Budget 14 Analysis

NILESH N. SHAH & ASSOCIATES, CHARTERED ACCOUNTANTS .INDIA

Highlights of Budget for 2014

The following are some of the key highlights of the Union Budget

2014, presented by Hon’ble Finance Minister Arun Jaitley in the

Parliament today on 10th July 2014:


1. All retrospective tax cases to be scrutinized by high-level commission.. This government will not bring any retrospective amendments.

2. Will streamline taxation and avoid harassment

3. No change in tax rate.

4. Personal tax exemption limit raised to Rs 2.5 lakh from current Rs 2 lakh for taxpayers below 60 years.

a. Senior citizens' tax exemption limit hiked from Rs 2.5 lakh to Rs 3 lakh.

b. No Change in exemption limit of very senior citizen assessee.

c. No change in surcharge & education cess. d. Maximum Savings of Rs. 5150 across all individual

assesses other than very senior citizen assessee.

5. Annual Provident Fund limit will be increased from Rs. 1 Lakh to Rs.1.5 lakh


6. Investment limit under Section 80C from Rs 1 lakh to Rs 1.5 lakh Maximum savings for all assessee due to changes in Section 80C as follows: Income Range Maximum

tax Savings (A)

Education cess

(B)

Total Maximum Savings (A)+(B)

Up to 5,00,000 5,000 150 5,150

5,00,001-10,00,000

10,000 300 10,300

Above 10,50,000 15,000 450 15,450

7. Housing loan interest deduction for Self Occupied Property increased to Rs.2 lakh from Rs.1.5 lakh.(Section 24), Maximum savings for all assessee due to changes in Section 24 as follows: Income Range

Maximum tax Savings (A)

Education cess

(B)

Total Maximum Savings (A)+(B)

Up to 5,00,000

5,000 150 5,150

5,00,001-10,00,000

10,000 300 10,300

Above 10,50,000

15,000 450 15,450


8. Hence TOTAL Maximum possible savings are as under:

1.) For all assessee (except very senior citizen):

Income Range

Due to exemption limit

Due to 80C Due to Interest on housing loan

Total Maximum Savings

Upto 5,00,000

5,150 5,150 5,150 15,450

5,00,001-10,00,000

5,150 10,300 10,300 25,750

Above 10,50,000

5,150 15,450 15,450 36,050

2.) For very senior citizen assessee:

Income Range

Due to exemption limit

Due to 80C Due to Interest on housing loan

Total Maximum Savings

Upto 5,00,000

Nil Nil Nil Nil

5,00,001-10,00,000

Nil 10300 10300 20600

Above 10,50,000

Nil 15450 15450 30900


ASSESSMENT YEAR 2015-16 RELEVANT TO FINANCIAL YEAR 2014-15 1. Tax Slab for an Individual (resident & below 60 years) or HUF/AOP/BOI/AJP

Income Slabs Tax Rates Total income up to Rs. 2.5 Lac 0% Tax

Total income above Rs. 2.5 Lac and below Rs.5 Lac 10% on amount exceeding Rs. 2.5 Lac

Total income above Rs. 5 Lac and below Rs.10 Lac

20% on Income exceeding Rs. 5 Lac + Rs. 25,000

Total income more than Rs. 10 Lac

30% on Income exceeding Rs. 10 Lac + Rs. 1,25,000

*U/S 87A the Individual having taxable income upto Rs 5 lacs can claim rebate on the actual tax amount subject to a maximum of Rs 2000 Where the Taxable Income exceeds Rs. 1 crore, Surcharge @ 10% of Income tax is applicable 2. Tax Slab for an Individual (resident & above 60 years but below 80 years)

Income Slabs Tax Rates Total income up to Rs. 3.00 Lac 0% Tax

Total income above Rs. 3.00 Lac and below Rs.5 Lac 10% on amount exceeding Rs. 3.00 Lac

Total income above Rs. 5 Lac and below Rs.10 Lac

20% on Income exceeding Rs. 5 Lac + Rs. 20,000


30% on Income exceeding Rs. 10 Lac + Rs. 1,20,000

*U/S 87A the Individual having taxable income upto Rs 5 lacs can claim rebate on the actual tax amount subject to a maximum of Rs 2000 Where the Taxable Income exceeds Rs. 1 crore, Surcharge @ 10% of Income tax is applicable 3. Tax Slab for an Individual (resident & above 80 years)


Income Slabs Tax Rates Total income up to Rs. 5 Lac 0% Tax Total income above Rs. 5 Lac and below Rs.10 Lac 20% on Income exceeding Rs. 5 Lac


30% on Income exceeding Rs. 10 Lac + Rs. 1 Lac

Where the Taxable Income exceeds Rs. 1 crore, Surcharge @ 10% of Income tax is applicable EDUCATION CESS The amount of Income-tax shall be increased by Education Cess of 3% on Income-tax.

9. Companies whose principal business is trading in shares will

not be treated as carrying out “Speculation business” by Amending Explanation of Section 73.Hence loss from such business will not be treated as speculation loss which has a restriction of setting off against speculation business income only. This will be positive for Brokering & Trading Companies.

10. Advance received and forfeited will be charged to tax in the year in which it is received under “Income from other sources “ if transfer does not takes place (Section 56) Section 51 is amended accordingly to avoid double taxation by reducing such advance from cost of asset at the time of actual transfer where amended Section 56 is applicable.


11. Clarifactory amendment of exemption from capital gain arising on transfer of Land or building or residential house or any other capital asset allowed only if one residential house is constructed under Section 54/ Section 54F.

12. Deduction on account of Interest , Royalty and Fees to non- resident will be allowed as deduction if paid before the due date of filing of return(which was earlier allowed in the year in which TDS was paid. By amending Section 40(a) in line with section 40(ia).

13. 30% of expense will be disallowed instead of the entire expenditure for non-payment of TDS on interest ,royalty, rent, fees and payment to contractor. (Section 40(ia)) This is applicable only for payment to residents.

14. Holding period of Debt oriented fund less than 36 months (previously 12 months) will be treated as a short term.(Section 2(42A)).

a. Long term capital gains from such units will be taxed at 20% (instead of lower of 10%(without indexation) and 20% with indexation as at present.)

15. Investment allowance at 15% for 3 years up to 31.03.2017 to manufacturing company which invest more than Rs 25 crore in plant and machinery

16. Proposed to extend 10-year holiday to power generating companies


17. Kisan Vikas Patra to be reintroduced

18. Income arising to foreign portfolio investors from

transaction in securities to be treated as capital gains.

19. Introduction of range concept for determination of arm’s length price in transfer pricing regulations. To allow use of multiple year data for comparability analysis under transfer pricing regulations.

20. TDS @ 2% on non-exempt payments made under life insurance policy wef 01.10.2014 including the sum allocated by way of bonus on such policy .Section 194 DA.If such payments are more than Rs.100000/- (Rupees One lac ) in a year


Service Tax:

Minimal changes. Negative list: Sales of space for advertisements on online. Newspapers will remain exempted. To broaden the tax base in Service Tax, sale of space or time for advertisements in broadcast media, extended to cover such sales on other segments like online and mobile advertising -

Tourism to be boosted for change in service tax. Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India to be taken out of the tax net and Cenvat credit for services of rent-a-cab and tour operators to be allowed to promote tourism.

Services by air-conditioned contract carriages and technical testing of newly developed drugs on human participants brought under service tax.

Exemption available for specified micro insurance schemes expanded to cover all life micro-insurance schemes where the sum assured does not exceed `.50, 000 per life insured -

For safe disposal of medical and clinical wastes, services provided by common biomedical waste treatment facilities exempted.

Direct Tax Code And GST:

Govt will review and take a decision. Previous proposal lapsed with dissolution of Lok Sabha. Introduction of GST to be given thrust


Indirect Taxes

Customs duty:

Reduced basic customs duty for some industries with varying rates

LCD and LED TV prices below 19 inches to go down. Basic custom duty on LED panel below 19 inch made zero

Coal customs duty changed to reduce disputes regarding quality of coal

Hikes customs duty on flat steel products to 7.5% from 5%

Excise duty:

Tweaked to boost domestic production Concessional 2% benefit to sports clubs Cigarettes, Pan Masala, Gutka, chewing tobacco: Price to go

up by hiking duty Additional duty of excise on aerated waters containing added

sugar Reduced duty in footwear, packaged food food processing will get incentives. Excise duty would be

reduced to 6% from 10%"

Rs.10,000 crore venture capital fund will be set up to attract new entrepreneurs

Rs 7500 crore additional revenue due to changes in indirect taxes

Warehousing capacity will be increased. Rs.5000 crore will be set aside for this


Sectoral Reforms

Andhra Pradesh-Telengana: Provisions to help both states

60 more Ayakar Sewa Kendras to be set up across the country

Rs 10000 crore extra to build railways in North East over and above Interim Budget

Displaced Kashmiri migrants: Rs 500 crore for rehabilitation

Himalayan studies: National centre in Uttarakhand with initial outlay at Uttarakhand

North East: organic farming development: Rs 100 crore

Metro projects for cities with over 20 lakh population must begin now. Lucknow to get Metro.Metro for Ahmedabad too". Currency notes to have Braille-like signs Tourism: e-visas to be introduced at nine airports in the country in a phased manner


Real estate investment trusts – modified REITS is being announced for infrastructure projects to reduce pressure on banking system .With pas way status to avoid double taxation

Sports

National Sports academies at different parts of the country

Jammu & Kashmir: special sum of Rs 200 crore to upgrade indoor and outdoor stadiums

Sports University in Manipur: Rs 100 crore

International events to be held in North and North East India

Rs 100 crore for training of sports persons for Asian Games

Young leader's programme: Rs 100 crore

Rivers

Serious effort to link rivers. Sets aside Rs 100 crore for a report.

Substantial money spent to clean Ganga. Integrated Ganga Conservative Mission: Rs 2037 crore for it

Rs 100 crore for Ghat development

Science and technology

Turn 5 centres into research instituions. PPP model

2 clusters for research in Kolkata and Pune


Defense

Rs 2,29000 crore for defense

1 rank- 1 pension for army

Rs 1000 crore set apart for it Capital outlay increased by Rs 5000 crore over interim Budget Police reforms: Rs 3000 crore set asie vs Rs 1800 crore last Budget

Banking

Govt in principle agrees to consolidation of PSU banks

Rise of NPA matter of concern

6 new revival tribunals to be set up

Bank will be encouraged to give long term funds & loans to the infrastructure sector

Insurance

Insurance Bill to be brought for consideration in Parliament

Special small saving instrument for girl child education and girl marriage

PPF scheme: Rs 1.5 lakh per annum

Financial Sector

Essential to strengthen financial sector

Modern monitory policy to be brought in


Advise regulators for liquid corporate bond market, eliminate unnecessary restrictions

Allow international settlements of bond settlements

Introduce uniform KYC norms across financial sector

1 operating Demat account to control any instrument

New accounting norms for corporate India: mandatory by 2017

Energy and transport

Rs 4200 crore: Inland navigation

Airport:Scheme for airport in Tier 1 and 2 under Airport Authority of India. Airport to be built under PPP mode

Road:NHAI to get Rs 37000 crore; include Rs 3000 crore for North East

New and renewable energy: Ultra modern solar plant in Tamil Nadu, Rajasthan and Ladakh

Oil and gas: Use of PNG to be increased

15000 km of gas pipeline in the country now. Additional 15000 km required. To be developed under appropriate PPP model.

Mining: Encourage investment, promote sustainable mining. Current impass including iron ore to be carried out quickly.

4200 cr set aside for the Jal Marg Vikas project on river Ganga connecting Allahabad to Haldia,over 1620 km

National Industrial corridor with headquarter in Pune


SME: Bulk of service sector also SMEs. Majority run by SC ST OBC. Financing is important. Need to examine financial architecture of this sector. Set up committee to give suggestion in 3 months.

Venture capital in SME: Rs 10,000 crore fund. To attract other investors

Apprentice Act to be suitably amended to strengthen the Apprentice Training Scheme

All the Govt departments and ministries will be integrated through E-platform by 31 Dec this year

16 new port porjects this year

Agriculture sector

Fertilser- must take care of degradation of soil. Intitial fund of Rs 100 crore for climate change fund.

Farmers bank lending: propose to produce of Rs 5 lakh to Bhumeeheen Kisan groups through NABARD

Price stabilization fund

Food, oil subsidies to be more targeted

Indigenous cattle breeding to be supported

Banks: target of Rs 8,00,000 crore to lend to agriculture sector

Short term crop loan: Farmers to get further incentive of 3% for farmers who pay on time. Was already getting loan at 7%.

Raise RIDF corpus by Rs 5000 crore. Target of Rs 25000 crore set by Chidambaram


Rs 5000 crore for infrastructure fund in agriculture

Long term rural credit bank to provide support to cooperative banks and RRBs, by NABARD. Rs 5000 crore allocated.

Producer's development fund to get Rs 200 crore in NAABARD

Food Sector

Need to restructure FCI

Govt will undertake open market sales to keep prices under control

Farmers to get information on new techniques. Rs 100 crore set aside

E-based platforms:

FTII Pune, SRFTI Kolkata: special status of national importance

Use of recycled water, solid waste management, sae drinking water: hubs using PPP model to be set up

Rs 100 crore: Metro project in Lucknow

Propose to set up 5 new IIMs in HP, Punjab, Bihar, Odisha & Maharashtra:

Low cost housing’s 4000 crore for National Housing Bank

Slum development to be part of CSR.

Currency notes to have Braille

Rs 200 crore for 4 agricultural institutes in 4 states

Rs 100 crore has been allocated for the modernization of Madrasas


Universal healthcare: 4 more AIIMS in Andhra Pradesh, West Bengal, Vidharbha, Purvanchal. Rs 500 crore set aside

12 more medical colleges in government hospitals.

Aim to create AIIMS in every state of the country

Rs 3650 crore for safe drinking water

Toilets and drinking water in all girls' school to begin with. More than Rs 26000 crore set aside

Under the 'Pradhanmantri sadak yojna' propose 14,389 cr for development of roads.

Budgetory Allocations

Rs 50548 crore for SC-ST plan

Senior citizens: Additional pension introduced by NDA govt last time.

Unclaimed amount of PPF etc. Mostly out of investments belonging of senior citizens. Set up a committee to protect senior citizens. Report by December 2014.

EPFO to launch unified accounts to transfer PF funds.

Min pension of Rs 1000 per month. Initial fund of Rs 250 crore.

Differently abled persons: Make incluisve opportunities. Centre for sports for differently abled

Visually challenged: 15 new braille press.


Women's safety: Rs 50 crore to be spent by Roads ministry to increase safety of women on roads: Pilot project

Beti bachao Beti padhao Yojana: Apathy towards girl child rampant. Rs 100 crore allocation.

NREGA: Rural SHGs extend 4% loans to more rural areas. NREGA to target more productive work.

National Housing programme: Rs 8000 crore

Budget 14 Analysis

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