The document summarizes key changes in India's Budget 2013-2014 for direct taxes. Some key points include: 1) Income tax rates remain unchanged for companies and individuals but surcharge rates were increased for higher income levels. 2) No change in personal income tax slabs but a Rs. 2000 tax credit for those earning up to Rs. 5 lacs. 3) New deductions for first-time home buyers and life insurance policies for certain medical conditions. 4) General anti-avoidance rules will take effect from 2016-17 to curb abusive tax avoidance.

1. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
BUDGET 2013­2014
 The following proposals have been made in the Budget:
Direct Taxes
Income Tax
 No changes made in the Tax rates for Companies, Firms, Local Authorities and
Cooperative Societies. However, the rates of Surcharge shall be as follows:
 Co‐operative societies, Firms and Local Authorities having income above Rs.1 Crore
@ 10%
 Domestic companies having income above Rs. 1 crore but upto Rs. 10 crores @ 5%
 Domestic companies having income above Rs. 10 crores @10%
 Companies other than domestic companies having total income above Rs. 1 Crore
but upto Rs. 10 crores @ 2%
 Companies other than domestic companies having income above Rs. 10 Crore @ 5%
 In all other cases, such as dividend distribution tax or tax on distributed income, the
rate of surcharge shall be increased to 10%.
 No Changes in the Personal Income Tax Slabs. However, a Tax Credit of Rs. 2000/‐ shall
be available to an individual taxpayer whose income is upto Rs. 5 lacs.
 The tax Slabs are as follows:
INCOME TAX RATE
For GENERAL taxpayers
Up to Rs 2,00,000 Nil
Rs 2,00,001 to Rs 5,00,000 10%
Rs 5,00,001 to Rs 10,00,000 30,000 + 20% of income above Rs. 5 lacs
and less than Rs.10 lac
Rs 10,00,001 and above 1,30,000 + 30% of income above Rs. 10 lacs
For SENIOR CITIZENS
Up to Rs 2,50,000 Nil
Rs 2,50,001 to Rs 5,00,000 10%
Rs 5,00,001 to Rs 10,00,000 25,000 + 20% of income above Rs. 5 lacs
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2. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
and less than Rs.10 lac
Rs 10,00,001 and above 1,25,000 + 30% of income above Rs. 10 lacs
For VERY SENIOR CITIZENS (above 80 years)
Up to Rs 5,00,000 Nil
Rs 5,00,001 to Rs 10,00,000 20% of income above Rs. 5 lacs and less
than Rs.10 lac
Rs 10,00,001 and above 1,00,000 + 30% of income above Rs. 10 lacs
 The Surcharge shall be levied @ 10% in case of individuals having an income above Rs.
1 Crore.
 The first time home buyers would get an additional deduction of interest of Rs. 1 lac to
be claimed in AY 2014‐15. If the limit is not exhausted, the balance may be claimed in
AY 2015‐16. This deduction will be over and above the deduction of Rs. 1.50 lacs
allowed for self‐occupied properties u/s 24 of the Income‐tax Act.
 The exemption on life insurance policies for persons suffering from disability or certain
ailments by increasing the permissible premium rate from 10% to 15% of the sum
assured. This relaxation shall be available in respect of policies issued on or after
1.4.2013.
 Explanation 1 to Section 10 (10D) has been amended to provide that a Keyman
insurance policy which has been assigned to a person during its term, with or without
consideration, shall continue to be treated as a Keyman insurance policy for the
purposes of clause (10D) of section 10. Therefore, any benefit received on such policy
by a person to whom it is assigned shall be taxable.
 Income of a securitisation trust from the activity of securitization and income of
Investor Protection Fund by way of contribution from Depository(s) in accordance with
law shall be exempt from tax.
 Donations made to the National Children’s Fund will now be eligible for 100%
deduction.
 An investment allowance @ 15% shall be given to a manufacturing company that
invests more than Rs. 100 crore in plant and machinery during the period 1.4.2013 to
31.3.2015.
 The ‘eligible date’ for projects in the power sector to avail of the benefit u/s 80‐IA has
been extended from 31.3.2013 to 31.3.2014.
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3. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
 Interest income of non‐residents on investment made through a designated bank
account in rupee‐denominated long term infrastructure bonds shall attract a
concessional tax rate of 5%.
 TDS shall be deducted @ 1% on the value of the transfer of immovable property where
the consideration exceeds Rs. 50 lakhs. However, agricultural land will be exempt.
 A final withholding tax @ 20% shall be levied on profits distributed by unlisted
companies to shareholders through buyback of shares.
 The rate of tax on payments by way of royalty and fees for technical services to non‐
residents has been increased to 25%. However, the applicable rate will be the rate of
tax stipulated in the DTAA.
 Securities Transaction Tax (STT) rates have been changed as follows:
o Equity futures: from 0.017 to 0.01%
o MF/ETF redemptions at fund counters: from 0.25 to 0.001%
o MF/ETF purchase/sale on exchanges: from 0.1 to 0.001 %, only on the
seller
 A Commodity Transaction tax (CTT) on non‐agricultural commodities futures contracts
shall be levied @ 0.01% of the price of the trade. Trading in commodity derivatives will
not be considered as a ‘speculative transaction’ and CTT shall be allowed as deduction if
the income from such transaction forms part of business income.
 Any amount paid by way of royalty, licence fee, service fee, privilege fee, service charge
or any other fee or charge, by whatever name called which is levied exclusively on or
any amount which is appropriated, whether directly or indirectly, from a State
Government undertaking, by the State Government, shall not be allowed as deduction in
computing the income chargeable under the head “Profits and gains of business or
profession”.
 No deduction shall be allowed u/s 80GGC in respect of contributions given by any
person to political parties in by way of cash.
 Section 80JJAA is being amended to restrict the benefit available to a deduction of 30%
of additional wages of new workmen employed in the factory only.
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4. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
 The following new General Anti‐Avoidance Rules will take effect from 1st April, 2016
and will, accordingly, apply in relation to the assessment year 2016‐17 and subsequent
assessment years:
 The provisions of the proposed new section 95 provide that an arrangement
entered into by an assessee may be declared to be an impermissible avoidance
arrangement and consequences in relation to tax of such a declaration can be
determined.
 The proposed section 96 provides the definition and conditions under which an
arrangement can be declared to be an impermissible avoidance arrangement. The
section also provides for circumstances under which an arrangement shall be
presumed to be entered into or carried out for the main purpose of obtaining tax
benefit.
 The proposed section 97 provides for circumstances under which an arrangement
shall be deemed to lack commercial substance. The period or time for which the
arrangement exists; the fact of payment of taxes; and the fact that an exit route is
provided by the arrangement, may be relevant but shall not be sufficient for
determining whether an arrangement lacks commercial substance or not.
 The proposed section 98 provides for method of determination of consequences in
relation to tax of an arrangement after it is declared to be an impermissible
avoidance arrangement. It provides for certain illustrative but not exhaustive
methods for determination of tax consequences.
 The proposed section 99 provides that in determining whether there is a tax benefit
the parties who are connected persons in relation to each other may be treated as
one and the same person, any accommodating party may be disregarded, such
accommodating party and any other party may be treated as one and the same
person, and the arrangement may be considered or looked through by disregarding
any corporate structure.
 It is proposed to amend the Explanation to Section 139 so as to provide that the return
of income shall be regarded as defective unless the tax together with interest, if any,
payable in accordance with the provisions of section 140A, has been paid on or before
the date of furnishing of the return. This amendment will take effect from 1st June,
2013.
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5. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
Indirect Taxes
 There will be no change in the peak rate of basic Customs Duty of 10% for non‐
agricultural products. There will also be no change in the normal rate of Excise Duty
and Service Tax of 12%.
 The period of concession now available for specified parts of electric and hybrid
vehicles has been extended upto 31.3.2015.
 The duty on specified machinery for manufacture of leather and leather goods,
including footwear, has been reduced from 7.5 % to 5 %.
 The duty on pre‐forms of precious and semi‐precious stones has been reduced from
10% to 2%.
 Export duty on de‐oiled rice bran oil cake has been withdrawn.
 A duty @ 10% on export of unprocessed ilmenite and 5% on export of upgraded
ilmenite has been levied.
 The duty on Set top boxes has been increased from 5 % to 10 %.
 The duty on raw silk has been increased from 5 % to 15 %.
 A 2 % customs duty and 2 % CVD shall be levied on Steam Coal and Bituminous coal.
 The duty on imported luxury motor vehicles has been increased from 75 % to 100 %;
on motorcycles with engine capacity of 800cc or more from 60 % to 75 %; and on
yachts and similar vessels from 10 % to 25 %.
 The baggage rules have been amended to increase the duty‐free limit to bring jewellery
to Rs. 50,000 in the case of a male passenger and Rs. 100,000 in the case of a female
passenger, subject to the usual conditions.
 The ‘zero excise duty route’ has been restored for cotton and manmade sector (spun
yarn) at the yarn, fabric and garment stages. In the case of cotton, there will be zero
duty at the fibre stage also and, in the case of spun yarn, there will be a duty of 12% at
the fibre stage. The ‘zero excise duty route’ will be in addition to the CENVAT route now
available.
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6. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
 Handmade carpets and textile floor coverings of coir or jute have been totally from
excise duty.
 Ships and vessels have been exempted from excise duty. Consequently, there will be no
CVD on imported ships and vessels.
 Excise duty on SUVs has been increased from 27 % to 30 %. However, the increase will
not apply to SUVs registered as taxis.
 The Excise duty on Marble has been increased from Rs. 30 per sq. mtr to Rs. 60 per sq
mtr.
 Excise duty @ 6% shall be levied on mobile phones priced at more than Rs. 2000.
 MRP based assessment shall be done in respect of branded medicaments of Ayurveda,
Unani, Siddha, Homeopathy and bio‐chemic systems of medicine. There will be an
abatement of 35 %.
 Vocational courses offered by institutes affiliated to the State Council of Vocational
Training and testing activities in relation to agriculture and agricultural produce shall
be included in the negative list of services for applicability of Service Tax.
 The full exemption of service tax on copyright on cinematography shall be limited to
films exhibited in cinema halls.
 The service tax on all air conditioned restaurants.
 The rate of abatement shall be reduced from 75 % to 70 % in case of Homes and flats
with a carpet area of 2,000 sq.ft. or more or of a value of Rs. 1 crore or more.
 A one‐time scheme called ‘Voluntary Compliance Encouragement Scheme’ is being
introduced for Service Tax assessees. A defaulter may avail of the scheme on condition
that he files a truthful declaration of service tax dues since 1.10.2007 and makes the
payment in one or two installments before prescribed dates. In such a case, interest,
penalty and other consequences will be waived.
 Interest free period to pay Customs Duty has been reduced from 5 days to 2 days.
 Section 30 of the Customs Act is being amended to provide for electronic filing of
import manifest and to insert a proviso that where this is not feasible, the
Commissioner of Customs may allow the delivery of such manifest in any other manner.
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7. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
 Section 41(1) is being amended to provide for electronic filing of export general
manifest and to insert a proviso that where this is not feasible, the Commissioner of
Customs may allow the delivery of such manifest in any other manner.
 Section 49 of the Customs Act is being amended to provide that goods may be permitted
to be stored for a period not exceeding 30 days in a public warehouse and the private
warehouse in the interest of accountability and early finalization of assessment and to
insert a proviso that the Commissioner of Customs may extend the period of storage for
a further period not exceeding 30 days at a time.
 The monetary limit of the Single Bench of the Appellate Tribunal to hear and dispose of
appeals has been enhanced from “ten lakh rupees” to “fifty lakh rupees”.
 Section 144 of the Customs Act is being amended to provide that there shall be no
liability of duty on any goods consumed as samples during testing or examination.
 The threshold limit of evasion, for punishment with imprisonment upto seven years
and with fine, has been increased from “thirty lakh rupees” to “fifty lakh rupees” for
both Customs Duty and Excise Duty.
 Section 11 of the Central Excise Act is being amended so as to provide for additional
modes of recovery of the amount due to the Central Government. Besides the existing
modes of recovery, now it is proposed to provide that in case of dues of central excise,
the Central Excise Officer may require any other officer of Central Excise or Customs to
recover the amount due from such money which is payable to such person. It is also
proposed to provide for another mode of recovery so that a person (third party) from
whom amount is due or may become due to the defaulter shall be required to pay to the
Central Government so much amount as is sufficient to pay the arrears of revenue. Any
of these two new modes of recovery can be used by the Central Excise Officer besides
the existing modes of recovery.
 The maximum penalty for failure to take registration under Service Tax shall be
restricted to Rs.10,000/‐.
Capital Market Reforms:
 There are many categories of foreign portfolio investors such as FIIs, sub‐accounts, QFIs
etc. and there are also different avenues and procedures for them. Designated
depository participants, authorised by SEBI, will now be free to register different
classes of portfolio investors, subject to compliance with KYC guidelines.
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8. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
 SEBI will simplify the procedures and prescribe uniform registration and other norms
for entry of foreign portfolio investors. SEBI will converge the different KYC norms and
adopt a risk‐based approach to KYC to make it easier for foreign investors such as
central banks, sovereign wealth funds, university funds, pension funds etc. to invest in
India.
 In order to remove the ambiguity that prevails on what is Foreign Direct Investment
(FDI) and what is Foreign Institutional Investment (FII), it is proposed to follow the
international practice and lay down a broad principle that, where an investor has a
stake of 10 % or less in a company, it will be treated as FII and, where an investor has a
stake of more than 10 %, it will be treated as FDI. A committee will be constituted to
examine the application of the principle and to work out the details expeditiously.
 FIIs will be allowed to participate in the exchange traded currency derivative segment
to the extent of their Indian rupee exposure in India.
 FIIs will also be permitted to use their investment in corporate bonds and Government
securities as collateral to meet their margin requirements.
 SEBI will prescribe requirements for angel investor pools by which they can be
recognised as Category I AIF venture capital funds.
 Small and medium enterprises, including start‐up companies, will be permitted to list
on the SME exchange without being required to make an initial public offer (IPO), but
the issue will be restricted to informed investors. This will be in addition to the existing
SME platform in which listing can be done through an IPO and with wider investor
participation.
 The Stock Exchanges will be allowed to introduce a dedicated debt segment on the
exchange. Banks and primary dealers will be the proprietary trading members. In order
to create a complete market, insurance companies, provident funds and pension funds
will be permitted to trade directly in the debt segment with the approval of the sectoral
regulator.
 Mutual fund distributors will be allowed to become members in the Mutual Fund
segment of stock exchanges so that they can leverage the stock exchange network to
improve their reach and distribution.
 The list of eligible securities in which Pension Funds and Provident Funds may invest
will be enlarged to include exchange traded funds, debt mutual funds and asset backed
securities.
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9. BUDGET 2013‐2014
Kapgrow Corporate Advisory Services Private Limited
Other Proposals:
 A Tax Administration Reform Commission is proposed to be set up to review the
application of tax policies and tax laws and submit periodic reports that can be
implemented to strengthen the capacity of our tax system.
 The fifth Large Tax payer Unit will be opened at Kolkata shortly.
For any queries / further information, please feel free to contact us:
Kapgrow Corporate Advisory Services Private Limited
E­69, Lajpat Nagar ­1,
New Delhi – 110024
011­40553774
9310270884 / 7503110330
info@kapgrow.com
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