Union budget 2013 detailed analysis


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Union budget 2013 detailed analysis

  1. 1. UNION BUDGET 2013Analysis of(For internal circulation only)
  2. 2. Contents• Direct Taxes• Indirect Taxes• Service Tax
  3. 3. Direct Taxes
  4. 4. Direct TaxesChange Impact/CommentsDeferment of GAAR implementation to AY 2016-17 This is based on therecommendations of the expertcommittee headed by DrParthasarathy Shome. And is inline with the earlierpronouncements of the financeminister. You can download acopy of our report on GAAR hereRevision of withholding tax rates on Royalties and FTSfor non residents hikes to 25% from the existingminimum rate of 10%Done to ostensibly bring rates inline with internationalwithholding rates. It is worthnoting that applicable treaty ratesshall still be available.
  5. 5. Direct TaxesChange Impact/CommentsTRC ( tax residency certificates) shall not be sufficientalone to claim relief under DTAA.The finance ministry has sinceclarified that circular no 789 shallcontinue to be in force and thatthe IT department shall notquestion the TRC as proof ofresidence. The budget statementthat caused confusion has beenthus withdrawn.Concessional rate of tax of 15% on dividend receivedfrom a specified foreign company has been extendedfor one more year. Further onward distribution of suchdividend received has been exempted from tax witheffect from 1st June 2013Clause is applicable where Indiancompany holds more than 26% ofequity capital in the foreigncompany
  6. 6. Direct TaxesChange Impact/CommentsCategorization of groups of angel investors as category 1AIF VC funds. Accordingly the definition of Venturecapital funds as per Section 10 (23FB) has been amendedto include such angel funds.“Pass through benefits” will nowbe available to such funds just asthey are available to otherregistered AIFs. Meaning that theprofits from such funds shall betaxable in the hands of theinvestors and not the fund itself.Incomes earned by investor protection funds set up inaccordance with SEBI guidelines to be exempt fromincidence of income tax.
  7. 7. Direct TaxesChange Impact/CommentsImposition of and increase in surcharge on incomes ofAll Assesses other than companies 10% on incomeabove Rs 1 crore. For Companies the rates are 10% and5% respectively for domestic and foreign companieswhere income exceeds Rs 10 Crore. Further a surchargehas been imposed on Dividend Distribution at 10%Imposition of 20% withholding tax on distribution ofprofits by way of buy-back of securities. Further, asurcharge of 10% shall be applicable on suchdistribution of income.Buy backs were finding favor as ameans of profit distributionwithout having to incur theburden of dividend distributiontax. This additional levy seeks toclose such loop-holes. The amountso received by the shareholderwill be exempt in their hands.
  8. 8. Direct TaxesChange Impact/CommentsAdditional investment allowance of 15% to be allowedto manufacturing companies that invest upward Rs 100crores on plant and machinery during the period1.4.2013- 31.3.2015To encourage expansion andinvestment in new machinery anadditional deduction of 15% hasbeen introduced. This shall beavailable in addition todepreciation regularly available.Sunset clause for commencement of business forundertakings set up for generation, distribution,transmission of power extended to 31st March 2014from 31st march 2013
  9. 9. Direct TaxesChange Impact/CommentsIncomes of specified securitization trusts to be exemptfrom income tax. Incomes earned by investors fromsecuritization trusts have also been exempt from tax.Further such trusts would have to pay distribution taxat the time of distribution of income, at the followingrates:25% of individuals and HUFs30% for all other casesLong term infrastructure bonds issued by an Indiancompany and subscribed to by a non resident usingforeign currency in designated account will be deemedto be subscribed in foreign currency and a lowerwithholding rate of 5% will apply to interest earnedfrom such bonds.
  10. 10. Direct TaxesChange Impact/CommentsWhere consideration received from sale of immovableproperty is less than stamp duty value by a differenceof more than Rs 50,000 the excess of stamp value overconsideration shall be taxable as income from othersources.A withholding tax of 1% has been applied on transferof immovable property where consideration is in excessof Rs 50 lakhsEven in cases where immovable property has been heldas stock in trade, the stamp duty value shall beconsidered to be consideration for transfer of suchproperty if such consideration is less than applicablestamp dutyThese moves collectively indicatea broad initiative to curb thepresence of black money in realestate transactions and to furtherincrease the tax collections fromsuch real estate transactions.It is important to note that TCS of1% on real estate transactions hadbeen imposed in the previousfinance act.
  11. 11. Direct TaxesChange Impact/CommentsAgricultural land to be considered a capital asset if :It lies within 2 kms of limits municipality of cantonmentwith population in excess of 10,000It is Where consideration received from sale of immovableproperty is less than stamp duty value by a difference ofmore than Rs 50,000 the excess of stamp value overconsideration shall be taxable as income from othersources.No change in tax slabs for individual taxation.However an additional credit of Rs 2000 has beenprovided for individuals with income below Rs5,00,000.
  12. 12. Direct TaxesChange Impact/CommentsSurcharge of 10% will be applicable on all noncorporate entities whose taxable income exceeds Rs 1Crore. This also includes partnerships and LLPsAdditional Deduction of interest upto Rs 1 Lakh will beavailable for individuals availing Home Loans of valueup to Rs 25 Lakh during period 1.04.2013 to 31.03.2014for the first time. The value of the property for whichsuch loan has been availed should be less that Rs 40lakhs.For persons suffering from disabilities or specifiedailments as mentioned in the rules the threshold ofinsurance premium deductible under section 80C hasbeen increased from 10% to 15% of sum assured.Thanks to this surcharge LLPs andpartnerships will end up payingmore tax as compared tocompanies
  13. 13. Direct TaxesChange Impact/CommentsContribution to Schemes of Central and StateGovernment similar to Central Government HealthScheme will be eligible for deduction under section80D which provides for deductions on eligiblemediclaim insurance schemes.Donations to National Children Fund are also eligiblefor 100% deduction under section 80G, contributions toNCF earlier attracted a deduction of upto 50% of theamount of donation.Keyman insurance policies assigned to any personwithout consideration shall be considered as keymaninsurance policies not eligible for exemption
  14. 14. Direct TaxesChange Impact/CommentsBanks would be able to claim deductions in respect ofbad debts written off without having to makedistinctions between rural advances and otheradvances.Imposition of Commodities trading tax (CTT) at therare of 0.01% on the sale of non agro commodityderivatives. Assessees paying CTT will be able to claimdeduction of such tax from their profits.Rates of STT have been reduced for various deliverybased transactions in units of equity oriented funds,sale of futures, and sale of equity oriented fund units tothe fund
  15. 15. Direct TaxesChange Impact/CommentsIncomes distributed by a mutual fund not being amoney market fund, equity oriented fund or a liquidfund shall be taxable in the hands of an Individual orHUF at the rate of 25%, up from 12.5%Revenue authorities can conduct direct special audit ofaccounts of tax payer in cases of voluminous accounts,doubts about correctness, multiplicity of transactions orspecialized nature of business activitiesReturns filed to be considered “defective” if entireamount of self assessment tax along with interest due isnot paid on or before date of furnishing return ofincome.More power in the hands of taxauthorities
  16. 16. Indirect Taxes
  17. 17. Indirect Taxes - CustomsChange ImpactExemption available to Aircraft MRO operations hasbeen extended to private aircraft and aircraft parts.Products for which rates have been hiked include settop boxes, yatchs, motor cars and bikes, steam coal andraw silk.Products for which rates have been decreased includeLithium Ion batteries for hybrids, textile machinery andparts, bituminous coal, Pre-forms of precious and semiprecious stones, wash coats etc.
  18. 18. Indirect Taxes - CustomsChange ImpactExemptions from Excise Duty enlarged toinclude Parts of aircraft and testing equipmentused in manufacture, repair and overhauling ofaircraftDuty on branded garments reduced by 20%Exemption for ships and vessels if obtainedunder general license.Duty at 1/120 factor upon conversion of generallicense to coastal license.
  19. 19. Service tax
  20. 20. Service TaxChange ImpactNo change in rate of Service taxChanges to Negative listapproved vocational education course nowincludes courses run by an industrial traininginstitute / centre affiliated with the State Councilfor Vocational Training. Institutions associatedwith NSDC have been excludedTesting activities related to agriculture are nowincludedProcesses under the Medicinal and Toilet Preparations(Excise Duties) Act are now included in definition ofmanufacture
  21. 21. Service TaxChange ImpactChnages to exemption list :Auxiliary edu services and renting of immovable property byeducational institutions has been excludedTemporary transfer in relation to cinamatorgraphs is nowlimited to exhibition of films in theatres and cinema hallsService tax is now applicable to all air-conditioned retaurantsTransportation of petroleum and petroleum products, postalmail and household effects by goods or a vessel is now taxableTransportation of agriculture produce, foodstuff, relief materialfor specified purposes, chemical fertilisers and oil cakes,registered newspaper or magazines and defence equipments bygoods transport agencies is exemptExemptions for vehicle parking, repair of government aircraftand have been removedThe activity “advancement of other activity” has been removedfrom definition of charitable services.
  22. 22. Service TaxChange ImpactAbatement with respect to complex, building or civilstructures has been reduced from 75% to 70% for nonresidential properties where amount charged is lessthan Rs 1 crore and floor area is less than 2000 sq feetVoluntary compliance scheme has been introduced toencourage compliance from eligible assessees.Failure to pay service tax collected, to the credit of theGovernment of India within 6 months may attractpunishment of imprisonment for a term which shall notbe less than 6 months but may extend up to 7 years, ifsuch non payment exceeds Rupees 50 lakhs;You can read more about thescheme hereSuch increase in power in thehands of the revenue is a worryingdevelopment. We hope these willbe toned down by the time the billis enacted.
  23. 23. Service TaxChange ImpactMaximum penalty for failure to obtain registrationshall be Rs 10,000Penalty to the extent of Rupees 1 lakh can beenimposed on a director, manager, secretary or any otherofficer of a company, for specified offences in cases ofwillful actions
  24. 24. 251101KLJ Towers North, NSPDelhi -110034info@arkayandarkay.com+91-11-2735-7350
  25. 25. 26This presentation provides general information existing at the time of preparation. The presentation is intended as a newsupdate and Arkay & Arkay, Chartered Accountants neither assumes nor accepts any responsibility for any loss arising toany person acting or refraining from acting as a result of any material contained in this presentation. It is recommendedthat professional advice be taken based on the specific facts and circumstances. This presentation does not substitute theneed to refer to the original pronouncements.