Union Budget 2014: Spot the devil that lurks in the fine print
Times of India
Lost in the maze of the Budget papers is stuff that you should know about. Here are some illustrations:
* Be ready to share more from your dividend income with the government as the FM has proposed to increase the effective dividend distribution tax (DDT) rate even without announcing a specific increase! The Union Budget 2014 would change the manner of computation of DDT. Amount of distributable income and dividend which are actually received by shareholders/ unit holders need to be grossed up for the purpose of computing tax.
* Failure to withhold tax at source against payments like salary or director fees will mean that such expenses are not allowed as a business deduction.
* If you are planning to sell off your unlisted shares after holding them for a period of 12 months assuming that the gains would be treated as long term capital gains and taxed at concessional rate of 20%, hold on! Although, the FM proposed that the period of holding of the listed mutual fund units would be increased from 12 months to 36 months, the budget has increased the holding period for unlisted shares as well.
* While the FM didn't mention whether corporate social responsibility (CSR) expenditure would be allowed as a business deduction, the small print disallows such expenditure as a business deduction. Deduction is available only if the expenses fall under specific categories — such as repairs, depreciation, or towards certain notified projects.
* In the budget speech, Jaitley announced service tax exemption on services provided by Indian tour operators in respect of tours outside India. The exemption is available only if a foreign tourist avails services of an Indian tour operator for foreign travel. Thus, your US-based cousin, who is on a trip to India and flies to Nepal for sightseeing, will be exempt from service tax. However, if you accompany him, be ready to cough up your share of service tax.
* The FM has proposed legislative and administrative changes with an aim to realize the tax demand of more than Rs 4 lakh crore stuck in disputes and litigation. At the same time, keeping this whopping sum in mind, he announced some clever changes in the indirect tax laws. Now, if you have been served an order confirming the tax demand and you want to challenge it, please contact your banker to confirm your bank balance as the FM has suggested a mandatory pre deposit of 7.5% to 10% of total tax and penalty demand (with ceiling of Rs 10 crore) for filing the appeal.
* Pandora's Box was opened in 2012 when the Supreme Court delivered one of the most talked-about excise and taxation rulings in the case of Fiat India Private Limited. The apex court held that in case of sale below cost of production, excise duty is to be paid on the normal price (based on competitor's price). Now, the impact of this judgment has been negated by an amendment in the Central Excise Valuation Rules and excise duty is to be paid on the transaction value only. This will benefit manufacturing sector.
* Whilst the FM has tried to please the manufacturing and pipeline industry by offering investment-linked deduction in respect of the asset acquired or constructed to certain specified business in these industries, he has also put a restriction that the asset has to be used in the said business for a period of 8 years from the year in which the asset is acquired or constructed. Further, he has applied this restriction to the industries already covered in the said investment-linked deduction (such as companies setting up and operating a cold chain facility, warehousing facility, etc).