 1st June, 2013.
Application of assets seized during search
82. Under the present provisions of section 132B, adjustment of seized assets against any existing liabilities is permitted. The courts have held that advance tax liability is also an existing liability [Pandurang
Dayaram Talmale (2004) 187 CTR 625 (Bom), Shri Ram S. Sarda vs. Dy. CIT (2012) 17 taxmann.com 23 (Rajkot)]. It is felt that the said
view is not in consonance with the legislative intent and to overcome this, new Explanation 2 is proposed to be inserted w.e.f. 1st June, 2013. Accordingly, it is proposed to explain that existing liability shall not include advance tax payable in accordance with the provisions of Chaper XVII-C.
VI. AGRICULTURAL INCOME & LAND
Amendment in Definition of Capital Asset
83. Presently from the definition of Capital Asset under clause (14) of section 2, there is an exclusion provided in respect of agricultural land, subject to fulfilment of certain specified conditions. The conditions are that, such land should not be situated within the jurisdiction of municipality or a cantonment board having population of 10,000 or more as per last published census figures or should not be situated within 8 kilometres of such municipalities or cantonment board, which the Central Government may notify.
84. In CIT vs. Madhukumar N. (HUF) [(2012) 208 Taxman 394
(Kar)] it has been held that apart from location of the land, a
notification from the Central Government is also required to treat an agricultural land as urban land. It is now proposed to do away with the requirement of notification of urban areas and a land shall not be considered to be agricultural land if it is situated within such distance, measured aerially, in following circumstances ―
• two kilometres if the population of such municipality or cantonment board is between 10,000 to 1,00,000;
• 6 kilometres if the population of such municipality or cantonment board is between 1,00,000 to 10,00,000; • 8 kilometres if the population of such municipality or
cantonment board is above 10,00,000;
Courts have that distance to be measured as per the road distance and not as per the straight line distance on a horizontal plain. [CIT v. Lal Singh [2010] 325 ITR 588 (PUNJ & HAR), Laukik Developers v. DCIT [2007] 108 TTJ 364 (MUM)] It is further explained that the “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year.
85. Similar provisions are introduced in sub-clause (c) of clause 1A of section 2 which defines agricultural income. As per the said clause income derived from any building situated on or within the immediate vicinity of agricultural land and used as a dwelling house, or as a store house, or other out building then such income is considered as agricultural income. As per the proposed amendment any income derived from any building situated on or within vicinity of agricultural land shall not be considered as agricultural income if it falls within the jurisdiction of municipality or cantonment board or within the distances as mentioned in (84) above.
86. Amendments on similar lines, as mentioned in (84) above, are also proposed in the definition of “urban land” in section 2 of the Wealth-tax Act, 1957.
VII. OTHER MAJOR AMENDMENTS
Deduction for donations to National Children’s Fund
87. It is proposed to extend the benefit of 100% deduction under section 80G(1)(i) in respect of donations made to National Children’s Fund referred to in clause (iiib) of sub-section (2) of section 80G, since it is also a Fund of national importance.
Taxation of Securitisation Trusts and its investors
88. In section 10, a new clause (23DA) is proposed to be introduced to exempt any income of a securitisation trust from the activity of securitisation. The terms securitisation and securitisation trust
are defined under regulations 2(1)(f) and 2(1)(u), respectively, of SEBI (Public Offer & Listing of Securitised Debt Instruments) Regulations, 2008 made under SEBI Act, 2002 and SCRA, 1956. Further, securitisation of standard assets, as per guidelines issued by RBI, shall also qualify for the benefit under this clause.
89. A new Chapter XII-EA containing special provisions relating to tax on distributed income by Securitisation Trusts, is proposed to be inserted to provide for taxation of any amount of income distributed by securitisation trust to its investors. As per section 161(1A), in case of a trust, if its income consists of or includes profits and gains of business then income of such trust is chargeable at maximum marginal rate in the hands of the trust. In explanatory memorandum it is clarified that special purpose entities set up in the form of trust to undertake securitisation activities were facing problem due to absence of special dispensation in respect of taxation, particularly when the investors were persons which are exempt from taxation, e.g. Mutual Funds. As per proposed section 115TA(1) the securitisation trust shall be liable to pay additional income-tax on income distributed to beneficiaries as under ―
(i) 25% if the beneficiary is an individual or a Hindu undivided family;
(ii) 30% in case the beneficiary is any other person;
It is also provided that, provisions of sub-section (1) shall not apply if the distribution of income is to a person in whose case income, irrespective of its nature and source, is not chargeable to tax. The securitisation trust shall not be allowed deduction under any other provisions in respect of the income which has been charged to tax under sub-section (1).
90. The tax payable under sub-section (1) has to be deposited within 14 days from date of distribution or payment of such income. If tax is not paid within the time provided then simple interest at the rate of 1% per month or part thereof shall be paid for the delay as per provisions of section 115TB. Further a prescribed statement, verified in prescribed manner will have to filed before 15th September in each year giving details of income distributed in the previous year, tax paid thereon and such other details as may be prescribed.
91. As per section 115TC it is also proposed to consider the person responsible for payment of income of the securitisation trust will
be deemed to be assessee in default, in respect of tax remaining unpaid and all the provisions of the Income-tax Act for collection and recovery shall apply accordingly.
92. Further, it is also proposed that any income received from a securitisation trust by an investor by way of distribution shall be exempt from tax under clause (35A) of section 10.
Pass through status to certain Alternative Investment Funds
93. As per the existing provisions of section 10(23FB) any income of a venture capital company (VCC) or a venture capital fund (VCF) from investment in venture capital undertaking (VCU) is exempt. The income accruing or arising or received by a person out of investment made in VCC or VCF shall be taxable in the same manner as if such person had made direct investment in the VCU as per section 115U. The SEBI (Alternative Investment Funds) Regulations, 2012 (AIF Regulations) have replaced the SEBI (VCF) Regulations, 1996 and in order to provide benefit of the pass through status to entities registered under AIF Regulations explanation to sub-clause (23FB) is proposed to be replaced. This amendment shall take effect from 1st April, 2013 and shall apply to A.Y. 2013-14.
94. As per proposed clause (a) of the new explanation, VCC shall mean a company ―
(A) has been granted a certificate of registration, before 21st May, 2012, as a VCF under SEBI (VCF) Regulations, 1996 or
(B) has been granted a certificate of registration as VCF as sub-category I AIF and is regulated under SEBI (AIF) Regulations, 2012 and which fulfils the following conditions, viz.―
(i) it is not listed on a recognised stock exchange;
(ii) it has invested not less than two-thirds of its investible funds in unlisted equity shares or equity linked instruments of VCU; and
(iii) it has not invested in any VCU in which its director or a substantial shareholder (beneficially holding ten per cent of equity shares) holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid-up equity share capital of such VCU.
95. As per proposed clause (b) of the new explanation, VCF shall mean a fund ―
(A) Operating under a trust deed registered under Registration Act, 1908, which ―
(I) has been granted a certificate of registration, before 21st May, 2012, as a VCF under SEBI (VCF) Regulations, 1996 or
(II) has been granted a certificate of registration as VCF as a sub-category I AIF under SEBI (AIR) Regulations, 2012 and fulfils the following conditions, viz.―
(i) it has invested not less than two-third of its investible funds in unlisted equity shares or equity linked instruments of VCU;
(ii) it has not invested in any VCU in which its trustee or the settler holds, either individually or collectively, equity shares in excess of fifteen per cent of the paid-up equity share capital of such VCU; and
(iii) the units, if any, issued by it are not listed in any recognised stock exchange;
or
(B) Operating as a venture capital scheme made by the UTI. Exemption to income of Investor Protection Fund of depositories
96. A new sub-section (23ED) is being proposed to be introduced to exempt any income, by way of contribution received from a depository (as defined under section 2(1)(e) of SEBI Act, 1992), of Investor Protection Fund set up in accordance with the regulations made under the SEBI Act, 1992 and the Depositories Act, 1996, by a depository as the Central Government may notify in this behalf. It is also provided that where any amount standing to the credit of the Fund, which is not charged to income-tax during any previous year, is shared either wholly or in part with a depository, then whole of such sum shall be deemed to be the income of the year in which it is so shared and shall be chargeable to income-tax.
I. CUSTOMS DUTY
I) Changes in effective rate of Basic Customs Duty with effect from 1-3-2013
The following are the prominent amendments in rate of basic customs duties:
Sr. Chapter Description of Effective rate (in %) No. heading goods
till from 28-2-2013 1-3-2013 1. 27011200 Bituminous coal 5 2 2. 27011920 Steam coal Nil 2
2. 7103 Pre-forms of 10 2 precious and semi-precious metals 2. 84, 85 or Additional 20 7.5 5 90 machinery specified in list 29 of notification 12/2012-Cus for leather and footwear industry 3. 8444 to All Goods 7.5 5 8449 (Machinery & parts thereof used in textile sector) 4. 5002 Raw Silk 5 15 (not thrown) 5. 85 Integrated 5 10 Decoder Receiver (Set Top Box)
Sr. Chapter Description ofq Effective rate (in %) No. heading goods
till from 28-2-2013 1-3-2013 6. 8903 Yachts and 10 25 other vessel for pleasure or sport; rowing boats and canoes
II) Other amendments effective from 1-3-2013
(a) Period of consumption/installation of parts or testing equipment has been extended to 1 year from 3 months in respect of exemption to maintenance, repair and overhauling of aircraft parts under notification 12/2012 (Sr. No. 448). The said exemption has been extended to MRO of private category of aircrafts and MRO of parts of aircrafts also.
(b) Notification No. 9/2012 providing exemption to customs duty on re-import of cut and polished diamonds has been amended to provide that a variance of not exceeding ± 0.01 mm in height and circumference and variance not exceeding ± 1 percent in weight will be allowed for re-import of cut and polished diamonds.
(c) Notification 14/2013 has been notified to provide exemption from whole of duty to trophy when imported into India by National Sports Federation or registered Sports Body organising the international tournament including world cup. III) Changes effective from Enactment of Finance Act, 2013
(a) Section 47 has been amended to reduce the period for payment of customs duties from 5 days to 2 days (excluding holidays) from the date of receipt of duly assessed bill of entry. The interest will be leviable at rate of 15% on payment of duty after 2 working days.
(b) Section 28E has been amended to enable existing importer and exporter to apply for advance ruling for any new business of import or export proposed to be undertaken by them. (c) Section 30 and Section 41 are being amended to provide for
electronic filing of Import General Manifest/Export General Manifest and to give power to Commissioner to allow the delivery of such manifest in any other manner where electronic filing is not feasible.
(d) Section 49 has been amended to provide a time limit of 30 days for storage of goods in a warehouse pending clearance and power has been given to Commissioner to extend the period of storage for a further period not exceeding 30 days at a time.
(e) Section 69 is being amended to allow export of warehoused goods by post on the basis of the label or declaration accompanying the goods.
(f) Section 104 is being amended to provide for certain specific offences like as evasion or attempted evasion of duty exceeding ` 50 lakh, 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 ` 50 lakh, etc. as non-bailable.
(g) Monetary limit for the Single Bench of the Tribunal to hear and dispose of appeals from Section 129C is being increased from ` 10 lakhs to ` 50 lakhs.
(h) Section 129B will be amended to provide for extension of stay order after expiry of 180 days and to limit the power of extension of stay up to a total period of 365 days. The provisions further provide for automatic vacation of the stay order if the appeal is pending after 365 days of the stay order. (i) Clause (d) has been inserted in section 142(1) to provide for
recovery from a person from whom money is due or who holds money for or on account of the defaulter. Thus recovery provisions have been introduced to recover the amount from person other than the defaulter. Any other person shall
include banks, insurer, debtors, etc. The person to whom notice under section 142 is issued will be treated as defaulter if he fails to make payment of such amount.
(j) Section 147 has been amended to make agents of the owner, importer or exporter of any goods responsible for making correct self-assessment.
(k) Section 135 is being amended to increase monetary limit of certain offences from ` 30 lakh to ` 50 lakh.
(l) Section 144 is being amended to provide for non-payment of duty on any sample of goods which is consumed or destroyed during the course of testing or examination.
(m) Sections 146 & 146A seeks to change the nomenclature of “customs house agents” to “customs brokers” and to disqualify persons who are convicted of an offence under the Finance Act, 1994 to act as an authorised representative.
IV) Amendment in levy of Export Duty
(a) The export duty on Bauxite (natural) not calcined or calcined, unprocessed Iimentie at rate of 10% and on upgraded Iimenite at rate of 5% is levied vide notification 15/2013- Cus dated 1-3-2013.
(b) Retrospective exemption from levy of export duty is proposed to be provided for export of flat rolled products of iron or non-alloy steel, plated or coated with zinc w.e.f. 1st March
2011.
V) Amendment in Baggage Rules,1998
W.e.f. 1-3-2013, the duty free limits to bring jewellery without payment of duty for an Indian passenger, who has been residing abroad for over one year and a person who is transferring his residence to India has been increased up to an aggregate value of
` 50,000/- in case of a gentleman passenger and ` 100,000/- in case of a lady passenger.
