Key Direct Tax Highlights of Union Budget for the fiscal year 2014-15
A. THE POSITIVES
Corporate Sector
- Investment AllowanceThe threshold level of investments required to avail Investment allowance has been reduced to INR 250 million from INR 1 billion
- Special Taxation dispensation for REITSSpecial Tax provisions introduced to grant pass-through status for Real Estate Investment Trusts and Infrastructure Investment Trusts. The clarity on the tax treatment signals that regulatory framework for such SPVs would very soon see the light of the day.
- Clarity on taxation of Foreign Portfolio InvestorsAll gains arising to registered Foreign Portfolio investors would be treated as Capital gains, which are taxed as concessional rates of taxation. This brings a great degree of clarify on taxation for this category of investors.
- “Roll back” provision for Advance Pricing ArrangementA Roll back mechanism introduced for application of the Advance Pricing Arrangement for a period upto four past years. This is a bold step, aimed at resolving Transfer Pricing litigation. Raises hopes of a ‘pragmatic’ resolution of Transfer Pricing disputes with the Central Board of Direct Taxes.
- Concessional rate of tax for repatriating dividendsThe effect of deletion of sunset clause for availing concessional tax treatment while repatriating dividends is that the corporates would now have flexibility in timing their repatriation of overseas profits to India.
- Lower tax rate on long-term overseas borrowing expandedCurrently, Indian companies can raise overseas funds through the issuance of Long-term bonds for Infrastructure. The concessional taxation regime is now extended to all long-term funding, irrespective of end-use.
- Disallowance for TDS non-compliance curtailedIn place of current provision disallowing of the entire expenditure on which Tax has not been deducted, the disallowance is now proposed to be restricted to 30% of the expense
- Two additions made to list of activities eligible for Investment-linked deductionIndividuals
- Basic exemption limit increased by INR 50,000 to INR 250,000. For senior citizens, the exemption limit raised to INR 300,000
- 80C deduction limit raised to INR 150,000 from INR 100,000
- Limit for deduction of interest on housing loans raised from INR 150,000 to INR 200,000
B. THE NEGATIVES
- Increase in Dividend Distribution Tax”Grossing-up” of tax is now required while distributing the dividends – this would result in a increase in the effective tax rate at which Dividend Distribution Tax is paid by companies as well as Mutual Funds
- Corporate Social ‘not my responsibility’The newly enacted Companies Act mandates certain companies (based on networth/turnover/profitability criteria) to spend a percentage of their profits to make a societal contribution in the form of Corporate Social Responsibility spend. It has been clarified that such expenses would not be allowed as a deduction under the “catch-all” residual deduction provision of Section 37.
- Debt Funds become unattractiveThe concessional tax rate of 10% has been withdrawn for debt fund units. As a double whammy, the period of holding for debt funds to qualify as a “long-term” asset has also been increased to 36 months from 12 months
- Benefits of reinvestment in Residential Housing curtailedProvisions relating to tax exemption (under section 54/54F) for investment in housing have received beneficial interpretation from judicial forums to the effect that a Taxpayer could avail the exemptions for investment in more than one residential house. The exemption is now sought to be restricted to investment in one house only.
- Expenditure Disallowance for TDS non-compliance expandedCurrently, certain types of expenses are disallowed if Tax Deduction Obligation in relation to such expenses are not discharged by Taxpayer. It is now proposed to extend the net of disallowance to every payment on which Tax is required to be deducted at source.
- Increase in the presumptive income for Goods Transport operatorsThe presumptive income of Goods Transport operators has been increased from INR 4500/5000 per month for Light Commercial Vehicle / Heavy Commercial Vehicle operators to a uniform INR 7,500 per month. Expect a Transport operators strike very soon.
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