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Highlight of Union Budget 2014-15 - Direct Tax Proposals

Written By Admin on Sunday, 20 July 2014 | Sunday, July 20, 2014

Highlights of Union Budget 2014-15

Direct Tax Proposals

Personal Taxation

Basic exemption limit to be increased from Rs. 2 lakhs to Rs. 2.5 lakhs for taxpayer below the age of 60 years and from Rs. 2.5 lakhs to Rs. 3 lakhs, in case of senior citizens.

The existing limit of deduction under section 80C   to be increased from Rs. 1  lakh  to  Rs.  1.5  lakhs.     The  annual  ceiling  limit  for  investment  in  Public Provident Fund to be increased from Rs. 1 lakh to Rs. 1.5 lakh.

The  deduction  in  respect  of  interest  on  housing  loan  borrowed  for  self occupied property  to be enhanced from Rs. 1.5 lakhs to Rs. 2 lakhs.

No change proposed in the rate of surcharge rate and education cess. 

Business Taxation

Tax on distributed profits of domestic companies under section 115-O and tax on distributed income to unit holders under section 115-R to be levied on  the  gross  amount  of  dividend  and  not  on  net  amount  of  dividend distributed.

Deduction  under  section  32AC@15%  of  investment  in  new  plant  and machinery  to  be  allowed  if  such  investment  exceeds  Rs.  25  crores  during the previous year. Such deduction is allowable for investment made in plant and machinery upto 31.03.2017.

The   terminal   date   for   power   sector   undertakings   to   set-up,   start transmission or distribution or substantial renovation and modernization of existing network to be extended for a further period upto 31st March, 2017.

Deduction in respect of capital expenditure extended to two new sectors, namely,  laying  and  operating  of  slurry  pipelines  for  the  transportation  of iron  ore,  and  setting  up  and  operating  semi  conductor  wafer  fabrication manufacturing  units.  Period  of  8  years  being  specified  for  which  capital
asset to be used for specified business

The Corporate Social Responsibility (CSR) expenditure under section 135 of the Companies Act, 2013 not deductible under section 37..

Disallowance of payments made to non-residents not to be attracted if the tax is deducted during the previous year and deposited on or before the due date of filing of return of income.

Disallowance  of  payments  made  to  residents  without  deduction  of  tax to  be  limited  to  30%  of  such  payment.  Further,  disallowance  to  be attracted  for  all  payments  on  which  tax  is  required  to  be  deducted under Chapter XVII-B..

Presumptive  income  of  an  assessee  engaged  in  the  business  of  plying, hiring or leasing goods carriage to be computed at Rs. 7,500 per month per  vehicle  for  all  types  of  goods  carriage  vehicles, whether  heavy vehicles or not.

Provisions  of  AMT  to  be  attracted  to  assessees  claiming  investment linked tax deduction under section 35AD

Since  the  tax  accounting  standards  that  were  placed  in  public  domain are  not  intended  for  maintenance  of  accounts  but  for  the  purpose  of computation  of  income,  the  term  “accounting  standards”   is   to  be replaced with “income computation and disclosure standards”. 

Capital Gains

Units of debt oriented mutual funds and unlisted securities to qualify as a short-term capital asset, if held for not more than 36 months. The period for qualifying as a short-term capital asset to be increased from 12 months to 36 months.

Long-term capital gains on units of debt-oriented mutual funds not eligible for concessional rate of tax@10% (without indexation benefit);

Advance received and retained in the course of negotiations for transfer of a capital asset which did not materialize to be treated as income chargeable to tax under the head “Income from other sources”   Currently, such sum is being  deducted  from  the  cost  of  acquisition  for  computing  capital  gains when the asset is subsequently transferred.

Enhanced   compensation   on   compulsory   acquisition   of   a   capital   asset received  in  pursuance  of  an  interim  order  of  a  court,  tribunal  or  other authority  to  be  deemed  as  income  chargeable  under  the  head  “capital gains” in the previous year in which the final order of such Court, Tribunal or other authority is made.

“Cost Inflation Index” in relation to a previous year to mean such index as may  be  notified  by  the Central  Government  having  regard  to  75%  of average  rise  in  the  Consumer  Price  Index  (Urban)  for the  immediately preceding  previous  year  to  such  previous  year.    Reference  to  Consumer Price  Index (CPI)  for  urban  non-manual  employees  to  be  removed  since release of CPI for such employees has been discontinued.

Sections   54   and   54F   to   be   amended   to   provide   that   the   benefit   of exemption thereunder would be available only in respect of investment  in one residential house  situated in India.

Exemption under section 54EC for investment in long-term specified asset, out of capital gains arising from transfer of one or more original assets, to be restricted to Rs.50 lacs, whether such investment is made in the same financial  year  or  in  the  next  financial  year  or  partly  in  the  same  financial year and partly in the next financial year .

Charitable Trusts

Where  a  trust  or  institution  has  been  granted  registration  for  availing benefit under section 11 and the registration is in force for a previous year, then,  such  trust  or  institution  cannot  claim  any  exemption under  any provision  of  section  10  [other  than  section  10(1)  and  section  10(23C)]. Likewise,  where an  entity  has  been  approved  or  notified  for  claiming benefit  of  exemption  under  section  10(23C),  it would  not  be  entitled  to claim  any  benefit  of  exemption    under  the  other  provisions  of  section  10
[except the exemption under section 10(1)].

Income  for  the  purposes  of  application  under  section  11  and  section 10(23C), shall be determined without  providing  deduction or allowance for depreciation  in respect of an asset, acquisition of which has been claimed as an application of income under these sections in the same or any other previous year.   In effect, if the cost of asset has been claimed as application of income, then depreciation on such asset cannot be claimed in the same or any other previous year.

The  power  of  the  Commissioner  or  Principal  Commissioner  to  cancel  the registration  of  the  trust or  institution  has  been  expanded.    Section  12AA has  been  amended  to  provide  that  where  a  trust or  institution  has  been granted  registration  and  subsequently,  it  is  noticed  that  its  activities  are
being carried out in such a manner that –
(a) Its income does not enure for the benefit of general public;
(b) It is for the benefit of any particular community or caste;
(c) Any  income  or  property  of  the  trust  is  applied  for  the  benefit    of specified persons like author of trust, trustees, etc.; or
(d) Its funds are invested in prohibited modes. the  registration  may  be  cancelled,  if  such  trust  or  institution  does  not prove  that  there  was  a  reasonable  cause  for  the  activities  to  be  carried
out in the above manner.

Anonymous  donations  in  excess  of  one  lakh  or  5%  of  total  donations received by the assessee, is taxable at 30%.  The  income-tax payable by the assessee shall be the aggregate of 30% of such donations and the income- tax,  which  would  be  leviable,  had  the  total  income  been  reduced  by  the aggregate of  anonymous  donations  which  is  in  excess  of  5%  of  total donations received by the assessee or one lakh, whichever is higher.

Non-resident Taxation

The  benefit  of  concessional  rate  of  withholding  tax@5%  extended  to borrowings by way of issue of any long-term bond, and not restricted only to  long-term  infrastructure  bonds.    Further,  the  period  for which  the benefit  is  available  to  be  extended  by  two  years  i.e.  borrowings  made before 1st July, 2017.

Benefit   of   concessional   rate   of   15%   on   dividend   received   by   Indian companies   from   specified   foreign   companies   to   be   extended   without limitation to a particular assessment year;

“Roll Back mechanism” to be provided in the APA scheme upto a period not exceeding 4 previous years preceding the first previous year for which the APA applies .

Income arising from transfer of security by a Foreign Portfolio Investors to be in the nature of capital gains.
Tax Deduction at Source

Tax  to  be  deducted  @2%  from  the  sum  paid  under  life  insurance  policies which  are  not  exempted  under  section  10(10D).  No  tax  to  be  deducted where the amount in aggregate exceeds Rs. 1 lakh.

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