Published Editorial

Interim budget 2014: Times guide to direct taxes

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Times of India

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Personal tax

Proposal: Finance Act 2013 introduced a surcharge for one year at 10% on the super-rich having taxable income exceeding Rs 1 crore for fiscal year 2013-14. This increased the maximum marginal tax rate from 30.9% to 33.99 %. Finance Bill 2014 retains this surcharge for another year.

Impact: The maximum marginal rate for superrich continues to be 33.99% for FY 2014-15. An individual with taxable income of Rs 1.5 crore continues paying Rs 445,990 as additional tax on account of surcharge. This can be revised in full budget.

P: Finance Act 2013 introduced Section 80EE which provides Rs 1-lakh deduction for interest payable by individuals who took new home loans up to Rs 25 lakh between April 1, 2013 and March 31, 2014 to buy their first residential property (value not exceeding Rs 40 lakh). Finance Bill 2014 proposes no change here.

I: Deduction under Section 80EE isn't available to individuals who plan to take home loans in FY 2014-15. Tax saving up to a maximum of Rs 33,990 available last year for this additional deduction will no longer be available for first-time home loan takers in financial year 2014-15.

P: The deadline for Private Provident Trust to obtain approval from the Employees Provident Fund Organization (EPFO) used to be periodically extended owing to large backlog with EPFO. For instance, the Finance Act 2013 extended this deadline to 31 March 2014. No such extension is proposed in Finance Bill 2014.

I: If approvals haven't been taken by March 31, 2014, then: PF contributions made by employers to such trusts would be taxable in the hands of employees and also employers wouldn't be able to claim such contributions as tax-deductible expense in their tax return; Further, employee contributions won't be eligible for a tax break.

Corporate tax

Proposal - Surcharge at 10% for domestic companies and 5% for foreign companies (such as branches of foreign companies) where total taxable income exceeds Rs 10 crore to be retained

Impact - The effective corporate tax rate for such domestic companies continues at 33.99% and Minimum Alternative Tax (MAT) at 20.96%. For foreign companies in this income criterion corporate tax rate continues at 43.26%

P - Surcharge at 10% on dividend distribution tax continues

- The effective rate of dividend distribution tax remains at almost 17%. Large dividend tax-paying companies include ONGC, Coal India, TCS, ITC, NTPC to name a few.

P - Dividends received from foreign subsidiaries by India Inc. were taxed at concessional rate of 17% for financial year 2013-14. This concessional rate doesn't seem to have been extended.

I - Repatriation of dividend to India will now be costly. Until further clarity or revision in the full budget, dividends from foreign subsidiaries by India Inc. will be taxed at full corporate tax rate of 30% plus applicable cess and surcharge.

P - Sunset clause for claiming deduction under Section 80-IA to power-sector undertakings doesn't seem to have been extended beyond 31 March 2014

- It appears that tax holiday for companies in generation and distribution of power, transmission or distribution lines and renovation and modernization of existing lines won't be available from April 1, 2014.

(Note: The full-fledged budget could revise the tax rates and provisions)