THE INDIAN BUDGET – A PERSPECTIVE
Budget 2014 – What is it for me?
For Corporate & Business Taxation, tax rates remain the same for domestic and foreign companies.
- Expenditure on Corporate Social Responsibility (CSR) as referred to in section 135 of the Companies Act, 2013 not to be allowed as deduction under section 37 of the IT Act. However, the CSR expenditure which is in the nature as prescribed under section 30 to 36 of the IT Act shall be allowed as deduction subject to fulfilment of conditions as specified in such sections.
o Under the Companies Act, 2013 certain specified companies (which have net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more, or a net profit of Rs.5 crore or more during any financial year) are required to spend certain percentage of their profit on activities relating to Corporate Social Responsibility (CSR). Under the existing provisions of the Act expenditure incurred wholly and exclusively for the purposes of the business is only allowed as a deduction for computing taxable business income CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business.
o The existing provisions of section 37(1) of the Act provide that deduction for any expenditure, which is not mentioned specifically in section 30 to section 36 of the Act, shall be allowed if the same is incurred wholly and exclusively for the purposes of carrying on business or profession. As the CSR expenditure (being an application of income) is not incurred for the purposes of carrying on business, such expenditures cannot be allowed under the existing provisions of section 37 of the Income-tax Act.
o Therefore, in order to provide certainty on this issue, it is proposed to clarify that for the purposes of section 37(1) any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction under section 37.
o However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Act shall be allowed deduction under those sections subject to fulfillment of conditions, if any, specified therein,
o This amendment will take effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent years.
- Manufacturing companies investing more than Rs. 25 crore in any year in new assets (plant and machinery) to be entitled to a deduction of an investment allowance @15% of actual cost of the assets. This allowance is in addition to depreciation claimed on such new assets. This benefit will be available for 3 years i.e. for investments upto 31 March 2017. The investment allowance announced last year will continue to operate in parallel till 31 March 2015.
- The sunset date for setting up power sector undertakings (in order to claim 100% deduction of profits for 10 years) to be extended upto 31 March 2017.
- Investment linked deduction extended to 2 new sectors, namely, slurry pipelines for the transportation of iron ore, and semiconductor wafer fabrication manufacturing units as notified byCBDT.
- The range concept to be introduced for determination of arm’s length price under the transfer pricing regulations. It is proposed to allow use of multiple year data for comparability analysis under the transfer pricing regulations.
- Advance Authority Ruling (AAR) scope to be expanded with resident taxpayers being allowed to approach AAR with some threshold. More AAR benches proposed. Also, it is proposed to expand scope of settlement commission.