Proposed amendments to the Finance No. 2 Bill, 2014
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Proposed amendments to the Finance No. 2 Bill, 2014

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The Finance No. 2 Bill, 2014 (the Bill) was introduced by the Finance Minister in the Lok Sabha on 10 July 2014. Today, the amendments to the Bill have been tabled in the Lok Sabha by notice of......

The Finance No. 2 Bill, 2014 (the Bill) was introduced by the Finance Minister in the Lok Sabha on 10 July 2014. Today, the amendments to the Bill have been tabled in the Lok Sabha by notice of amendments. The same has been summarised in the Flash News.

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  • 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG IN INDIA Proposed amendments to the Finance No. 2 Bill, 2014 25 July 2014 Background The Finance No. 2 Bill, 2014 (the Bill) was introduced by the Finance Minister in the Lok Sabha 1 on 10 July 2014. Today, the amendments to the Bill have been tabled in the Lok Sabha by notice of amendments. The key amendments are summarised as follows: Direct taxes: Condition of holding period of unlisted shares and non-equity oriented mutual funds for the purpose of classifying as long term capital asset made applicable prospectively The Bill had proposed to regard unlisted shares and units of non-equity oriented mutual fund, held for not more than 36 months as Short Term Capital Assets; the earlier threshold was 12 months. It is now proposed that the unlisted shares and units of mutual funds transferred between 1 April, 2014 and 10 July 2014 shall be regarded as Long Term Capital Assets if they are held for more than 12 months. _______________ 1 Lower House of the Parliament of India Tax treatment of Long term Capital Gains on units of specified mutual funds The Bill had proposed to withdraw benefit of 10 percent cap on the tax applicable on Long Term Capital gains from sale of units of specified mutual funds, including units of equity oriented funds. It is now proposed that the tax payable in respect of Long Term Capital gains arising from transfer of units of specified mutual funds during the period from 1 April 2014 to 10 July 2014 shall be capped at the rate of 10 percent of gains without availing the benefit of indexation. Computation of Arm’s length price in case of an international transaction The Finance Minister in his Budget speech had proposed to introduce the concept of price range for determination of Arm’s Length Price (ALP), to align the Indian transfer pricing regulations with international leading practices.
  • 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Now, a new proviso has been proposed to be inserted with regards to the computation of ALP. Accordingly, for international transactions and specified domestic transaction undertaken on or after 1 April 2014 and where more than one price is determined by the most appropriate method, the ALP shall be computed in such manner as may be prescribed. Consequently, the provisions of arithmetic mean and tolerance range shall not apply. Applicability of mechanism of ‘Authority of Advance Rulings’ to resident taxpayers The Finance Minister in his Budget speech had proposed to enable resident taxpayers to obtain an Advance Ruling in respect of their income-tax liability. It is now proposed that a resident applicant falling within such class or category of persons as may be notified by the Government can make an application to an Authority for Advance Rulings (AAR) in relation to a tax liability arising out of transactions undertaken or to be undertaken. It is further proposed to constitute the benches of the AAR at such places as may be notified by the Government. The constitution of AAR shall consist of a Chairman and such number of Vice-Chairmen, revenue members and law members as may be appointed by the Government. Enlargement of the scope of Settlement Commission The Finance Minister in his Budget speech had proposed to enlarge the scope of Settlement Commission (SC) for taxpayers to approach the SC. It is now proposed to eliminate the restrictions for the taxpayers to approach the SC even for those cases wherein re-assessment proceedings are initiated or proceedings for fresh assessments are undertaken in pursuance of order of higher authorities. The changes in the provisions shall take effect from 1 October 2014. Indirect taxes:  The Bill that was introduced on 10 July 2014 had proposed a compulsory pre-deposit at the time of filing appeal before the first stage appellate authority or second stage appellate authority under customs, excise and service tax law. In a case where the demand consisted of both duty and penalty, the pre- deposit proposed to be computed on the consolidated demand of duty and penalty. In the amendment to the Bill, the requirement of pre-deposit has been relaxed. In view of this amendment, where duty or both duty and penalty are in dispute, the pre-deposit would be of the prescribed percentage of duty only, and no pre- deposit of the penalty amount is required to be made. Where only penalty is in dispute, the pre- deposit would be of the prescribed percentage of penalty.  Presently, if an amount is deposited by the appellant in an appeal filed under the customs, excise and service tax law, and such amount is to be refunded due to an appellate order, interest is paid from a date after three months from the receipt of the appellate order. The amendment to the Bill has proposed to amend the relevant provisions governing refund of pre-deposit amount. Post the said amendment, interest shall be paid to the appellant from the date of payment of the amount till the date of refund of such amount. Further, this shall apply only to deposits made after the enactment of the Bill. The rate of interest shall be between five and thirty-six per cent, as may be notified by the government.  Under the current provisions of central excise law and customs law, a fee of INR500 is required to be paid on an application to be made with the Appellate Tribunal relating to grant of stay, rectification of mistake, restoration of an appeal or an application, or for any other purpose. As per the amendment in the Bill, the words ‘for grant of stay or’ has been omitted from the relevant provisions. Therefore, in view of the above amendment, payment of fees is not required for making an application for stay before the Appellate Tribunal. Note: The proposed amendments to the Bill will become law only after it receives assent of the President of India.
  • 3. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“ are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903,Near Vodafone House,Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010