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Budget 2014 raises income tax exemption limit
July, 17th 2014

The National Democratic Alliance government on Thursday readied the ground for the last and final leg of tax reforms by committing to speed up the implementation of the goods and services tax and promising a fresh look of the direct taxes code, although it stopped short of giving a deadline for this.

Finance minister Arun Jaitley, in his budget, also announced a number of measures to streamline the tax administration, reduce tax disputes, provide more certainty in tax policy for investors, and remove ambiguities.

Jaitley also provided relief to individual taxpayers by increasing the income-tax exemption to `2.5 lakh from `2 lakh. He also increased the investment limit under section 80(C) to `1.5 lakh from `1 lakh. And he increased the interest exemption limit on housing loans from `1.5 lakh to `2 lakh.

Unveiling a slew of measures to streamline the country’s taxation system, Jaitley said even domestic residents can approach the authority for an advance ruling to get relief. This has been restricted to non-residents until now.

The finance minister also sought to encourage infrastructure and domestic manufacturing by providing tax sops to infrastructure investment trusts and real estate investment trusts and providing an investment allowance of 15% to a manufacturing company that invests more than `25 crore in a year in new plant and machinery. This benefit will be available for three years up to 2017.

To bring certainty on treatment of dividends received by Indian companies from their foreign subsidiaries, the government has extended the concessional rate of tax at 15% indefinitely.

However, the government has moved in to plug a loophole in taxation of dividend income by stating that the dividend distribution tax will have to be levied on the entire amount of dividend and not on the dividend amount net of taxes. This will only impact companies and not the investors and shareholders, said revenue secretary Shaktikanta Das.

The budget also announced that the income of foreign portfolio investors arising from transaction in securities will be treated as capital gains and not as business income. This will remove ambiguities and encourage such investors to stay invested for a longer period of time. It also extended the tax sop of a withholding tax of 5% to all long-term foreign borrowings by companies instead of only infrastructure companies.

On the indirect tax side, the government clarified on the implications of the Supreme Court judgement in the Fiat case regarding the levy of excise duty on goods that are sold below their cost of production, in a relief to auto and consumer durable manufacturers. It clarified that excise duty can be levied on the transaction value, even if it is below the cost of production and a mark up.

Jaitley also decided to levy service tax on online and mobile advertising, radio-taxis and air-conditioned contract carriages. It also rationalized the import duty on various types of coal.

While the direct tax measures will result in a net revenue loss of `22,200 crore, the indirect tax proposals will yield a revenue of `7,525 crore.
On GST, Jaitley said, “I do hope we are able to find a solution in the course of this year and approve the legislative scheme which enables the introduction of GST...I assure all states that government will be more than fair in dealing with them.”

GST aims to economically unify the country by removing all barriers for trade in goods and services among states. It is expected to streamline the country’s tax system and significantly add to the growth of India’s economy.

Harishanker Subramaniam, national leader- indirect tax at EY, said the finance minister’s comments indicate that GST may be rolled out by April 2016. On the Direct Taxes Code (DTC), Jaitley said the government will consider the comments received from various stakeholders on the revised DTC draft.

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