Budget Analysis: Why Budget will get mixed responses from India Inc
The Finance Minister, Chidambaram announced the fiscal Budget 2013- 2014 and also announced that he shall endeavor to introduce the amended DTC, post considering recommendations of the standing committee, before the end of the Budget Session.
March 01, 2013 / 10:48 IST
Hiten Kotak, Co-Head- Tax, KPMG in India
Catch KPMG's Exclusive Budget Analysis Webcast HereThe Finance Minister, Chidambaram announced the fiscal Budget 2013- 2014 and also announced that he shall endeavor to introduce the amended DTC, post considering recommendations of the standing committee, before the end of the Budget Session.The Budget is expected to welcome mixed responses among corporate India.The highlights of the Budget with respect to direct tax are as follows:One of the major blows in the Budget is change of taxability in relation to buy-back of shares. It is proposed that the consideration paid for buy-back of unlisted shares in excess of the issue price of such shares will be charged to tax @22.66 percent which should be paid within 14 day of such payment. This confirms the view taken in a recent AAR ruling. Though it is similar to Dividend Distribution Tax, it is delinked from availability of distributable profits. This provision overrides all the provisions of the Act, including treaty provisions. The shareholder is exempted from taxation on receipt of buy-back amount. The outcome is that if the shareholder had acquired the shares paying price higher than the issue price, such price is neither allowed as a deduction nor as loss eligible for set-off. The provisions are applicable from June 1, 2013.Next major change is in relation to Royalty or fees for technical services paid to a non resident. It is proposed that rate of 10 percent applicable to such payment shall now be increased to 25 percent. It is applicable to all such payments under agreements entered into after March 31, 1976.As regards claim under DTAA it is proposed to clarify that production of TRC is necessary but not sufficient condition for claiming benefit. Thus, claim for treaty benefit will be subject to greater scrutiny requiring establishment of substance etc.It is also pertinent to note that Mr. Chidambaram has not dealt with the suggestions given by Shome committee relating to indirect transfers (Vodafone case) including retro amendments, clarity on term substantial etc.
In order to expand the taxpayer base, it is proposed to introduce TDS @1 percent, on transfer of land or building, with effect from 1 June 2013.The purchaser is required to deduct tax where transfer of land or building is for a consideration exceeding Rs 50 lakhs. These provisions may apply to purchase from builders also. Much debated super-reach tax has come by way of surcharge of 10 percent on all non-corporate persons (Individuals, HUF, AOP, Firm, LLP) having total income exceeding Rs 1 crore. According to the Finance Minister there are only 42800 persons filing returns showing income of more than INR 1 crore.Therefore, very small number of persons will get impacted by this charge. Similarly, in case of domestic companies whose taxable income exceeds INR 10 crores, the surcharge has been increased from 5 percent to 10 percent and for foreign companies having income exceeding Rs 10 crores the surcharge has been increased from 2 percent to 5 percent. The Good News is that the revised surcharges are to be applicable for one year only. Manufacturing companies investing Rs 100 crore or more in plant and machinery during the period April 1, 2013 to March 31, 2015 will be allowed a deduction of 15 percent of the amount invested over and above allowable depreciation. The assets are required to be held at least for five years. However, if transferred otherwise than amalgamation/ demerger, the deduction of 15 percent will be treated as income of the year in which such asset is sold. It is pertinent to note that this deduction is available under normal provision of the Act, but will not impact MAT computation u/s.115JB.15 percent tax rate in case of Dividends from foreign companies is continued. In case of Indian company liable to dividend distribution tax u/s.115O deduction is allowed for dividends received from a foreign subsidiary which is subjected to 15 percent tax.The highlights with respect to indirect tax are as follows:The basic rates of excise duty, customs and service tax has remained unchanged except:• Duty on SUVs increased from 27 percent to 30 percent
• Increase of 5 percent in excise duty on Mobile cosint > Rs 2000
• Higher excise and customs duty on luxury products such as motor cars, bikes, yachtsAmnesty Scheme is declared for Service Tax defaulters.The Minister has announced that consensus is being built with the state finance ministers on GST. Therefore, it seems that GST is on horizon and can be expected to come. The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG in India. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
