Taxation Proposed changes Union Budget 2014-15

[AKSHAY GARG]

Union Budget 2014-15

A New Beginning

snapshot

INDEX

July 10, 2014

 

Proposals

Economic Overview

Key Regulatory Proposals

Direct Tax – Tax Rates

Personal Tax Proposals

Other Proposals

Indirect Tax - Rates

Indirect Tax – Proposals Customs Duty Central Excise Duty Service Tax CENVAT Credit General Provisions

Annexure 1

Annexure 2

 

Economic Overview

• Budget aims to achieve 7-8 per cent economic growth rate in next 3-4 years
• Fiscal deficit target for this year retained at 4.1%

Key Regulatory Proposals

• Assurance on no retrospective amendments to tax structures, a big assurance to Non Resident Investors.
• Increased FDI rate to 49% in Insurance and defense sectors.
• Uniform KYC norms for entire financial sector
• One single DEMAT account for all financial transactions
• Corporate tax rates remains unchanged

Direct Taxes

• Period of holding for Equity Mutual fund units has increased from 12 months to 36 months for capital gain purpose and Tax raised from 10% to 20%.
• Introduced Range concept in Transfer Pricing
• Tax Holiday for power sector companies extended to 10 years
• New definition for MSME to enhance the scope of incentives
• Income from portfolio investment is considered as capital gains
• 30% disallowance if no taxes are deducted for payments made to residents
• Investment allowance @ 15% to manufacturing companies on investment in plant or machinery of more than ₹ 25 Crores from 1/04/2013 to 31/03/2017
• Foreign Dividend Tax to remain at 15%
• Dividend income from shares/Mutual fund reduced to 30% from 100% exemption

Personal Tax Proposals

• Personal Income Tax exemption limit increased from ₹ 2 lakhs to ₹ 2.5 lakhs for individuals below 60 years
• For senior citizens Basic exemption limit increased from ₹ 2.5 lakhs to ₹ 3 lakhs
• Deduction for interest on housing loan for self occupied property increased from ₹ 1.5 lakhs to ₹ 2 lakhs
• Public provident Fund contribution limit enhanced from ₹ 1 lakhs to ₹ 1.5 lakhs
• Deductions under sec. 80C increased from ₹ 1 lakh to ₹ 1.5 lakhs

Other Proposals

• From FY 2016-17 New Accounting standards made compulsory, voluntary from FY 2015-16

Indirect Tax – Rates

• No change in the standard rate of Basic Customs Duty (BCD), Additional Duty of Customs (CVD) and Special Additional Duty of Customs (SAD).
• No changes in the standard rate of Central Excise Duty
• No changes in Service tax rate
• Changes in rates of effective customs duty are attached as Annexure 1.
• Changes in rates of effective excise duty are attached as Annexure 2.

Indirect Tax – Proposals

CUSTOMS DUTY

• Customs duties on mineral oils including petroleum and natural gas extracted or produced in the continental shelf of India or the exclusive economic zone of India shall not be recovered for the period prior to 07.02.2002. However, if paid earlier, no refund would be granted.
• Bill of Entry can be filed prior to the filing of Import Report on import through land route.
• In case of import by land (vehicle), if bill of entry is filed before arrival of vehicle then rate of duty will be date of arrival

• Application to Settlement Commission can be made in case of import through post and courier.

• Commissioner (Appeal) to take into consideration that a particular order being cited as a precedent decision on the issue has not been appealed against for reasons of low amount.

• Safeguard Duty provision created in Customs Tariff Act, 1975 to provide for levy of duty on inputs/ raw materials imported by Export Oriented Units (EOU) and cleared into Domestic Tariff Area (DTA) as such or used in manufacture of final products and cleared into DTA.

• Baggage Rules –
  • free baggage allowance limit raised from ₹ 35,000/- to 45,000/-
  • duty free allowance of cigarettes reduced from 200 to 100
  • duty free allowance of cigars reduced from 50 to 25
  • duty free allowance of tobacco reduced from 250 gms to 125 gms

• Duty Free entitlement for importing certain goods used in the manufacture of readymade garment for export is increased from 3% to 5%
• Plant and equipment imported prior to 2008 for project finance by UN or international organization are now allowed to transfer/sold/re-export subject to certain conditions.

CENTRAL EXCISE DUTY

• Valuation rules amended to overcome SC decision in case of FIAT
• Mandatory electronic payment of excise duty for all assesses
• Scope of Settlement Commission enlarged by making provision for allowing applications of settlement for non-filing of returns after recording reasons
• ‘Resident Private Limited Company’ would be eligible for determination by Advance Ruling.
• The Third Schedule to the Central Excise Act, 1944 has been amended to include other parts of chapter heading 8421 (filtering or purifying machinery).
• 1% penalty in case of default of payment beyond 30 days. CENVAT benefit to continue.

SERVICE TAX

• Exemptions
• Exemption to sale of space or time for advertisements other than print media withdrawn.
• Radio taxis or radio cabs (whether AC or Non AC) will be taxable and abatement @ 60% allowed.
• Exemption extended to air-conditioned contract carriages withdrawn and abatement of 60% allowed.
• Exemption extended to services provided by clinical research organizations on human participants withdrawn.
• Scope of exemption for services provided to Government or local authority or governmental authority curtailed.
• Only specified services received by educational institutions exempted from tax.
• Exemption from service tax is only available to hotel, inn, guest house, club or campsite and will not include any commercial places.
• Life micro-insurance schemes for the poor, approved by IRDA, where sum assured does not exceed Rupees Fifty Thousand exempted from service tax.
• Transport of organic manure by vessel, rail or road (by GTA) exempted.
• Loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton, ginned or baled, exempted.
• Services provided by common bio-medical waste treatment facility operators to clinical establishments exempted.
• Services received by RBI from outside India in relation to management of foreign exchange reserves.
• Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India exempted.
• Retrospective exemption from service tax has been granted to service provided by Employees’ State Insurance Corporation (ESIC) during the period prior to 01.07.2012.
• Reverse charge services – point of taxation will be the payment date or first day after three months from the date of invoice, whichever is earlier (changes to take place on invoices issued after 01.10.2014).

However, where invoice was issued prior to 01.10.2014, but payment has not been made, in that case, point of taxation shall be:

• If payment is made within six months of the date of invoice, the date of payment.
• If payment is not made within six months, be determined as per the provisions of rule 7.
• Partial reverse charge – renting of motor vehicle – service recipient and service provider to pay 50% each (changes wef 01.10.2014)
• Special Economic Zone (SEZ) – simplification of the procedures prescribed
• Works contract services - Service portion in repair, maintenance or reconditioning or restoration or servicing activities increased from 60% to 70%.

• Abatement – Abatement in respect of transport of goods by vessel to be increased from 50% to 60%.

• Changes in Interest rate on late payment of Service tax

Extent of delay	Simple interest rate per annum
For the period up to six months	18%
For the period from six months and upto one year	24%
For the period after one year	30%

• Changes in Place of Provision of Service Rules
• Provision for prescribing conditions for determination of place of provision of repair services carried out on temporarily imported goods is being omitted.
• The definition of intermediary is being amended to include the intermediary of goods in its scope.
• Hiring of vessels or aircrafts, irrespective of whether short term or long term, will be covered by the general rule, which is place of location of the service receiver.

CENVAT CREDIT

• Credit can now be taken within six months from the date of the invoice or challans or other documents specified (changes wef 01.09.2014)
• CENVAT credit available when Service tax paid under full reverse charge without waiting for the payment of invoice value to the service provider
• CENVAT credit reversed on account of non-receipt of export proceeds within the specified period, to be allowed as re-credit, if export proceeds are received within one year from the specified period on the basis of documentary evidence of receipt of payment.
• Rent-a-cab operator and tour operator – Service tax paid by sub-contractor in the same line of business would be allowed as eligible credit to the main service provider to avoid double taxation, subject to certain conditions (changes wef 01.10.2014)
• GTA service – Service receiver may avail abatement, without having to obtain non-availment of CENVAT Credit certificate from service provider.

GENERAL PROVISIONS (As applicable to Customs, Central Excise and Service Tax)

• Pre-Deposits in Appeal (First Stage) - Mandatory fixed pre-deposit of 7.5% of the duty demanded or penalty imposed or both for filing appeal before the Commissioner (Appeals) and Tribunal – It would also mean that, no stay application would be filed henceforth.
• Pre-Deposits in Appeal (Second Stage) - Mandatory fixed pre-deposit of 10% of the duty demanded or penalty imposed or both for filing appeal before the Tribunal – It would also mean that, no stay application would be filed henceforth.
• Ceiling for mandatory pre-deposit fixed at ₹ 10 Crores
• Discretionary power of Tribunal to refuse the admission of appeal is increased from ₹ 50,000 to ₹ 200,000

Annexure 1 – Changes in the effective rates of Customs Duties

Products	Duty Type	Existing Effective Rate	Proposed Rate
Fatty Acids used in manufacturing of soaps and oelochemicals as actual user	BCD	7.5%	Nil
Crude Palm Sterian	BCD	7.5%	Nil
RBD Palm Sterian	BCD	7.5%	Nil
Other Palm Sterian	BCD	7.5%	Nil
Specified Industrial grade crude oils	BCD	7.5%	Nil
Denatured ethyl Alcohol	BCD	7.5%	5%
De-oiled soya extract,	BCD	7.5%	Exempt
Oil cake/ Oil Cake meal	BCD	7.5%	Exempt
Sunflower Oil cake/ Oil Cake meal	BCD	7.5%	Exempt
Canola Oil cake/ Oil Cake meal	BCD	7.5%	Exempt
Mustard or rice Oil cake/ Oil Cake meal	BCD	7.5%	Exempt
Cigarettes of length exceeding 75 mm			12% or ₹ 1738 per thousand, whichever is higher
Steel grade dolomite and steel grade limestone	BCD	5%	2.5%
Bauxite	Export Duty	10%	20%
Non-agglomerated coal	BCD		2.5%
Non-agglomerated coal	CVD		2%
Coaking Coal	BCD	Nil	2.5%
Coaking Coal	CVD	6%	2%
Steam coal and bituminous coal	BCD	2%	2.5%
Anthracite coal and other coal	BCD	5%	2.5%
Metallurgical coke	BCD	Nil	2.5%
Crude naphthalene	BCD	10%	5%
Reformate and other goods under sub-heading 2707 50 00	BCD	10%	2.5%
Coal tar pitch	BCD	10%	5%
Re-gasified LNG for supply to Pakistan	BCD and CVD		Exempt
Liquefied Propane and Butane mixture, Liquefied Propane, Liquefied Butane and Liquefied Petroleum Gas (LPG) imported by IOCL, HPCL, BPCL for supply to NDEC	All Customs duty		Exempt
Propane	BCD	5%	2.5%
Ethane and other goods under sub heading 2901 10 00, ethylene, propylene and butadiene	BCD	5%	2.5%
Ortho-xylene	BCD	5%	2.5%
Methyl alcohol	BCD	7.5%	5%
Raw materials for manufacture of spandex yarn viz. Diphenyl methane 4,4di-isocyanate (MDI) and Polytetramethylene ether glycol (PT MEG)	BCD	5%	Nil
Raw materials used in the manufacture of solar backsheet and EVA sheet used in manufacture of solar PV cells or modules as per actual user condition	BCD		Exempt
Security fibre, security threads and M-feature imported by Bank Note Paper Mill India Private Limited	All Customs duty		Exempt
Raw materials required for manufacture of security threads and security fiber	BCD and CVD		Nil
Polystyrene (other than moulding powder)	BCD	1.15%	7.5%
Wire rolls required by handicraft exporters (inclusion in list of specified goods)	Custom Duty		Exempt
Non-fusible embroidery motifs or prints imported by manufacturer of garments for export (inclusion in list of specified goods)	Custom Duty		Exempt
Specified goods imported for use in the manufacture of textile garments for export	BCD and CVD		Exempt
Pre-forms of precious and semi-precious stones	BCD		Exempt
Half-cut or broken diamonds	BCD	Nil	2.5%
Cut and polished diamonds including lab-grown diamonds and colored gemstones	BCD	2%	2.5%
Stainless steel flat products (CTH 7219 and 7220)	BCD	5%	7.5%
Forged steel rings used in the manufacture of bearings of wind operated electricity generators	BCD	10%	5%
Flat copper wire used in the manufacture of PV ribbons (tinned copper interconnect) for solar PV cells or modules	BCD		Exempt
Machinery, equipments, etc. required for initial setting up of compressed biogas plant (Bio-CNG).	BCD		5%
Machinery, equipments, etc. required for initial setting up of solar energy production projects	BCD and CVD		5%
Parts and raw materials used in the manufacture of wind operated electricity generators	SAD		Exempt
Electrolysers and their parts/spares required by caustic soda or caustic potash units and membranes	BCD	5%	2.5%
Other parts (other than membranes and parts thereof)	BCD	7.5%	2.5%
LCD and LED TV panels (below 19 inches)	BCD	10%	Nil
Color picture tubes used in manufacturing of Cathod Ray TVs	BCD	10%	Nil
Specified parts of LCD and LED panels for TVs	BCD		Exempt
E-Book readers	BCD	7.5%	Nil
Battery waste and battery scrap	BCD	10%	5%
Specified telecommunication products not covered under the ITA (Information Technology Agreement)	BCD	Nil	10%
Inputs/Components of Personal Computers	SAD		Exempt
Certain Electronic goods	Cess and SHEC Leviable on CVD		Exemption Withdrawn
Specified Inputs(PVC sheet and Ribbon) used in manufacturing of smart cards	SAD		Exempt
Ships imported for breaking up	BCD	5%	2.5%
Portable X-ray machine / system	CVD		Exemption Withdrawn
Specified HIV/AIDS drugs and diagnostic kits imported under National AIDS Control Programme (NACP) funded by the Global Fund to Fight AIDS, TB and Malaria (GFATM)	Custom Duty		Exempt
Goods imported by National Technical Research Organization (NTRO)	BCD		Exempt

Annexure 2 – Changes in the effective rates of Central Excise Duties

Products	Duty Type	Existing Effective Rate	Proposed Rate
Waters including aerated waters, containing added sugar	Add. Duty	12%	17%
Cigars, cheroots, cigarollos and cigarattes, of tobacco or of tobaco substitutes
Description	BED	Rs. per 1000	Rs. per 1000
(length in mm)		sticks	sticks
Non filter not exceeding 65		669	1150
Non-filter exceeding 65 but not exceeding 70		2027	2250
Filter not exceeding 65		669	1150
Filter exceeding 65 but not exceeding 70		1409	1650
Filter exceeding 70 but not exceeding 75		2027	2250
Filter exceeding 75 but not exceeding 85		2725	Tariff Item omitted
Other		3290	3290
Pan Masala	BED	12%	16%
Unmanufactured Tobacco	BED	50%	55%
Jarda Scented Tobacco, Guthka and Chewing tobacco	BED	60%	70%
Branded Petrol	BED	₹ 7.5 per litre	₹ 2.35 per litre
Goods for use in manufacture of EVA sheets or backsheet for manufacture of solar photovoltaic cells or modules namely EVA resin, EVA masterbatch, PEL film, PVF, PVD adhesive resin and hardner	BED	12%	Nil
Matches, in or in relation to the manufacture of which, any or all processes of pasting of labels on match boxes, venners or cardboards, and packaging are carried out with aid of power	BED	12%	6%
DDT manufactured by Hindustan Insecticides Limited for supply to the NVBDCP	BED	12%	Nil
Plastic material reprocessed in India out by the scrap or the goods falling within Chapters 39,54,56,59,64,84,85,86,87,90,91,92,93,94,95 and 96 by Export Oriented Unit .	BED	12%	Nil
EVA sheets or backsheet for use in the manufacture of solar photovoltaic cells or modules	BED	12%	Nil
Gloves specially designed for use in sports ( no CENVAT credit of input or input services allowed)	BED	12%	2%
Gloves specially designed for use in sports ( CENVAT credit allowed)	BED	12%	6%
Polyster staple fibre and polyster fillamanet yarn manufactured from plastic scrap or plastic waste including waste	BED	12%	2%
Footwear of retail price exceeding ₹ 500 per pair but not exceeding 1000	BED	12%	6%
Solar tempered glass for use in the manufacture of solar photovoltaic cells or modules, solar power generating equipments or systems and flat plate solar collectors	BED	12%	Nil
Forged steel rings for manufacture of special bearings for use in wind operated electricity generators	BED	12%	Nil
Flat copper wire used in the manufacture of PV ribbons (tinned copper interconnect) for use in the manufacture of solar cells or modules	BED	12%	Nil
Winding wires of copper	BED	10%	12%
The following goods used in the processing and packaging of agricultural, apiary, horticulture, diary, aquatic and marine produce and meat , namely: (i) machiney for cleaning or drying bottles or other containers; (ii) machinery for filling, closing, sealing or labelling bottles, cans, boxes , bags or other containers; (iii) other packing or wrapping machinery; (iv) parts of machinery at (i) to (iii)	BED	10%	6%
Presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages	BED		6%
(i) machinery for the preparation of meat or poultry; (ii) machinery for preparation of fruits, nuts or vegetables; (iii)parts of machinery at (i) or (ii)	BED	10%	6%
Sewing machines with attachable electric motors	BED	2%	12%
LED driver and MCPCB for use in the manufacture of LED lights and fixtures or LED lamps	BED	12%/10%	6%
Parts consumed within the factory of production for the manufacture of non-conventional energy devices, and when such use in elsewhere than in the factory of production	BED		Exempt
Smart Cards	BED	2%/6%	12%
RO membrane element used in household type filters	BED	12%/10%	6%
Reverse osmosis (RO) membrane element for water filtration or purification equipment (other than household type filter)	BED		Exempt
Specified HIV/AIDS drugs and diagnostic kits supplied under National AIDS Control Programme (NACP) funded by the Global Fund to Fight AIDS, TB and Malaria (GFATM)	BED		Exempt
Goods supplied to National Technical Research Organisation (NTRO).	BED		Exempt
Intermediate goods manufactured and consumed captively for further manufacture of matches	BED		Exempt
Goods cleared by an EOU into the DTA	EC and SHEC (Customs Component)		Exempt
Excise duty on Polyester Staple Fiber (PSF) and Polyester Filament Yarn (PFY) ( including intermediate products manufactured in the production of PSF and PFY) manufactured from plastic waste or scrap now being exempted retrospectively w.e.f 29.06.2010	BED		Exempt
Un-branded articles of precious metals are being exempted from excise duty retrospectively for the period 01.03.2011 to 16.03.2012	BED		Exempt
Full exemption from excise duty is being granted in respect of machinery, equipments, etc. required for initial setting up of solar energy production projects	BED		Exempt
Full exemption from excise duty is being provided on machinery, equipments, etc. required for initial setting up of compressed biogas plant (Bio-CNG).	BED		Exempt
Excise duty is being exempted on parts of tractors removed from one or more factories of a tractor manufacturer to another factory of the same manufacturer for manufacture of tractors	BED		Exempt