NEERAJ GUPTA CA IPCC TAX CLASSES

AMENDMENTS FOR AY 2014-15

AMENDMENTS IN INCOME TAX APPLICABLE FOR AY 2014-15 1. New rebate u/s 87A Basic tax rates applicable for AY 2013-14 are not changed in AY 2014-15 also. It means for Individuals (male or female) and age less than 60 years still slab of 0% / 10% / 20% / 30% is applicable for income upto Rs 200,000, Rs 500,000, Rs 10,00,000 etc. Similarly for Senior citizens in Age bracket of 60-79 years the basic exemption limit is still at Rs 250,000 and for Super Senior citizens (Age 80 years or more) the basic exemption limit is still Rs 5,00,000. From AY 2014 15, a new rebate u/s 87A has been introduced for those who are in lower income levels. Rebate is Rs 2000 or tax calculated as per slabs whichever is less, if the following conditions are satisfied: 1. Assessee is an Individual 2. He is resident in PY 2013-14 3. His total income is upto Rs 5,00,000. It means education cess etc shall be added after deducting rebate u/s 87A. Rounding off u/s 288B is also same as in AY 2013-14. Illustration: Q : Mr A, is working in X Ltd at a salary of Rs 21,000 pm. Calculate his tax liability for AY 201415. Ans: His taxable income for the year is Rs 2,52,000. Tax as per slabs is Rs 5200. As income is upto Rs 5,00,000 he is eligible for rebate u/s 87A [i.e. Rs 2,00,000]. Tax after rebate is Rs 3200 plus 3% cess. It means tax including cess is 3296 [3200 Plus 3% of 3200 = 3200 + 96]. Final tax payable after rounding off u/s 288B is Rs 3300. 2. Surcharge rates for AY 2014-15 A. INDIVIDUALS It is 10% of tax as per slabs [i.e. before addition of education cess etc.]. It is applicable if Total income for PY 2013-14 is more than Rs 1 crore. Students need not be confused about rebate u/s 87A in this case as rebate is applicable if income is upto Rs 5,00,000 while surcharge is applicable if income is more than Rs 1 crore. Illustration Q : Mr A is having a total income of Rs 1,30,00,000. Find out the tax payable for AY 2014-15. Ans: Tax as per slabs is Rs 37,30,000. As income is more than Rs 1 crore, surcharge of 10% is applicable on tax as per slabs. So in this case surcharge is Rs 3,73,000 [10% of Rs 37,30,000]. Tax including surcharge is Rs 41,03,000. Education cess etc @3% of Rs 41,03,000 is Rs 123,090. Final tax including cess is Rs 42,26,090 [41,03,000 plus 1,23,090]. B. Co-operative Society : Surcharge is 10% of tax if total income exceeds Rs 1 crore.

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C. Firms (including LLP) Surcharge is 10% of tax if total income exceeds Rs 1 crore. D. Domestic company Surcharge is 5% of tax if total income exceeds Rs 1 crore but when total income exceeds Rs 10 crores than surcharge rate is 10% of tax. E. Foreign Company Surcharge is 2% of tax if total income exceeds Rs 1 crore but when total income exceeds Rs 10 crores than surcharge rate is 5% of tax. Note 1 : In case of Section 115-O [Dividend distribution tax], 115QA [Additional tax payable at buy back of unlisted shares], 115 R [Income distribution tax on UTI/Mutual funds etc.] the surcharge rate applicable is 10%. Note 2 : Marginal relief is also applicable in surcharge cases where income is near 1 crore. 3. Change in the definition of Rural Area (Land in rural area) Upto AY 2013-14 Any area which is outside the jurisdiction of a municipality or cantonment board having a population of 10,000 or more and also which does not fall within such notified distance [up to 8 kilometers] from the local limits of such municipality or cantonment board. From the AY 2014-15 Any area which is outside the jurisdiction of a municipality or cantonment board having a population of 10,000 or more and also which does not fall within distance (to be measured aerially) given below 2 kilometers from the local limits of If the population of the municipality / municipality / cantonment board cantonment board is more than 10,000 but not more than 1 lakh 6 kilometers from the local limits of If the population of the municipality / municipality / cantonment board cantonment board is more than 100,000 but not more than 10 lakh 8 kilometers from the local limits of If the population of the municipality / municipality / cantonment board cantonment board is more than 10 lakh For the above purpose, population means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year. 4. Change about Life Insurance Premium Upto AY 2013-14, Section 80C says, premium paid for life insurance policy is eligible for deduction upto 10% of sum insured. From AY 2014-15 this limit is raised to 15% for following persons: a) Persons suffering from disability or severe disability as per section 80U; b) Persons suffering from diseases specified u/s 80DDB.

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AMENDMENTS FOR AY 2014-15

It means for others, limit is still 10% only. Similarly Section 10(10D) is denied if Premium contribution is more than 10% of sum insured annually. Now for above mentioned persons, the limit is raised to 15% for policies issued on or after 1.4.2013. For old policies limit continues at 10%. 5. Amendment relating to Keyman Insurance Policy As per latest tax law, the policy maturity amount received will continue to be taxable even if policy is transferred (assigned) during policy period to the concerned keyman. 6. Buy back of unlisted shares Exempt for shareholders u/s 10(34A) Note 1 Company is liable to pay additional tax @20% u/s 115QA on difference between buy back price & issue price. The effective rate is 20% plus 10% surcharge plus 3% cess i.e. 22.66%. Note 2 For listed shares, existing provisions of capital gain will continue. 7. New Section 32AC PGBP Investment allowance for acquisition and installation of new plant and machinery The main features of this newly inserted section is as follows: 1. Only for Company assessee, if engaged in manufacturing sector. 2. New plant and machinery is purchased other than the following: a. Second hand machinery (including imported second hand P & M) b. P & M installed in office, residential qtrs, guest house etc. c. Office appliances including computers or computer software; d. Any vehicle, ship or aircraft e. Any P & M on which 100% deduction is allowed by Depreciation or otherwise 3. Both acquisition and installation should be between 1.4.2013 to 31.3.2015. 4. Aggregate investment in above P& M should exceed Rs 100 crores. 5. It is allowed @ 15% of investments in FY 13-14. In FY 14-15 it 15% of total investment in the period from 1.4.13 to 31.3.15 less deduction claimed in FY 13-14. 6. Such assets cannot be sold or otherwise transferred in next five years otherwise investment allowance shall become taxable in the year of such sale as PGBP. This will be in addition to capital gain if any. 7. If transfer is by way of amalgamation or demerger than provisions of point number 6 shall not apply but if amalgamated or resulting company sells it within 5 years from installation date, then investment allowance deduction claimed shall become taxable for new company. 8. This benefit is in addition to normal and additional depreciation. 9. It is a part of business expenditure hence not treated like unabsorbed depreciation.

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8. Commodities Transaction Tax to be allowed as deduction [Section 36(1)(xvi)] 9. Section 43CA Section 50C relating to stamp duty value is now also applicable to Land & Building held as stock in trade. Note 1: Provisions are similar to section 50C. Note 2 : When date of agreement and date of registration are not same: Where the date of an agreement fixing the value of consideration for the transfer of the asset and the date of registration of transfer of the asset are not same, the stamp duty value may be taken as on the date of agreement for transfer and not as on date of registration for such transfer. However, this exception shall apply only in those cases where amount of consideration (or a part thereof) for the transfer has been received by any mode (other than cash) on or before the date of agreement. In simple words, if amount has been received on agreement date and circle rate has been increased before registration, then circle rate on date of agreement is applicable. 10. Purchase of immovable property at a price which is less than

stamp duty value Implications in IFOS The existing provisions of IFOS relating to Taxation of Gift provides that where any immovable property is received by an individual or HUF without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property would be charged to tax in the hands of the individual or HUF as income from other sources. The existing provisions applicable upto AY 2013-14 does not cover a situation where the immovable property has been received by an individual or HUF for inadequate consideration. W.e.f. AY 2014-15, if difference is more than Rs 50,000, then this difference is taxable for the buyer as IFOS. For buyer, Stamp duty value shall be treated like COA for future transactions. Provision discussed in section 43CA relating to gap between agreement date and registration date issue is also applicable. Illustration : A Ltd., a developer of real estate, sold a residential house property to X for Rs 50,00,000 whereas its stamp duty value is Rs Rs 60,00,000. The cost of residential house property is Rs 35,00,000. Compute the business income of A Ltd. Will there be any tax liability in the hands of X and what shall be the Cost of Acquisition in the hands of X ? Answer: Selling Price 60,00,000 (Deemed consideration as Per section 43CA) Less: Cost 35,00,000 Business income 25,00,000 In the hands of X, Rs 10,00,000 will be taxable as IFOS. Rs 60,00,000 will be the cost of acquisition.

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11. Amendment in Section 80CCG 1. Income limit of eligible assessee in AY 2013-14 is Rs 10 lacs. It is increased to Rs 12 lacs from AY 2014-15. 2. Only listed shares is covered as eligible investment till AY 2013-14. Listed units is also eligible now. 3. Till AY 2013-14, this deduction is allowed only in one year in the life of assessee. Now w.e.f. AY 2014-15, it is available for 3 consecutive AYs. Note: Deduction is 50% of investment or Rs 25,000 whichever is less. No change in this position. 12. Amendment in Section 80D

Till now contribution to Central Govt Health scheme [CGHS] is eligible for deduction within overall limit of Rs 15,000. W.e.f. AY 2014-15 the benefit is extended for payment or contribution to such other schemes, which are similar to CGHS, as may be notified by Central Govt. 13. New Section 80EE (interest on housing loan) The benefit of this section is for first time home buyers and whose interest on borrowed capital is more than Rs 1,50,000 in FY 2013-14 (as interest deduction can be claimed upto Rs 1,50,000 u/s 24(b) for self occupied houses). Features: 1. Housing loan should be taken from some bank or other financial institution. 2. Loan is sanctioned during FY 2013-14. 3. Loan amount is upto Rs 25,00,000. 4. Value of residential house is upto Rs 40,00,000. 5. Assessee does not own any residential house on the date of sanction of loan. Deduction : It is interest figure above Rs 150,000 or Rs 1,00,000 whichever is less. If deduction claimed is less than Rs 1,00,000 then balance deduction can be claimed in the next FY 2014-15 (only). For example if interest payable for FY 2013-14 is Rs 2,90,000 then Rs 1,50,000 shall be claimed u/s 24(b) and Rs 1,00,000 shall be claimed u/s 80EE. No treatment for balance Rs 40,000. If interest payable p.a. is Rs 2,40,000 then in FY 2013-14 Rs 150,000 shall be allowed in section 24(b) and Rs 90,000 shall be allowed u/s 80EE. Then in next FY 2014-15, Rs 150,000 shall be allowed in section 24(b) and only Rs 10,000 shall be allowed as deduction u/s 80EE i.e. balance amount of deduction [Rs 100,000 less deduction already claimed in FY 13-14 of Rs 90,000]. 14. Section 80G amendment Deduction for donations to the National childrens Fund has been raised from 50% to 100%. 15. Section 80GGB & 80GGC amendment No deduction shall be allowed u/s 80GGB and 80GGC in respect of any sum contributed by way of cash.

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16.

Section 80IA amendment

In deduction relating to power sector, the time limit is extended by one year. Till AY 2013-14 it was 31/3/2013. Now for AY 2014-15 it is extended to 31/3/2014. 17. Section 80JJAA Amendment This section has been amended to clarify that deduction of 30% on wages paid to regular workers is allowed to Indian companies if workers are engaged in manufacturing in a factory of the company. It means workers engaged in godowns or similar other areas are not covered by section. 18. Amendment in Returns of Income The Act, has amended section 139(9) 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 [Self Assessment Tax] has been paid on or before the date of furnishing of the return.

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AMENDMENTS FOR AY 2014-15

AMENDMENTS IN SERVICE TAX

1. Section 65B(11) Meaning of Approved Vocational Course mentioned in negative list expanded No service tax could be levied even on vocational courses provided by the industrial training institute or an industrial training centre affiliated to State Council for Vocational Training as the same is now covered under Negative List of services. Earlier only the courses provided by training institute or an industrial training centre affiliated to National council for Vocational Training were covered under Negative List of services. 2. Section 65B(40) Even Process amounting to manufacture or production under The Medicinal and toilet preparations (Excise Duties) Act, 1955 covered by negative list Earlier only process covered by Central Excise Act, 1944 was covered. 3. Now all kinds of testing in agricultural sector including seed testing is excluded from service tax.

4. VOLUNTARY COMPLIANCE ENCOURAGEMENT SCHEME, 2013 [VCES] A new scheme is introduced by the Finance Act, 2013 to encourage voluntary compliance with the following main features: 1. The scheme cannot be used against whom service tax department has already initiated some inquiry or investigation. It is those who has not submitted returns [non filers or stop filers] or those who have filed returns with false figures. 2. The defaulter will be required to make a true declaration of all his pending service tax dues from 1/10/2007 to 31/12/2012 and pay at least 50% of that before 31/12/2013. The balance 50% can be paid before 30/6/2014 (without interest). Alternatively, the balance 50% can be paid by 31/12/2014 with interest for the period commencing from 1/7/2014 till the date of payment. 3. Cenvat credit not allowed while paying service tax in this scheme. 4. On compliance with all the requirements the person will have freedom (immunity) from interest, penalties and other proceedings. 5. Taxpayer will need to settle their dues for the period after 31/12/2012 under the normal provisions.

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