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CA. AJAY JAIN, 9310167881 3 Amendments – Budget 2014

Budget 2015 is NOT applicable for May 2015 & Nov 2015 exams

I. RATES [Page No.11.1 OR Page No.377]

Rates of Income Tax for A/Y 2015-2016

1.For an Individual (man or woman), resident in India who is of the age of 60 years or more at any time

Upto ` 3,00,000 Nil` 3,00,001 to ` 5,00,000 10%

` 5,00,001 to ` 10,00,000 20%Above ` 10,00,000 30%

2. For individual (man or woman), resident in India who is of the age of 80 years at any time Upto ` 5,00,000 Nil

` 5,00,001 to ` 10,00,000 20%Above ` 10,00,000 30%

3. Individuals (both man and woman), [other than those mentioned in above] HUF. Upto ` 2,50,000 Nil

` 2,50,001 to ` 5,00,000 10%` 5,00,001 to ` 10,00,000 20%

Above ` 10,00,000 30%Note:- In case of non-residents only general slab rate of 2,50,000 is applicable. Special rates of

senior citizen and very senior citizen are applicable only for resident in India.Education Cess’ @ 2% and SHEC @ 1% on income tax shall be chargeable.

Q1. total income is 15,00,000. Calculate tax if age is (1) 40 years (2) 60 years (3) 80 years

Changes introduced by Budget 2014Amendments applicable for MAY 2015 & Nov 2015


Surcharge & Marginal relief:- Individual/HUF

CA. AJAY JAIN, 9310167881 5 Amendments – Budget 2014 (a) Where the total income exceeds `1 crore, surcharge is payable at the rate of 10% of

income tax. (b) Marginal relief is available in case of such persons having total income exceeding `

1 crore, i.e. the additional amount of income tax payable (together with surcharge) on the excess of income over ` 1 crore should not b more than the amount of income exceeding ` 1 crore.

Q. 2:- The total income of R for the assessment year 2015-16 is ` 1,01,20,000. Compute the tax payable

Ans. `Tax on `1 croreOn first `2,50,000 NilNext `2,50,000-10% 25,000Next `5,00,000-20% 1,00,000Balance `90,00,000-30% 27,00,000

28,25,000Tax on `1,20,000 which is above `1 crore (`1,20,000 @ 30%)

36,000Total Tax 28,61,000Additional income above `1 crore 1,20,000Tax payable 36,000Balance income 84,000Surcharge on `28,61,000@ 10% - `2,86,100Therefore, Surcharge in this case shall be `84,000 or `2,86,100 whichever is less, due to marginal relief

84,000Tax including surcharge 29,45,000

Add: Education cess @2% 58,900 Add: SHEC @ 1% 29,450

88,350Total tax liability 30,33,350


II. HOUSE PROPERTY [Page No.4.10 OR Page No.126]

Deduction of interest in case of self occupied residential property:- [Section 24(b)]

In the second proviso to section 24(b), the limit of deduction of interest in respect of self occupied property has been increased from `1,50,000 to `2,00,000.

Mischief:

There has been appreciation in the value of house property and accordingly cost of finance has also gone up.

Housing continues to be an area of concern for middle and lower middle class due to high cost of financing. Therefore, to reduce this burden, I propose to increase the deduction limit on account of interest on loan in respect of self occupied house property from ` 1.5 lakh to ` 2 lakh.

[Extracts of Budget Speech]

Q. 3:- Mr. Rajesh purchased a residential house property for self-occupation at a cost of ` 30

lakh on 1.6.2013 in respect of which he took a housing loan of ` 24 lakh from Punjab National bank @ 11% p.a. on the same date. Compute the eligible deduction in respect of interest on housing loan for A.Y. 2014-15 and A.Y.2015-16 under the provisions of the Income-tax Act, 1961, assuming that the entire loan was outstanding as on 31.3.2015 and he does not own any other house property.

Ans.Particulars `

For A.Y. 2014-15(i) Deduction under section 24 (b) ` 2,20,000 [`24,00,000 x 11% x

10/12]Restricted to

1,50,000

(ii) Deduction under section 80EE (`2,20,000 - `1,50,000) 70,000

For A.Y. 2015-16(i) Deduction under section 24(b) `2,64,000 [`24,00,000 x 11%]

CA. AJAY JAIN, 9310167881 8 Amendments – Budget 2014 Restricted to 2,00,0

00(ii) Deduction under section 80EE

(`1,00,000- `70,000, allowed as deduction in P.Y.2013-14) 30,000

Notes:- In this case, Mr. Rajesh is entitled to deduction under section 80EE, in addition to deduction under section 24(b) since-

1) The loan is sanctioned by Bank of India, being a financial institution, during the period between 1.4.2013 and 31.3.2014;

2) The loan amount sanctioned is less than `25 lakh;3) The value of the house property is less than `40 lakh;4) He does not own any other residential house property.


III. PROFITS AND GAINS OF BUSINESS OR PROFESSION [Page No.5.28 OR Page No.184]

1. Investment Allowance to a Manufacturing Company [Section 32AC]Manufacturing company is eligible for deduction @15% of actual cost of new asset being eligible plant and machinery.

Before Amendment:- As per section 32AC(1), a manufacturing company which invest more than 100 crores in new plant and machinery during the period from 1.4.2013 to 31.3.2015 shall be allowed deduction.

After Amendment:- A new sub-section (1A) has been inserted. If the company on or after 1.4.2014 acquires and installs eligible plant and machinery during any previous year, the aggregate amount of actual cost of which exceeds `25 crore shall be allowed deduction u/s 32AC.

A proviso to section 32AC(1A) has also been inserted to provide that the assessee who is eligible to claim deduction under the existing combined threshold limit of `100 crore for investment made in P/Y 2013-14 & 2014-15 shall continue to be eligible to claim deduction under the existing provisions contained in section 32AC(1) even if its investment in the P/Y 2014-15 is below the new threshold limit of investment of `25 crore during the P/Y.

Q. 4:- Compute the admissible deduction under section 32AC for A.Y. 2014-15 & A.Y. 2015-16 in each of the following cases-

Manufacturing company

Investment in new plant and machinery(` in crores)

P.Y.2013-14 P.Y. 2014-15A Ltd. 80 22B Ltd. 70 25C Ltd. 60 30D Ltd. 75 25E Ltd. 105 15

CA. AJAY JAIN, 9310167881 10 Amendments – Budget 2014 F Ltd. 70 30G Ltd. 70 40

Ans.

Manufacturing company

Investment in new plant and machinery

Deduction under section 32AC (` in crores)

Undersub-sectionP.Y. 2013-

14P.Y. 2014-

15P.Y. 2014-15 P.Y. 2015-

16A Ltd. 80 22 Nil 15.30 (1)B Ltd. 70 25 Nil Nil -C Ltd. 60 30 Nil 4.5 (1A)D Ltd. 75 25 Nil Nil -E Ltd. 105 15 15.75 2.25 (1)F Ltd. 70 30 Nil 4.5 (1A)G Ltd. 70 40 Nil 16.5 (1)


2. Capital expenditure on Specified Business :- [Page No.5.18 OR Page No.162][Section 35AD]a. Expansion of scope of “Specified Business” eligible for Investment Linked

Deduction.

Two new businesses included as “specified business” for the purpose of investment linked deduction u/s 35AD. They are:-

(a) Laying and operating a slurry pipeline for the transportation of iron ore.(A slurry pipeline is used in mining to transport minerals. Slurry is a semi-liquid mixture of cement, or coal and water etc.)

(b) Setting up and operating a semiconductor wafer fabrication manufacturing unit.(Semiconductor processing facility which turns wafers into integrated circuits)

Mischief:To promote investment in these sectors.

b. Capital asset in respect of which deduction under section 35AD has been claimed must be used for “specified business” for a period of eight years.

3.Expenditure on Corporate Social Responsibility not to be allowed as deduction [Explanation to

Section 37(1)]It has now been clarified that for the purposes of section 37(1), any expenditure incurred by an assessee on the activities relating to CSR shall not be deemed to have been incurred for the purpose of business and hence, shall not be allowed as deduction u/s 37.

4.Disallowance of expenditure if TDS not deducted or deposited :- [Page No.5.10 OR Page No.148]


a. Time period for deposit of tax deducted at source in case of payment made to non-resident.

[Section 40(a)(i)]

Before Amendment:- The provisions of section 40(a)(i) provided that payments such as interest, royalty and fee for technical services made to a non-resident shall not be allowed as deduction for computing business income if tax on such payments was not deducted, or after deduction, was not paid before the end of the previous year.

After Amendment:- Time limit for payment of tax deducted from payments made to non-residents has been amended to provide that the deductor shall be allowed to claim deduction for payments made to non-residents in the previous year of payment, if tax is deducted during the previous year and the same is paid on or before the due date specified for filing of return under section 139(1).


b. Disallowance of expenditure restricted to 30% instead of 100%. [Section 40(a)(ia)]

Before Amendment:- In case of non-deduction or non-payment of tax deducted at source (TDS) from certain payments made to residents, the entire amount of expenditure on which tax was deductible was disallowed under section 40(a)(ia) for the purposes of computing income under the head “Profits and gains of business or profession.”

After Amendment:- In order to reduce the hardship, the Finance Act, 2014 has provided that in case of non-deduction or non-payment of TDS on payments made to residents in section 40(a)(ia), the disallowance shall be restricted to 30% of the amount of expenditure.

However, where tax has been deducted and paid after the due date specified under section 139(1),

30% of such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid.

Mischief :-


Q. 5:-XYZ Ltd. made the following payments in the month of March 2015 to residents without deduction of tax at source. What would be the tax consequence for A.Y.2015-16?

Particulars Amount in ` Salary to its employees 15,00,000

Ans. Non-deduction of tax at source would attract disallowance @30% of sum paid under section 40(a)(ia). Therefore, the amount to be disallowed under section 40(a)(ia) while computing business income for A.Y.2015-16 is as follows –

Particulars Amount paid in `

Disallowance u/s 40(a)(ia) @ 30% of sum paid

Salary 15,00,000 4,50,000

Currently, where an assessee fails to deduct and pay tax on specified payments to residents, 100 percent of such payments are not allowed as deduction while computing his income. This has caused undue hardship to taxpayers, particularly where the rate of tax is only 1 to 10%. Hence, I propose to provide that instead of 100 percent, only 30% of such payments will be disallowed. [Extract from Budget Speech]


5. Business of Plying, Hiring or Leasing Goods Carriage :-[Page No.5.23 OR Page No.174] [Section 44AE]Section 44AE provides for a presumptive taxation scheme in the case of an assessee engaged in the business of plying, hiring or leasing goods carriages and not owning more than 10 goods carriage at any time during the previous year.Before Amendment:- Upto A/Y 2014-15, the amount of presumptive income (per month or

part of the month during which the goods carriage was owned by the tax payer) was as follows:-Heavy Goods Vehicle (HGV) `

5,000Other than HGV `4,500

After Amendment:- Now a uniform amount of `7,500 per month (or part of a month) would be deemed as the income from each goods carriage, whether HGV or other than HGV, u/s 44AE.

Mischief:-

CA. AJAY JAIN, 9310167881 16 Amendments – Budget 2014 There were two reasons for this amendments:-

1. The last revision was made 5 years back by the Finance Act, 2009 and there has been erosion in the real values of the amount of specified presumptive income due to inflation over the years.

2. To simplify the presumptive taxation scheme by providing for a uniform amount of presumptive income per month for all types of goods carriage without any distinction between HGV and vehicle other than HGV.

Q. 6:-Mr. X commenced the business of operating goods vehicles on 1.4.2014. He purchased the following vehicles during the P/Y 2014-15. Compute his income u/s 44AE for A/Y 2015-16.

Type of Vehicle Number Date of purchase1 Light Goods Vehicles 2 10.4.2014

1 15.3.20152 Medium Goods Vehicles 3 16.7.2015

1 2.1.20153 Heavy Goods Vehicles 2 29.8.2014

1 23.3.2015Would your answer change if the two light goods vehicles purchased in April, 2014 were put to use only in July, 2014?

Ans. Since Mr. X does not own more than 10 vehicles at any time during the P/Y 2014-15, he is eligible to opt for presumptive taxation scheme under section 44AE. ` 7,500 per month or part of month for which each goods carriage is owned by him would be deemed as his profits and gains from such goods carriage.

(1) (2) (3) (4)Number of Vehicles Date of

purchaseNo. of months for which

vehicle is ownedNo. of months x no. of vehicles [(1)x(3)]

2 10.4.2014 12 241 15.3.2015 1 13 16.7.2014 9 271 2.1.2015 3 32 29.8.2014 8 161 23.2.2015 2 2

10 Total 73

Therefore, presumptive income of Mr. X under section 44AE for A/Y 2015-16 is ` 5,47,500, being 73 x `7,500.

The answer would remain the same even if the two vehicles purchased in April, 2014 were put to use only in July, 2014, since the presumptive income of ` 7,500 per month has to be calculated per month or part of the month for which the vehicle is owned by Mr. X.


IV. CAPITAL GAINS:

1. Compensation received in pursuance of an interim order deemed as income chargeable to tax in the year of final order [Page No.6.18 OR Page No.255][Section 45(5)]Mischief:-

There is uncertainty about the year in which the amount of compensation received in pursuance of an interim order of the court is to be charged to tax, due to court orders.

CA. AJAY JAIN, 9310167881 18 Amendments – Budget 2014 2. Exemption to be available for investment in one residential house situated in

India.

[Page No.6.21 OR Page No.275] [Section 54 and 54F]

Since the real intent of law was to allow capital gains exemption for investment in one residential house situated in India, sections 54 and 54F have been amended to provide for exemption there under in respect of investment made in one residential house situated in India.

Mischief:-There have been controversial judicial views interpreting “a residential house” to mean “more than one residential house” on the reasoning that “singular” includes “plural” under the General Clauses Act. Further, another issue which emerged before the Courts was whether investment in a residential house situated outside India would qualify for exemption under these sections.

Q7.LTCG on sale of house 5,00,000. He purchased 1 house in USA of 2,00,000 2nd house in Delhi of 50,000 and 3rd house in Mumbai of 2,50,000. Calculate exemption u/s 54.

3. Maximum investment in bonds of NHAI & RECL :- [Page No.6.21 OR Page No.275] [Section 54EC]

Before Amendment:- Section 54EC restricts the investment which can be made in the long-term specified asset (bonds of NHAI/RECL) during any financial year to ` 50 lakh.

After Amendment:- In section 54EC it is clarified that the investment made in bonds of NHAI/RECL, , during the financial year in which the assets are transferred and in the subsequent financial year does not exceed fifty lakh rupees.

Mischief:-

The wordings of the section 54EC have created an ambiguity. As a result the capital gains arising during the year after the month of September were invested in the specified asset in such a manner so as to split the investment in two years i.e., one within the year and second in the next year but before the expiry of six months. This resulted in the claim for relief of `1 crore as against the intended limit for relief of `50,00,000.

Q8.LTCG on sale of jewellery on 1.1.2015 1,00,00,000. He purchased bonds of NHAI of 50,00,000 on 31.3.2015 and bonds of RECI of 50,00,000 on 1.4.2015. Calculate exemption u/s 54EC.


V. Other Sources:

Advance forfeited due to failure of negotiations for transfer of a capital asset to be taxable as “Income from other sources” [Section 56(2)]

CA. AJAY JAIN, 9310167881 20 Amendments – Budget 2014 New clause (ix) has been inserted in section 56(2) provide for the taxability of any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset.Such sum shall be chargeable to income - tax under the head income from other sources if such sum is forfeited on or after 1.4.2014.If any amount was forfeited upto 31.3.2014 then it shall be deducted from the cost of acquisition as per old sec. 51.

Q 9.Advance money forfeited on 1.4.2013 `10,000. Sale consideration 2,00,000 on 1.6.2014. COA on 1.4.2012 50,000. Compute capital gains taxable for the p/y 14-15.

Q10.What would be your answer in the above question if Advance money was forfeited on 1.4.2014 `10,000 instead of 1.4.2013?

VI. Deduction from Gross Total Income: Deduction under section 80C [Page No.10.5 OR Page No.338]

(i) The limit of deduction allowed under section 80C has been raised from `1 lakh to ` 1.50 lakh.

(ii) Section 80CCE has been consequently amended to increase the aggregate amount of deduction under section 80C,80CCC and 80CCD (1) from ` 1 lakh to `1.50 lakh

(iii) The following table summarizes the ceiling limit under these sections w.e.f. A.Y. 2015-16

Mischief:-Increase in savings and their productive use leads to higher economic growth. The households are the main contributors to savings. Therefore, to encourage domestic investment in long term savings, I propose to increase the investment limit under section 80C. [Extracts from Budget Speech]

Q11.Mr. X invested 1,20,000 in pension plan of insurance company. How much deduction he can claim u/c VI-A?

Q12.Mr. Y invested total 1,20,000 in NPS. How much deduction he can claim u/c VI-A?

Section Particulars Ceiling limit (`)80C Investment in specified instruments 1,50,00080CCC Contribution to certain pension funds 1,00,00080CCD(1)

Contribution to new pension scheme of Government 1,00,000

80CCE Aggregate deduction under section 80C, 80CCC & 80CCD (1)

1,50,000

CA. AJAY JAIN, 9310167881 21 Amendments – Budget 2014 Q13.Mr. Z invested total 1,20,000 in PPF+NSC+LIP. How much deduction he can claim u/c VI-

A?

Q14.Mr. A invested total 1,20,000 in Pension plan of insurance company and 40,000 in PPF. How much deduction he can claim u/c VI-A?


VII. PROVISIONS FOR FILING RETURN OF INCOME: Verification of Return of Income [Page No.12.9 OR Page No.399]

[Section 140] (i) Section 140 provides that the return under section 139 shall be signed and verified in the

manner specified therein for different categories of persons. (ii) In order to enable the verification of returns sign by any electronic mode, section 140

has been amended to provide that the return shall be verified by the persons specified therein.

The words “sign” or “signing”, wherever they have been used in section 140, have been replaced by “verify” or “verifying”.

VIII. MISCELLANEOUS: Long term Capital gain on debt oriented Mutual Fund and its qualification as short term capital asset:-

[Section 2(42A)](i) Section 2(42A) defines a short term capital asset to mean a capital asset held by an

assessee for not more than 36 months immediately preceding the date of its transfer. Therefore, a capital asset has to be held for more than 36 months to qualify as a long term capital asset.

(ii) However, in the case of a share held in a company or any other security listed in a recognized stock exchange in India or a unit of the Unit trust of India or a unit of a Mutual fund or a zero coupon bond, the period of holding required for qualifying as a long term capital asset is “more than twelve months”.

(iii) Clause (42A) of section 2 has been amended to provide that an 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 36 months”.

(iv) This implies that an unlisted security and unit of a debt oriented mutual fund would qualify as a long term capital asset and be eligible for the benefit of indexation and concessional rate of tax @ 20% only if it is held for more than 36 months.

Mischief:-Since the shorter period of holding for more than 12 months for consideration as long term capital asset was for the purpose of encouraging investment in stock market, where prices of the securities are market determined.

Benefits of concessional rate of tax @ 10% on long term capital gains (without indexation) not to be available in respect of units of debt-oriented fund and unlisted securities:- (Section 112)

(i) Under section 112, where tax payable on long-term capital gains arising on transfer of a capital asset, being listed securities or unit or zero coupon bond, exceeds 10% of the amount of capital gains before allowing for indexation adjustment then, such excess shall be ignored.

(ii) As long-term capital gains is not chargeable to tax in the case of transfer of a unit of an equity oriented fund which is liable to securities transaction tax, the benefit of concessional rate of tax @10% under proviso to sec 112(1) in respect of units cover only the unit of a fund, other than an equity oriented fund

(iii)Section 112 has been amended to restrict the concessional rate of tax @ 10% on long term capital gain only to listed securities (other than unit) and zero coupon bonds.

(iv) Consequently long term capital gains on transfer of units of debt oriented mutual fund and unlisted securities are not eligible for concessional rate of tax @ 10% (without

CA. AJAY JAIN, 9310167881 23 Amendments – Budget 2014 indexation benefit). Therefore the long term capital gain, in such cases, is taxable @ 20% (with indexation benefits).Mischief:-In the case of Mutual Funds, other than equity oriented funds, the capital gains arising on transfer of units held for more than a year is taxed at a concessional rate of 10% whereas direct investments in banks and other debt instruments attract a higher rate of tax. This allows tax arbitrage opportunity. This arbitrage has hardly benefitted retail investors as their percentage is very small among such Mutual Fund investors. With a view to remove this tax arbitrage, I propose to increase the rate of tax on long term capital gains from 10 percent to 20 percent on transfer of units of such funds. I also propose to increase the period of holding in respect of such units from 12 months to 36 months for this purpose. [Extract from Budget Speech]


IX. Tax Deducted At Source:

Tax to be deducted on non-exempt payments made under life insurance policy [Section 194DA]

Before Amendment:-(i) Under section 10(10D), any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt subject to fulfillment of conditions specified under the said section.

(ii) Consequently, the sum received under a life insurance policy which does not fulfill the conditions specified under section 10(10D) is taxable.

After Amendment:- New section 194DA has been inserted to provide for deduction of tax at the rate of 2% on any sum paid to a resident under a life insurance policy, including the sum allocated by way of bonus, which are not exempt under section 10(10D). However, tax deduction is required only if the payment or aggregate payment in a financial year to an assessee is ` 1,00,000 or more. This is for alleviating the compliance burden on the small tax payers.

Mischief:-For ensuring a proper mechanism for reporting of transactions and collection of tax in respect of sum paid under life insurance policies which are not exempt under section 10(10D), new section 194DA has been inserted.

Illustration:- Examine the applicability of the provisions for tax deduction at source under section 194DA in the above cases -

(i) Mr. X, a resident, is due to receive ` 4.50 lakhs on 31.3.2015, towards maturity proceeds of LIC policy taken on 1.4.2012, for which the sum assured is ` 4 lakhs and the annual premium is ` 1,25,000.

(ii) Mr. Y, a resident, is due to receive ` 2.20 lakhs on 31.3.2015 on LIC policy taken on 1.4.2010, for which the sum assured is ` 2 lakhs and the annual premium is ` 35,000.

(iii) Mr. Z, a resident, is due to receive ` 95,000 on 1.10.2014 towards maturity proceeds of LIC policy taken on 1.10.2010 for which the sum assured is ` 90,000 and the annual premium was ` 19,000.

CA. AJAY JAIN, 9310167881 25 Amendments – Budget 2014 Ans. (i) Since the annual premium exceeds 10% of sum assured in respect of a policy taken on

1.4.2012, the maturity proceeds of ` 4.50 lakhs are not exempt under section 10(10D) in the hands of Mr. X. Therefore, tax is required to be deducted@2% under section 194DA on the maturity proceeds of ` 4.50 lakhs payable to Mr. X.

(ii) Since the annual premium is less than 20% of sum assured in respect of a policy taken before 1.4.2012, the sum of ` 2.20 lakhs due to Mr. Y would be exempt under section 10(10D) in his hands. Hence, no tax is required to be deducted at source under section 194DA on such sum payable to Mr. Y.

(iii) Even though the annual premium exceeds 20% of sum assured in respect of a policy taken before 1.4.2012, and consequently, the maturity proceeds of ` 95,000 would not be exempt under section 10(10D) in the hands of Mr. Z, the tax deduction provisions under section 194DA are not attracted since the maturity proceeds are less than ` 1 lakh.


X. Charitable Trusts & Institutions: [Page No.16.2 OR Page No.429]

Taxability of anonymous donations exempt from applicability of maximum marginal rate of tax.

[Section 115BBC] Issue:- Section 115BBC provides for levy of tax at 30% in case of certain assessees, being

university, hospital, etc. on the amount of aggregate anonymous donations exceeding 5% of the total donations received by the assessee or ` 1 lakh, whichever is higher.On account of the mechanism of aggregation of tax provided in section 115BBC, while income tax @ 30% is levied on the amount of anonymous donations exceeding the threshold, the remaining tax is chargeable on total income after reducing the entire amount of anonymous donations.

Need for amendment:- The correct method of computation is to reduce the income by the amount of anonymous donations which has actually been taxed at the rate of 30%.

Amendment:- Section 115BBC has been amended to provide that the income-tax payable shall be the aggregate of –

(i) the amount of income-tax calculated @30% on the aggregate of anonymous donations received in excess of 5% of the total donations received by the assessee or one lakh rupees, whichever is higher; and

(ii)the amount of income-tax with which the assesse would have been chargeable had his total income been reduced by the aggregate of the anonymous donations received in excess of 5% of the total donations received by the assessee or ` 1 lakh, as the case may be.

Illustration:- Income from property held under trust is ` 6 lakh. The voluntary contributions received by a trust is ` 20 lakh, which includes anonymous donations of ` 4 lakh and corpus donations of ` 5 lakh. The trust has applied ` 10 lakh to purchase a building on 1.8.2014 for meeting its objective. Compute the tax liability of the trust for A.Y.2015-16.

Ans. Particulars ` ` Income from property held under trust (Note 1) Voluntary contributionsLess: Corpus donations (not taxable)

20,00,000(5,00,00

6,00,000


Less: Anonymous donations (taxable@30% under section 115BBC) [` 4,00,000 – ` 1,00,000]

Less: 15% of income eligible for retention/ accumulation without conditions (Note 2)Less: Purchase of building for the purpose of the trust Total Income (excluding anonymous donations taxable@30%)

0)15,00,000

(3,00,000)

12,00,00018,00,000(2,70,000)15,30,000(10,00,000) 5,30,000

The tax payable by the trust would be the aggregate of – (i) ` 90,000, being income-tax calculated@30% on ` 3 lakh (i.e., ` 4 lakh – ` 1 lakh); and (ii) ` 31,000, being income-tax calculated at normal rates on ` 5.30 lakh (i.e., ` 5,30,000).

The total tax payable would be `1,24,630 (` 1,21,000 plus cess@3%) Notes:-Depreciation on building is not allowable since cost of acquisition of building has been

claimed as application of income.


I. Service Tax 1. Service tax to be levied on sale of space or time for advertisements in all

media except print media [Section 66D] [Page No.5.6 OR Page No.11] Earlier selling of space or time slots for advertisements other than advertisements

broadcast by radio or television were covered in negative list of services under section 66D of Finance Act, 1994.

As per Finance Act, 2014, now only advertisements in print media will be covered in negative list of services

Thus, the service tax levy which was earlier limited to advertisements broadcast by radio or television now extends to advertisement in all media except print media.Further, print media has also been defined under section 65B of Finance Act, 1994 as under: “Print media” means,— (i) “book” as defined in sub-section (1) of section 1 of the Press and Registration of

Books Act, 1867, but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

Indirect Taxes

CA. AJAY JAIN, 9310167881 29 Amendments – Budget 2014 (ii) “newspaper” as defined in sub-section (1) of section 1 of the Press and

Registration of Books Act, 1867. Thus, sale of space for advertisements in business directories, yellow pages and trade catalogues would attract service tax.

2. Radio taxis/radio cabs liable to service tax [Section 66D(o)] [Page No.5.6 OR Page No.11]

Earlier service of transportation of passengers, by inter alia metered cabs, radio taxis or auto rickshaws was covered in the negative list of services under clause (o) of section 66D of Finance Act, 1994.The said clause has been amended by Finance Act, 2014 so as to omit the reference of radio taxis there from. Thus, travel by radio taxis or radio cabs, whether or not air-conditioned, would now be liable to service tax.

3. Interest [Section 75] [Page No.5.26 OR Page No.53]Interest u/s 75 of finance Act 1994 as amended by finance Act 2014 shall be as follows-(a) if delay is upto 6 months- 18% p.a.(b) if delay is upto one year- 18% p.a. and 24% for delay beyond 6 months(c) if delay is more than one year- 18% p.a. and 24% for next 6 months and 30% for delay

beyond 1 year.In case of service provider whose value of taxable service did not exceed 60 lakhs interest shall be reduced by 3%

II. Cenvat Credit [Page No.6.1]4. Credit on inputs and input services to be availed within 6 months of the date of invoice [Rule 4]

Rule 4 has been amended to restrict the availability of credit on inputs and input services to a period of six months from the date of the issue of invoice/bill/challan etc. Hence the manufacturer or the provider of output service shall not take CENVAT credit after six months of the date of issue of any of invoice etc.

III. Excise Duty

5. Rule 8- E-payment of excise duty mandatory for all assessees irrespective of the duty paid during P/Y

Every assessee shall electronically pay the duty through internet banking. However, the Assistant/Deputy Commissioner of Central Excise may for reasons to be recorded in writing, allow the assessee to deposit excise duty by any mode other than internet banking.Thus, under the amended provisions, e-payment of excise duty would be compulsory for all assessees irrespective of the quantum of excise duty paid in the previous financial year.

(Same in service tax also.)


Mega Exemption 25/2012 1. Collecting news by journalist, press trust of India.2. Job work of agriculture, printing, diamonds3. Sub contractors to contractors (by intermediaries to the main service provider- no loss to govt.)4. by lawyer individual or firm (Arbitral tribunal) to non-business or business with turnover upto 10 lacs

Construction5. Provided by way of construction of road, bridge, religious use etc.6. Provided to govt of construction, repair etc. of structure7. Provided by way of airport, rail, single residential unit, low cost house upto 60 square meters

Transportation8. Transportation by Rail or vessel of petrol defense, postal, newspaper etc.9. Transport of passengers ropeway, at northeast airports, contract carriage(Air conditioned buses now taxable) 10. Transport agency of fruits, eggs, food, 750 for one person or total for all in one vehicle 1500

Relief

CA. AJAY JAIN, 9310167881 31 Amendments – Budget 2014 11. Specified General insurance like cattle, tribal12. ESI- medical care and cash compensation to industrial workers 13. Incubatee(business located in Science and technology park) upto turnover of 50 lacs- an organisation designed to accelerate the

growth and success of companies.14. In relation to Business exhibition outside India. Footwear association is organizing business exhibition in germany for footwear

manufactures in India. exempt 15. Animal slaughtering16. Transfer of Going concern-like slump sale, running business which can be carried on by the purchaser. Because it not transfer of

only property or goods etc. hence it has been exempted- CBEC.Exempted organisations

17. To united nations or (other specified international organisations- like WHO, UNESCO, SAARC)Comments- Any service provided by these organisations shall be taxable.

18. Provider of non-taxable territory giving to govt or exempt u/s 12AA or person in non-taxable territory.19. Services provided to (Auxiliary services) education institutions on which service tax is exempt.

Like giving them immovable property on rent, transportation, mid day meals etc. 20. Registered u/s 12AA by charitable trusts

Comments- provided to are taxable. Only charitable activities are exempt.21. Services by a governmental authority (90% equity of govt) of any function given to municipality22. Provided to municipality like water supply water, public health,sanitation(normally done by municipality, govt) 23. Giving bus on rent to State transport to carry more than 12 passengers.

For general public24. Renting of hotel declared tariff below 1000 per day for all facilities in total(e.g. declared tariff 1,100 minus discount 300,

charged 800, service tax will be charged on 800)25. Trade unions, housing society(upto 5,000 p.m. from members)26. Food in restaurant not AC/ liquor27. Public library28. Copyright of book, literary, musical etc.29. Public conveniences such as washrooms etc.30. Telephone from public booths, airport, hospitals31. By Medical practitioner(health care, clinic) Includes transportation of patient to clinic, blood banks

Recognised medical – allopath, yoga, naturopathy, ayurveda, homeopathy, paramedics(physiotherapy etc.)does not include hair transplant, plastic surgery except to restore functions of body due to injury ,birth defects

32. Veterinary(animals or birds) 33. Technical testing or analysis, new drugs, vaccines34. Coaching of Recreational (hobby) (dance, music, painting, sports etc.)35. Artist in folk or classical forms (as brand ambassador-promoting any brand/goods are taxable)36. Referee, coach, player to recognised sports body(commentators are taxble)37. Sponsorship of sporting events organized by national sports organization(state and district)38. Precincts of religious place for conduct of public functions or religious ceremony


Miscellaneous6. Mega Exemption Notification amended [Page No.5.40 OR

Page No.81]Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 has been amended vide Notification No. 6/2014 ST dated 11.07.2014.

(a) New exemptionsi. Services provided by common bio-medical waste treatment facility operators to

clinical establishments exemptedMega Exemption notification has been amended by inserting a new entry 2B after entry 2A to exempt the services provided by operators of the common bio-medical waste treatment facility to a clinical establishment by way of treatment or disposal of bio-medical waste or the processes incidental thereto.

ii. Transport of organic manure by vessel, rail or road (by GTA) exemptedEntry 20 providing exemption to services by way of transportation by rail or a vessel from one place in India to another of the goods specified thereunder has been amended to extend the said exemption to organic manure.

CA. AJAY JAIN, 9310167881 33 Amendments – Budget 2014 Further, entry 21 providing exemption to services provided by a goods transport agency by way of transportation of the goods specified thereunder has also been amended to extend the said exemption to organic manure. Therefore, organic manure will be at par with fertilizer which is already exempted.

iii. IRDA approved life micro-insurance schemes with sum assured not exceeding ` 50,000 exemptedEntry 26A exempts services of life insurance business provided under specified schemes. A new clause (c) has been inserted in the said entry to exempt services of life insurance business provided in respect of life micro-insurance product as approved by the Insurance Regulatory and Development Authority, having maximum amount of cover of ` 50,000.

iv. Loading, unloading, packing, storage or warehousing, transport by vessel, rail or road (GTA), of cotton - ginned or baled - exemptedThe following services have been exempted in relation to cotton, ginned or baled:(a) Loading, unloading, packing, storage or warehousing – Entry 40 has been amended to give

effect to this amendment.(b) Transportation by rail or a vessel – Entry 20 has been amended to give effect to this amendment.(c) Transportation by road (Goods Transport Agency) – Entry 21 has been amended to give

effect to this amendment.v. Services received by RBI from outside India in relation to management of foreign

exchange reserves exemptedSpecialized financial services received by Reserve Bank of India from global financial institutions in the course of management of foreign exchange reserves, e.g., external asset management, custodial services, securities lending services, etc. have been exempted. A new entry 41 has been inserted in the notification for this purpose.

vi. Services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India exemptedA new entry 42 has been inserted in the notification to give effect to this exemption.For example, service provided by an Indian tour operator to a Chinese National for a tour conducted in Sri Lanka will be exempted by virtue of this new entry.

(b) Exemptions rationalizedIn exercise of powers conferred under section 93(1) of Finance Act, 1994, following exemptions granted under mega exemption notification have been rationalized:

i. Limited exemptions in respect of services provided to Government or local authority or governmental authorityEarlier, services provided to Government or local authority or a governmental authority by way of carrying out any activity in relation to any function ordinarily entrusted to a municipality in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation were exempted under entry 25(a) of the notification.The said exemption has now been made more specific for greater clarity. The amended entry 25(a) reads as under:“Services provided to Government or local authority or a governmental authority by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or”


Therefore, services by way of water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation will continue to remain exempted but the exemption would not be extendable to other services such as consultancy, designing, etc., not directly connected with these specified services.

ii. Concept of auxiliary education services done away with and exemption restricted to only few specific servicesEarlier, entry 9(a) of the notification exempted services provided to an educational institution in respect of education exempted from service tax[i.e., education specified in negative list] by way of auxiliary educational services. Auxiliaryeducational service was defined in the notification. There have been many doubts regarding the scope and meaning of ‘auxiliary educational services’. Therefore, in order to bring clarity, concept of ‘auxiliary educational services’ has been omitted from entry 9 and in its place, specific services have been enlisted therein which will be exempt when received by the educational institutions. Consequently, clause (f) which defined auxiliary educational services

CA. AJAY JAIN, 9310167881 35 Amendments – Budget 2014 has also been omitted from the notification.

The new entry 9 exempts the following services:(a) Services provided BY an educational institution to its students, faculty and staff;(b) Services provided TO an educational institution, by way of,-(i) transportation of students, faculty and staff;(ii) catering, including any mid-day meals scheme sponsored by the Government;(iii) security or cleaning or house-keeping services performed in such educational institution;(iv) services relating to admission to, or conduct of examination by, such institution.

Thus, in the case of services received by the eligible educational institutions, exemption will be available only in respect of the services specified as above.

Further, educational institution has been defined in new clause (oa) as under:“Educational institution means an institution providing services specified in clause (l) of section 66D of the Finance Act, 1994.”

(c) Exemptions withdrawni. Transport of passengers in air-conditioned contract carriages taxable

Earlier, service of passenger transportation, with or without accompanied belongings, by a contract carriage other than for the purposes of tourism, conducted tour, charter or hire was exempt from service tax under entry 23(b) of the notification.The scope of exemption has now been reduced by withdrawing the exemption in respect of air-conditioned contract carriages. Further, exemption has also been denied to non air-conditioned radio taxis. However, services by non-air conditioned contract carriages (other than radio taxi) for purposes other than tourism, conducted tour, charter or hire will continue to be exempted. The amended entry 23(b) now reads as under:“Transport of passengers, with or without accompanied belongings, by non- air conditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire; or”.Therefore, any service provided for transport of passengers by air-conditioned contract carriages like buses including the ones used for point to point travel, will attract service tax.

ii. Clinical research on human participants chargeable to service taxEarlier, services by way of technical testing or analysis of newly developed drugs, including vaccines and herbal remedies, on human participants by a clinical research organization approved to conduct clinical trials by the Drug Controller General of India were exempt from service tax under entry 7 of the notification.The said exemption has now been withdrawn. Entry 7 has been omitted to give effect to this amendment.

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