Budget 2014 15 - An analysis

BUDGET 2014-2015 01
INDEX
FOREWORD ....................................................................................2
BUDGET FLASH.............................................................................. 3
DIRECT TAX PROPOSALS............................................................... 5
TRANSFER PRICING......................................................................12
INTERNATIONAL TAX PROPOSALS...............................................15
INDIRECT TAX PROPOSALS ..........................................................15
U.S. Gandhi & Co. | Chartered Accountant

BUDGET 2014-2015 02
FOREWORD
Over the past few years, the Indian economy has witnessed sluggish
growth with relative moderation in all three sectors: agriculture, industry
and services. The economy is in need of a fillip to pull itself out of this
slump and be redirected to a path of continued and sustained growth. A
strong and stable government at the center does instill hope. In this
regard, the first Budget of the newly formed government is of paramount
importance, particularly as it signifies the path as well as long term vision
of things to come. While the government has a number of issues to focus
on, three key areas are of particular importance to the economy i.e. fiscal
prudence, sectoral growth and containment of inflation.
Targeting a GDP growth rate of 7 – 8% for FY 2014 – 2015, the honorable
Finance Minister Shri Arun Jaitley vowed to reign in the budget deficit to
within 4.1% of GDP by laying special emphasis on infrastructure
development and administrative reforms. The budget has provided
various SOP's to the power generation companies in the form of extended
Tax holidays and for renewable energy equipment manufacturers in the
form of exemption from duties thus pushing for investment in the sector.
'Aiming at minimum Government maximum governance' aptly
summarizes the direction the Finance minister is planning.
Revenue Drill

BUDGET 2014-2015 03
BUDGET FLASH
Direct Tax
· No change in the rates of taxes, surcharge and education cess for
all Individual & Corporate taxpayers.
· Basic exemption limit of tax for individuals below 60 years of age
enhanced from INR 2,00,000 to INR 2,50,000 per financial year.
· Basic exemption limit for senior citizens above 60 years of age
· Deduction towards the specified investments under section 80C is
· Public Provident Fund contribution limit enhanced from INR
1,00,000 to INR 1,50,000 per financial year
· Deduction for interest on housing loan for self-occupied property
is enhanced from INR 1,50,000 to INR 2,00,000 per financial year.
· Investment allowance at 15% for 3 years to manufacturing company
which invest more than Rs. 25 crores in plant and machinery.
· Unlisted security and a unit of a mutual fund (other than an equity
oriented mutual fund) shall be a short-term capital asset if it is
held for not more than thirty-six months.
· Concessional rate of tax of 5% on interest on borrowings in
foreign currency extended to all types of bonds.
· Foreign dividend tax to continue @15% with no sunset clause
would assist remittances of overseas earnings back to India.
· Lower withholding tax rate of 5% on interest payable on long
term funds borrowed from abroad to continue till 30 June, 2017.
· Disallowance of expenditure on Non-deduction/Payment of T.D.S.
on resident payments restricted to 30% of such expenditure
instead of 100% disallowance earlier.

BUDGET 2014-2015 04
Indirect Tax
Service Tax
· Base rate of duty is unchanged
· Service tax proposed to be levied on radio-taxis and sale of space
other than print media
· Exemption withdrawn on services provided by air-conditioned
contract carriages and technical testing of newly developed drugs
on human participants
· Exemption granted
a. to services provided by Indian tour operators to foreign
tourists in relation to a tour wholly conducted outside India
b. to loading, unloading, storage, warehousing and
transportation of rice, cotton, whether ginned or baled
c. to life micro-insurance schemes where sum assured does
not exceed INR 50,000/- per life insured
d. to services provided by common bio-medical waste
treatment facilities
· Service of recovery agent to bank, financial institution or NBFC
under full reverse charge
· Valuation of Works contract service increased to 70% from 60%.
· Mandatory e-payment for all assessees from 1st October 2014
subject to certain exceptions
· Higher Interest rate on delayed payment revised from 1st
October 2014
a. 18% upto six months
b. 24% from six months to one year
c. 30% for more than one year
Central Excise
· Base rate of duty is unchanged
· Excise duty on footwear with retail price between INR 500 to INR
1,000 per pair reduced to 6% from 12%
· Specific rates of excise duty increased on cigarettes in the range
of 11% to 72%
· Additional duty of excise at 5% levied on aerated waters
containing added sugar

BUDGET 2014-2015 05
Cenvat Credit
· CENVAT Credit can be availed within six months from the date of
invoice or challan as against indefinite period available earlier -
Effective from 1st
September, 2014
· CENVAT Credit Rules amended to disallow transfer of credit by a
large taxpayer from one unit to another
Customs
· Coloured picture tubes and LCD and LED TV panels of below 19
inches exempted from basic customs duty.
· Basic customs duty on semi-processed, half cut or broken
diamonds, cut and polished diamonds and coloured gemstones
rationalized at a higher uniform rate of 2.5%
· Export duty on bauxite increased from 10% to 20%
· Free baggage allowance increased from INR 35,000 to INR 45,000
Others
· The Hon'ble Finance Minister has pegged the FY15 fiscal deficit
target at 4.5 percent, but added that he will try to meet the 4.1
percent fiscal deficit target set by his predecessor. He pegged the
FY16 fiscal deficit target at 3.6 percent, while for FY17 the target
he is working on is 3 percent.
· The composite cap of FDI in defence has been raised to 49%.
Further the composite cap of FDI in insurance has been increased
to 49% from the current levels of 26%.
· To Liberalize ADR, GDR regime for all permissible securities.
· Uniform KYC Norms to be introduced for the Entire Financial Sector.

BUDGET 2014-2015 06
DIRECT TAX PROPOSALS
A) Personal Tax Rates
(Individual or H.U.F or A.O.P or B.O.I)
The income tax rates for individuals and corporate tax payers continues
to be the same. Also the surcharge and education cess rates have been
kept intact.
I. In case of persons other than those specified in II and III below the rates
of income-tax on total income shall be as follows: -
Income Tax Rate
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 20%
Above Rs.10,00,000 30%
II. In case of senior citizens (60 yrs – 80 yrs) the rates of income-tax on
total income shall be as follows: -
Income Tax Rate
Up to Rs.3,00,000 NIL
Rs.3,00,001 to Rs.5,00,000 10%
Rs.5,00,001 to Rs.10,00,000 20%
Above Rs.10,00,000 30%
Education Cess and Secondary & Higher Education Cess continues to be at
2% and 1% respectively.
(B) Firms
A Firm including Limited Liability Partnership will be taxed at the
same rate of 30% of Net Income. Surcharge* at 10% is Applicable.
Education Cess is 3% of Income tax.
(C) Local authorities
The local authority continues to be taxed at the same rate of 30% of net
income. Surcharge* at 10% is applicable. Education Cess is 3% of Income
tax.

BUDGET 2014-2015 07
(D) Companies
Domestic Company Taxable Income Tax Rate Surcharge Edu. Cess Effective Rate
Domestic Company
> than 1 Crore and
30% 5% 3% 32.44%
Upto 10 Crores
Domestic Company > than 10 Crores 30% 10% 3% 33.99%
Other than domestic > than 1 Crore and
40% 2% 3% 42.02%
Company Upto 10 Crores
Other than domestic
> than 10 Crores 40% 5% 3% 43.26%
Company
Adjusted Book
MAT for Companies
Profits > than 1
18.5% 5% 3% 20.01%
Crore and Upto 10
Crores
Adjusted Book
MAT for Companies Profits > than 10 18.5% 10% 3% 20.96%
Crores
Business & Profession
Investment Allowance to Manufacturing Concerns
Investment Allowance under section 32AC of the Act shall be allowed if the
company on or after 1st April, 2014 invests an aggregate of more than Rs.25
crore in plant and machinery in a previous year. It is also proposed that the
assessee who is eligible to claim deduction under the existing combined
threshold limit of Rs.100 crore for investment made in previous years 2013-
14 and 2014-15 shall continue to be eligible to claim deduction under the
existing provisions contained in sub-section (1) of section 32AC even if its
investment in the year 2014-15 is below the proposed new threshold limit of
investment of Rs. 25 crore during the previous year. The deduction allowable
under this section after the proposed amendment in different scenarios of
investment is given by way of illustration in the following table:-

BUDGET 2014-2015 08
Sr.
PARTICULARS
F.Y. F.Y. F.Y. 2015- F.Y. 2016 -
OBSERVATIONS
No. 2013-14 2014-15 2016 2017
Amount of
30 30 30 40
investment Under the proposed section
1
Investment
NIL 4.5 4.5 6
32AC(1A)
allowance
Amount of
150 20 70 20
investment Deduction both u/s 32AC(1) &
2
Investment
22.5 3 10.5 NIL
32AC(1A).
allowance
Deduction in respect of capital expenditure on specified businesses u/s
35AD.
Under the existing list of specified businesses the following two new
businesses have been included for the purpose of deduction under this
section:-
(a) Laying and operating a slurry pipeline for the
transportation of iron ore.
(b) setting up and operating a semi-conductor wafer
fabrication manufacturing unit notified
The date of commencement of operations for availing investment linked
deduction in respect of the above two new specified businesses shall be
on or after 1st
April, 2014.
Units established in SEZ not eligible to claim deduction under Section 35AD
· Section 35AD allows investment linked deduction in
respect of profits of certain specified businesses
· Budget proposes that units located in SEZ and claiming
deduction under Section 10AA, are ineligible to claim
deduction under Section 35AD for such specified business

BUDGET 2014-2015 09
Amendment in calculation of Adjusted Total income for AMT (Alternate
Minimum Tax) u/s 115JC.
Henceforth the calculation of adjusted total income for AMT, the
investment linked deduction claimed u/s 35AD will also be added back to
the total income after giving effect to depreciation u/s 32.
Restriction in disallowances with regard to Non-Deduction/Payment of
T.D.S.
The following changes have been proposed in the finance bill:-
(a)It is now proposed that no disallowances of expenditure will be made
u/s 40(a)(i), if TDS on the same is paid on or before due date of filing of
return of income prescribed u/s 139(1) of the Income Tax ACT, 1961 even
in respect of such payments made to non-resident.
(b) The scope of payment specified u/s 40(a)(ia) has been widened to
include “any payments made to a resident”. Hence, disallowances u/s
40(a)(ia) for non-deductions/payments of TDS in respect of payment for
salaries, director fees, etc. will be applicable.
(c) The expenditure disallowance u/s 40(a)(ia) has now been restricted to
30% of the respective expenditure instead of 100% disallowance earlier.
However, it is important to note that this benefit of 30% disallowance is
not available for payments made to non-residents. Hence, disallowance
of 100% on expenditure will continue on payments made to Non-
residents on which T.D.S. has not been deducted/paid.

BUDGET 2014-2015 10
Presumptive based income for specified business.
Sr.
Type of
Goods Existing amount of presumptive income Amended amount of presumptive income
No.
carriage
Heavy goods
Rs.5,000 for every month (or part of a
1 month) during which the goods carriage is
vehicle (HGV) Rs.7,500 for every month (or part of a
owned by the taxpayer.
month) during which the goods carriage is
Vehicle other
Rs.4,500 for every month (or part of a
2 month) during which the goods carriage is
than HGV
Speculative transaction in respect of commodity derivatives.
The transaction with respect to commodity derivatives where Commodity
Transaction Tax has been paid will not be considered as a speculative
transaction as per clause (e) of Proviso to section 43(5). The same will be
considered as normal business income if held as stock in trade.
Allowability of Corporate Social Responsibility (C.S.R.) contribution
It is expressly clarified that any expenditure incurred by the assessee on
the activities relating to corporate social responsibility as referred under
section 135 of Companies Act, 2013 shall not be allowed as a deduction
under section 37(1) of the Act.
However, the C.S.R. expenditure which is of the nature described u/s 30 to
36 of the Act shall be allowable deduction as business expenditure.
Loss in case of business of trading in shares
It is proposed to amend the explanation to section 73 of the Act, thereby
clarifying that in case of a company whose principal business is that of
trading in shares, any loss arising on such trading shall not be
characterized as a speculative loss. Such loss shall be now set-off or
carried forward as a business loss.
Concessional tax rate on repatriation of foreign dividends earned by
Indian companies on investments abroad.
With a view to encourage Indian companies to repatriate foreign
dividends into India, it is proposed to extend concessional rates of tax at
15% to be continued in respect of Indian companies repatriating dividends
received from investments abroad.

BUDGET 2014-2015 11
Withholding of Taxes (T.D.S.)
TDS applicability under newly inserted section 194DA on sum
received under Life Insurance Policy.
TDS @ 2% is applicable u/s 194DA on the sums received under certain
Life Insurance Policy which does not fulfill the conditions specified u/s
10(10D). T.D.S. is applicable only if the aggregate sum paid in the financial
year is more than Rs. 1,00,000.
This amendment is w.e.f. 1st
October, 2014.
Authority assigned to levy penalty for failure to furnish TDS/TCS
statements
The assessing officer now has the power to levy penalty u/s 271H in cases of
failure to furnish TDS/TCS returns.
October, 2014.
Concessional rate of withholding tax on interest payments on foreign
borrowings.
Presently, the rate of withholding tax under section 194LC of the Act, for
interest payments by an Indian company to non-residents for monies
borrowed in foreign currency is 5%. The concessional rate of withholding
tax is only limited to long term infrastructure bonds.
It is now proposed that the lower withholding tax rate of 5% shall be
extended to any long term foreign currency bonds. It is further proposed
that the concessional rate shall be applicable in respect of borrowings
made before 01st
July, 2017.
Exceptions from applicability of Section 206AA shall be extended to such
payments. The amendments shall take effect from 01st
October, 2014.
Power of survey by TDS wing
It is proposed to amend section 133A of the Act, so as to empower the
tax authorities to enter and survey any premise for the purpose of
verifying the tax deducted or collected at source are in accordance with
the provisions of the Act.

BUDGET 2014-2015 12
The tax authorities may place identification marks on the books of
accounts, take extracts/copies, record statements but shall not impound
or retain any books of accounts or make inventory of any cash, stock or
any other valuables.
This amendment will take effect from 1st
October, 2014.
Tax withholding on specified interest income earned by a business
trust [Section 194LBA]
· Interest received by a business trust from an Indian company in
which such trust holds controlling interest and specified
percentage shareholding is not subject to tax withholding by the
borrower. Corresponding income is not liable to tax in the hands
of business trust
· However, at the time of distributing such interest income to its unit
holders, business trusts to withhold tax at the following rates:
(a) for resident unit holders - 10%
(b) for non-resident unit holders - 5%
(c) These provisions will take effect from 1 October 2014
Additional time limit for issue of order deeming person as "assessee in
default"
Time limit for passing an order deeming a person as "assessee in
default" is extended to seven years from the end of the financial year in
which payment is made or credit is given as against the current timelines
of two years (where withholding tax statement is filed) / six years (in any
other case)

BUDGET 2014-2015 13
Capital Gains
Transfer of Government securities from one non-resident to another
non-resident
Under the new clause (viib) inserted u/s 47 a transfer of government
security carrying a periodic payment of interest, from one non-resident to
another non-resident will not be considered as a transfer for the purpose
of charging capital gains.
Capital gain arising from transfer of an asset by way of compulsory
acquisition
The income chargeable under the head “capital gains” on transfer of asset
by way of compulsory acquisition on enhanced compensation will be
taxed in the previous year in which final order of the court, tribunal or
other authorities is made.
Clarification in respect of Capital gain re-investment in a Residential
House Property
Exemption u/s 54 and u/s 54F will be allowed if investment is made only
in one residential house situated in India.
Capital gains exemption in case of investment in specified bonds u/s 54EC
A clarification through a proviso under sub-section 1 of section 54EC has
been inserted stating that the investment in REC or NHAI bonds during
the financial year in which the original asset or assets are transferred and
in the subsequent financial year shall not exceed Rs. 50,00,000. Under no
circumstances, now aggregate investment can exceed Rs. 50,00,000 even
though investment is spread over two financial years.

BUDGET 2014-2015 14
Taxability of advance on transfer of capital assets
It is proposed to insert Section 56(2)(ix) to the Act in order to tax any
sums forfeited, due to non-materialization of transfer of a capital asset.
Such sums received on forfeiture shall be taxed under the head “Income
from Other Sources”.
Accordingly, such amounts received shall not be deducted from the
cost of acquisition of the capital asset at the time of sale, which is as
per the existing provisions of section 51 of the Act.
Period of holding to qualify for Long Term Capital Asset
It is proposed to amend clause (42A) of section 2 of the Act, thereby
incase of unlisted security and a unit of a mutual fund (other than an
equity oriented mutual fund), if sold, within a period of 36 months shall
be classified as a short term capital asset.
Rate of tax on Long term capital gains in respect of Debt oriented mutual
funds
Under existing provisions long term capital gain from transfer of units of
debt oriented mutual funds is taxed at the rate of 10% (without
indexation) or 20% (with indexation).
It is now proposed to amend existing provisions of section 112 whereby
long term capital gain on transfer of units of debt oriented mutual fund is
taxed at the rate of 20% (with indexation).
Characterization of income in case of transfer of securities by Foreign
Institutional Investors (FII's)
It is proposed that any investments made by Foreign Portfolio Investors
(FPI's) or Foreign Institutional Investors (FII's) in qualified securities shall
be treated as a capital asset. Hence, income arising from transfer of such
securities shall be in nature of capital gains only.

BUDGET 2014-2015 15
Business & Non- Profit Trusts
Ineligibility of certain applications of income in the cases of charitable
trusts and institutions.
New sub-section (6) & (7) has been inserted in section 11 to plug the loop
holes to combat ineligible applications of income for the purpose and
object in respect of charitable trusts/institutions. The benefit of
depreciation u/s 32 and the general exemptions of section 10 against
income of trust/institutions will not be characterized as application or
utilization for the object or purpose for which the institution or trust has
been established.
Rationalization of provisions related to cancellation of registration of
Trust/Institution u/s 12AA
New sub-section (4) has been inserted u/s 12AA which widens the scope
of cancellation of registration of trusts or institution by the
commissioner in the following cases:-
(a) Where its income does not enure for the benefit of general public
(b) Where it is for the benefit of particular religious community or
caste ( in case it is established after the commencement of
the act.)
(c) Where any income or property of the trust is applied for benefit of
specified persons like the author of the trust, trustees, etc. ; or
(d) Where its funds are invested in prohibited modes.
The principal commissioner or the commissioner may cancel the
registration 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.
October, 2014.
Anonymous donations u/s 115BBC
Under the proposed provisions the assessee will now be allowed to reduce
the amount of anonymous donation in excess of either 5% of total donations
received by the assessee or Rs. 1,00,000 whichever is higher.

BUDGET 2014-2015 16
Mutual funds, securitization trusts and venture capital companies to file
return of income
It is proposed to amend section 139(4C) so as to provide that mutual funds,
securitization trusts and venture capital companies who were exempted u/s
10 will now be required to file return of income if total income in respect of
such fund is assessable without giving effect to provisions of section 10,
Deductions
Clarification with respect to deduction of New Pension Scheme u/s 80CCD
It is now clarified that for employees in private sector date of joining of
service is not relevant for claiming deduction of New Pension Scheme u/s
80CCD.
Extension of the sunset date under section 80IA for the power
generation & distribution sector
With a view to provide further time to the eligible power project
undertakings to commence the eligible activity to avail the tax incentive,
it is proposed to amend the above provisions so as to extend the terminal
date to 31st
March, 2017 i.e. till the end of the 12th
Five Year Plan.
Enhanced interest deduction from income of house property
Under the existing provisions of Section 24 of the IT Act, the amount of
deduction shall not exceed Rs.1,50,000 subject to the fulfillment of the
prescribed conditions.
It has now been proposed that an additional deduction of Rs. 50,000/-
shall be allowed on self-occupied properties (SOP's). The new proposed
deduction now stands at Rs. 2,00,000/-.
Raising the limit of Deduction under section 80C
The benefit of deduction under section 80C is enhanced to Rs. 1,50,000
from the existing Rs. 1,00,000 for investments in eligible instruments.

BUDGET 2014-2015 17
TRANSFER PRICING
Rollback provision in Advance Pricing Agreement (APA) of transfer pricing
APA provisions to allow rollback for international transactions entered
during any period not exceeding four previous years prior to which APA
applies. The rollback provisions refer to applicability of ALP
determination methodology, or the ALP, to be applied to the
international transactions which had already been entered into in a
period prior to the period covered under an APA.
These amendments will take effect from 1st
October, 2014.
Powers to Transfer Pricing Officer (T.P.O.) to levy penalty
The Transfer Pricing Officer (TPO) shall have the powers to exercise levy
of penalty under the existing provisions of section 271G of the Act, on
failure to furnish requisite documents or information under section
94D(3) . TPO can levy such penalty on both international transactions and
specified domestic transactions.
October, 2014.
Miscellaneous provisions
Verification of return of income u/s 140.
With a view to enable the verification of returns either by a sign in
manuscript or by any electronic mode, hence the words “signed” is replaced
by “verified” and the words “signed and verified” are replaced by “verified”.
October, 2014.
Clarifications regarding mode of payment and acceptance of loans and
deposits
It is clarified that mode of payment shall include use of electronic clearing
system through a bank account (i.e. R.T.G.S or N.E.F.T.) for the purpose of
acceptance and repayment of loans and deposits u/s 269SS and u/s 269T.
Hence, no such penalty will be levied u/s 271D & 271E if loan is accepted
or settled through above electronic mode.

BUDGET 2014-2015 18
Extended period for interest payment u/s 220.
As per the newly inserted proviso to Section 220(2) now the interest
@1% has to be paid from the date of expiry of 30 days as mentioned in
the first notice of demand till the date of payment of demand as per the
order of the last appeal. The proviso has included the order passed u/s
263 which is a revision carried out by the commissioner in the case where
the assessment is prejudicial to the interests of the revenue.
October, 2014.
Inquiry for possession of information
It is proposed to insert a new section, 133C in the Act. As per this section,
the prescribed income tax authority for the purpose of verification of
information, can issue notice to any person to furnish the requisite
information at any time.
October, 2014.
Time limit for completion of valuation report
It is proposed to provide that the valuation officer shall send a copy of his
report to Assessing Officer and the assessee within a period of six months
from the end of the month in which a reference is made to him under the
provisions of section 142A of the Act.
It is also proposed to amend section 153 & 153B so as to provide that the
time period beginning with the date on which the reference is made to
the Valuation Officer and ending with the date on which his report is
received by the Assessing Officer shall be excluded from the time limit
provided for completion of assessment or reassessment.
October, 2014.

BUDGET 2014-2015 19
Penalty for failure to produce accounts and documents
It is proposed to amend the provisions of section 276D of the Act, thereby
any person, who willfully fails to produce accounts or documents under the
notice issued under section 142 (1) or 142(2A) of the Act, shall be punishable
with a rigourous imprisonment for a term up to one year AND a penal fine.
October, 2014.
Time limit for provisional attachment
Under the existing provisions of section 281B, Assessing officer in order to
protect the interest of revenue attach provisionally any property belonging
to assessee and such provisional attachment cease to have effect after
expiry of six months from the date of attachment unless otherwise it is
extended by chief commissioner maximum upto period of two years.
Now, it is proposed that the Assessing Officer can make the provisional
attachment of the property under section 281B of the Act for a period of
not exceeding two years or upto sixty days after the date of
assessment/reassessment, whichever is later.
These amendments will take effect from 1st
October, 2014.
Credit of Alternate Minimum Tax (A.M.T.)
It is proposed to give credit for tax paid under Alternate Minimum Tax
(A.M.T.). Notwithstanding, whether conditions mentioned under section
115JEE is fulfilled or not amendment will benefit all persons other than
companies who will benefit all persons (other than companies) who have
paid Alternate Minimum Tax (A.M.T.) in preceding years.

BUDGET 2014-2015 20
Assessment of Income of person other than person who has been
searched
It is proposed to amend section 153C of the Act to provide that assessing
officer of person other than person who has been searched will proceed
against such other person in accordance with provisions of section 153A
(Block assessment) if he is satisfied that books of accounts or documents
or assets seized have bearing on determination of total income of such
other person.
In other words, proceedings u/s 153A shall not be initiated to such other
person if there is no bearing on determination of total income.
Dividend and Income Distribution Tax
It is proposed to amend Section 115O Dividend Distribution Tax and 115R Tax
on income to unit holders w.e.f 1.10.2014 – Amount of distributable income
and dividends received by unit holders and shareholders needs to be Thus,
where the amount of dividend paid or distributed by a company is Rs. 85,
then DDT under the amended provision would be calculated as follows:
Dividend amount distributed = Rs. 85
Increase by Rs. 15 [i.e. (85*0.15)/(1-0.15)]
Increased amount = Rs. 100
DDT @ 15% of Rs. 100 = Rs. 15
Tax payable u/s 115-O is Rs. 15
Dividend distributed to shareholders = Rs. 85

BUDGET 2014-2015 21
Taxation Regime for Real Estate Investment Trust (REIT) and Infrastructure
Investment Trust (Invit)
Salient features of REITs and Infrastructure Investment Trust:
· Units of REIT and Inv Trust to be listed on recognised stock
exchanges in India
· Income bearing assets to be held under Indian Special Purpose
Vehicle (SPVs), which in turn would be held by REITs / InvTrust
· Units of REITs / InvTrust to be granted same status as listed equity
shares i.e. same levy of STT as well capital gains tax rates
· Swap of shares of SPV by Sponsors for units of REITs / InvTrust
would be exempt
In order to facilitate financing and taxation aspects of these business
trusts, Budget has introduced a separate regime for taxation of business
trusts through introduction of Section 115UA and other enabling
provisions in this regard. As per the said provisions, business trusts have
been accorded a pass-through status for taxation purposes.
INTERNATIONAL TAX PROPOSALS
Deemed international transactions
· “Deemed international transactions” concept stipulates that any
transaction between an unrelated party (URP) and an associated
enterprise (AE) qualifies as an international transaction if such
transaction was a result of a prior agreement/ terms of such
transaction were in substance determined between/by such URP
and AE (i.e., when a third party is interposed between 2 AEs)
· Earlier, there was a view that such URP had to be a non-resident
to fall within above provisions and hence transactions between 2
residents fell outside the purview
· This loophole is now plugged by the clarificatory amendment that
stipulates that such URP could be either resident or non-resident
[Section 92(B)(2) of the Act with effect from 1 April 2015]

BUDGET 2014-2015 22
INDIRECT TAX PROPOSALS
Service Tax:-
Changes in the Negative list in case of certain services
· Service tax levy on sale of space and time for advertisements is to
be extended to cover online and mobile advertisements (Effective
date yet to be notified). However, Advertisements in print media
continue to be exempt.
· Services provided by radio taxis/cabs to be taxable at abated rates
applicable to rent-a-cab operator services i.e service tax will be
levied on 40% of the value of service. (Effective date yet to be
notified).
· Value of service portion in works contract relating to movable and
immovable property will be brought under one category, with
uniform service portions 70% of the invoice. (Effective from
1st
October, 2014).
· Services in relation to renting of immovable property to specified
educational institutions.
Services exempted from the levy of service tax
Exemption to 'auxiliary educational services' received by an
educational institution replaced with a specific list of services received
by specified educational institution such as
· Transportation of students, staff, etc, catering services, security or
cleaning or house-keeping services and services relating to
admission or conducting of examination.

BUDGET 2014-2015 23
· Services provided by way of public health, sanitation, solid waste
management or slum improvement or upgradation, water supply
to Government or local authority.
· Services provided by a tour operator to a foreign tourist in
relation to tour conducted wholly outside India.
· Life micro-insurance schemes for the poor, approved by IRDA,
where sum assured does not exceed rupees fifty thousand.
· Transportation of organic manure, cotton by vessel, rail or road
(by GTA).
· Loading, unloading, packing, storage or warehousing, transport by
vessel, rail or road (by GTA), of cotton, ginned or baled.
· Services provided by common bio-medical waste treatment
facility operators to clinical establishments.
· Services received by RBI from FII's in relation to management of
foreign exchange reserves.
· Retrospective exemption to services provided by Employees' State
Insurance Corporation (ESIC) during the period prior to 1st July
2012.
These amendments are to be effective from 11th
July, 2014
Withdrawal of exemption from levy of service tax
1. Air conditioned contract carriages other than for the purpose of
tourism, conducted tour, charter or hire.
2. Technical testing or analysis of newly developed drugs on human
participants by a clinical research organisation.

BUDGET 2014-2015 24
Introduction of variable interest on late payment of service tax
To encourage prompt payment of service tax, it is being proposed to
introduce interest rates which would vary on the extent of delay
[Notification No.12/2014-ST]. Simple interest rates per annum payable on
delayed payments under section 75, are prescribed as follows:
Extent of Delay Simple interest rate per annum
Upto six months 18%
More than six months &upto one year 18% for first six months and 24% for the period of
delay beyond six months
More than one year 18% for first six months, 24% for second six
months and 30% for the period of delay beyond
one year
This new interest rate regime will become operational only on 1st
October
2014. In other words, upto 1st October, 2014, the rate of interest of 18%,
presently applicable, will continue to apply. The variable interest rates will
apply only on or after 1st October, 2014.
These amendments are to be effective from 1st
October, 2014.
Mandatory E-payment of Service Tax
Presently E-payment of service tax is mandatory for service tax liability of
Rs. 1 Lakhs. However, E-payment of service tax is being made mandatory.
Relaxation from e-payment may be allowed by the Deputy
Commissioner/Asst. Commissioner on case to case basis.
Inclusion in the definition of reverse charge mechanism
· Reverse charge mechanism extended to include recovery agent
services provided to banks, NBFC's and other financial institutions.
Service receiver shall be liable to pay service tax under full reverse
charge (Effective from 11th
July, 2014).
· Services provided by Director to a Body Corporate. Service receiver
who is a Body Corporate will be the person liable to pay service tax
under full reverse charge. (Effective from 11th
July, 2014).
· Proportion of service tax payable under partial reverse charge by a
service recipient of rent-a-cab services (non-abated) increased to 50%
(Effective from 1st
October, 2014).

BUDGET 2014-2015 25
Amendments in Place of Provision of Service Rules 2012
· Provision for prescribing conditions for determination of place of
provision of repair service carried out on temporarily imported goods
is being omitted.
· Service consisting of hiring of Vessels (excluding yachts) and Aircraft is
being excluded from rule 9(d). Accordingly, hiring of vessels, or aircraft,
irrespective of whether short term or long term, will be covered by the
general rule, that is, the place of location of the service receiver.
October, 2014.
Point of Taxation Rules
In case of reverse charge services, it is proposed to provide that point
of taxation will be the payment date or first day after 3 months from
the date of invoice whichever is earlier.
Amendment will apply to invoices issued after 1st
October, 2014.
· In case of invoices in respect of services issued before 1st October 2014
but payment has not been made as on today, point of taxation shall be
a) if payment is made within a period of six months of the
date of invoice, be the date on which payment has been
made
b) if payment is not made within a period of six months of
the date of invoice, be determined as if rule 7 does not
exist.
October, 2014.

BUDGET 2014-2015 26
Others
· Concept of intermediary which hitherto was restricted to services is
extended to goods. Intermediaries covers brokers, agents or any
other person who arranges or facilitates a transaction;
· Abatement rate to be revised to 60% in case of transport of goods by
vessel (effective from 1st
October 2014)
· Advance Ruling option extended to resident private limited companies.
· It is proposed that 7.50% of the duty demanded or penalty imposed
or both shall be pre-deposited for filing appeal before Commissioner
(Appeal) or the Tribunal at the first stage and 10% of the duty
demanded of penalty imposed or both for filing second stage appeal
before the Tribunal. The amount of pre-deposit payable would be
subject to the ceiling of Rs. 10 Crore. (Effective date is yet to be
notified). It is to be noted that all pending appeals/stay application
would be governed by the statutory provisions prevailing at the time
of filing such stay application/appeal.
· Procedure for exemption in case of SEZ units simplified.
· Procedure for exemption in case of SEZ units simplified.
Cenvat Credit
· Cenvat credit on inputs and input services to be availed within a
period of six months from the date of issue of invoice (effective from
1st
September 2014)
· In case of service tax paid under full reverse charge, the condition of
payment of invoice value to the service provider for availing credit of
input services is being withdrawn. However, there is no change in
respect of partial reverse charge. (Effective from 11th
July, 2014)

BUDGET 2014-2015 27
· CENVAT credit reversed on account of non-receipt of export proceeds
within the specified period or extended period should be allowed to be
claimed, if export proceeds are received within one year from the
period so specified or extended period. This can be done on the basis of
documents evidencing receipt of export proceeds. (Effective from 11th
July, 2014).
· The condition for availing abatement in case of GTA service is being
amended with immediate effect to clarify that the condition for non-
availment of credit is required to be satisfied by the service providers
only. Service recipient will not be required to establish satisfaction of
this condition by the service provider. (Effective from 11th
July, 2014).
· As per the conditions for availing abatement, presently tour operators
who are availing abatement benefit are not allowed CENVAT credit on
the input services used for providing the taxable services. Tour operator
service providers are also being allowed to avail CENVAT credit on the
input service of another tour operator, which are used for providing the
taxable service. This is being provided to avoid cascading of taxes.
(Effective from 1st
October, 2014)
· Rule for determination of rate of exchange to be prescribed.
Excise
· If goods are sold at a price less than the manufacturing cost
including profit, and if no additional consideration is flowing from
the buyer, then transaction value will be adopted.
· Restriction on transfer of credit by a LTU from one unit to other.
· Discretionary powers of the Tribunal to refuse admission of appeals
increased from INR 50,000 to INR 2,00,000.

BUDGET 2014-2015 28
· Mandatory fixed pre-deposit of 7.50% of the duty demanded (including
penalty) for filing appeal with the Commissioner (Appeals) or the
Tribunal at the first stage and 10% for filing second stage appeal before
the Tribunal (subject to a total ceiling of INR 10 crores).
· If an assessee fails to pay duty within a period of one month from
the due date, penalty is payable at the rate of 1% of the duty not
paid for each month.
· Exemption introduced from excise duty on types of drugs and
diagnostic equipment required for the national AIDS control
programme funded by the Global fund to fight AIDS, TB and malaria.
· Exemption to machinery/ components for initial setting up of power
generation projects using non-conventional materials extended to
generation of compressed bio-gas.
· It is also proposed to insert a new section 15B which provides for
imposition of penalty if the information return is not submitted.
· It is proposed to allow filing of applications of settlement before the
Settlement Commission in cases where the applicant has not filed
the returns after recording reasons for the same.
· It is proposed to amend section 35L so as to clarify that
determination of disputes relating to taxability or excisability of
goods is covered under the term 'determination of any question
having a relation to rate of duty' and hence, appeal against Tribunal
orders in such matters would lie before the Supreme Court.

BUDGET 2014-2015 29
Amendments in rates
It is proposed to make changes in rate of excise duty which will be
effective from 11th
July, 2014. The amendments in rates are as under;
· Excise duty on pan masala increased to 16% from 12%.
· Export Duty On Bauxite Hiked To 20% From 10%.
· Excise duty on footwear cut to 6% from 12% for
footwears ranging from Rs.500/- to Rs. 1000/-.
· Excise duty on cigarettes hiked from 11% to 72%.
· Excise duty on gutkha, chewing tobacco & jarda
scented tobacco raised to 70% from 60%.
· Excise duty on winding wires of coppers is raised to
12% from 10%.
· Tractors parts removed from one unit to another unit of
same manufacturer, then it will not attract excise duty
on such removals.
· Excise duty on forged steel rings is decreased to 0% from 12%.
· To withdraw concessional excise duty on recorded smart cards.
· An additional duty of excise of 5% ad valorem on
aerated drinks containing sugar has been imposed.
Key changes in assessment proceedings in respect of Excise & Service Tax
(Effective from the date of enactment of the Budget)
· Time period prescribed within which Revenue
authorities shall determine Service tax as under:
a. Within 6 months from the date of notice (if possible)
where assessees have limitation to receive Show Cause
Notice notice of 18 months; and
b. Within one year from date of notice (if possible) where
assessess have limitation to receive Show Cause Notice is
5 years.

BUDGET 2014-2015 30
· Section 80 amended to remove power granted to Revenue
authorities to waive 50% penalty in cases where service tax not
paid/ short paid by reason or fraud, collusion, etc. but details of
transactions are available in specified records
· Additional Commissioner of Central Excise or such other officer
notified by CBEC may direct any Central Excise officer to search
premises
· Section 5A (2), Section 15A and section 15B of the Central Excise
Act, 1944 made applicable to Service tax Section 87 amended to
incorporate power to recover dues of a Seller of business from
the "goods" of a Purchaser purchased from the Seller, similar to
Section 11 of the Central Excise Act, 1944
· Central Government empowered to impose Rules for proper
levy and collection of Service tax on persons liable to pay service
tax, duty of furnishing information, keeping records and the
manner in which such records shall be verified, restrictions on
availing CENVAT credit, authorise CBEC officials to issue
instructions for incidental or supplemental matters for
implementation of the Act
Customs Duty
· Advance ruling facility extended to private limited companies.
· Powers of Settlement Commission expanded to specified
exports through post or courier.
· Mandatory fixed pre-deposit of 7.5% of the duty demanded
(including penalty) for filing appeal with the Commissioner
(Appeals) or the Tribunal at the first stage and 10% for filing
second stage appeal before the Tribunal (subject to a total
ceiling of INR 10 crores).

BUDGET 2014-2015 31
· Free baggage allowances are increased from Rs. 35,000 to Rs.
45,000. However duty free allowances of cigarettes is reduced
from Rs. 200 to Rs. 100 and of cigars from Rs. 50 to Rs. 25 and of
tobacco from 250 gms to 125 gms.
· Determination of rate of duty and tariff valuation for imports
through a vehicle in cases where the Bill of Entry is filed prior to
the Import Report.
· It has been allowed to File a Bill of Entry prior to the filing of
Import Report for imports by land.
· Increased the discretionary powers of tribunal to refuse
admission of appeal from the existing Rs.50,000 to Rs.2 lakh.
· Board has been vested with powers to condone delay for a
period of upto 30 days, for review by the Committee of Chief
Commissioners.
· Enabling the Commissioner (Appeal) to take into consideration
the fact that a particular order being cited as a precedent on the
issue has not been appealed against for reasons of low amount.
· Basic Customs Duty on Polystyrene (other than moulding
powder) is being increased from 1.15% to 7.5%.
· Basic Customs Duty is being reduced from 5% to 2.5% on
electrolysers and their parts/spares required by caustic soda or
caustic potash units and membranes and their parts/spares
required by industrial plants based on membrane cell
technology. The BCD on other spares (other than membranes
and parts thereof) is also being reduced from 7.5% to
2.5%.Withdrawal of exemption from education cess and
secondary & higher education cess on aircraft and aircraft parts,
soya bean oil, olive oil, etc.

BUDGET 2014-2015 32
· A provision is being made for refund of Customs duty paid at the
time of import of scientific and technical instruments,
apparatus, etc. by public funded and other research institutions,
subject to submission of a certificate of registration from the
Department of Scientific & Industrial Research (DSIR).
· Section 8B of the Customs Tariff Act, 1975 is being amended so
as to provide for levy of safeguard duty on inputs/raw materials
imported by an EOU and cleared into DTA as such or are used in
the manufacture of final products & cleared into DTA.

BUDGET 2014-2015 33
Disclaimer
This document has been prepared as a service to clients. It
summarizes the Union Budget 2014-15 and the recent policy
changes. We recommend the reader to seek professional advice
taking action on specific issues. It is for Private Circulation only.

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