I. CHANGE IN RATES
Rates of Income Tax for A/Y 2013-2014
1. For an Individual (man or woman), resident in India who is of the age of 60 years or more at any time during the P/Y. [Senior Citizen]
Upto ` 2,50,000 Nil
` 2,50,001 to ` 5,00,000 10%
` 5,00,001 to ` 10,00,000 20%
Above ` 10,00,000 30%
2. For individual (man or woman), resident in India who is of the age of 80 years at any time during the p/ y [Very Senior Citizen]
Upto ` 5,00,000 Nil
` 5,00,001 to ` 10,00,000 20%
Above ` 10,00,000 30%
3. Individuals (both man and woman), [other than those mentioned in above] HUF.
Upto ` 2,00,000 Nil
` 2,00,001 to ` 5,00,000 10%
` 5,00,001 to ` 10,00,000 20%
Above ` 10,00,000 30%
Note:- In case of non-residents only general slab rate of 2,00,000 is applicable. Special rates of senior citizen and very senior citizen are applicable only for resident in India.
‘Education Cess’ @ 2% and SHEC @ 1% on income tax shall be chargeable.
II. EXEMPTIONS (Incomes which do not form part of Total Income)
1. Sec 10(48)- New section inserted
Any income of a foreign company on account of sale of crude oil will not be included in its total income, provided that the following conditions are fulfilled:-
(i) The crude oil is sold to any person in India. (Exemption applies only in respect of crude oil sale and not for other products such as natural gas, etc.)
(ii) The income is received in Indian currency.
(if received in any other currency then it is not exempt)
(iii) The foreign company is not engaged in any other activity in India.
2. The Central Government has notified the following allowances and perquisites: for serving Chairman or any other member, including retired Chairman or member of the Union Public Service Commission (UPSC), for the purpose of exemption under section 10(45) –
(i) the value of rent free official residence,
(ii) the value of conveyance facilities including transport allowance,
(iii) the value of leave travel concession.
III. PROFITS AND GAINS OF BUSINESS OR PROFESSION
1. Allowance of expenditure even if TDS not deducted or deposited [Section 40(a)(ia)]
Where an assessee makes specified payments to a resident without deduction or deposition of TDS, he shall be allowed deduction if:-
• Payment of taxes have been made by the payee;
• Payee has furnished his return of income u/s 139 taking into account such sum for computing his income.
Therefore, any payment made to a resident shall be allowable as expenditure even if TDS has either not been deducted or not deposited to the credit of Central Government.
Mischief:-
The above amendments are for the purpose of rationalizing section 40(a)(ia).
It is also to be noted that the amendment has been made only in clause (ia) dealing with payments made to residents. Similar amendment has not been made in clause (i) dealing with disallowance on account of non-deduction/deposit of TDS to non-residents.
2. Related Party Transactions [Section 40A(2)]
No disallowance of any expenditure being excessive or unreasonable shall be made if such transaction is at arm’s length price.
The companies having the same holding company shall be termed as related persons under section 40A(2)(b) of the Act.
3. Expenditure on Agricultural Extension Project [Section 35CCC]
An assessee who incurs any expenditure on agricultural extension project notified by CBDT shall be allowed deduction of 150% of such expenditure.
An assessee claiming deduction in this section shall not be allowed any deduction under any other provisions of the Act.
4. Expenditure on skill development project [Section 35CCD]
A company which incurs any expenditure (other than expenditure on land and building) on any notified skill development project shall be allowed deduction of 150% of such expenditure.
A company which claims deduction in this section shall not be allowed any deduction under any other provisions of the Act.
5. Extension of benefit of investment linked expenditure: [Section 35AD]
(i) Following businesses have been included which the existing businesses would be eligible for availing deduction u/s 35AD -
a. The businesses of setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, or
b. A business of bee-keeping and production of honey and beeswax;
c. Setting up and operating a warehousing facility for storage of sugar.
(ii) Further, a deduction of 150% of the capital expenditure shall be available to the following businesses commencing on or after 1st of April, 2012 –
a. Setting up and operating a cold chain facility;
b. Setting up and operating a warehousing facility for storage of agricultural produce;
c. Building and operating a hospital with at least one hundred beds for patients;
d. Developing and building a housing project under a scheme for affordable housing framed by the government, and
e. production of fertilizer in India.
(iii) Where the assessee builds a hotel of two-star or above category and subsequently, while continuing to own the hotel, transfers the operation thereof to another person, he shall be deemed to be carrying on the specified business of building and operating hotel. Thus, he shall be eligible for deduction u/s 35AD.
6. Turnover or gross receipts for presumptive taxation [Section 44AD]
The provisions of section 44AD would not apply to:
i. A person carrying on profession referred to section 44AA, or
ii. A person earning income in the nature of commission or brokerage, or
iii. A person carrying on any agency business.
7. Additional depreciation to assessee engaged in power business: [Section 32(1)(iia)]
An assessee engaged in the business of generation or generation and distribution of power shall, amongst all others, be allowed additional depreciation at the rate of 20% of the actual cost of new machinery or plant (other than ships and aircraft) in the year of acquisition and installation.
8. Turnover or gross receipts for audit of accounts: [Section 44AB]
i. In case of business :
If total sales or gross receipts of business exceed [`60,00,000 1,00,00,000].
ii. In case of profession :
If gross receipts are more than [`15,00,000 25,00,000]
9. Due date for furnishing tax audit report under section 44AB shall be: [Section 44AB]
(i) 30th November -
If assessee has undertaken any international transaction or specified domestic transaction.
(ii) 30thSeptember -
In case of any other assessee.
IV. CAPITAL GAINS:
1. Explanation to Section 2(14):
‘Property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.
2. FMV is the full value of consideration if it cannot be determined: [New Section 50D]
In case the consideration is not ascertainable for the purpose of computing income chargeable to tax as capital gains, the FMV of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer
3. Reference to the Valuation Officer when FMV is at variance: [Section 55A]
If the value of the asset claimed by the assessee, is as per the estimate made by a registered valuer and
assessing officer is of opinion that the value so claimed is less than at variance with its market value.
The Assessing Officer is now entitled to question any variance from the FMV unlike earlier where only a lesser value than FMV could be questioned. Hence, in case the assessee claims the FMV to be higher than its cost of acquisition and the Assessing Officer is of a different opinion, the same could be referred to a Valuation Officer.
4. Explanation to Section 2(47):
‘Transfer’ includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights have been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India.
5. Transfer of agricultural land by HUF: [Section 54B]
Section 54B:- An HUF would now be eligible for claiming exemption from capital gains tax on transfer of agricultural land on fulfillment of specified conditions.
6. New exemption provision for capital gain arising from sale of residential house property:
[Section 54GB]
Section 54GB:- A relief is provided from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case where the assessee re-invests the sale consideration in the equity of a Small Enterprise (as per the Micro, Small and Medium Enterprises Act, 2006) which is utilized by the company for the purchase of new plant and machinery. Following conditions are required to be fulfilled:
• The investment in the new asset shall be made by the company within one year from the date of subscription in the equity shares.
• If the amount of net consideration subscribed as equity shares in the company is not utilized by the company for the purchase of new asset before the due date of filing of return by the individual or HUF, the unutilized amount shall be deposited under a deposit scheme.
• If the equity shares of the company or the new asset acquired by the company are sold within a period of five years from the date of their acquisition, the amount of capital gain exempted earlier shall be deemed to be the income of the assessee chargeable under the head “capital gains” of the previous year in which such equity shares or such new assets are sold or otherwise transferred.
For the purposes of the section, the important definitions are as follows:
(i) “Eligible company” for fresh investment – It means a company
a) incorporated in India;
b) Engaged in the business of manufacture of an article or a thing;
c) in which the assessee has more than 50% share capital and
d) which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006;
(ii) “New Asset” for investment - It means a new plant or machinery but does not include:
a) any machinery or plant which was used either within or outside India by any other person;
b) any machinery or plant installed in any office premises or any residential accommodation (including a guest-house);
c) any office appliances (including computers or computer software);
d) any vehicle; or
e) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.
V. OTHER SOURCES
1. Limit on exemption of interest: [Section 10(15)]
The interest on Post Office Savings Bank Account which was fully exempt would be exempt from tax only upto:
(i) ` 3,500 in case of an individual account.
(ii) ` 7,000 in case of a joint account.
2. Tax free Bonds specified by Central Government: [Section 10(15)]
The Central Government has specified the issue of tax free bonds of
(i) Rural Electrification Corporation Limited (RECL),
(ii) National Highways Authority of India (NHAI),
(iii) Indian Railways Finance Corporation Ltd. (IRFCL),
(iv) Housing and Urban Development Corporation Ltd.(HUDCL) and
(v) Power Finance Corporation (PFC)
to be issued during the financial year 2011-12, the interest on which would be exempt.
VI. DEDUCTION FROM GROSS TOTAL INCOME
1. Deduction in respect of LIP now restricted to 10%: [ Section 80C]
Deduction u/s 80C shall be available only for the premium paid towards policies issued after 1-4-2012, if it does not exceed 10% of actual capital sum assured.
Actual Capital Sum assured:
minimum amount assured under the policy which may be received under the policy by any person
2. Introduction of a deduction on account of Preventive health Check up: [ Section 80D]
Earlier, a deduction of ` 15,000 in respect of health insurance premium of self, spouse and dependent children and a further deduction of ` 15,000 was allowed for buying a health insurance policy in respect of parents.
Now the following amendments have been introduced:
i. Allowance of deduction for any amount paid on account of preventive health check:
Payment by individual for assessee, family or parents. Deduction does not extend to HUF.
Maximum deduction allowed is `5000 within the aggregate existing limit of 15,000/20,000.
ii. Consequential amendment in its provisions to include its mode of payment:
Payment for preventive health check up can be made by any mode including cash unlike the initial deduction
iii. Reducing the age of senior citizens from 65 to 60 years:
The Finance Act, 2011 amended the effective age of a senior citizen being an Indian resident from sixty-five years of age to sixty years for the purposes of application of various tax slabs and rates of tax under the Income Tax Act, 1961 for income earned during the financial year 2011-12 (assessment year 2012-13).
In order to make the effective age of senior citizens uniform across all the provisions of the Income Tax Act, it was decided to reduce the age for availing of the benefits by a senior citizen under the sections (sections 80D, 80DDB and 197A) from sixty-five years to sixty years.
3. Change in age limit of senior citizen: [Sec 80DDB]
The age limit of senior citizen has been reduced from 65 years to 60 years
(Applicable from 1st April, 2013)
4. Restriction on mode of payment of donation for claiming deduction: [Section 80G]
No deduction shall be allowed under this section in respect of donation of any sum exceeding ` 10,000, unless such sum is paid by any mode other than cash.
5. Restriction on mode of payment of donation made for scientific research etc.: [Section 80GGA]
A new sub-section (2A) is inserted in Section 80GGA , which provides that no deduction shall be allowed under this section in respect of any sum exceeding ` 10,000 unless such sum is paid by any mode other than cash.
6. Deduction for interest received on deposits: [Section 80TTA]
Deduction to an individual or a HUF
in respect of interest received on deposits .
Restricted to Rs 10,000.
Notes:
a. Meaning of Deposits:
Refer to deposits (not being time deposits) in a savings account banks, cooperative banks and post office.
b. Meaning of Time Deposits:
Time deposits mean the deposits repayable on expiry of fixed periods.
Table showing applicability or non-applicability of Sec 80TTA
Type of Interest received Deduction u/s 80 TTA
(i) Interest on saving bank account Yes
(ii) Interest on cooperative saving bank account Yes
(iii) Interest on post office saving bank account Yes
(iv) Interest on fixed deposits No
(v) Interest on company deposits No
(vi) Interest on term deposits No
(vii) Interest on time deposits No
(viii) Interest on bank account (assume it to be from saving A/C) Yes
7. Deduction in respect of investment made under an equity saving scheme: [Section-80CCG]
Section 80 CCG
Investment made under an Equity Saving Scheme
1. Persons entitled A new retail investor
being a resident individual, and
whose GTI ≤ 10 lacs(does not exceed)
2. Payment regarding Specified Listed equity shares
3. Quantum of deduction One time deduction
@ 50% of the investment made but cannot exceed `25,000
4. Conditions for deduction Investment shall be locked in for a minimum period of 3 years from the date of acquisition.
5. Non-compliance of conditions Deduction shall be withdrawn, and
The amount of deduction shall be included in the income of the individual of the P/Y of non-compliance.
VII. ASSSESSMENT PROCEDURES
1. Return filing is mandatory for persons having assets abroad
Proviso to Section 139(1):-
Any resident assessee, who is not required to furnish a return since his taxable income is below the basic exemption limit and who during the previous year has any asset (including any financial interest in any entity) located outside India, shall furnish on or before due date, a return in respect of his income or loss for the previous year is such form and verified in such manner and setting forth such other particulars as may be prescribed.
Explanation 2 to Sec 139(1):-
All assessees who are required to obtain and file Transfer Pricing report (both international and specified domestic transaction) need to file their return of income by 30th November of the relevant assessment year.
2. E-filing has been made mandatory for:- [Section 139D]
• an individual or a HUF, if total income exceeds ten lakh rupees; and
• an individual or a HUF, being a resident, having assets (including financial interest in any entity) located outside India and required to furnish the return.
However, digital signature is not mandatory for these taxpayers and they can also transmit the data in the return electronically and thereafter submit the verification of the return in Form ITR-V.
VIII. ADVANCE TAX
1. Exemption to senior citizen from paying advance tax
Every assessee is required to pay advance tax if the tax liability for the P/Y exceeds `10, 000.
But a resident individual of the age 60 years or more having no income under head PGBP shall not be liable to pay advance tax.
Where a person has received any income without deduction or collection of tax, he shall be liable to pay advance tax in respect of such income.
IX. TDS:
1. No interest : [Section 201]
A person, who fails to deduct tax on the sum paid to a resident shall not be deemed to be an ‘assessee in default’ in respect of such tax if such resident
i. has furnished his return of income;
ii. has included such sum for computing income in such return of income; and
iii. has paid the tax due on the income declared by him in such return of income,
Further, the person is required to furnish a certificate to this effect from a Chartered Accountant in the prescribed form.
2. Tax deduction at source from payment of interest on debentures: [Section 193]
Tax shall not be required to be deducted on any interest payable:
(a) to an individual or a HUF, who is resident in India;
(b) on any debenture issued by a company (whether listed or not) in which the public are substantially interested;
(c) where the aggregate amount of interest paid during a financial year does not exceed ` 5,000 and the interest is paid by account payee cheque.
3. Remuneration to directors is liable to tax:
Any remuneration or fees or commission payable to a director of a company which is not in nature of salary, shall also be liable for tax deduction under the provisions of Section 194J.
X. RESIDENTIAL STATUS
1. Explanation to Section 9 :-
The transfer of all rights includes transfer of computer software irrespective of the medium through which such right is transferred. (Applicable w.r.e.f June 1, 1976)
2. Explanation to Section 9:-
Royalty includes consideration in respect of any property or information, whether or not—
the possession or control of such property or information is with the payer;
such right, property or information is used directly by the payer;
the location of such property or information is in India.
(Applicable w.r.e.f June 1, 1976)
Also Refer VODAFONE CASE
VODAFONE CASE
Related to Amendments in chapter Residential Status & Capital Gain
Tax Dispute
Taxability over Capital Gains on an out of India transaction between 2 foreign companies (having non- resident status in India) on sale of investments consisting of shares of an Indian Company.
Facts of the Case
Vodafone International Holdings , Netherlands (“VIH“) entered into a Share Purchase Agreement with Hutchison Telecommunications International Limited, Hongkong (“HTIL”), for purchasing equity share holding of its subsidiaries i.e. CGP Investment Ltd., Cayman Islands, Mauritius,(“CGP”);
CGP in turn, directly and indirectly, owned substantial share capital of an Indian Company named as Hutchison Essar Limited (“HEL"). The acquisition resulted in VIH acquiring control over CGP and its subsidiaries, including HEL;
Income tax department held that the gains were taxable in India as there was transfer of control of business situated in India.
Decisions of the Hon’ble Supreme court
Three elements i.e. transfer, existence of a capital asset and location of such assets in India should exist to conclude that income deemed to accrue or arise in India under the provisions of Section 9 of Act. Here, neither a Capital Asset exists in India nor situated in India, therefore, provisions of section 9 of the Act cannot be invoked.
Direct transfer of foreign company shares outside India cannot result in indirect transfer of shares of Indian Company.
The outside transaction was between two foreign companies (non-residents in India) on principal to principal basis. It is outside India's territorial tax jurisdiction and not taxable in India so should not be subjected to tax in India.
The Hon'ble Supreme Court decided against Income Tax Authorities and directed them to return the sum of INR 2,500 Crores along with the interest @ 4% p.a.
Amendments after the judgment
Explanation in Section 9:- (Income deemed to accrue or arise in India)
An asset or a capital asset being any share or interest in a company registered outside India shall be deemed to be situated in India, if the share or interest derives its value substantially from the assets located in India. (Applicable w.r.e.f April 1, 1961)
Explanation to Section 2(14): (definition of capital asset)
‘Property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.
Explanation to Section 2(47): (definition of transfer) [Try to understand santara]
‘Transfer’ includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights have been characterized as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India.
Amendments in SERVICE TAX
I. Section 64 - Extent, commencement and application
As per Section 65B (27) "India" includes Exclusive Economic Zone of India.
II. Section 65B –Interpretations
[only relevant ones which would be required to explain the concepts included]
“Service” means
- any activity carried out by a person for another
- for consideration, and
- includes a declared service,
- but shall not include—
(a) following activities,—
(i) transfer of goods or immovable property, by way of sale, gift or in any other manner; or
(ii) transfer of any goods which is deemed to be a sale under article 366 of the Constitution; or
(iii) a transaction in money or actionable claim;
(b) service by an employee to the employer;
(c) fees taken in any Court or tribunal established under any law.
Explanation:-
An unincorporated association and a member thereof shall be treated as distinct persons.
III. Section 66B – Charge of service tax on and after Finance Act, 2012
There shall be levied a tax @ 12%
of the value of all services,
other than those services specified in the negative list,
provided or agreed to be provided in the taxable territory by one person to another.
IV. Section 66D - Negative list of services
Important Note:-
As per announcement of ICAI dated 26.11.2012 only negative list is applicable for IPCE/PCE.
Therefore exemptions under NN25/2012(mega exemptions) are not applicable.
(1) Advertisement:
(2) Bridges:
(3) Cabs :
(4) Diplomatic mission
(5) Electricity
(6) Funeral:
Crematorium: A building in which the bodies of dead people are burned.
Mortuary: A room where dead bodies are kept until they are buried or cremated.
Burial: The ritual act of placing a dead person or animal into the ground
(7) Goods transportation:
(8) House residential:
(9) Interest:
(10) Jhule (rides):
(11) Kheti (agriculture):
(12) Lottery:
(13) Manufacture:
(14) Qualification:
Meaning of vocational education course:
Vocational Training Institute is an institute which gives skills to help the trainee to get job or start his own business after such training.
But now exemption is not granted to all types of institutes. Exemption is granted only to industrial training institute (ITI) or recognised training centre.
(15) RBI:
(16) Sarkar (Government):
(17) Trading of goods:
Meaning of Goods:
Means every kind of movable property other than actionable claim and money; and includes securities, growing crops, grass and things attached to land. [Section 65B(25)]
V. Section 66F – Principles of interpretation of specified descriptions of services or bundled services.
(1) Unless otherwise specified, reference to a service (herein referred to as main service) shall not include reference to a service which is used for providing main service.
(2) Where a service is capable of differential treatment for any purpose based on its description, the most specific description shall be preferred over a more general description.
(3) Subject to the provisions of sub-section (2), the taxability of a bundled service shall be determined in the following manner, namely:—
(a) if various elements of such service are naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which gives such bundle its essential character;
(b) if various elements of such service are not naturally bundled in the ordinary course of business, it shall be treated as provision of the single service which results in highest liability of service tax.
(c) Explanation— For the purposes of sub-section (3), the expression "bundled service" means a bundle of provision of various services wherein an element of provision of one service is combined with an element or elements of provision of any other service or services.
VI. Section 67A - Date of determination of rate of tax, value of taxable service and rate of exchange
The rate of service tax, value of a taxable service and rate of exchange, if any, shall be one as in force or as applicable at the time when the taxable service has been provided or agreed to be provided.
For a currency when exchanged from, or to Indian Rupees (INR)
For a currency, when exchanged from, or to , Indian Rupees (INR), the value shall be equal to the difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI) reference rate for that currency at the time of exchange, multiplied by the total units of currency.
Example:- I
US$ 1,000 are sold by a customer at the rate of `45 per US$. RBI reference rate for US$ is ` 45.50 for day.
Value of taxable service = (RBI reference rate for $ - Selling rate for $) x Total Units.
= `(45.50 – 45) x 1,000
= ` 0.50 x 1,000
The taxable value shall be `500.
Example:- II
INR 70,000 is changed into Great Britain Pound (GBP) and the exchange rate offered is ` 70, thereby giving GBP 1,000.RBI reference rate for that day for GBP is `69.
The taxable value shall be ` 1,000.
