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Finance Minister Arun Jaitley gave income tax relief to small tax payers and manufacturers but retained the 10% super rich tax on individuals and companies in addition to extending tax breaks to foreign portfolio investors, power producers and external commercial borrowers in his maiden Union Budget.
Budget 2014-15, however, did not make any changes to the controversial 2012 retrospective changes to the Income Tax Act meant to tax past deals such as Vodafone’s 2007 offshore acquisition of Hutch Essar that led to widespread criticism of India’s tax administration.
Jaitley promised that the government will not ordinarily bring any change retrospectively that would create fresh liability and that fresh cases arising from the 2012 amendments will be scrutinised by a high-level panel of the apex direct tax policy making body CBDT before any action is taken.
While the FM’s direct tax proposals are beneficial for small tax payers, including senior citizens, certain measures such as those on dividend distribution tax and long-term capital gains on non-equity mutual funds will lead to higher tax outgo for investors.
An individual (other than senior citizen) will now have a tax saving of about Rs 35,000 a year from the increase in the basic personal income tax exemption limit to Rs 1.5 lakh, higher deduction of Rs 1.5 lakh on investments under 80C of the IT Act and the increased deduction of Rs 2 lakh on home loan interest payment, explained Sameer Gogia, director, Deloitte Haskins & Sells. In the case of senior citizens, the basic income tax exemption has been raised from Rs 2.5 lakh to Rs 3 lakh.
Dividend distribution tax (DDT) will now be applicable on the gross amount of dividend being distributed instead of on the dividend amount net of taxes. “This would increase the effective DDT outgo to 20.48% from the present 17% inclusive of cess,” explained Rahul Garg, leader (direct tax practice), PwC. The same principle will be made applicable on dividend distributed by mutual funds as well.
Foreign portfolio investors in Indian securities will now be taxed only for the capital gains they make. The move says they will not be taxed at the corporate tax rate characterising their gains as business income. Companies borrowing abroad until June 2017 will get a concessional 5% tax on interest payment irrespective of whether funds are raised for infra creation or not. Dividend received by