Budget 2014: Important amendments to remember (Part II)
This is the second part of the article highlighting major amendments that will impact the tax-payers directly.
TDS on Life Insurance Policy
A new section 194DA is proposed to be inserted in the Income-tax Act whereby TDS at the rate of 2 per cent is to be deducted at source in respect of the amount paid to a resident in terms of Life Insurance Policy including sums allocated by way of bonus etc. but happy news is that this 2 per cent TDS will not be in respect of each and every item of payment of the maturity proceeds of Life Insurance Policy but the same will be applicable only in respect of such insurance policy where the amount is not exempted in terms of section 10(10D) of the Income-tax Act, 1961.
Cash payment for business expenditure
Generally the law is cash payment in excess of Rs 20,000 will not be allowed as a deduction for business expenditure purpose. Similarly if cash loan exceeding Rs 20,000, then there is a penalty for such cash loan. However, the Government has clarified through the budget that transfer through electronic clearing system will be outside the ambit of such disallowance. This is good provision and this would in practical parlour means that RTGS and other transactions involving electronic clearing system through bank would be valid.
Presumptive taxation on income of goods carriage company
Presently as per section 44AE of the Income-tax Act a person going in for taxation with the presumptive system of income taxation on goods carriers is required to declare income of Rs 5,000 per month for each heavy goods vehicle and Rs 4,500 per month or part of the month for other vehicles. Now the amendment is proposed whereby under the presumptive system of taxation the amount equal to Rs 7,500 or part of the month will be treated as income where the goods carriage vehicle is owned by the assessee.
Taxation of mutual funds
It may be noted that equity related mutual funds continue to enjoy the same tax benefit as in the past and a new amendment which has been proposed is only with reference to debt related mutual fund where it has been provided that the period of treating the long-term capital gain from debt related mutual fund will be three years and not one year. Hence, only when you sell the debt related mutual fund after holding it for three years, only then the capital gains will be treated as long-term capital gains. Moreover, the rate of income-tax on long-term capital gain of debt related mutual fund which was 10 per cent has been enhanced to 20 per cent.
Amendments related to Investment Allowance
With reference to investment allowance the same was available from last year but only to those companies where the new assets purchased were Rs 100 crores. Now due to the new amendment proposed in the Finance Bill through section 32 AC the benefits of investment allowance will be available to such companies also where the new investment exceeds 25 crore. I think this is very good which will help encouragement of development of industry.
Benefit for corporates following CSR
The shocking news is that on the one hand it is compulsory to incur expenditure for corporate social responsibility on selected companies as mentioned in the Companies Act. However, as per section 37 of the Income-tax Act, 1961 the budget has specifically mentioned that the expenditure incurred by the corporate enterprise on corporate social responsibility shall not be deemed to be an expenditure by the assessee for the purpose of his business or profession. I feel this is not a good step.
Amendments in Dividend Distribution Tax
Unfortunately, the Dividend Distribution Tax has not been abolished. Rather there has been proposed amendments to section 150 O and 150 R of the Income-tax Act whereby a new formula has been enunciated by the Government for computation and calculation of Dividend Distribution Tax For example for computing the the Dividend Distribution Tax if the company makes let us say payment of Rs 85 by way of dividend, then the same at the rate of 15 per cent would come to Rs 12.75 but now the Government has clarified and amended the law to say that the calculation process for calculating the tax on dividend distribution will be on gross basis. The net impact of this is that even when dividend is paid on Rs 85 it has to be increased further by Rs 15 and the assessee is required to make payment of Dividend Distribution Tax at the rate of 15 per cent on Rs 100 that is Rs 15. Thus, this would mean extra outflow from the account of the company for distribution of dividend.
Are commercial derivatives speculative income?
The Government has clarified that eligible transactions in respect of trading in commodity derivatives which was carried out in a recognized association and are chargeable to Commodities Transaction Tax shall not be considered as a speculative transaction. This clarification will help out those persons who are engaged in Commodity Derivative because their profit and loss will be treated as business income and not speculation income or loss.
Subhash Lakhotia
Subash Lakhotia is a Tax and Investment Consultant and Tax Guru in CNBC Awaaz.
The views expressed in this article are the author´s own.
