Progressive INDIA BUDGET 2015-16 IndIa’s TrysT WITh desTIny The time has come for India to announce its Most developed countries are experiencing the The result is that this is not an India looking at robust presence in the global community of problems arising out of an increasingly elderly itself with economic expectation; it is an eternal nations. gentry; India as a nation is becoming progressively audience pinning its hope that India may possibly younger. lift the world out of the slowdown. The world is experiencing demand satiation Which is why the Union Budget 2015 is not just a across a number of areas; India is probably the document for Indian eyes. It is a document that most under-consumed large country in the world. needs to be interpreted by the world. The timing cannot be more opportune. The global economy is struggling with the ravages of a slowdown; India appears to be moving out of one. MAKE IN INDIA BALM FOR INDIA. HOPE FOR THE WORLD. There is a growing recognition that what is good for India is good for the world. Because India comprises a sixth of mankind. What would be beneficial for this high proportion would inevitably be good for the wide world. Because India possesses centuries of entrepreneurial experience, industrial discipline, engineering competence and mineral resources – one of the most extensive value chains anywhere in the world. Because more than anything, India possesses one of the last great captive home markets that are still relatively under-consumed, providing attractive economies-of-scale and international competitiveness to become a dependable global provider. The time begins now. USD 2tn 7.5% 7.4% 7.4% Size of the Indian economy India’s economic growth in the Oct-Dec, 2014 Projected annual GDP for the FY 2015 Projected growth of India’s service sector in FY 2015 USD 42bn USD 360bn Total FDI inflows into India during 2014 Projected value of total exports from India during FY 2015 OUR PHILOSOPHY 01 02 Partner Driven Approach: We cater to all our clients with personalised attention and meet their business challenges with ease and finesse. Extraordinary Client Service: Our clientcentric approach is built around highly customised services through continuous innovation to deliver value and growth to our clients. We provide support to our clients that they can rely on and encompasses all the requirements to the best of our ability. We believe in ‘total client satisfaction’. 03 Vibrant & Long-lasting Client Relationships: Our client relationships are more than just business partnerships. We Endeavour to understand the client as well as their business and build a vibrant and long-lasting relationship. 04 Trust, Reliability and Transparency: For a relationship to flourish, it must be based on trust, reliability and transparency – values that we hold sacred. CONTENTS PART 1 10 Section 1 Foreword 10 Section 2 Budget Snapshot 12 Section 3 Economic Indicators & Budget Financials 22 Section 4 Corporate Taxation 34 Section 5 International Taxation & Transfer Pricing 44 Section 6 Personal Taxation 56 PART 3 Section 7 Others 62 88 Section 8 Central Excise 90 Section 9 Customs 110 Section 10 Service Tax 120 Section 11 SEBI & Capital Markets 138 Section 12 Tax Rate Structure 144 Section 13 Glossary 152 Basics PART 2 32 Budget proposals - Direct Taxes This publication is for private circulation only. Information in this publication is intended to provide general guidance only. While all reasonable care is taken to ensure fool proof accuracy of content at the time of drafting the document, we accept no responsibility for any errors or for any omissions or for any loss, however caused or sustained, by the person who relies on his interpretation of the document. Readers are advised to seek professional advice before acting on the information provided in this publication. The cover line, content and analysis provided in the document are the sole property of DH Consultants P. Ltd. No reproduction in part or in whole, is allowed without our prior written approval. Budget proposals - Indirect Taxes PART 4 138 Miscellaneous AGRICULTURE FEEDING INDIA. FEEDING THE WORLD. India is the second largest agricultural landmass in the world. Surprisingly, even as India is considered one of the largest producers across a number of crops, it possesses one of the lowest yields. This sub-optimal utilisation of land is derived from legacy practices and inefficient resource management. What India needs is a combination of futuristic agriculture technologies, mindset universalisation and the proactive embrace of global best practices. With the objective of generating more from a finite land resource, utilizing precious land in a sustainable way and raising enough not only to feed the world’s second largest population cluster but also to feed the world at large. The time is now. 10 11 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS SECTION 1 FOREWORD The result is that the new Indian government are convinced that the Union Budget will have a announced fast-track infrastructure development decisive long-term impact. to match the country’s growth ambition. This manifested in announcements to increase public investments, establish National Investment and Infrastructure Fund (NIIF), float tax-free infrastructure bonds, revisit PPP models for rebalancing risk, replace multiple permissions with a pre-existing regulatory mechanism and also introduce a plug-and-play model for mega infra projects. India brings to the reality of the moment some of the most compelling natural advantages. The country is among the youngest in the world; more than 54% of its population is below 25 years of age. This sizable population cluster – probably the T – the implementation of JAM (Jan Dhan, Aadhar and Mobile) leading to Amrut Mahotsav benefits in 2022 (India’s 75th year). The Amrut Mahotsav in 2022 focuses on the following dynamic objectives: Housing for all • Basic facilities (including 24-hour power supply) Building on a natural advantage he Economic Survey 2014-15 was tabled in the Indian Parliament on 27 February 2015 and the Union Budget 2015-16 was tabled in Parliament on 28 February 2015. Both these are more than economic statements; they represent a grand perspective of a robust optimistic India. This impact is likely to be derived from three levels largest in any country – needs to be educated and trained towards employability. in each house •Access to livelihood means for at least one member of each family • Connecting each of 178,000 unconnected habitats through all-weather roads • Providing a senior secondary school within 5 km of each child. • Providing medical services in each village As a result, these documents extend beyond In line with the priority, the Indian government Overview the usual economic indicators (gross domestic intends to launch a National Skill Mission through What we admire about the Union Budget 2015- product, inflation, fiscal deficit, current account the Skill Development and Entrepreneurship 16 is that for the first time the subjects of Jan deficit, foreign exchange reserves and primarily Ministry. The Mission will consolidate skill Suraksha (universal social security system), public tax sources) and application of revenues (primarily initiatives Ministries investment, plug-and-play infrastructure, phased planned and non-planned expenditures & outlays) resulting in a standardization of procedures and corporate tax rate reduction, gold monetization that one would expect in them. They clearly outcomes across 31 Sector Skill Councils. (through sovereign gold bonds and gold coins), indicate that India, at the cusp of emerging from the protracted ‘doom and gloom’, is perched on a long historic journey. spread across several Besides, the government expects to create a Digital India through an aggressive National Optical Fibre Network Programme running across restoration of Cultural World Heritage Sites, Green India and a law to curb black money and benami transactions have been articulated. 750,000 kilometers networking 250,000 villages The Union Budget 2015-16 then is a reflection of that is expected to leapfrog rural realities into a the government’s commitment towards change, modern future. growth, jobs and social upliftment. government under the stewardship of Hon’ble Prime The result is a ‘ray of hope’, which, considering the In our opinion, the Union Budget 2015-16 is Minister, Mr. Narendra Modi, which emphasise a protracted slowdown, may now be considered a Progressive, the theme of this review document. long-term vision, quality and conviction. Among major sentiment-driver and achievement. A new direction A number of things have emerged in the first nine months of the leadership of the new Indian the most visible of these signals being sent out comprise transformational initiatives like ‘Make in India’, ‘Skill India’ and ‘Digital India’ on the one hand and ‘Swachh Bharat’ on the other with the objective to energize the economy. An insight Knowledge Management Team A number of economic commentators seeking ‘big bang’ announcements from the Union Budget may have been disappointed in the short-term but Mumbai, March 2015 12 13 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS SECTION 2 INDIA BUDGET 2015-16 SNAPSHOT 14 15 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES on or after 01-04-2015 but before 01-04-2020. is proposed to be increased from H1,00,000 to This allowance would be over & above the H1,25,000. existing allowance @15% u/s 32AC. Further, in accordance with ‘Sukanya Samriddhi Account Rules 2014’ proposed to be exempt u/s 10(11A). • 100% deduction proposed to be allowed u/s 80G for donations made to (i) Swachh Bharat Kosh, (ii) Clean Ganga Fund and (iii) National Fund for Control of Drug Abuse. •Exemption of Transport Allowance proposed to be increased from H800 pm to H1600 pm. •TDS @10% on premature withdrawal from Recognised Provident Fund provided the amount of withdrawal is H30,000 or more. Failure to furnish PAN to trustees of EPFS would attract TDS at Maximum Marginal Rate. •Acceptance or repayment of advance of H20,000 or more in cash for purchase of immovable property proposed to be prohibited. •No increase in Income-tax basic exemption limit. • Increase in Surcharge from 10% to 12%, if the total income exceeds H1 Cr. •Education Cess on income tax @ 2% and Secondary and Higher Education Cess @ 1 % continued for the financial year 2015-16. • Limit of deduction u/s 80D for health insurance premium increased from H15,000 to H25,000 (other than senior citizens) and from H20,000 to H30,000 (senior citizens). Deduction of H30,000 is proposed to be allowed for medical expenditure of very senior citizen if there is no health insurance in force. •Deduction u/s 80DD for medical treatment of dependent with disability proposed to be •Investment in Sukanya Samriddhi Account increased from H50,000 to H75,000. In case Scheme will be eligible for deduction u/s 80C. of severe disability amount of deduction is • Limit of deduction u/s 80CCC for contribution to certain pension funds increased from H1,00,000 to H1,50,000. •For contributions made to National Pension Scheme, deduction upto H50,000 is available over and above the aggregate deductible limit of H1,50,000. proposed to be increased from H1,00,000 to H1,25,000. •Deduction u/s 80DDB on expenditure on specified diseases for very senior citizens proposed to be increased from H60,000 to H80,000. •Deduction u/s 80U in case of person with disability increased from H50,000 to H75,000. In regulations to specified higher additional depreciation u/s 32(1)(iia) also proposed on such assets @ 35% instead of existing rate of 20%. •Balance 50% additional depreciation u/s 32(i) (iia) on eligible Plant & Machinery, acquired & put to use for less than 180 days in a previous year, proposed to be allowed in the immediately succeeding previous year. • Benefit of deduction u/s 80JJAA proposed to be extended to all assesses having manufacturing units instead of only to corporate assessee. Further, criteria for employing new regular workmen proposed to be reduced from 100 to 50 for being eligible for deduction. • Special tax regime specified for certain Category I & Category II Alternate Investment Fund regulated by SEBI allowing pass through status to Investment Funds. •Threshold limit for applicability of transfer pricing Individual Taxation MISCELLANEOUS case of severe disability amount of deduction •Any payment received from an account opened DIRECT TAX – AT A GLANCE BUDGET PROPOSAL INDIRECT TAXES domestic transactions proposed to be increased from H5 Crs. to H20 Crs. Corporate Taxation • Corporate tax rate proposed to be reduced from 30% to 25 % over the period of 4 Years. • Surcharge @7% for income above H1Cr and upto •Share of income of a member of AOP or BOI exempt u/s 86, proposed to be excluded in computing Book Profit u/s 115JB, with a corresponding increase in expenditure related to such income •Rationalisation of capital gains regime for the sponsors existing at the time of listing of units of REITs and InvITs. Rental income of REITs from H10 Crs and @12% for income above H10 Crs. their own assets to have pass through facility. •No change in Surcharge rate for Foreign International Taxation and Transfer Pricing Companies. •Surcharge on DDT proposed to be increased from 10% to 12%. •Rate of tax on Royalty and FTS proposed to be reduced from 25% to 10%. •Sec. 32AD proposed to be inserted to provide •Period of applicability of reduced rate of tax of additional 15% Investment Allowance on cost 5% in respect of income of foreign investors (FIIs of new eligible Plant & Machinery acquired and QFIs) from corporate bonds and government and installed in new unit set up in notified securities proposed to be extended from 31-05- backward area of Andhra Pradesh & Telangana 2015 to 30-06-2017 [Sec. 194LD]. 16 17 •Sec. 195 to give power to CBDT to capture information on foreign remittances which are claimed to be not chargeable to tax. • CBDT to notify rules for giving foreign tax credit to Indian Residents u/s 90, 90A & 91. Other relevant Proposals •Provisions of General Anti Avoidance Rule (GAAR) introduced vide Finance Act 2012 in Chapter X-A which was applicable from 0104-2015 have been deferred for 2 more years and would now proposed to apply w.e.f 01-042017. Investments made upto 31-03-2017 are proposed to be protected from the applicability of GAAR. •Direct Tax Code (DTC) which was to replace the present Act, shall not be enacted as major recommendations have been incorporated in the current Statute. • Wealth Tax Act, 1957 has been abolished w.e.f FY 2015-16. Particulars and information in relation to assets furnished in Wealth Tax Return shall be incorporated in modified Income tax Return to be notified. •New comprehensive Law to be enacted in the current session to deal with black money stashed abroad. •New Benami Transaction (Prohibition) Bill to curb domestic black money also to be introduced. •Penalty u/s 271(1)(c) is proposed to be imposed for additions made both under Normal provisions & MAT provisions. INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS other overseas branches shall be chargeable to tax in India and shall also be liable for TDS. •CBDT to prescribe rules for the purposes of determination of ‘resident’ status in the case of India seafarer. • Residency criteria of companies widened by introduction of Place of Effective Management concept. •In search cases, seized cash proposed to be adjusted against the tax liability computed in the settlement application. •Share or interest of a foreign company or entity outside India shall be deemed to derive its value substantially from the assets located in India, if on the specified date, value of such assets represents at least fifty per cent of the fair market value of all the assets owned by the company or entity. However, the indirect transfer provisions would not apply if the value of Indian assets does not exceed H10 Crs. •Indian entity shall be obligated to furnish information relating to the offshore transactions having the effect of directly or indirectly modifying the ownership structure or control of the Indian company or entity. In case of noncompliance, a penalty is proposed to be levied. •Chartered Accountants who are disqualified to be appointed as an auditor u/s 141(3) of the INDIRECT TAX – AT A GLANCE Central Excise •As a move towards GST, EC and SHEC leviable on excise duty proposed to be subsumed in BED Companies Act, 2013 shall be not be considered • BED increased from 12% to 12.5% as an “accountant” for the purpose of the IT Act. • Changes in duty rates of Petrol and HSD • Benefit of non-deduction of tax at source u/s 194C on sums paid to transport contractor on General and administrative furnishing of PAN, proposed to be restricted •It is proposed to provide that interest paid by to transport contractor owning upto 10 goods a PE or a branch of foreign bank to its HO and BASICS carriages. Specific rates revised to subsume EC and SHEC Conversion of existing excise duty to the extent of H4 per litre into Road Cess •Excise duty on leather footwear of RSP > H1000 per pair reduced from 12% to 6% • Excise Duty increased on: Cement falling under chapter sub-heading 2523 29 from H900/MT to H1000/MT Sacks and bags, other than for industrial use, from 12% to 15% Mobile handsets, including cellular phones from 6% to 12.5% (with CENVAT credit) • Clean Energy Cess on coal increased from H100/ MT to H300/MT. Effective rate increased from H100 per/MT to H200/MT • Excise Duty completely withdrawn from captively consumed intermediate compound coming into existence during the manufacture of Agarbattis; •Concessional excise duty of 6% extended upto 31 March 2016 on specified goods for use in manufacture of electrically operated vehicles and hybrid vehicles 18 19 • Penalty provisions are being INDIA BUDGET 2015-16 rationalized • Excise Duty increased on goods covered under to encourage compliance and early dispute Medicinal and Toilet Preparations Act, 1955 from resolution 12% to 12.5% ad valorem Cases not involving extended period of limitation Penalty will be restricted to 10% of Duty involved No penalty if duty and interest is paid within 30 days of issuance of notice. Reduced penalty of 25% of penalty applicable if duty, interest and reduced penalty paid within 30 days of order Benefit of reduced penalty to be extended to cases where penalty modified in appellate proceedings Cases involving fraud, collusion, misstatement, suppression, extended period of limitation Penalty will be 100% of duty involved, and in case where the transactions are recorded by the assessee, for the period from 8th April 2011 till the bill receives the assent of the President, penalty would be 50% of the duty. Reduced penalty of 15% is applicable if duty, interest and reduced penalty is paid within 30 days of issuance of notice Reduced penalty of 25% of duty imposed is applicable if duty, interest and reduced penalty is paid within 30 days of order. Benefit of reduced penalty to be extended to cases where penalty modified in appellate proceedings • Facility provided to a manufacturer and registered dealer and importer &/or port of import to directly dispatch goods from vendor to job worker/customer’s premises • Penalty prescribed for delay in filing of Annual Financial Information Statement or Annual Capacity Statement Return by an EOU Customs • Peak rate of duty remains unchanged. • BCD increased on: Iron and steel and articles thereof from 10% to 15% Bauxite from 10% to 20%. Motor vehicles used for passenger transport and goods transport from 10% to 40%. However, the effective Basic customs duty on such Vehicles increased from 10% to 20%. Metallurgical coke from 2.5% to 5% • BCD reduction on: Sulphuric acid for the manufacture of fertilizers from 7.5% to 5% Melting scrap of iron & steel, copper scrap, brass scrap and aluminium scrap from 4% to 2%. ‘Metal parts’ for use in the manufacture of electrical insulators is being reduced from 10% to 7.5%. BASICS BUDGET PROPOSAL DIRECT TAXES levied on imported Motor Spirit [Petrol] and High specified CNC lathe machines and machining Speed Diesel Oil [commonly known as Road centres from 7.5% to 2.5%. Cess] are being increased from H2 per litre to H6 C- Block for Compressor, Over Load Protector • CVD and SAD are being fully exempted Crank Shaft for compressor for use in on specified raw materials for use in the manufacture of Refrigerator compressors manufacture of pacemakers. from 7.5% to 5%. Specified inputs for manufacture of flexible medical video endoscope from 5% to 2.5%. Active Energy Controller (AEC) for manufacture of Renewable Power System (RPS) Inverters conditionally reduced to 5% • BCD brought down to zero: Magnetron of upto 1 KW for manufacturing microwave owens from 5% to NIL HDPE for manufacture of telecommunication grade optical fibre cables from 7.5% to Nil. Black Light Unit Module for manufacture of LCD/LED TV panels from 10% to Nil. Organic LED (OLED) TV panels from 10% to Nil. Specified Digital Still Image Video Camera capable of recording video and components for use in the manufacture of such cameras is being reduced to Nil. Evacuated Tubes with three layers of solar selective coating for manufacture of solar water heater and system is being fully exempted. • SAD exemption in respect of: • Assessees will be allowed to issue digitally Rubber (EPDM), Water blocking tape and boards, falling under any Chapter of Customs signed invoices and maintain other records Mica glass tape, for use in the manufacture of Tariff, for use in the manufacture of ITA Bound electronically insulated wires and cables from 10% to 7.5%. Items. the Adjudicating Authority for fresh adjudication compounds for manufacture of washcoats, not to be considered as case eligible for filing used in manufacture of catalytic converters, application before Settlement Commission from 7.5% to 5%. per litre. (OLP) & Positive thermal co-efficient and All goods except populated printed circuit Zeolite, ceria zirconia compounds and cerium MISCELLANEOUS Specified components used in manufacture of Ethylene-Propylene-non-conjugated-Diene • Proceedings remanded by Court or Tribunal to BUDGET PROPOSAL INDIRECT TAXES Inputs for manufacture of LED drivers and MCPCB for LED lights, fixtures and lamps. • Scheduled rates of Additional Duty of Customs • Current duty structure on specified goods for manufacture of Electrically Operated Vehicles and Hybrid motor vehicles BCD- Nil, CVD-6% and SAD – Nil which are presently applicable upto 31.03.2015, are being extended upto 31.03.2016. • BCD and CVD are fully exempted on artificial heart (left ventricular assist device). • In case of imports for a Mega Power Project when the status is provisional, condition of executing fixed deposit receipt for a term of 36 months or more has been increased to 66 months. • CVD and SAD exemption on specified goods imported for use by Security Printing and Minting Corporation of India Limited (SPMCIL) are being withdrawn. • Penalty provisions under Section 28 of the Customs Act, rationalised as under: No Penalty and the proceedings would be deemed to be closed if customs duty along with interest is paid within 30 days of receipt of the Show Cause Notice, in cases not involving fraud, collusion, suppression of fact etc. Penalty reduced from 25% to 15% and the proceedings would be deemed to be closed if customs duty along with interest is paid within 30 days of receipt of the Show Cause Notice, in cases involving fraud, collusion, suppression of fact etc. The above benefit extended to cases where notice issued but not adjudicated before the Finance Bill 2015 is enacted. The proceedings 20 21 INDIA BUDGET 2015-16 would be deemed to be concluded, if customs in relation to chit and activities provided by duty, applicable interest and penalty (wherever lottery distributors and selling agents in applicable) is paid within 30 days of the relation to lotteries. enactment of the Finance Bill. The conclusion of the proceedings would be without prejudice to prosecution proceedings. In case of improper Import or Export, penalty is leviable equal to 100% of the Customs duty or H5,000/- whichever is higher. The penalty is reduced to 10% of the duty or H5,000/- whichever is higher if duty demanded alongwith applicable interest and penalty is paid within 30 days of the receipt of the order. 12% to 14% effective from a date to be notified. • Education Cess and Higher Education Cess abolished and subsumed in the above rate of 14%. • Provision to levy Swachh Bharat Cess @ 2% or less on value of all or any taxable services from a date to be notified. • Services made taxable by deleting the following from Negative list or Mega Exemption notification: Admission to entertainment event or access to amusement facility except for exhibition of cinematographic film, circus, recognized sporting event etc. Any processes production distributor to a mutual fund or AMC. to the following services: (including process) for intermediate production or manufacture of alcoholic liquor for human consumption. Construction, erection, commissioning or installation of original works pertaining to an airport or port. All services provided by the Government or local authority to a business entity. Activities undertaken by chit fund foremen Services provided in relation to chit reduced • Section 67 has been amended to provide that all reimbursable expenditure or cost incurred and charged by the service provider. The Services provided by mutual fund agents/ distributors to AMC/mutual fund. provision has now been clearly incorporated in Section 67 due to contrary view taken by courts Services provided by lottery agents to the distributor of lottery. in some cases. • Penalty provisions under Section 76 and 78 received from an individual, HUF, or partnership firm is extended to 100% from 75%. Cases not involving extended period of limitation Penalty will be restricted to 10% of service No penalty if service tax and interest is paid All ambulance services. Life insurance service of Varishtha Pension Bima Yojna. Services by way of operation of common effluent treatment plant. pre-cooling, rationalised as under: tax involved • Exemption from service tax granted to: Pre-conditioning, 40% from 60%. consideration for a taxable service shall include • The reverse charge mechanism is not extended of Manpower supply and security services when • Basic Service Tax rate is being increased from BUDGET PROPOSAL DIRECT TAXES from 30% to NIL. Services provided by a mutual fund agent/ • Liability of the service recipient (a body corporate) Service Tax BASICS ripening, waxing, retail packing, labelling of fruits and vegetables. Services by way of exhibition of movie by the exhibitor (theatre owner) to the distributor. Goods transport agency service provided for transport of export goods from the place of removal to a land customs station. • Abatements amended: Uniform abatement of 70% for transport by rail, road and vessel is proposed. Hitherto the quantum of abatement was 70% for rail transport for goods and passengers, 75% for road transport by goods transport agency and 60% for goods transport by vessels. Air transport of passenger in first/business class (other than economy class) reduced to within 30 days of issuance of notice. Reduced penalty of 25% applicable if service tax, interest and reduced penalty paid within 30 days of order Benefit of reduced penalty to be extended to cases where in appellate proceedings the penalty is modified Cases involving extended period of limitation Penalty will be 100% of Service Tax involved, and in case where the transactions are recorded by the assessee, for the period from 8th April 2011 till the bill receives the assent of the President penalty would be 50% of the Service Tax. Reduced penalty of 15% is applicable if service tax, interest and reduced penalty is paid within 30 days of issuance of notice Reduced penalty of 25% is applicable if service tax, interest and reduced penalty is paid within 30 days of order. Benefit of reduced penalty to be extended to cases where in appellate proceedings the BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS penalty is modified •Facility of waiver of penalty under Section 80 if reasonable cause could be shown for failure to pay service tax has been withdrawn. • Assessee allowed to use digitally signed invoices and maintain electronic records. Goods and Services Tax (GST) • To revive growth and investment, India needs an enabling tax policy. Towards this goal, GST to be implemented by next year CENVAT Credit Rules • Amendment in Rule 4 of CCR along with Rule 11 of CER specifically to permit credit of excise duty paid on inputs and capital goods sent directly to job worker from another manufacturer/dealer or importer subject to conditions. •Time limit for availing CENVAT credit on inputs and input services extended from present 6 months to 1 year from the date of invoice. •Requirement of reversal of CENVAT credit in case of return of capital goods from a job worker extended from present 6 months to 2 years. •Requirement of reversal of CENVAT Credit made applicable to non-excisable goods also apart from the exempted goods and exempted services under Rule 6 of CCR. •Rule 14 amended enabling revenue to recover/ reverse CENVAT Credit without interest incase of credit wrongly taken but not utilised and with interest in case credit wrongly taken and utilised. •Method of computation of interest has also been prescribed. Penalty in terms of Sec. 76 of Finance Act 1994 invokable in case of credit wrongly taken or utilised without suppression of fact etc. Penalty u/s 78(1) of Finance Act 1994 invokable in similar case with suppression of facts etc. 22 23 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS SECTION 3 ECONOMIC INDICATORS & BUDGET FINANCIALS 24 25 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS This Indian Budget 2015, on the foundation of 12) market prices in 2012-13 was 5.1 per cent, action has been taken to remove regulatory a growth target of 4 per cent for agriculture and a ‘Boomerang-ing’ Indian Economy is, all set which increased to 6.9 percent in 2013-14 and it uncertainty by passing Ordinances to streamline allied sectors in the Twelfth Plan, the growth to usher-in a Renaissance-era in India – and be is expected to further increase to 7.4 per cent in land acquisition, e-auction of coal blocks for registered in the first year at 2011-12 prices was remembered as a the Bridge between the present 2014-15 (advanced estimates). private companies, and auction of iron ore and 1.2 per cent, 3.7 per cent in 2013-14, and 1.1 per other new coal mines. During April –December cent in 2014-15.The total food grains production in 2014-15 growth in the eight core industries was the country is estimated at 257.07 million tonnes 4.4 per cent growth. Electricity (9.7 per cent), coal which is the fourth highest quantity of annual (9.1 per cent), and cement (7.9 per cent) boosted foodgrains production in the country. As compared the performance, while natural gas (-5.1 per cent), to last year’s production of 265.57 million tonnes, fertilizers (-1.4 per cent), crude oil (-0.9 per cent), current year’s production of foodgrains is lower by refinery products (0.2 per cent), and steel (1.6 per 8.5 million tonnes. This decline has occurred on cent) accounted for moderation in growth. account of lower production of rice, coarse cereals India and the Transformed-Developed India. Growth rate in Gross Value Added (GVA) at basic The Economy over the last year (i.e. F.Y. 2014-15) prices in agriculture is projected to decline from is already providing promising signals. The 2014- 3.7 per cent in 2013-14, an exceptionally good year 15 Economic Survey presented by the Hon’ble from the point of view of rainfall, to 1.1 per cent in Finance Minister focuses on two themes – “Create 2014-15, a year with not-so-favourable monsoon. Opportunity” and “Reduce Vulnerability”. The manufacturing sector registered a growth India has emerged with brighter prospects among the few large economies with propitious economic outlook, amidst the mood of pessimism and uncertainties that engulfs a large number of advanced and emerging economies, today. The economy stands largely relieved of the vulnerabilities associated with an economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of the rupee. The growth rate in GDP at constant (2011GDP Growth Rate (%) 0 5.1 6.9 7.4 in GVA at basic prices of 6.2 per cent and 5.3 per cent respectively in 2012-13 and 2013-14, and it is expected to keep up the growth momentum in 2014-15 with a growth rate of 6.8 per cent. There is and pulses due to erratic rainfall conditions during Index of industrial Production (%) the agricultural sector and bolster food security continued momentum in the services sector with 2.9 the growth of the sector in 2014-15 expected to be -0.1 2.1 including availability and affordable access, strategy for agriculture has to focus on improving yield and productivity. 2013-14. Services Key Indicators of Indian economy The services sector accounting for 51.3 per cent Industry of India’s gross value added (GVA) at basic prices The Index of Industrial Production (IIP) suggests (current prices) in 2013-14, grew by 9.1 per cent that the industrial sector is recovering slowly with compared to 6.6 per cent total GVA growth and a 2.1 per cent growth in April- December 2014-15 6.9 per cent GDP growth at market prices. During over the 0.1 per cent in the same period last year. 2014-15, the FDI inflows to services grew by 105.8 The recovery is led by electricity, coal, and cement percent compared to 2.2 per cent growth in overall while manufacturing growth continues to remain FDI inflows. In the first half of 2014-15, services tepid. Except the mining sector, all other major exports grew by 3.7 per cent to US$ 75.9 billion industrial sectors have experienced slowdown in and import of services grew by 5.0 per cent to growth of credit in 2014-15 as compared to 2013-14. US$ 39.9 billion, resulting in net services growth To improve industrial growth, the new government of only 2.4 per cent. Some available indicators of 2011-12 2012-13 2013-14 2014-15* business and skill development and launching fresh initiatives like Make in India and Digital India, creating a National Industrial Corridors Authority, streamlining environment and forest clearances and labour reforms. In infrastructure, the focus has been on resolving long-pending issues like pricing of gas, establishing processes and procedures for transparent auction of coal and minerals, and improving power generation * Estimated 1.1 10.6 per cent, higher than 9.1 per cent recorded in has emphasized on rapidly improving ease of doing 2011-12 2012-13 2013-14 2014-15* the monsoon season 2014.To improve resilience of and distribution. To overcome critical constraints holding up use of land and natural resources, * Estimated the different services in India for 2014-15 show reasonably good performance of tourism, telecom, aviation and railways. The IT–business process management (BPM) industry grew by an estimated Agriculture 12 per cent, reaching US$ 119 billion in 2014-15, The agriculture sector registered an annual growth while the export market at US $ 98 billion grew by of 3.8 per cent in value added in the decade since 12.3 per cent and domestic market at US $ 20.9 2004-05 on the back of increase in real prices (31 billion grew by 10 per cent over the previous year. per cent during 2004-05 to 2011-12). According to The Software products and services revenues for the new series of national income released by the 2015-16 are projected to grow at 12-14 per cent CSO, at 2011-12 prices the share of agriculture to reach US $133-136 billion as per NASSCOM. in total GDP is 18 per cent in 2013-14. As against The professional, scientific and technical activities BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS including R&D grew by 14.0 per cent in 2013- 14. after having remained stubbornly sticky at around reduce it further to 3 per cent of GDP by 2016-17. However, India’s capacity for innovation has been 9-10% for the last two years. During the third Achieving this target is daunting in the backdrop lower than many countries. Even in quality of quarter of 2014-15, the CPI food inflation declined of only a moderate increase in indirect taxes and a scientific research institutions India scores lower considerably due to seasonal softening of food and large subsidy bill despite significant decline in the than China, Brazil, and South Africa. vegetable prices after the late arrival of monsoon subsidies burden in 2014-15, mainly due to lower exerted some pressure on vegetable prices during prices of crude oil in the international market in June-August, 2014. the second half of 2014-15. a substantial decline in inflation. The Average CPI inflation in the fuel and light group registered The Budget for 2014-15 sought to contain the fiscal Wholesale Price Index (WPI) (base year 2004- a consistent decline during 2014-15, touching deficit at 5,31,177 crs. (4.1 per cent of GDP) against 05 = 100) inflation declined to 3.4% in 2014-15 3.4% in the third quarter following the sharp 5,08,148 crs. (4.5 per cent of GDP) in 2013-14. (April-December) as compared to an average of decline in International Crude Oil prices. The main 6% during 2013-14. The decline was caused by factors causing moderation in inflation include lower food and fuel prices. During the first quarter both global factors as well as domestic measures. of 2014-15, WPI headline inflation stood at 5.8% Global factors, namely persistent decline in as mainly food and fuel prices were high. In the crude prices and softness in the global prices of second and third quarters of 2014-15, WPI inflation tradables, particularly edible oils and even coal, declined to 3.9% and 0.5% respectively. helped moderate headline inflation The retail inflation as measured by the Consumer Fiscal Deficit entailed an increase in the tax to GDP and non- Price Index (CPI) (base year 2010= 100) moderated Outlining the roadmap for fiscal consolidation, debt receipts to GDP ratios to 10.6 per cent and significantly since the second quarter of 2014-15. the Budget for 2014-15 envisaged a fiscal deficit 9.8 per cent respectively and a continuance of the It declined to an all time low of 5% in Q3 of 2014-15 target at 4.1 per cent of GDP and sought to low level of total expenditure to GDP ratio at 13.9 Export Growth (US$) [%] per cent Import Growth (US$) [%] The year 2014-15 (April-December) witnessed macroeconomic conjecture, it outlined and it accepted the challenge. The fiscal 0.8 2.9 4.1 1.8 3.2 4.5 Over the last ten years, India’s merchandise trade (on customs basis) increased manifold from 2.5 per cent in 2013. In 2014-15 (April-January), imports grew by 2.2 per cent to US$ 383.4 billion from US$ 375.3 billion in 2013-14 (April-January). While value of Petroleum, Oil and Lubricants (POL) imports declined by 7.9 per cent in 2014-15 (April-January), as a result of decline in the price of international crude petroleum products. Gold and silver imports grew by 8.0 per cent in 2014-15 (April-January). WPI (%) CPI (%) 2011-12 2012-13 2014-15* Non POL and non- gold and silver imports which 2011-12 2012-13 2013-14 2014-15* * Estimated In 2014, FDI policy has been further liberalized. FDI upto 49% through the Government route have been permitted in the Defence industry. Higher FDI has also been allowed on a case to case basis. FDI upto 100% through automatic route has been permitted in construction, operation and maintenance of identified railways transport infrastructure. Norms related to minimum land area, capitalization and repatriation of funds for FDI in construction, development projects have been further liberalized. During April-November2014, total FDI inflows (including equity inflow, reinvested earnings, and other capital) were US $27.4 billion, while FDI equity inflows were US $ 18.9 billion. Gross fiscal deficit (% of GDP) largely reflect the imports needed for industrial During (April to November) 2014-15, the FDI inflows Revenue Deficit (% of GDP) activity grew by 7.8 per cent in 2014-15 (April- to services grew by 105.8 per cent compared to January), after registering a decline of 6.9 per cent 22.2 per cent growth in overall FDI inflows. The Primary Deficit (% of GDP) * Estimated 2013-14 3.6 importance of adherence to fiscal consolidation 1.0 per cent respectively in 2004 to 1.7 per cent and 2014-15* 0.3 the global exports and imports from 0.8 per cent and 2013-14 -1.8 GDP was a daunting challenge given the then in 2013-14 helping in improving India’s share in 2012-13 32.3 containing the fiscal deficit at 4.1 per cent of Trade Imports and Exports 1.8 3.6 4.8 2.7 4.4 5.7 6.2 3.4 9.7 The Budget for 2014-15 had indicated that while US$ 195.1 billion in 2004-05 to US$ 764.6 billion 2011-12 Trade Imports and Exports (%) consolidation plan as enunciated in BE 2014-15 Fiscal Deficit (%) 6.0 10.4 7.4 8.4 8.9 Inflation index (%) Foreign Direct Investment 21.8 Inflation in 2013-14. 4.0 BUDGET PROPOSAL DIRECT TAXES BASICS 4.7 INDIA BUDGET 2015-16 -8.3 26 27 * Estimated 28 29 INDIA BUDGET 2015-16 total FDI inflows to the top five services in the depreciation in the currencies of emerging markets first eight months of this year are higher than for with varying intensities depending upon the the whole of 2013-14 owing to major inflows in external financing requirement as indicated by the telecommunications. levels of CAD. The Rupee-US dollar exchange rate FDI in Real Estate and Housing Sector fell to US$ 703 million in the current fiscal (April – November, 2014). With 100 percent FDI permitted in the Film Sector, India is emerging as the new favourite of international studios. BUDGET PROPOSAL DIRECT TAXES BASICS Receipts Chart In 2013-14, global uncertainty following the May 2013 announcement by the US Fed about its intent to withdraw the quantitative easing led to a bout of 1% has broadly remained stable during the year due 10% 3% to the huge inflow of FDI and FII in the equity and bond markets. Due to the weak economic outlook 17% 24% 9% in Europe and Japan, the Rupee has appreciated 10% against the Euro and Yen since September 2014 20% Euro and Yen vis-à-vis the US dollar. On the whole, 8% 24% 5% 4% 8% 18% 16% 14% the Rupee has exhibited resilience to global events in view of the strong external-sector outcome. Borrowings and other liabilities Income Tax Exchange Rates of Rupee per Foreign Currency US dollar Pound Sterling Euro Japanese Yen (per 100 Yen) April, 2014 60.36 101.08 83.35 58.86 May, 2014 59.31 99.94 81.49 58.28 June, 2014 59.73 100.98 81.24 58.53 July, 2014 60.06 102.62 81.39 59.07 Aug, 2014 60.90 101.81 81.14 59.17 Sep, 2014 60.86 99.31 78.60 56.77 Oct, 2014 61.34 98.72 77.91 56.87 Nov, 2014 61.70 97.28 76.99 53.05 Dec, 2014 62.75 98.11 77.36 52.60 Jan, 2015 62.23 94.54 72.77 52.54 Customs Corporation Tax Union Excise Duties Service Tax and other taxes Non Tax revenues Non Debt Capital Receipts Draw Down of Cash Balance Average exchange rates (H per foreign currency) Particulars MISCELLANEOUS Expenditure Chart in tandem with cross-currency movements of the Exchange Rate BUDGET PROPOSAL INDIRECT TAXES Central Plan Subsidies Interest payment Defence Other non plan expenditure States’ share of taxes and duties assistance of state and UT and UT Governments Non plan Plan assistance to state INFRASTRUCTURE CREATING THE PATHWAYS OF SUCCESS India is one of the most under-invested large countries from an infrastructure perspective. India only invests an average of about 6% of its GDP (estimated at USD 2 trillion) in infrastructure as compared with China’s 11% (estimated GDP of USD 8 trillion). The time has come to kick-start the Indian economy through sizable infrastructure investments that do two things – increase downstream demand and also catalyse the economy out of increased infrastructure use. The time starts now. 32 33 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS • The enhancement of the threshold limit of Transport Allowance • Indirect transfers – deemed income taxable in India – provisions clarified Practical • New comprehensive Law to be enacted in the current session to address black money stashed abroad. • Benami Transaction (Prohibition) Bill to curb domestic black money to be introduced. Predictable • Allowance of balance 50% Additional Depreciation in the immediately succeeding previous year • Sums received as advance or otherwise in relation to the transfer of immovable property now covered within the ambit of u/s 269SS & 269T DIRECT TAX Proactive • Taxation Regime for Real Estate Investment Trust (‘REIT’) and Infrastructure Investment Trust (‘Invit’) Promising • Corporate tax rate proposed to be reduced from 30% to 25 % over four years Progressive • Modification in the definition of ‘accountant’ • Incentivising industrial development in Andhra Pradesh and Telangana • Amendment in the provision for deduction for employment of New Workmen Protective • Contributions made to the Swachh Bharat Kosh and Clean Ganga Fund in pursuance of CSR under section 135(5) of the Companies Act, 2013 not eligible for deduction U/S 80G. • Levy of interest U/S 234B in other than Settlement Cases • Modification in the definition of ‘Amount of tax sought to be evaded’ Prudent • Deferment of provisions relating to general anti-avoidance rule • Abolition of Wealth Tax Act, 1957 34 35 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES SECTION 4 CORPORATE TAXATION MISCELLANEOUS 36 37 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS 4.1 BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Corporate Income Tax Rates [w.e.f AY 2016-17] No changes have been proposed in the basic Corporate Income Tax Rates. However, surcharge has been increased by 2% for entities having income in excess of H1 Cr. Applicable Corporate income tax rates for AY 2016-17 are summarised as under: NORMAL TAX Sl. No. 1 2 3 4 5 6 Particulars Domestic companies (with total income less than H1 cr.) Domestic companies (with total income more than H1 cr. but less than H10 cr.) Other domestic companies Foreign companies (with total income less than H1 cr.) Foreign companies (with total income more than H1 cr. but less than H10 cr.) Other foreign companies Tax Surcharge E. Cess (%) (%) S&H E. Cess (%) Effective Tax (%) 30 - 2 1 30.90 30 7* 2 1 33.063 30 12# 2 1 34.608 40 - 2 1 41.20 40 2 2 1 42.02 40 5 2 1 43.26 * Surcharge has been increased from 5% to 7%. # Surcharge has been increased from 10% to 12% MINIMUM ALTERNATE TAX (MAT) Sl. No. Sl. No. Particulars Page 1 4.1 Corporate Income Tax Rates 37 4.2 Deferment of Provisions Relating to General Anti Avoidance Rule 37 4.3 Amendment in the provision for deduction for employment of New Workmen 38 4.4 Incentivising industrial development in the State of Andhra Pradesh & Telangana 38 4.5 Allowance of balance 50% Additional Depreciation in i mmediately succeeding previous year 39 4.6 Prescribed conditions on maintenance of accounts, audit etc to be fulfilled by the approved in house R&D facility 40 5 4.7 Cost of acquisition and period of holding of capital asset in the hands of resulting company in Demerger 40 6 4.8 Tax Neutrality on merger of similar schemes of mutual funds 41 4.9 Modification in the definition of “Amount of tax sought to be evaded” 41 4.10 Contribution to schemes eligible for 100% deduction 42 4.11 Clarification on orders to be considered as erroneous and prejudicial to the interest of revenue 42 4.12 Threshold limit for applicability of domestic transfer pricing provisions raised from H5 Crs. to H20 Crs. 43 2 3 4 Particulars Domestic companies (with total income less than H1 cr.) Domestic companies (with total income more than H1 cr. but less than H10 cr.) Other domestic companies Foreign companies (with total income less than H1 cr.) Foreign companies (with total income more than H1 Cr. but less than H10 Cr.) Other foreign companies Tax (%) Surcharge E. Cess (%) (%) S&H E. Cess (%) Effective Tax (%) 18.5 - 2 1 19.055 18.5 7* 2 1 20.389 18.5 12# 2 1 21.342 18.5 - 2 1 19.055 18.5 2 2 1 19.436 18.5 5 2 1 20.008 * Surcharge has been increased from 5% to 7%. # Surcharge has been increased from 10% to 12% 4.2 Deferment of Provisions Relating To General Anti Avoidance Rule [w.e.f AY 2018-19] • Hitherto, provisions of GAAR were to come into of GAAR. Further, it has been noted that the effect from 01-04-2016. The implementation of Base Erosion and Profit Shifting (BEPS) project GAAR provisions has been reviewed. Concerns under Organisation of Economic Cooperation have been expressed regarding certain aspects and Development (OECD) is continuing and 38 39 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS India is an active participant in the project. • Accordingly, it is proposed to defer the The report on various aspects of BEPS and implementation of GAAR by two years, making it Comments •The likely scenario of benefits in the form of depreciation, additional depreciation & investment recommendations regarding the measures to applicable from AY 2018-19. Further, investments allowance that would arise on addition of new eligible plant & machinery in new manufacturing units counter it are awaited. It would, therefore, be made up to 31-03-2017 are proposed to be kept set up in the notified backward areas of Andhra Pradesh and Telangana vis-a-vis the addition of new proper that GAAR provisions are implemented outside the purview of GAAR. plant & machinery in units located in other states is depicted as under: as part of a comprehensive regime to deal with BEPS and aggressive tax avoidance. Notified backward areas of Andhra Pradesh & Telangana Particulars Year 1 4.3 Amendment in the provision for deduction for employment of New Workmen [Sec. 80JJAA] [w.e.f AY 2016-17] 100 100 Normal Depreciation 15 15 Investment Allowance u/s 32AC 15 15 Investment Allowance u/s 32AD 15 - 35 assessee, which has acquired the factory by way Additional Depreciation u/s 32(1)(iia) companies on additional wages paid to new of transfer from any other person or as a result workmen. In order to encourage employment of any “business re-organisation”. Depreciation in future years to all assessee having manufacturing units rather than restricting it to corporate assessee only. It is also proposed to deny deduction to •Further, in order to enable the smaller units to claim this incentive, it is also proposed to extend the benefit to units employing 50 instead of 100 regular workmen. Year 1 Investment in plant & machinery •Deduction u/s 80JJAA is available to Indian generation, it is proposed to extend the benefit Year 2 onwards Other states Aggregate benefits 20 50 65 (@ 15% p.a.) 80 Year 2 onwards 50 (@ 15% p.a.) 50 65 The above tabulation depicts that 80% of the investment during the specified period in the Notified backward areas of Andhra Pradesh & Telangana would be eligible for deduction in the year of investment itself as against 50% in the other states. These incentives are allowable only to the new unit set up in the specified area. It is not allowable to any 4.4 Incentivising industrial development in the state of Andhra Pradesh & Telangana [Sec. 32AD & Sec. 32(1)(iia)] other undertaking even though it has undertaken substantial expansion in the existing undertaking or substantial addition to new plant & machinery in an existing undertaking. [w.e.f AY 2016-17] • Additional Investment Allowance [Sec. 32AD] Comments It is proposed to insert Sec. 32AD to allow •The above investment allowance u/s 32AD is in additional investment allowance @ 15% of the addition to the investment allowance specified cost of new eligible plant & machinery acquired under the existing provisions of Sec. 32AC if it and installed by the assessee in an undertaking fulfils the specified conditions of both sections. or enterprise set up in the notified backward areas of Andhra Pradesh and Telangana on or after 01-04-2015 for manufacture or production of any article or thing. Further the eligible plant & machinery needs to be acquired and installed during the period beginning from 0104-2015 to 31-03-2020. In order to ensure that the proposed incentive contributes to economic growth of backward areas, it is also proposed to restrict the transfer of plant or machinery for a period of 5 years except in the case of amalgamation or demerger or re-organisation. • Higher rate of additional depreciation [32(1)(iia)] It is proposed to insert a new proviso [being 1st Proviso] below Sec. 32(1)(iia) to provide that 4.5 Allowance of balance 50% Additional Depreciation in immediately succeeding previous year [Sec. 32(1)(iia)] [w.e.f AY 2016-17] •Hitherto, vide 2nd proviso to Sec. 32(1)(ii), •The proposed amendment fortifies the view P & M acquired and put to use for less than 180 taken in the case of DCIT –vs.- Cosmo Films Ltd days in the previous year was restricted to 50% (2012) 13 ITR(Tri) 340 (Del), MITC Rolling Mills P. of the prescribed rate of 20%. Ltd. (ITA No. 2789/Mum/2012), Birla Corporation where an assessee, sets up an undertaking or •It is proposed to provide that the balance enterprise for manufacture or production of additional depreciation of 10% [50% of 20%] on any article or thing in the notified backward eligible P & M acquired & used for less than 180 areas of Andhra Pradesh and Telangana on days in a previous year shall be allowed in the or after 01-04-2015 but before 01-04-2020, immediately succeeding previous year. additional depreciation u/s 32(1)(iia) shall be admissible @ 35% instead of 20% on eligible new plant & machinery. Further, existing 1st proviso has been renumbered as 2nd proviso. Comments additional depreciation u/s 32(1)(iia) on eligible Limited –vs.- DCIT (ITA No. 683 & 581/Kol/2011) (HC). However it also nullifies the decision of Chennai ITAT in the case of Brakes India Ltd. (ITA No. 1069/Mds/2010) wherein a contrary view was taken. 40 41 4.6 INDIA BUDGET 2015-16 Prescribed conditions on maintenance of accounts, audit etc to be fulfilled by the approved in house R&D facility [Sec. 35(2AB)] [w.e.f AY 2016-17] •Sec. 35(2AB) provides for weighted deduction @ •It is also proposed that DSIR shall also submit 200% to a company engaged in the business of the report in relation to the approval of the said bio-technology or manufacturing or production of R&D facility to the Principal CCIT or CCIT having articles or things, for the expenditure (not being jurisdiction over the company claiming the expenditure incurred on land or building) incurred weighted deduction. Similar amendment is also on in house R&D facility. The company, apart proposed in Sec. 35(2AA). from, entering into an agreement with the DSIR, is required to maintain separate books of accounts and get the same audited for approved R&D facility. Comments • The DGIT (Exemptions) does not have jurisdiction over the assessee company. In order to have a • It is proposed to enlarge the scope of maintenance better and meaningful monitoring mechanism for of accounts and audit thereof by clarifying that weighted deduction u/s 35(2AB), the facility would both needs to be done in the manner prescribed. now also be monitored by the Principal CCIT or Further the audit report shall also be furnished CCIT having jurisdiction over the assessee. in the prescribed manner. BASICS 4.8 BUDGET PROPOSAL DIRECT TAXES 4.7 MISCELLANEOUS Tax Neutrality on merger of similar Schemes of Mutual Funds [Sec. 47(xviii) & Sec. 49(2AD)] [w.e.f AY 2016-17] • Several Mutual Funds are having different schemes with similar features. SEBI has been encouraging to consolidate these mutual funds to have simpler and fewer numbers of schemes. However, since the process will result in transfer of unit between schemes, such merger/consolidation is treated as ‘transfer’ u/s 2(47) of the IT Act and hence chargeable to Capital Gains tax. •To facilitate consolidation of different scheme of mutual funds, in the interest of investors, it is proposed to provide tax neutrality to unit holders provided consolidation is of two or more schemes of an equity oriented or two or more schemes of fund other than equity oriented fund. •Accordingly, it is now proposed to insert a new Cost of acquisition and period of holding of capital asset in the hands of resulting company in demerger [Sec. 49(1)(iii)(e)] BUDGET PROPOSAL INDIRECT TAXES sub-section (xviii) to Sec. 47 to provide that in case of transfer of unit in a consolidating scheme of mutual fund for new unit in consolidated scheme of mutual fund, shall not be regarded as transfer and hence not exigible to capital gains tax. •Further, sub-section (2AD) has been proposed to be inserted in Sec. 49 to provide that cost of the unit of the consolidated scheme of mutual fund received pursuant to transfer exempt u/s 47(xviii), shall be cost of purchase of units in the consolidating scheme of mutual fund. •Consequential amendment has been proposed in Sec. 2(42A) to provide that period of holding of units in the consolidated scheme of mutual fund also include the period for which the unit was held in the consolidating scheme of mutual fund. •The process of such consolidation has to be in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the SEBI Act, 1992. [w.e.f AY 2016-17] •Presently, there is no express provision in the as increased by the cost of improvement incurred IT Act for determining the cost of acquisition of by the demerged company. Consequently, period capital asset in the hands of resulting company of holding of such asset in the hands of resulting where capital assets are transferred by way company will also include the period for which of demerger. Such transfer are not regarded the asset was held by the demerged company. as transfers u/s 47(vib) for the purpose of computing capital gain tax. It is proposed to amend Sec. 49(1)(iii)(e) to provide that cost of acquisition of a capital asset acquired by the resulting company shall be the cost for which the demerged company acquired the capital asset, 4.9 Modification in the definition of “Amount of tax sought to be evaded” [Sec.271(1)(c)] [w.e.f AY 2016-17] •Hitherto, penalty u/s 271(1)(c) is levied on the normal provisions and the provisions of Sec. Comments amount of tax sought to be evaded by reason 115JB/115JC, then such amount shall not be • The above amendment, seeks to treat ‘demerger’ of concealment of particular of income or considered in computing tax sought to be evaded at par with ‘amalgamation’ with regard to cost of furnishing of inaccurate particulars of income. under provisions of Sec. 115JB/115JC. acquisition of capital asset as well as period of •It is proposed to modify the definition of holding in the hands of resulting company. Comments “amount of tax sought to be evaded” provided in •The Delhi HC in the case of CIT –vs.- Nalwa Explanation 4 to sub-section (1) of Sec 271 so Sons Investments Ltd (2010) 327 ITR 543 (Del) as to include that the amount of tax sought to has held that penalty u/s 271(1)(c) cannot be be evaded shall be the summation of tax sought imposed on the concealment of income under to be evaded under the normal provisions normal provisions, if the total income of the and under the provision of Sec. 115JB/115JC. assessee is assessed as per Sec 115JB of the IT Further, if an item is disallowed both under the Act. The Apex Court has accepted the decision 42 43 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS of the Delhi HC & dismissed the SLP filed by the under normal provisions and in computing power under Sec. 263 on the ground that the AO (2008) 8 DTR 161 (HP) -Assessment order was Revenue. The proposed amendment nullifies the Book Profit, then for the purpose computing the should have made further enquiries. erroneous & prejudicial to the interests of the aforesaid decision of the Apex Court. amount of tax sought to be evaded, disallowance •If disallowance u/s 14A r.w.r 8D is made both made in computing Book profit will be ignored. Ranbaxy Laboratories Ltd –vs.- CIT (2012) 345 ITR 193 (Del) - CIT was justified in holding the assessment as erroneous and prejudicial to 4.10 Contribution to schemes eligible for 100% deduction [Sec. 80G] [w.e.f AY 2016-17] •Under the existing provisions of Sec. 80G, contribution made to certain funds and institutions formed for a social purpose of national importance, like the Prime Ministers’ National Relief Fund, National Foundation for Communal Harmony etc are eligible for 100% deduction. •It is proposed to include the following funds in the list of such eligible institutions: - National Fund for Control of Drug Abuse [w.e.f Meghalaya Plywood Ltd –vs.- CIT (2007) 210 CTR 144 (Gau) - Assessment order passed on the Instruction No. 3 dated 25-05-2003 basis of the decision of jurisdictional HC, cannot by the CIT if the order passed by the AO is erroneous or prejudicial to the interests of the revenue. The expressions “erroneous or prejudicial to the interest of the revenue” is not been defined in the IT Act. •It is proposed to insert an Explanation to Sec. 263(1) to provide that order passed by the AO shall be deemed to be erroneous or prejudicial to the interests of Revenue, if the CIT or Principal CIT opines that the same is passed : -Without making inquiries or verification which should have been made; or -Allowing any relief without enquiring into the claim; or be considered as erroneous. AY 2016-17] - Swachh Bharat Kosh [w.r.e.f AY 2015-16] - Clean Ganga Fund [w.r.e.f AY 2015-16] [For resident assessee only] • If any contribution is made to the Swachh Bharat Kosh & Clean Ganga Fund, in pursuance of CSR u/s 135(5) of the Companies Act, 2013 it will not be eligible for deduction u/s 80G. [w.e.f 01-06-2015] proceedings under that section can be initiated sticky loans. any reference to the TPO required by CBDT CIT –vs.- Himachal Pradesh Financial Coporation Clarification on orders to be considered as erroneous and prejudicial to the interest of revenue [Sec.263] •Under the existing provision of Sec. 263, considering the CBDT Circular on interest on the interest of the revenue as AO has not made 4.12 Threshold limit for applicability of domestic transfer pricing provisions raised from H5 Crs. to H20 Crs. [Sec.92BA] [w.e.f AY 2016-17] • Existing Transfer Pricing Regulations in India vide -Without following the order, directions or instructions of the Board; or - Without considering the decision of Jurisdictional HC or SC which is prejudicial to the assessee or any other person. Comments • The proposed amendment fortifies the following decisions : Fab India Overseas Ltd –vs.- CIT (2011) 60 DTR 240 (Del) - The assessee supplied required information regarding commission and general charges to AO in response to a questionnaire and the AO having assessed the assessee at a total income far in excess of the declared income, it cannot be said to be a case of lack of enquiry and, therefore, CIT was not justified in exercising Comments Sec. 92BA provide that Transfer Pricing Provisions This is a welcome move for the small sector shall apply to “specified domestic transactions” enterprises which will reduce the burden of where the aggregate of such transactions in the compliances and cost. relevant previous year exceeds a sum of H5 Crs. 4.11 revenue since the same was passed without • It is proposed to amend Sec. 92BA to enhance the above threshold of H5 Crs. to H20 Crs. 44 45 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS SECTION 5 INTERNATIONAL TAXATION AND TRANSFER PRICING 46 47 INDIA BUDGET 2015-16 BASICS 5.1 BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS “Eligible Fund Manager” not to constitute “Business Connection” of offshore investment funds – position clarified [Sec. 9A and 271FAB] [w.e.f AY 2016-17] •Presently, in terms of the existing provisions in India of the said fund on fulfilment of specified of Sec. 9(1)(i) of the IT Act w.r.t “Business conditions. Further, an Eligible Investment Fund Connection”, an India based fund manager shall not be said to be resident in India merely may create a sufficient nexus, and hence a because the Eligible Fund Manager undertaking “business connection”, for the concerned fund management activities is based in India. offshore Investment Fund even though such fund manager may be an independent person. The presence of the fund manager under certain circumstances may lead to the off-shore India on the basis of its control and management the fund is a resident of a country or a specified being in India. Accordingly, income of such territory with which an agreement referred to offshore Investment Fund from investments in Sec. 90(1) or 90A(1) has been entered into; made in countries outside India may also get the aggregate participation or investment Funds do not typically retain fund managers based in India, instead many fund managers 5.1 Page ‘Eligible Fund Manager’ not to constitute ‘Business Connection’ of offshore investment funds – position clarified 47 5.2 Reduction in tax rates of income by way of Royalty or Fees for Technical Services 49 5.3 Indirect Transfers – Deemed income taxable in India – provisions clarified 49 5.4 CBDT to notify rules for giving foreign tax credit to Indian residents 51 5.5 Interest paid by Indian Branch to Foreign Banking companies taxable in India and liable to withholding tax 52 Concessional tax rate u/s 194LD relating to Income by way of interest on certain securities extended upto 30-06-2017 52 IT Act and Depository Receipt Scheme, 2014 aligned to extend tax benefits to depository receipts issued against specified securities 53 Residency Criteria of Companies – widened by introduction of Place Of Effective 54 5.6 5.7 5.8 that manage India focused offshore funds, tend to be based outside India and only have an advisory relationship in India that provide recommendatory services. Management concept • In order to facilitate such fund managers to have their base in India, it has been proposed to insert a Sec. 9A to lay down a specific code for taxability of such Offshore Investment Funds. The new sec. provides that taxability of the income of the Eligible Investment Fund from investment made in India would not be impacted by the fact that its Eligible Fund Manager is based in India. Similarly, for income from investment made outside India, its taxability shall not be in India for the sole reason that its Eligible Fund 5.9 Amendment in MAT provisions for FIIs 54 5.10 Furnishing of information relating to all payments to non-residents 55 Fund are: the fund is not a person resident in India; • Considering the above risks, offshore Investment Particulars relevant year for being an Eligible Investment Investment Fund being held to be resident in taxed in India. Sl. No. • The conditions required to be fulfilled during the Manager is based in India. •Thus the new regime proposes that the Eligible Fund Manager in India of an Eligible Investment Fund shall not constitute a “business connection” in the fund, directly or indirectly, by persons being resident in India does not exceed 5% of the corpus of the fund; the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident; the fund has a minimum of 25 members who are, directly or indirectly, not connected persons; any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding 10%; the aggregate participation interest, directly or indirectly, of 10 or less members along with their connected persons in the fund, shall be less than 50%; the investment by the fund in an entity shall not exceed 20% of the corpus of the fund; no investment shall be made by the fund in its associate entity; 48 49 INDIA BUDGET 2015-16 the monthly average of the corpus of the fund excluding any income from the total income of shall not be less than H100 crs. and if the fund the Eligible Investment Fund, which would have has been established or incorporated in the been so included irrespective of whether the previous year, the corpus of fund shall not be activity of the eligible fund manager constituted less than H100 crs. at the end of such previous the business connection in India of such fund or year; not. BASICS 5.2 BUDGET PROPOSAL DIRECT TAXES [w.e.f AY 2016-17] • As per the existing provisions of Sec. 115A of the IT Act, the Non-Resident taxpayers are liable •It has also been proposed that the Fund to pay tax @25% of gross amount of income by manage, directly or indirectly, any business in shall furnish a statement in a prescribed way of Royalty and Fees for Technical Services India or from India; form regarding fulfilment of above specified received from Government or an Indian concern in conditions to tax authorities within 90 days from pursuance of an agreement made by the foreign the end of the financial year failing which the company with Government or the Indian concern Fund would be liable to penalty of H5,00,000. after 31-03-1976 and where such agreement is which constitutes a business connection in India nor has any person acting on its behalf whose activities constitute a business Comments connection in India other than the activities • Several countries including the United Kingdom, undertaken by the eligible fund manager on Singapore, Hong Kong, United States, and New its behalf; Zealand provide for a safe harbour to prevent the remuneration paid by the fund to an eligible fund manager in respect of fund offshore investment funds from having a taxable presence in their respective jurisdictions. management activity undertaken on its behalf •Under the newly amended provision of Sec. is not less than the arm’s length price of such 6 of the IT Act, a company (including foreign activity. company) shall be considered as resident in •The conditions required to be fulfilled for being an Eligible Fund Manager are: the person is not an employee of the Eligible Investment Fund or a connected person of the fund; the person is registered as a fund manager or investment advisor in accordance with the specified regulations; the person is acting in the ordinary course of his business as a fund manager; the person along with his connected persons shall not be entitled, directly or indirectly, to more than 20% of the profits accruing or arising to the eligible investment fund from the transactions carried out by the fund through such fund manager. •However, this amendment shall not result in India if the place of effective management at MISCELLANEOUS Reduction in tax rates of income by way of Royalty or Fees for technical services [Sec.115A] the fund shall not carry on or control and the fund is neither engaged in any activity BUDGET PROPOSAL INDIRECT TAXES with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, and, which are not effectively connected with PE, if any, of the non-resident in India. • It is proposed to amend Sec. 115A of the IT Act to reduce the above tax rate of 25% to 10% on the gross amount. technical services to 10%. • Incidentally, vide the Finance Act, 2013, the rates were increased to 25% from 10% to remove the anomaly between the tax rate sec.115A and DTAAs. However, the same is again proposed to be restored to 10%. • This may prove to be a relief for those non resident taxpayers residing in countries with whom India does not have DTAA as the income from Royalty or fees for technical services arising to them shall be taxable at par with other countries @10% and shall facilitate increased inflow of technology. The reduction of such rate is a well-foresighted move towards the “Make-in-India” perspective. Recently, the Revenue Authorities have been raising demands on the payers/deductors by taking a view that the rate of tax deduction in case of non-residents, not having PAN should be 25% any time is in India. This amendment would Comments have an adverse implication on offshore fund •This amendment is proposed with a view to having fund manager in India because place of obviate the problems faced by small companies effective management has now been defined as and to facilitate the inflow of technology, thus, a place where key management and commercial reducing the rate of tax on royalty and fees for instead of 20% by applying the provisions of sec. 206AA r.w.s 115A. However, with the proposed amendment, the said issue is being put to rest w.e.f FY 2015-16 onwards. decision necessary for the business of an entity as a whole and in substance are made. The proposed insertion of Sec. 9A provides for a welcome exception. •By providing clarity on issues relating to business connection and residential status of offshore investment funds, India could benefit immensely since it would provide a sense of comfort for choosing India as the base for investment managers. This would not only develop the immense job opportunity that this sector provides but would also help in developing the related & complimentary talent pool in India. 5.3 Indirect transfers – Deemed income taxable in India – provisions clarified [Sec. 9(1),47(viab),47(vicc), 271GA and 285A] [w.e.f AY 2016-17] •Presently, Explanation 5 to Sec. 9(1)(i) of the IT Act provides that any share or interest in a company or an entity registered or incorporated outside India shall be deemed to be situated in India if the share or interest derives its value substantially from the assets located in India. Hence, any transfer of such share/interest in a Foreign Company/ entity results in an indirect transfer of Indian assets. However, the term “value” and “substantially” were not defined under the IT Act leading to significant subjectivity and uncertainty. •It is proposed to amend Sec. 9(1)(i) of the IT Act by inserting Explanation 6 to provide that any transfer of interest in a foreign company or entity shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of Indian assets (not net off liabilities) exceeds the amount of H10 crs. and 50 51 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES represents at least 50% of the fair market value foreign company and such transfer does not Comments of all the assets (not net of liabilities) owned by attract tax on capital gains in the country in which such foreign company or entity. the amalgamating company is incorporated; •The Finance Act, 2012 had retrospectively amended (w.e.f 01-04-1962) Sec. 9 of the IT Act, by inserting Explanation 5 to sub-sec. (1) (i) to provide for taxability of indirect transfer. The said explanation clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. However the term “value” and “substantially” were not defined under the Act. •However, certain exceptions have been carved •Any transfer in a demerger, of a capital asset, out vide Explanation 7 and vide amendment in being a share of a foreign company, which derives, Sec. 47 of the IT Act such as: directly or indirectly, its value substantially from •Transfer outside India of share/interest in the foreign company/entity which directly owns the assets situated in India and the transferor (whether individually or along with its AEs), neither holds the management right or control, nor holds voting power or share capital or interest exceeding 5% in such foreign company/ entity; or •Transfer outside India of share/interest in the foreign company/entity which indirectly owns the assets situated in India and the transferor (whether individually or along with its AEs), neither holds the right of management or control in relation to such foreign company/ entity, nor holds any right in, or in relation to, such company or entity which would entitle him to the right of management or control in the the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company, if the shareholders, holding not less than 3/4th in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company and such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated. •In case where all the assets owned, directly/ indirectly, by a company or entity are not located in India, the income of the non-resident transferor, from transfer outside India deemed to accrue or arise in India, shall be only such part of the income as is reasonably attributable to the assets located in India. The relevant rules in this regard shall be prescribed. company or entity that directly owns the assets •It is proposed to insert Sec. 285A of the IT Act situated in India, nor holds such percentage vide which the Indian concern through or in of voting power or share capital or interest in which the Indian assets are held by the foreign such company or entity which results in holding company or the entity shall be under obligation of (either individually or along with associated to furnish information relating to the off-shore enterprises) a voting power or share capital or transaction having the effect of directly or interest exceeding 5% of the total voting power indirectly modifying the ownership structure or total share capital or total interest, as the or control of the Indian company or entity. If case may be, of the company or entity that the Indian entity fails to do so, the income-tax directly owns the assets situated in India. authority in terms of newly inserted Sec. 271GA •Any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company, if at least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated of the IT Act may direct that such Indian concern shall pay, by way of penalty: a sum equal to 2% of the value of the transaction in respect of which such failure has taken place, if such transaction had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern; H5,00,000 in any other case. •Considering the concerns raised by various stakeholders regarding the scope and impact of the amendments by the Finance Act 2012, an Expert Committee under the Chairmanship of Dr. Parthasarathi Shome was constituted by the Government to go into the various aspects relating to the amendments. •The Committee, in this context, recommended that for an indirect transfer to be taxable in India, there should be a prescribed monetary threshold and that the value of the foreign assets should derive at least 50% of its value from the 5.4 BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Indian assets. The above amendments seek to rationalise the provisions of the IT Act and has since accepted most of the recommendations of the Committee on this aspect. However, the recommendations of the Committee to provide exemption to a foreign company listed on a recognised stock exchange and whose shares are frequently traded on the stock exchange; and restructuring within the Group (other than amalgamation and demerger) subject to continuity of 100% ownership does not find its way in the proposed amendments. •It may also be noted that while Sec. 9 of the IT Act was retrospectively amended vide Finance Act, 2012 to provide for taxability of indirect transfer, the above proposed amendments has been made applicable w.e.f. AY 2016-17. •Incidentally, the Delhi High Court in the recent case of Copal Research Ltd. -vs.- DIT (2014) 270 CTR (Del) 223 has considered the threshold of 50% for determining whether the foreign company’s shares derive their value substantially from the Indian Assets and accordingly it was held that since the threshold was not breached, there was no indirect transfer of Indian Assets. CBDT to notify rules for giving foreign tax credit to Indian Residents [Sec.295] [w.e.f 01-06-2015] • Presently, Sec. 91(1) of the IT Act provides for relief to Indian residents in respect of incometax on the income which is taxed in India as well as in the country with which there is no DTAA. The present mechanism is to provide relief as a deduction from the Indian income-tax of a sum calculated on such doubly taxed income, at the Indian rate of tax or the rate of tax of said country, whichever is lower. In case of countries with which India has entered into an agreement for the purposes of avoidance of double taxation Sec. 90 or 90A of the IT Act, a relief in respect of income-tax on doubly taxed income is available as per the respective DTAAs. • Presently, the IT Act does not provide the manner for granting credit of such taxes. Accordingly, it is proposed to amend Sec. 295(2) of the IT Act so as to provide that CBDT may make rules to provide the procedure for granting relief or deduction, as the case may be, of any income-tax paid in any country or specified territory outside India, u/s 90, 90A or 91 of the IT Act, against the income-tax payable under the IT Act. Comments Detailed Rules and procedure for grant of relief or deduction of foreign tax credit is a welcome step towards avoidance of future litigations. 52 53 5.5 INDIA BUDGET 2015-16 Interest paid by Indian branch to foreign banking companies taxable in India and liable to withholding tax [Sec. 9] [w.e.f AY 2016-17] BASICS 5.7 BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS IT Act and Depository Receipt Scheme, 2014 aligned to extend tax benefits to depository receipts issued against specified securities [Sec. 115ACA] [w.e.f AY 2016-17] •CBDT vide its Circular No. 740 dated 17-04- • Accordingly, the PE in India shall be obligated to 1996 had earlier clarified that branch of a deduct tax at source on any interest payable to •The Depository Receipts Scheme, 2014 has and acquisitions are permitted. Also, DRs can foreign company in India is a separate entity either the head office or any other branch or PE, been notified by the Department of Economic be freely held and transferred by both residents for the purpose of taxation under the IT Act and etc. of the non-resident outside India. Further, affairs (DEA) vide Notification F.No.9/1/2013– and non-residents. accordingly TDS provisions would apply along non-deduction would result in disallowance of ECB dated 21-10-2014. This scheme replaces with separate taxation of interest paid to head interest claimed as expenditure by the PE and “Issue of Foreign Currency Convertible Bonds office or other branches of the non-resident, may also attract levy of interest and penalty in and Ordinary Shares (through depository receipt which would be chargeable to tax in India. accordance with relevant provisions of the IT Act. mechanism) Scheme, 1993”. •The principle enshrined in the said Circular is Comments •Since the tax benefits under the IT Act were initially intended to be provided in respect of sponsored GDRs and listed companies only, clause (a) of the explanation Sec. 115ACA of the •The current taxation scheme of income arising IT Act has been amended in order to continue now proposed to be incorporated in the IT Act by While the principle laid down in the said Circular in respect of depository receipts under the Act the tax benefits only in respect of GDR’s against amending Sec. 9(1) of the IT Act to provide that always existed, the same did not find support of is aligned with the earlier scheme which was the issue of:- in the case of a non-resident, being a person the Indian Judiciary who have time and again held limited to issue of Depository Receipts (DRs) ordinary shares of issuing company, being engaged in the business of banking, any interest that in terms of the computation mechanism under based on the underlying shares of the company a company listed on a recognised stock payable by the PE in India of such non-resident the DTAA provisions, deduction of interest paid, by issued for this purpose (i.e. sponsored GDR) or exchange in India; or to the head office or any other part of such Indian branch to Head Office/ Overseas branches, Foreign Currency Convertible Bonds (FCCB) of non-resident outside India shall be deemed is allowed as deduction and at the same time the the issuing company and where the company to accrue or arise in India. Such interest shall said interest paid by the India PE is not chargeable was either a listed company or was to list be chargeable to tax in addition to any income to tax under the provisions of IT Act being income simultaneously. Besides, the holder of such DRs attributable to the PE in India and the PE in India to self. The proposed amendment seeks to nullify was a non-resident only. shall be deemed to be a person separate and decisions in ABN Amro Bank, N.V. -vs.- CIT (2011) independent of the non-resident person of which 241 CTR 552 (Cal), Bank of America -vs.- JCIT it is a PE and the provisions of the IT Act relating (2014) 149 ITD 145 (Mum.), Deutsche bank AG -vs.- to computation of total income, determination of ADIT (2014) 40 CCH 714 (Mum)(ITAT) tax and collection and recovery would apply. 5.6 Concessional tax rate u/s 194LD relating to income by way of interest on certain securities extended upto 30-06-2017 [Sec.194LD] [w.e.f 01-06-2015] • Sec. 194LD presently provides lower withholding • To align the eligibility period u/s 194LC with Sec. tax @ 5% in case of interest payable on or after 194LD, the bill proposes to amend Sec. 194LD to 01-06 -2013 but before 01-06-2015 to FIIs and extend the concessional rate of 5% upto 30-06- Qualified Foreign Investors (QFIs) on their 2017 also. investments in government securities and rupee denominated bonds of an Indian Company if the rate of interest does not exceed the rate notified by the Central Government. Comments The amendment shall incentivise and encourage greater long term off-shore investment by FIIs and QFIs in India. Foreign currency convertible bonds of issuing company. Comments This would align the taxation scheme of income arising in respect of DRs under the IT Act with the •As per the new scheme, Depository Receipts earlier scheme which was limited to issue of DRs (DRs) can be issued against the securities of based on the underlying shares of the company listed, unlisted or private or public companies issued for this purpose (i.e. sponsored GDR) or against underlying securities which can be debt FCCB of the issuing company and where the instruments, shares or units etc. Further, both company was either a listed company or was to the sponsored issues and unsponsored deposits list simultaneously. 54 55 INDIA BUDGET 2015-16 Residency criteria of companies – widened by introduction of Place of Effective Management concept [Sec. 6] 5.8 [w.e.f AY 2016-17] • As per the existing provisions of Sec. 6 of the IT resident in India. The principle of “POEM” is an Act, a company is said to be a resident in India in internationally recognised concept. This concept any previous year, if:- is also recognised and accepted by Organisation for Economic Co-operation and Development it is an Indian company; or during that year, the control and management of its affair is situated wholly in India. •Sec. 6 is proposed to be amended to widen the concept of residency test for companies as under it is an Indian company; or its place of effective management, at any time in that year, is in India. • POEM shall mean a (OECD). The proposed amendment is also in line with the definition of resident as contained in the proposed Direct Taxes Code, 2013. • Since determination of POEM is a fact dependent where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. course for the benefit of the taxpayers as well to file return of income in India and offer their global income for tax. Other complications like dividend, TDS, etc. may also arise which will require clarification. Business houses would have to revisit their Group Structure to align it with the new test of residency. in case of shell companies which from India where the companies used to avoid becoming a resident in India by simply holding a board meeting outside India. •Based on the international precedents and limited jurisprudence available in India, the criteria for determining POEM generally is where the board meetings are usually held, where the Chief Executive Officer & other senior •Now, with the POEM Concept finding place officials usually carry on their activities, where under the law, if at any time during the the day to day management of the company is previous year, such effective management is in carried on, where the company’s head quarters India, such companies would be regarded as are located etc. 5.9 BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Comments Act to provide that income from transactions in •The Revenue has been issuing notices for securities (other than short term capital gains payment of Minimum Alternate Tax in respect of arising on transactions on which securities capital gains on sale of shares by FIIs which are transaction tax is not chargeable) arising to exempt under the Treaty provisions. The above a FII, shall be excluded from the chargeability controversy has been put to rest by virtue of the of MAT and the profit corresponding to such above amendment. However, no clarity has been income shall be reduced from the book profit. provided w.r.t other foreign companies earning The expenditures, if any, debited to the profit loss capital gains exempt under the Treaty. account, corresponding to such income are also proposed to be added back to the book profit for the purpose of computation of MAT. 5.10 be that those companies would be required •The amendment was primarily to plug the are incorporated outside India but controlled • It is now proposed to amend Sec. 115JB of the IT in determination of POEM would be issued in due Comments loophole BUDGET PROPOSAL DIRECT TAXES exercise, a set of guiding principles to be followed as tax administration. The ramification could place BASICS Amendment in MAT provisions for FIIs [Sec. 115JB] [w.e.f AY 2016-17] •Vide Finance Act (No.2), 2014 it was provided Act, 1992 would be treated as a capital asset. that any securities held by FIIs which has Consequently, the income arising to a FII from invested in such securities in accordance transactions in securities would always be in the with the regulations made under the SEBI nature of capital gains. Furnishing of information relating to all payments to non-residents [Sec. 195(6) and 271I] [w.e.f 01-06-2015] • Presently, Sec. 195(1) of the IT Act provides that responsible for paying any sum, whether any person responsible for paying any interest chargeable to tax or not, shall furnish the (other than interest referred to in Sec. 194LB information as prescribed. or 194LC or 194LD of the IT Act) or any sum chargeable to tax (not being salary income) to a non-resident, not being a company, or to a foreign company, shall deduct tax at the rates in force. Further, for such remittances which are chargeable to tax, such person is also required to furnish information in the manner prescribed in Sec. 195(6). •Now, it is proposed to amend the provisions of Sec. 195(6) of the IT Act to widen the scope of furnishing the information so that the person • It is further proposed to insert Sec. 271I to provide that in case of non-furnishing of information or furnishing of incorrect information u/s 195(6) of the IT Act, a penalty of H1,00,000 shall be levied. Comments The present mechanism of obtaining of information was restricted only to remittances chargeable to tax. However, the same defeats one of the main principles of obtaining information for foreign remittances i.e. to identify the taxable remittances on which tax was deductible but was not deducted. 56 57 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES SECTION 6 PERSONAL TAXATION MISCELLANEOUS 58 59 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Tax rates other than Corporate 6.1 [w.e.f AY 2016-17] For individuals, Hindu Undivided Family, Association of Persons and Body of Individuals Income Slabs (H) Tax Rates* 0 - 2,50,[email protected] Nil 2,50,001 – 5,00,000+ 10.30% of income exceeding H2,50,000 5,00,001 – 10,00,000 H25,750 plus 20.60% of income exceeding H5,00,000 10,00,001 –1,00,00,000 H1,28,750 plus 30.90% of income exceeding H10,00,000 1,00,00,001 and above H29,09,750 plus 34.608%# of income exceeding H1,00,00,000 * Tax rates are inclusive of Education Cess and Secondary Higher Education Cess @ 2% and 1% respectively. # Surcharge has been increased from 10% to 12% in case total income exceeds H1 cr. @ In case of resident individual of age 60 years or more (Senior Citizen) the basic threshold limit of H3,00,000 remains unchanged. In case of resident individual of age 80 years or more (Very Senior Citizen) the basic threshold limit of H5,00,000 remains unchanged. + Resident individual having total income less than H5,00,000 is eligible to claim Tax Rebate u/s 87A, being lower of tax on total income or H2,000. Deduction under chapter VI-A for individuals/HUFs 6.2 Sl. No. Particulars Page 6.1 Tax Rates other than Corporate 59 6.2 Deduction under chapter VI-A for Individuals/HUFs 59 6.3 TDS mechanism on withdrawal of accumulated balance from Employees Provident Fund Scheme (EPFS) 61 6.4 Enabling of filing of Form 15G/15H for payment made under life insurance policy 61 6.5 Enhancement of threshold limit of Transport Allowance 61 [w.e.f AY 2016-17] Sl. No. Section 1 80C 2 80CCC 3A 80CCD(1) 3B 80CCD(1B) 4 80CCE 5 80D Particulars Payment of Life Insurance Premium, etc. Contribution to certain Pension funds Contribution to National Pension scheme (NPS) Existing Limit (H) Proposed Limit (H) 1,50,000 1,50,000 1,00,000 10% of salary or GTI (restricted to 1,50,000 Not Applicable Aggregate ceiling for Sl. Nos. 1, 2 & 3A Health Insurance Premium for Individual/HUF 10% of salary or GTI H1,00,000) 1,50,000 Additional deduction up to H50,000 over deduction allowed u/s 80CCD(1) 1,50,000 Please refer table below 60 61 Sl. No. 6 Section 80DDB 7 80U Particulars INDIA BUDGET 2015-16 Existing Limit (H) Proposed Limit (H) 40,000 60,000 60,000 40,000 60,000 80,000 Medical treatment for Specified Disease - Individual - Senior Citizen - Very Senior Citizen Deduction in case of person with disability - Disabled - Severely disabled 50,000 1,00,000 75,000 1,25,000 Notes: a.Deposit made by parent or legal guardian of girl child under Sukanya Samriddhi Account Scheme eligible for deduction u/s 80C. Corresponding interest income and withdrawal from such account also exempt u/s 10(11A). Proposed amendment to take effect retrospectively w.e.f 01-04-2015. b. For Sec. 80DDB, instead of prescribed Medical certificate, prescription from the prescribed specialised doctors shall be obtained (whether or not working in Government hospital). BASICS 6.3 Scenario No one in the family is above 60 years No one in family is above 60 years & either one of the parents are above 60 years Atleast one member of family is above 60 years and either one of the parents are above 60 years Medical expenditure (where at least one member is above the age of 80 years without any health insurance) Self, Spouse & Dependant Children (family) 15,000 15,000 Parents (whether dependant or not) 15,000 20,000 Self, Spouse Parents Total & Dependant (whether deduction Children dependant (family) or not) 30,000 35,000 25,000 25,000 25,000 30,000 Total deduction 50,000 55,000 MISCELLANEOUS TDS mechanism on withdrawal of accumulated balance from Employees Provident Fund Scheme (EPFS) [Sec. 192A] [w.e.f 01-06-2015] the employee considering it as income under withdrawal of accumulated balance by an the head salaries. However, trustee does not employee from RPF is exempt from tax, provided generally have details of year wise taxable the employee has rendered continuous service income of the employee. with the employer for more than 5 years except in specified circumstances. In case of premature withdrawal, the exemption is withdrawn and the entire amount is taxable. Rule 10 of the Part A of the Fourth schedule requires trustees of the RPF or the person authorized thereof to deduct tax at the time of making payment to 6.4 As proposed BUDGET PROPOSAL INDIRECT TAXES •Under the existing provision of Sec. 10(12) Maximum permissible deduction u/s 80D Under existing provisions BUDGET PROPOSAL DIRECT TAXES • In order to simplify the TDS application on such withdrawal, it is proposed to insert Sec. 192A to provide for fixed rate of TDS @ 10% on withdrawal of H30,000/- or more. Further, in case the payee does not furnish PAN, tax shall be deducted at the maximum marginal rate. Enabling of filing of Form 15G/15H for payment made under life insurance policy [Sec. 197A] [w.e.f 01-06-2015] •Finance (No.2) Act, 2014, inserted Sec. 194DA •To avoid such anomaly, it is proposed to amend provides for deduction of tax at source @ 2% Sec. 197A(1A) & 197A(1C), to provide non from payments made under life insurance deduction of tax at source u/s 194DA, in case policy to residents which are chargeable to tax. where tax on total income is likely to be nil However, there was no corresponding provision during the previous year, subject to submission for non deduction of tax in case total taxable of self declaration in Form No.15G and 15H. income is nil. 20,000 NA 20,000 NA 40,000 NA 30,000 30,000 30,000 30,000 60,000 60,000 Comments •Clause 2(a) & Clause 2(b) of Sec. 80D prescribes the threshold limit for claiming deduction u/s 80D of medical insurance premium paid by an individual to keep in force an insurance on the health of the individual, spouse, dependent children and parents at H15,000 each. The Memorandum to Finance Bill specifies that the threshold limit of deduction u/s 80D(2)(a) and 80D(2)(b) shall increase from H15,000 to H25,000. However in the Finance Bill 2015, corresponding amendments has not been proposed in Clause 2(a) & Clause 2(b) of Sec. 80D. It is expected that this anomaly would be rectified while passing the Finance Bill. 6.5 Enhancement of threshold limit of Transport Allowance [Rule 3 of the IT Rules] [w.e.f AY 2016-17] •The Budget also took a baby step in hiking the Chennai have been left untouched. The hike in tax-free transport allowance limit of salaried the tax-free limit will cut tax by H2,966 in the employees from H800 to H1,600 pm. The highest 30% tax bracket. Tax cut will be lower at aforesaid allowance was originally introduced in H1,978 in 20% tax bracket. In the lowest 10% tax the Finance Act 1998 w.r.e.f 01-08-1997. Since bracket (those earning up to H5 lakh), tax cut will then, the same has unfortunately remained be limited to H989, or just H82 pm. unchanged. The allowances of many such other limits i.e. medical reimbursements, LTA, HRA in Cities other than Mumbai, Kolkata, Delhi & • The proposed amendment will be made in Rule 3 of the IT Rules. 62 63 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES SECTION 7 OTHERS MISCELLANEOUS 64 65 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS Sl. No. 7.10 BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Particulars Page Provisions relating to Settlement Commission: 73 7.10.1 Widening the scope of filing application before Settlement Commission 74 7.10.2 Rectification Order by Settlement Commission 74 7.10.3 Immunity by Settlement Commission 75 7.10.4 Scope of Abatement of proceedings before Settlement Commission 75 enlarged 7.10.5 Bar on subsequent application 75 7.10.6 Application of seized Cash 75 7.10.7 Levy of Interest u/s 234B in Settlement Cases 76 7.11 Levy of Interest u/s 234B in other than settlement cases 76 7.12 Modification in the definition of ‘accountant’ 76 7.13 Sums received as advance or otherwise in relation to transfer of immovable 77 property now covered with the ambit of disallowance u/s 269SS & 269T Sl. No. 7.1 Particulars Page Taxation Regime for Real Estate Investment Trust (‘REIT’) and Infrastructure Investment Trust (‘Invit’) 66 7.2 Time Limit to Intimate AO about accumulated fund not applied for Charitable or Religious Purposes 70 7.3 Exemption of income of Swachh Bharat Kosh & Clean Ganga Fund 70 7.4 Mandatory furnishing of ROI by universities and hospitals referred to in Sec. 10 (23C) 70 7.5 Definition of ‘Charitable Purpose’ to include Yoga and rationalisation of scope of 71 Pass through status for Category – I & Category – II Alternative Investment Funds 71 7.7 Abolition of Wealth Tax Act, 1957 72 7.8 Withdrawal of exemption from TDS on payments to transport contractors owning 73 more than ten goods carriage Assessment of Income of a person other than the person in whose case search is initiated 78 an immovable property in cash 7.15 Enhancement of income limit for decision by Single Member Bench of ITAT 78 7.16 Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax 78 7.17 73 Procedure for appeal by revenue when an identical question of law is pending 79 before Supreme Court 7.18 (‘AIF’) 7.9 Penalty for acceptance of advance or otherwise or repayment thereof for transfer of Collection at Source (TCS) advancement of any other object of general public utility 7.6 7.14 Rationalisation of provisions relating to deduction of tax at source on interest (other 79 than interest on securities) 7.19 Criteria for issuance of notice u/s 148 simplified 81 7.20 No requirement of furnishing of TAN for notified deductors/collectors 81 7.21 Exemption to specified income of Core Settlement Guarantee Fund 82 7.22 Order passed u/s 10(23C) appealable before ITAT 82 7.23 Rationalisation of MAT provisions for members of an AOP 82 7.24 Key features of proposed new Law on Black Money stashed abroad 83 7.25 More Comprehensive Anti-Benami Bill on cards 84 66 67 7.1 INDIA BUDGET 2015-16 Taxation Regime for Real Estate Investment Trust (‘REIT’) and Infrastructure Investment Trust (‘Invit’) [Sec. 2(13A), 10(23FCA), 111A(1), 115UA[ w.e.f AY 2016-17] and Sec. 194-I & 194-LBA [w.e.f 01-06-2015] the alternative investment avenues in India’s real estate and infrastructure sector, Securities and Exchange Board of India (SEBI), on 10th August, 2014 had proposed draft regulations relating to two new categories of investment vehicles namely, REIT and InvIT. •Subsequently, on 26th September, 2014, SEBI notified final regulations on REITs and InvITs. While the final regulations capture certain key amendments, greater clarity has been granted by defining certain important terms in the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (SEBI REIT Regulations) dated 26 September, 2014. • As per the SEBI REIT Regulations, parties to the REIT include sponsor, re-designated Sponsor, manager and trustee. These are defined as under: “Sponsor” has been defined to include a person(s) who set(s) up the REIT and designated as such at the time of application made to SEBI. i. REIT assets in trust for the benefit of the unit holders, in accordance with these regulations. B. Sponsor Unit holder of the trust (other than sponsor) & Trust Capital gain will be deferred and taxed at the time of sale of units of the business trust Not Applicable No Change Not Applicable defined to include a company or LLP in which i. the REIT holds or proposes to hold controlling interest and minimum 50% equity stake, amongst other criteria. •As regards taxation, while, partial pass through was given for REITs / InvITs in Finance Act 2014, Benefit of concessional regime is not available at the time of off loading of units of business trust Not Applicable REITs / InvITs and pass through status on rental income for REITs has been proposed in Finance • Finance Bill 2015 propose to substitute “business trust” to mean a trust registered as an InvIT under Securities and Exchange Board of India Long term capital gain will be exempt u/s. 10(38) of IT Act (Infrastructure Investment Trusts) Regulations, 2014 made under SEBI Act, 1992 or REIT under Securities and Exchange Board of India (Real Short term capital gain will be taxed @15% Estate Investment Trusts) Regulations, 2014 stock exchange in accordance with aforesaid regulations. cover •In order to rationalise the provision, following a company or LLP or body corporate proposal are made under the Finance Bill, 2015 incorporated in India which manages assets which are summarised hereunder: Not Applicable STT shall be levied on sale of units of business trust on similar lines as in case of unlisted equity shares under an IPO Bill, 2015 responsibilities of the Sponsor. Benefit of concessional regime is available at the time of off loading of units of business trust Parity of tax treatment on off loading of units vis-a-vis offloading of underlying shareholding through an IPO further rationalization of the capital gains tax for to mean any person who has assumed the to Proposed amendments Sale of listed units of business trust through Initial Offer at the time of listing of business trust on recognised stock exchange which are required to be listed on recognised defined Sponsor Unit holder of the trust (other than sponsor) & Trust MISCELLANEOUS development activities through an SPV, which is made under SEBI Act, 1992 and the units of been BUDGET PROPOSAL INDIRECT TAXES Exchange of shares of SPVs with units of the business trust “Trustee” means a person who holds the “Re-designated Sponsor” has been defined has Sl. No. operational activities of the REIT. •Also, a REIT is permitted to undertake property BUDGET PROPOSAL DIRECT TAXES Existing Provisions A •With an objective to promote and systematize “Manager” BASICS and investments of the REIT and undertakes C. ii. Cost of units of business trust to be considered as cost of shares to the sponsor Not Applicable No Change iii. Holding period of shares to be included in the holding period of such securities Not Applicable No Change Not Applicable Sale of listed units of business trust Long term capital gain will be exempt u/s. 10(38) of IT Act Short term capital gain will be taxed @15% Not Applicable No Change Not Applicable 68 69 Existing Provisions Sl. No. D. ii. Not Applicable Not Applicable Trust Interest received from SPV is not taxable and, no withholding of tax by SPV BASICS Proposed amendments Sponsor Unit holder of the trust (other than sponsor) & Trust Interest and withholding tax thereon i. E. Sponsor Unit holder of the trust (other than sponsor) & Trust INDIA BUDGET 2015-16 Trust Trust to withhold tax @5% on payments to non-resident unit holder and 10% in case of resident unit holder Trust No Change Sl. No. Sponsor Trust Dividend received from SPV to be exempt Income distributed by business trust to unit holder will be exempt Trust Trust to withhold tax @5% on payments to nonresident unit holder and 10% in case of resident unit holder No Change Rental income taxed at MMR No tax in the hands of business trust Unit holder of the trust (other than sponsor) REIT to withhold tax @10% in case of resident unit holder and at the rate in force on any sum chargeable to tax in case of non-resident unit holder. 01-06-2015 where income is credited or paid to a business trust directly. Trust No Change Distributed income in the nature of rental income arising on real estate asset owned directly by REIT shall be deemed to be income of unit holder chargeable to tax Unit holder of the trust (other than sponsor No Change Rate in force in relation to an AY for the purpose of TDS u/s. 195, shall be the rate specified in the Finance Act or the rate specified in an agreement u/s. 90(2) between India and Government of any country outside India, whichever is beneficial Disposal of assets by business trust Trust Not Applicable Taxable as capital gain at applicable rates. No Change Not Applicable Not Applicable Other Income Any other income taxable at MMR Business trust, being REIT No TDS u/s. 194-I of IT Act w.e.f Income distributed by business trust to unit holder will be exempt G. Sponsor Unit holder of the trust (other than sponsor) Unit holder of the trust (other than sponsor) Not Applicable Proposed amendments Business trust, being REIT Income distributed by business trust to unit holder will be exempt DDT to be paid by SPV and not by Trust F. Unit holder of the trust (other than sponsor) & Trust No Change MISCELLANEOUS Unit holder of the trust (other than sponsor) & Trust Rental income arising to REIT on real estate assets held directly Dividend income Income distributed by business trust will be exempt BUDGET PROPOSAL INDIRECT TAXES Existing Provisions H. Not Applicable BUDGET PROPOSAL DIRECT TAXES Business trust, being REIT No tax in the hands of business trust REIT to withhold tax @10% in case of resident unit holder and at the rate in force on any sum chargeable to tax in case of non-resident unit holder. No TDS u/s. 194-I of IT Act w.e.f 01-06-2015 where income is credited or paid to a business trust directly. Unit holder of the trust (other than sponsor) Distributed income in the nature of rental income arising on real estate asset owned directly by REIT shall be deemed to be income of unit holder chargeable to tax Rate in force in relation to an AY for the purpose of TDS u/s. 195, shall be the rate specified in the Finance Act or the rate specified in an agreement u/s. 90(2) between India and Government of any country outside India, whichever is beneficial Comments • Pass through status is given to the rental income arising to REIT on real estate assets held directly. •REITs enable investors to channelise their investments into India’s real estate sector and infrastructure sector through a regulated mechanism. REITs and INvITs would also provide liquidity to real estate and infrastructure projects. 70 71 7.2 INDIA BUDGET 2015-16 Time Limit to Intimate AO about accumulated fund not applied for Charitable or Religious Purposes [Sec. 11] [w.e.f AY 2016-17] BASICS 7.5 BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Definition of ‘Charitable Purpose’ to include Yoga and Rationalisation of scope of advancement of any other object of general public utility [Sec. 2(15)] [w.e.f AY 2016-17] • Existing provision of Sec. 11(2), does not specify Comments the time limit for furnishing of Form 10 r.w.r. 17 •Hitherto, time limit for filing of Form 10 was •Sec. 2(15) defines ‘Charitable purpose’ to shall not be charitable purpose unless such of IT Rules to be filed before the AO informing prescribed under Rule 17. The said Rule provides include activity in the nature of relief of the poor, activity is undertaken in the course of actual him about accumulation of fund which has not that such form should be furnished before expiry education, medical relief and advancement of carrying out of such advancement of any other been applied for charitable purpose. Further the of time allowed u/s 139(1). As the Rule was not any other object of general public utility. Proviso object of general public utility and the aggregate existing provisions allows for such accumulation, mandatory in nature, the issue was subjected to to Sec. 2(15), specifies that advancement of receipts from such activity or activities, during subject to conditions specified, for 10 years. litigation. Supreme Court in CIT –vs-. Nagpur any other object of general public utility shall the previous year, do not exceed twenty percent Hotel Owners’ Association (2001) 247 ITR 201 not be a charitable purpose, if it involves the of the total receipts, of the trust or institution (SC) held that details have to be furnished before carrying on of commercial activity. However, this undertaking such activity or activities, for the completion of the assessment proceedings and restriction shall not apply if the aggregate value previous year. any information supplied subsequent to the of the receipts from the activities referred above completion of assessment cannot be taken is H25,00,000/- or less in the previous year. • In order to remove ambiguity regarding the time limit, the proposed amendment specifies that such form shall be filed before due date of filing ROI u/s 139(1). In case of failure to do so, benefit of accumulation would not be available and such income would be taxable at the applicable tax rate as proposed in Sec. 13(9). •Further, accumulation of funds as per the manner specified is restricted to 5 years. into consideration. The proposed amendment nullifies the decision of Supreme Court allowing the assessee to file the details after filing ROI but before completion of assessment. 7.3 the Hon’ble Hyderabad ITAT in ACIT –vs.- Divya received international recognition too by the UN, Yog Mandir Trust (2013) 459 TS (Hyd.) wherein it it is proposed to include yoga within the ambit of has been held that yoga can be safely accepted as activities in the nature of ‘Charitable Purpose’. a system fit into the definition of ‘medical relief’ advancement of any other object of general and providing yoga shivir/camps can be covered in ‘imparting education’. public utility as mentioned in the above definition [w.r.e.f AY 2015-16] • Existing provisions of Sec. 10(23C) of the IT Act provide for exemption from tax in respect of income of certain charitable funds or institutions. Considering the importance of “Swachh Bharat Kosh” and 7.6 “Clean Ganga Fund”, it is proposed to include these funds in the list of eligible entities entitled for exemption u/s 10(23C). 7.4 The above amendment fortifies the view taken by •In order to promote Yoga which has recently •Further, it has been proposed to provide that Exemption of income of Swachh Bharat Kosh & Clean Ganga Fund [Sec. 10(23C)] Comments Mandatory furnishing of ROI by universities and hospitals referred to in Sec. 10 (23C) [Sec. 139(4C)] Particulars Category - I Category – II Category – III Legal form Fund can be set up as a Trust, Company, LLP or any other body corporate Criteria Invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the Government or regulators consider as socially or economically desirable Investment Condition Funds shall invest not more than 25% of the corpus in Fund shall invest not more one Investee Company than 10% of the corpus in one Investee Company Tenure Minimum tenure of 3 years • Under the existing provisions of Sec. 139, all entities whose income is exempt u/s 10(23C), other than university or educational institution specified in Sec. 10(23C) (iiiab) and hospital or other institution specified in Sec. 10(23C)(iiiac), are mandatorily required to file their return of income. 10(23C)(iiiac) shall now be mandatory required to file return of income. [w.e.f AY 2016-17] • Vide SEBI (AIF) Regulations, 2012, AIFs have been classified into following three categories:- [w.e.f AY 2016-17] • It is proposed to amend Sec. 139(4C) to provide that entities covered under Sec. 10(23C) (iiiab) and Sec. Pass through status for Category – I & Category – II Alternative Investment Funds (‘AIF’)[Sec. 115UB] Private equity funds or debt funds which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements Funds that employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives No tenure specified 72 73 INDIA BUDGET 2015-16 BASICS •Vide Finance Act, 2013, Sec. 10(23FB) r.w.s 115U was amended to provide the scope of taxability of income of certain Category I of AIF. • It is proposed to insert Sec. 115UB to provide specific taxability regime for Category – I & Category – II 7.8 BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Withdrawal of exemption from TDS on payments to Transport contractors owning more than ten goods carriage [Sec.194C(6)] [w.e.f 01-06-2015] AIFs as well. The proposals are summarised hereunder: Particulars Category - I Taxability in hands of AIF Category – II Category – III • Income in the nature of profits and gains of business or profession shall be taxable at the applicable rates. • Other Income such as Capital Gain & Income from Other Sources shall be exempt from tax. Taxability in hands of Unit holder of AIF • Income in the nature of profits and gain of business or profession received from AIF shall be exempt. •Hitherto, as per sub-section (6) of Sec. 194C The IT Department is of the view that as per the amended vide Finance (No. 2) Act, 2009 w.e.f provisions of Sec. 194(6) tax is not required to 01-10-2009, no tax was required to be deducted be deducted on payments made to contractors from any sum paid to a transport contractor who owns goods carriage and not on transport provided such contractor furnishes his PAN. operators. Further, the abovementioned benefit •It is proposed to amend sub-section (6) of the Sec. 194C to restrict the benefit of non deduction • Income received in the nature of Capital Gain & Income from Other Sources shall be chargeable to tax of tax on payment made to only those transport • Income received by AIF would be exempt from TDS requirement. any time of the previous year and a declaration • TDS @ 10% under newly proposed Sec. 194LBB shall be deducted by AIF at the time of payment of income in the nature of Capital Gain & Income from Other Sources to unit holder to this effect is furnished. Comments Carry forward and set-off of losses • Losses shall be allowed to be set off and carried forward to AIF as per provisions of Chapter VI but same cannot be transferred to unit holders taxpayers for their alleged failure to deduct tax at Dividend Income • Provisions of DDT shall not apply to the income paid by AIF to its unit holders Return of Income(ROI) • Mandatory for AIF to file its ROI u/s 139 Withholding tax Applicability 7.7 • Sec. 115UB shall also apply to Certain category I of AIF which was covered by Sec. 115U Abolition of Wealth Tax Act, 1957 [w.e.f AY 2016-17] contractors owning ten or less goods carriage at The IT Department has issued notices to large source on payments made to transport operator. 7.9 person exceeds H30,00,000 on the valuation date to be furnished in the wealth-tax return shall against such other person. i.e. last date of the previous year. be captured by suitably modifying income-tax surcharge rate by 2% to be levied on tax payers earning taxable income exceeding H1 cr. H9,000 cr. Further it will lessen the compliance burden of the tax payers and also administrative burden of the IT Department 2015. used for any information contained therein. over such other person and he shall proceed in increase in tax collection from H1,008 cr. to cure the defect and made applicable w.e.f 01-06- requisitioned “belong to” any person other than relating to assets which is currently required is to be compensated by increase in the existing the legislature. Hence the amendment is made to or pertain to”. Further the term “relate to” is or HUF or company, if the net wealth of such same with additional surcharge of 2% will result 194C(6) does not convey the desired intention of seized or requisitioned with the word “pertains shall be handed over to the AO having jurisdiction •The revenue loss on account of such abolition stated that the language of the current Sec. that the books of account or document seized or and entities, it is proposed that information •The abolition of wealth tax and substituting the The memorandum to the Finance bill has itself during the course of a search, the AO is satisfied 1957, wealth-tax @ 1% is levied on an individual Comments seeking its intervention. used in relation to books of account or document documents or assets seized or requisitioned commensurate with the high cost of collection. Commerce has also given a letter to the CBDT • Existing provisions of Sec. 153C, provides that if •Further, to track the wealth held by individuals since revenue collection from the same is not TDS certificate. The Associated Chamber of [w.e.f 01-06-2015] •Under the existing provisions of Wealth tax Act, return form. from state to state and is not able to collect the Assessment of Income of a person other than the person in whose case search is initiated [Sec. 153C] the person searched, the books of accounts or •It is proposed to abolish the Wealth Tax Act, is available only to small transporters who move • It is proposed to substitute the word “belong to” 7.10 Comments Both the term “pertain to” & “relate to” are wider in amplitude than the word “belong to” and seeks to encompass within its ambit those cases where photocopy of the original document is seized from a person. Provisions relating to Settlement Commission 74 75 7.10.1 INDIA BUDGET 2015-16 Widening the scope of filing application before Settlement Commission [Sec. 245A] BASICS 7.10.3 [w.e.f 01-06-2015] BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Immunity by Settlement Commission [Sec. 245H] [w.e.f 01-06-2015] •Under the existing provisions, an assessee • Hitherto, assessee can file application in • Presently, Settlement Commission on fulfilment of certain conditions can grant immunity from penalty may make an application before Settlement respect of those years for which proceedings & prosecution. However, there is no requirement to record reasons in writing as to why immunity has Commission (ITSC) in respect of assessment have commenced on 1st day of the assessment been granted. year or years which may be pending before AO year and assessment has not been completed on date on which application is made. Presently, by virtue of clause (iv) of Explanation to Sec. where a notice is issued u/s 148, the assessee is 245A(b). eligible to make application to ITSC only for that year and not for other assessment years. •It is now proposed that ITSC is to record the reasons in writing while granting immunity from above proceedings. It is proposed to amend the above clause to provide that a proceeding for any assessment It is proposed to amend clause (i) of the year shall be deemed to have been commenced Explanation to Sec. 245A(b) to enable the from the date on which the return of income has assessee to approach ITSC even for other been furnished u/s 139 or in response to notice assessment years where the return has been u/s 142 and concluded on the date on which the filed and notice u/s 148 could have been issued assessment is made or on the expiry of 2 years but not been issued on that date. from the end of relevant assessment year, where no assessment is made. 7.10.4 Scope of Abatement of proceedings before Settlement Commission enlarged [Sec. 245HA] [w.e.f 01-06-2015] • The existing provision of Sec. 245HA(1) provides for different situations where abatement of proceedings before Settlement Commission takes place. •It is proposed to insert clause (iiia) to Sec. 245HA(1) to provide that where an order has been passed by the Settlement Commission u/s 245D(4) without providing the terms of settlement, the same shall abate on the day on which such order u/s 245D (4) was passed. 7.10.2 Rectification Order by Settlement Commission [Sec. 245D(6B)] 7.10.5 [w.e.f 01-06-2015] •Presently, Settlement Commission (ITSC) may been made (before the end of the limitation amend order passed u/s 245D(4) to rectify its period of 6 months from the end of the mistake apparent from record within 6 months month in which the order u/s 245D(4) was from the date of order. passed ) by the Principal Commissioner or •It is now proposed to substitute Sec. 245D(6B) Commissioner or applicant. to provide ITSC may rectify its order passed u/s Comments 245D(4) as follows : • The (a) Within 6 months from the end of the month in which the order u/s 245D(4) was passed or (b) Within 6 months from the end of the month in which application for rectification has proposed Bar on subsequent application [Sec. 245K] [w.e.f 01-06-2015] •Presently, a person can approach ITSC once in a life time. However, such person can again approach ITSC through a related person. This defeat the purpose of restricting the opportunity of approaching the Commission only once. • It is now proposed to amend Sec. 245K to provide that even the related persons as defined in Sec. 245K, would also not be considered as eligible for filing application. amendment provides for additional time where the assessee or Revenue files an application towards the end of limitation period i.e. 6 months from the date of the order 7.10.6 Application of seized Cash [Sec. 132B] [w.e.f 01-06-2015] passed u/s 245D(4) at present. • It is proposed to amend Sec. 132B allowing the assessee to adjust seized assets against the tax liability arising in settlement application in search cases 76 77 7.10.7 INDIA BUDGET 2015-16 Levy of Interest u/s 234B in settlement cases [Sec. 234B] [w.e.f 01-06-2015] BUDGET PROPOSAL DIRECT TAXES BASICS partnership ‘accountant’. In order to ensure that such audit Liability Partnership Act, 2008 proposed that those persons who are not eligible •In order to remove the anomaly, it is proposed levied u/s 234B(1) will be increased or decreased to insert sub-section (2A) to Sec. 234B to clarify on the basis of the income determined among the time period for levying interest u/s 234B in others, in the order passed by the Settlement settlement cases as below: Commission u/s 245D(4). However unlike Sec. 234B(3) there is no specific provision in Sec. 234B specifying the period for which the aforesaid interest shall be computed. • Further the Supreme Court in Brij Lal & Others When an application is made to ITSC, @1% for appointment as an auditor of a company u/s 141(3) of the Companies Act, 2013 shall also not be considered as an “accountant” for the purpose of the IT Act. Amendment on similar lines is proposed for non-company assessee. pm or part thereof on the additional amount •It is also proposed to enlarge scope of of income tax from the 1st day of assessment disqualifications for persons who are authorised year to the date of making such application to represent the assessee in I.T. matters. As and per the amendments proposed in Sec. 288(4), –vs.- CIT (2010) 194 Taxman 566 (SC) has held On passing of the order u/s 245D(4), @1% pm that interest u/s 234B is leviable only up to the or part thereof on the incremental tax levied in date order u/s 245D(1) is passed i.e. till date of the order from the 1st day of assessment year admission of application and not till the date of to the date on which the order is passed. order u/s 245D(4). a person convicted by a court of an offence involving fraud shall not be eligible to act as an authorised representative of the assessee in I.T. cases for a period of 10 years from the date of such conviction. 7.11 [w.e.f 01-06-2015] •Vide the existing provision of Sec. 234B(3), •Sec. 234B(3) is proposed to be substituted interest u/s 234B is computed on the tax on proposing to compute interest u/s 234B on the incremental income over the income determined tax on incremental income over the income in the intimation u/s 143(1) or order u/s 143(3), determined in the intimation u/s 143(1) or on for the period from the date of determination of regular assessment, for the period from 1st day total income u/s 143(1) or on regular assessment of assessment year to the date of determination to the date of determination of total income u/s of total income u/s 147 or 153A. 147 or 153A. 7.12 [w.e.f 01-06-2015] per the ‘accountant’ Explanation means to Chartered 288(2), a. The expression “accountant” shall mean Accountant a Chartered Accountant who holds a valid within the meaning of Chartered Accountants certificate of practice under the Chartered Act, 1949. Accountants Act, 1949. • It is proposed to revise the definition of the term ‘accountant’ as follows:- b.Various provisions of the IT Act (e.g. Sec. 44AB, Sec. 80-IA, Sec 115JB etc.) require an assessee (b) an officer or employee of the company (c) a person who is a partner, or employee of an officer or employee of the company (d) a person who, or his relative or partner holds any interest/security in the company, its holding, subsidiary, fellow subsidiary, associate etc or is indebted to them (e) a person or a firm who has business relationship with the company, its holding, subsidiary, fellow subsidiary, associate etc. (f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel (g) a person who is in full time employment (h) a person who has been convicted by a court of an offence involving fraud and a period of ten auditors of the company:- years has not elapsed from the date of such (a) a body corporate other than a limited liability 7.13 conviction Sums received as advance or otherwise in relation to transfer of immovable property now covered with the ambit of disallowance u/s 269SS & 269T [w.e.f 01-06-2015] Comments that no person shall receive any sum for transfer • The amendment is proposed to curb generation of immovable property in excess of H20,000 of black money arising on transfer of immovable otherwise than by account payee cheque, property in cash. account payee bank draft or electronic clearing Sec. Limited following persons shall not be appointed as the system. • As the As per Sec. 141(3) of the Companies Act, 2013 •It is proposed to amend Sec. 269SS, to provide Modification in the definition of ‘accountant’ [Sec. 288] under elsewhere Comments Levy of Interest u/s 234B in other than settlement cases [Sec. 234B] registered MISCELLANEOUS to obtain audit reports/certificates from an reports/certificates are not influenced, it is •Presently, Sec. 234B(4) specifies that interest BUDGET PROPOSAL INDIRECT TAXES •The proposed amendment seeks to nullify the decision in CIT –vs.- Madhav Enterprises (P) Ltd. •Similarly it is proposed to amend Sec. 269T to (2013) 356 ITR 588 (Guj) wherein it has been held provide that no person shall repay any advance that the provision of Sec. 269T is not applicable received by it for transfer of immovable property in case of repayment of earnest money/advance in excess of H20,000 otherwise than by account received for transfer of immovable property. payee cheque, account payee bank draft or electronic clearing system 78 79 7.14 INDIA BUDGET 2015-16 Penalty for acceptance of advance or otherwise or repayment thereof for transfer of an immovable property in cash [Sec. 271D & 271E] loss) under the provisions of the IT Act in such assessee the evidence or proof or particulars of form and manner as may be prescribed. 7.17 are proposed to be covered by making consequential amendment in Sec. 271D & 271E respectively [w.e.f 01-06-2015] b) The application before the ITAT is required to the assessee to file an application before the IT be filed within 60 days from the date of receipt Authorities for disposal of case of the relevant of order of CIT(Appeals). year in accordance with the decision of the High Court & Supreme Court on identical question of •In Sec. 255(3), it is proposed to enhance the monetary limit for disposal of cases by a single member c)The application shall be filed only when an acceptance is received from the assessee to law in other years, it is proposed to introduce a bench of ITAT from H5,00,000 to H15,00,000 (being the total income computed by the AO). 7.16 Procedure for appeal by Revenue when an identical question of law is pending before Supreme Court [Sec. 158AA] • In line with Sec. 158A wherein an option is given [w.e.f 01-06-2015] Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) the effect that the question of law in the other Sec. 158AA to give similar option to the Revenue. case is identical to the question of law arising • Sec. 158AA proposes that a) in cases where Revenue has filed an appeal or a reference application before the Supreme [w.e.f 01-06-2015] in the relevant case. d)If the Supreme Court in the other case decides the question of law in favour of the Court on a question of law which is identical • In Sec. 200A, there is no provision for computing TCS for the same period if the same is already to the question of law on which appeal is fee payable u/s 234E at the time of processing of charged u/s 206C(7). Similar provisions already required to be filed before the ITAT in the case TDS/TCS Statement. Sec. 200A is proposed to be exist for charging of interest on TDS. of the same assessee, the CIT or principle CIT amended to compute fee payable u/s 234E at the time of processing of TDS/TCS Statement. for furnishing of TCS correction statement. Accounts Officer or Treasury Officer or Cheque Similar provisions already exist for filing TDS Drawing & Disbursing Officer for giving credit correction statement. of tax deducted by the office of Government. • Presently, intimation generated after processing of TDS statement is subject to rectification u/s 154, appealable u/s 246A and shall be deemed as notice of demand u/s 156 of the Act. In order to bring the processing of TCS statement at par with the processing of TDS statement, it is proposed to insert Sec. 206CB to provide for processing of TCS statements. Consequentially, amendment is also proposed in Sec. 154(1), Sec. 156 & Sec. 246A. •In order to avoid charging of interest both u/s 220(2) and 206C(7), it is proposed to insert Sec. 220(2C) to provide that no interest shall be charged u/s 220(2) on the same amount of the AO to file an appeal before the ITAT within 60 days from the date on which order of Supreme Court is communicated to the CIT or Principle CIT. the ITAT stating that an appeal in the relevant format for reporting of any payment of TDS/TCS made through book entry mechanism by Pay & Revenue, the CIT or Principle CIT may direct may direct the AO to file an application before •Presently, Sec. 192 does not provide for any • Sec. 206C is proposed to be amended to provide MISCELLANEOUS prescribed claims (including claim for set-off of • In line with the proposal made in Sec. 269SS & 269T, penalty for violation of the amendments therein 7.15 BUDGET PROPOSAL INDIRECT TAXES tax deductible u/s 192(1), obtain from the [w.e.f 01-06-2015] Enhancement of income limit for decision by Single Member Bench of ITAT [Sec. 255] BUDGET PROPOSAL DIRECT TAXES BASICS case may be filed when the Supreme Court decides the issue in the other case. 7.18 Sec. 200 & 206C is proposed to be amended to provide that where Tax deduction/Tax collection Rationalisation of provisions relating to deduction of tax at source on interest (other than interest on securities) [Sec. 194A] [w.e.f 01-06-2015] has been made by government deductor without production of challan, the Pay & Accounts a. Definition of “time deposits” to include & Disbursing Officer shall furnish a prescribed statement within the prescribed time before the credited on recurring deposits without any provision will attract penalty of H100 per day u/s •It is proposed to insert sub-section (2D) to Sec. 192 to provide that the person responsible for making the payment shall, for the purposes of estimating income of the assessee or computing •Under the existing provisions, no tax is deductible at source on interest paid or IT Authority. Failure to comply with the above 272A till the default continues. b. Tax to be deducted on interest paid or credited “recurring deposits’ Officer or Treasury Officer or Cheque Drawing threshold limit. •It is proposed to amend the definition of ‘time deposits’ to include within its scope “recurring deposits” for the purposes of deduction of tax u/s 194A. on time deposits by cooperative banks to its members •Sec. 194A(1) r.w. Sec. 194A(3)(i)(b) and 194A(3) (viia)(b) provide for deduction of tax at source by co-operative society engaged in the business of banking on interest paid or credited in excess of H10,000 on time deposits. However, Sec. 194A(3)(v) provide for a general exemption from deduction of tax at source on interest paid or credited by a co-operative society to its members. 80 81 •This has led to a dispute as to whether cooperative banks, for which specific provisions for deduction of tax at source on interest paid or credited on time deposits exists as stated above, can take the benefit of exemption provided u/s 194A(3)(v) to all co-operative societies by making their depositors its members. • To resolve the dispute, it is proposed to amend Sec. 194A(3)(v) to provide that any income paid or credited by a co-operative society other than a co-operative bank to its members will not be subject to TDS u/s 194A(1). Comments The proposed amendment nullifies the decision of Gujarat Urban Co-Operative Bank Federation –vs.- UOI (2012) 75 DTR 354 (Guj) and Jalgaon District Central Co-op. Bank -vs.- UOI (2004) 265 ITR 423 (Bom) wherein it has been held that cooperative banks are not required to deduct tax at source on interest paid on time deposits to their members in view of the exemption granted u/s 194A(3)(v). The proposed amendment also forties the decision of ACIT -vs.- The Belgaum District Central Co-op Bank Ltd. (ITA No.324/Pnj/2013) & Bhagani Nivedita Sahakari bank Ltd -vs.- ACIT (2003) 87 lTD 569 (Pune) wherein it has been held that co-operative banks are required to deduct tax at source on interest paid on time deposits to its members u/s 194A(3)(viia). c.Threshold limit for non deduction of tax at source on interest paid by banks, co-operative societies and public companies not to be computed branch wise where Core Banking Solution system has been adopted •Hitherto proviso to Sec. 194A(3)(i) provides that the threshold limit for applicability of TDS provision on interest paid or credited by banks, co-operative societies and public companies shall be computed with reference to each branch of the respective entities. •It is proposed to insert 2nd Proviso to Sec. INDIA BUDGET 2015-16 194A(3)(i) to provide that threshold limit of interest for the purpose of deduction of tax at source shall not be computed separately for deposits made in separate branches of a bank, co-operative society or public company where these entities have adopted core banking solutions. Comments • Most of the banks, co-operative banks and public companies are computerised and follow core banking solutions for crediting interest. Core banking solutions is a networking of branches which enables customers to operate their accounts and avail banking services from any branch of the bank on core banking solution network regardless of where he maintains his accounts. The customer is no more the customer of the branch. He becomes the customer of the bank. d.TDS on interest on compensation only at the time of payment •Sec. 56(2)(viii) & Sec. 145A provides that interest income received on compensation or enhanced compensation shall be deemed to be the income of the year in which the same has been received. •Sec. 194A(3)(ix) provides for deduction of tax at source on interest paid or credited on compensation awarded by the Motor Accident Claim Tribunal, if the amount exceeds H50,000. • Since Sec. 145A & Sec. 56 provides for taxability of interest determined on compensation or enhanced compensation on receipt basis and Sec. 194A(3)(ix) provides for deduction of tax at source on interest determined on compensation or enhanced compensation on accrual basis, undue hardship and mismatch is faced by the assessee. •It is proposed to amend Sec. 194A(3)(ix) to provide for deduction of tax at source only at the time of payment of interest determined on compensation or enhanced compensation, if the amount exceeds H50,000. BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Criteria for issuance of notice u/s 148 simplified [Sec.151] 7.19 [w.e.f 01-06-2015] •Sec. 151 which provides for sanction from certain IT Authorities before issuance of notice u/s 148 is proposed to be amended as follows Sl. No. Exiting Provisions Proposed Amendment Issuance on Notice u/s 148 within 4 years 1 In case where an assessment is made u/s 143(3) or 147, no notice shall be issued by an AO below the rank of ACIT or DCIT, unless approval of JCIT is obtained. Issuance on Notice u/s 148 after 4 years 2 In case where an assessment is made u/s 143(3) or 147, no notice shall be issued unless prior approval of Principal CCIT or CCIT or Principal CIT or CIT is obtained 3 In case, other than cases mentioned in Sl. No. 2 above, no notice shall be issued by an AO below the rank of JCIT unless approval of JCIT is obtained No notice (irrespective of whether assessment is made u/s 143(3) or 147) shall be issued unless prior approval of Principal CCIT or CCIT or Principal CIT or CIT is obtained No requirement of furnishing of TAN for notified deductors / collectors [Sec.203A] 7.20 [w.e.f 01-06-2015] •The obtaining of TAN u/s 203A by a deductor creates No notice (irrespective of whether assessment is made u/s 143(3) or 147) shall be issued by an AO below the rank of JCIT unless approval of JCIT is obtained. a compliance burden for those individuals or HUF who are not liable for audit under Sec. 44AB. The quoting of TAN for reporting of transactions on which tax is required to be deducted is a procedural matter and the same result can also be achieved in certain cases by mandating quoting of PAN especially for the transactions which are likely to be one time transaction. • Similar provisions for quoting of PAN in case of TAN is there in the law in case of tax deduction u/s 194-IA. •It is proposed to amend the provisions of Sec. 203A of the Act to provide that the requirement of obtaining and quoting of TAN u/s 203A shall not apply to the notified deductor or collector. 82 83 7.21 INDIA BUDGET 2015-16 Exemption to specified income of Core Settlement Guarantee Fund (SGF) [Sec. 10(23EE)] [w.e.f 01-06-2015] BASICS •However, if the income is shared with the specified income of the Core SGF set up by the specified person, the whole of the amount so Recognized clearing corporation to guarantee shared shall be deemed to be the income of the the settlement of trades executed in the stock previous year in which such amount is shared. exchanges. •Similar exemption provisions are prescribed to mean any recognized clearing corporation for income by way of contribution to investor which establishes and maintains the Core SGF protection fund set up by recognized stock and the recognized stock exchange being the exchanges shareholder of such clearing corporation. • The above amendment seeks to nullify the decision in the case of Hindustan Construction Co. Ltd. -vs.DCIT (2013) 140 ITD 642 (Mum), ACIT -vs.- B. Seenaiah & Co. Projects Ltd. (2014) 150 ITD 189 (Hyd) w.r.t 7.24 Commodity Key features of proposed new Law on Black Money stashed abroad • Provisions under IT Act 1.Concealment of income and assets and Exchanges [Sec. 10(23EC)] and depositories [Sec. 10(23ED)]. 2002 1. The offence of concealment of income or be prosecutable with punishment of rigorous evasion of tax in relation to a foreign asset imprisonment upto 10 years. Further, this will be made a predicate offence. offence will neither be compoundable nor be Order passed u/s 10(23C) appealable before ITAT [Sec. 253] • Under Prevention of Money-laundering Act, evasion of tax in relation to foreign assets will settled before ITSC. 7.22 MISCELLANEOUS Comments • The specified person for this purpose is defined 10(23EA)], BUDGET PROPOSAL INDIRECT TAXES applicability of MAT on the share of income earned by an AOP. • It is proposed to insert Sec. 10(23EE) to exempt [Sec. BUDGET PROPOSAL DIRECT TAXES 2. This provision would enable the enforcement agencies to attach and confiscate 2.Penalty for concealment of income and unaccounted assets held abroad and launch assets shall be levied @ of 300% of tax. prosecution against persons indulging in [w.e.f 01-06-2015] 3.Non filing of return or filing of return with laundering of black money. •Income received by a person on behalf of •Hitherto, order received from the prescribed inadequate disclosure of foreign assets will 3. The definition of ‘proceeds of crime’ under any university or other education institution authority is not appealable before ITAT. It is be liable for prosecution with punishment of Prevention of Money Laundering Act, 2002 existing solely for education purpose or any proposed to amend Sec. 253(1), to make order rigorous imprisonment up to 7 years. is being amended to enable attachment and other purpose on behalf of any hospital or other passed u/s 10(23C)(vi) or (via) as appealable to institution providing medical treatment, existing the ITAT. 4. Income in relation to any undisclosed foreign asset or undisclosed income from any solely for philanthropic purpose is not liable for foreign asset will be taxable at the maximum tax under sub-clause (vi) & (via) of Sec. 10(23C),if marginal rate. Exemptions or deductions approved by prescribed authority. which may otherwise be applicable in such cases shall not be allowed. 7.23 Rationalisation of MAT provisions for members of an AOP [Sec. 115JB] 5.Beneficial owner or beneficiary of foreign assets will be mandatorily required to file return, even if there is no taxable income. [w.e.f AY 2016-17] •Presently, a company which is a member of an which no income–tax is payable in accordance AOP is not liable to tax in respect of share of the with Sec. 86 of the Act, should be excluded income from such AOP. However, such company while computing the MAT liability of the member is liable to pay MAT on such share of income under 115JB of the Act. The expenditures, if any, since there is no specific exclusion u/s 115JB. debited to the profit loss account, corresponding • Accordingly, it has been proposed to amend Sec. 115JB of the IT Act to provide that the share of a member of an AOP, in the income of the AOP, on to such income are also proposed to be added back to the book profit for the purpose of computation of MAT. 6. Abettors of the above offences, whether individuals, entities, banks or financial institutions will be liable for prosecution and penalty. 7. Date of Opening of foreign account would be mandatorily required to be specified by the assessee in the return of income. confiscation of equivalent asset in India where the asset located abroad cannot be forfeited. • Under Foreign Exchange Management Act, 1999 1. If any foreign exchange, foreign security or any immovable property situated outside India is held in contravention to the provisions of this Act, then action may be taken for seizure and eventual confiscation of assets of equivalent value situated in India. 2. These contraventions are also being made liable for levy of penalty and prosecution with punishment of imprisonment up to five years. 84 85 7.25 INDIA BUDGET 2015-16 More Comprehensive Anti-Benami Bill on cards • Benami Transactions (Prohibition) Act, 1988 had been in force since 1988. • In August 2011, the then Finance Minister Pranab Mukherjee introduced Benami Transactions (Prohibition) Bill 2011. • The FM in his budget speech has said that a new and more comprehensive Benami Transactions (Prohibition) Bill will be introduced in the current session of the Parliament. • This law will enable confiscation of benami property provide for prosecution and block major avenue of black money in the form of benami property in real estate. BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS TECHNOLOGIES EFFICIENCY FOR INDIA. EFFECTIVENESS FOR THE WORLD. India is one of the oldest civilizations in the world. Over the last two decades, India has demonstrated that it can leapfrog a number of technology generations to climb to the cutting-edge. However, the past is never enough to guarantee success in the future. India needs to kick-start its technology virtuous cycle. By investing in cutting-edge technologies. By creating world-beating products. By developing proprietary technologies. From product maker. To thought leader. The opportunity is here. 88 89 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS • Time limit for taking CENVAT credit on inputs and input services increased from six months to a year. • Amendment of Settlement Commissions provisions which were redundant Practical • Retrospective excise duty exemption on rails for manufacture of railways or tramway tracks Predictable Proactive INDIRECT TAX Promising Progressive Protective Prudent • Confirmation that GST will be introduced from 1 April 2016 • Basic customs duty reduction on certain inputs, raw materials, intermediates and components (22 items) • SAD reduced on the import of certain inputs and raw materials. • Increase in clean energy cess on coal to ₹ 200 per tonne to finance clean environment initiatives • Rationalisation in penal provisions under Excise, Custom and Service Tax laws to encourage compliance and early dispute resolution • Online central Excise and Service Tax registration in two working days. • Levy of 2% Service Tax on all or any taxable service, the collection (Swachh Bharat Cess) being credited to the Consolidated Funds of India for financing and promoting Swachh Bharat initiatives. • Abolition of EC & SHEC from Excise and Service Tax, which are being subsumed in GST • Service Tax exemption from ambulance services provided to patients • Excise duty on chassis for ambulance reduced from 24% to 12.5%. 90 91 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS SECTION 8 CENTRAL EXCISE & CENVAT CREDIT 92 93 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS Sl. No. 8.4 BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Particulars Central Excise Rules, 2002 Page 98 8.4.1 Introduction of maintaining the daily stock account digitally 98 8.4.2 Authentication of invoice by digital signature 98 8.4.3 Procedures prescribed for raising invoice for direct dispatch of goods to 98 job workers/customers 8.4.4 Recovery proceeding extended to penalty 99 8.4.5 Penal provision introduced under Rule 12 of CER 99 8.4.6 Confiscation and penal provision introduced for an importer 99 8.4.7 Amendment in Registration provisions 99 8.4.8 Scope of the definition of ‘export’ clarified for the purpose of rebate 99 8.4.9 Restriction under Rule 12CCC of Excise Rules, 2002 applied to Registered 99 Importers also 8.5 Central Excise(Removal of Goods at Concessional Rate of Duty for Manufacture of 100 Excisable Goods) Rules, 2001 8.6 Major changes in Tariff/Effective Duty Rates 100 [Effective from 01-03-2015] 8.7 Other Changes 105 [Effective from 01-03-2015] 8.8 Various Clarifications under CE 106 8.9 CENVAT Credit Rules 106 [effective from 11-07-2014 unless otherwise specified] 8.9.1 Time limit for taking CENVAT Credit on input and input services increased 106 from 6 months to 1 year 8.9.2 Specific and express provisions inserted to facilitate manufacturers or 106 output service providers to send inputs or capital goods directly to job worker by amending Rule 4(1) and Rule 4(2) of CCR. 8.9.3 Further consequential amendments in Rule 4(5a) of CCR covering inputs 107 and/or capital goods transferred to job worker Sl. No. Particulars Page 8.1 Pattern of Changes Proposed 94 8.2 General 94 8.3 Changes proposed in the Finance Bill, 2015 95 [Effective from enactment of the Bill] 8.3.1 Amendments made in Sec. 11A of CEA (Recovery of duty not paid or short 95 paid) 8.3.2 Changes under Penal provisions under Sec. 11AC of CEA 95 8.3.3 Changes related to Settlement Commission 97 8.3.4 Retrospective amendments in respect of Excise duty on value of rails 97 8.3.5 Other Legislative Changes 98 8.9.4 Scope of reversal of CENVAT Credit under Rule 6 extended to non- 107 excisable goods 8.9.5 Changes in the conditions for availment of CENVAT Credit on input 107 services pertaining to partial reverse charge [Effective from 01-04-2015] 8.9.6 Recovery of CENVAT Credit wrongly taken but not utilized 107 8.9.7 Amendments to penalty provisions for wrong utilisation of CENVAT Credit 108 [Effective from enactment of the Bill] 94 95 8.1 INDIA BUDGET 2015-16 BASICS 8.3 Pattern of changes proposed BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Changes proposed in the Finance Bill, 2015 [Effective from enactment of the Bill] Proposed changes in CE Act contained in clauses Notifications Nos. 5-17/2015-CE all dated 01-03- 8.3.1 Amendments made in Sec. 11A of CEA service tax legislations in Sec. 73 of FA Act, where 91 to 102 of Chapter IV of the Bill effective from the 2015 have been issued, notifying effective rates (Recovery of duty not paid or short paid) the recovery of unpaid admitted tax has been date of enactment. of duty as well as duty exemptions which have • Clause (vi) to Explanation 1 to Sec. 11A has been taken out of Sec. 73 and it is prescribed that the inserted to provide that in cases where only recovery would be henceforth made in Sec. 87 interest is to be recovered, the “relevant date” of FA Act which is invoked for recovery of unpaid shall be the date of payment of duty to which confirmed demands through coercive measures such interest relates. like attachment of property, prosecution etc. A declaration has been made in respect of Clause become effective from the date of Notification 90, 103 & 104 of the Finance Bill, 2015 so that Notifications Nos. 03-11/2015-CE (N.T.) all dated the changes made through these clauses take 01-03-2015 have been issued, amending CE Rules effect immediately from the midnight of 28th & CCR have become effective from the date of the February/1st March 2015. The other clauses would notification. • The expression “on the due date” in Clause b(ii) Thus, it is expected that similar rules would be be effective from the date of enactment of Finance of Explanation - I has been deleted. Hitherto, prescribed under Central Excise also. It is noted Bill, 2015. relevant date was considered to be the due date that in the general rule making power given to of return even in a case where the return may the government under Sec. 37 of CEA, there is no have been filed later. With this amendment, the express enabling provision for initiating recovery relevant date would shift to the date of filing of proceedings in a particular manner. It is, in this return. context perhaps that the power has been drawn 8.2 General • Explanation - 2 to Sec. 11A has been substituted •Standard ad valorem rate of duty of excise is being increased from 12% to 12.5% Notification nos. 13/2012-Cus dated 17-032012 & 14/2012-Cus dated 17-03-2012 has been •EC & SHEC earlier applicable on all excisable goods is withdrawn and subsumed in the rescinded as redundant vide Notification no. 9/2015- Cus dated 01-03-2015. Basic Excise duty rate. Exemption Notification Comments No.14/2015-CE dated 01-03- 2015 & Notification The exemption from levy of EC & SHEC on No.15/2015-CE dated 01-03-2015 have excisable goods is invariable since these levies been issued for this purpose. Consequently, have been subsumed in basic excise duty. manufactured excisable goods cleared from the However, there is lack of clarity on the question factory or from EOU/EHTP/STP to DTA would not as to how the Cenvat Balance of EC & SHEC, if attract EC & SHEC with effect from 01-03-2015. any, would be utilised from 01-03-2015 onwards Since the said levies have been subsumed in since these balances are not available for the basic excise duty rate no EC & SHEC would adjustment with the basic duty. be payable on CVD also and the exemption from the enabling provision in Sec. 11A itself. to provide that in cases where the SCN is issued 8.3.2 Changes in penal provisions under Sec. after the presidential assent of the Finance Bill 11AC of CEA 2015, the amended provisions shall apply. In the Finance Bill 2015 vide clause 92, the existing •A new sub-Sec. 16 has been inserted under Sec. 11A to provide that Sec. 11A shall not apply to cases where the assessee has declared the liability in the returns filed by him, but the admitted tax has not been paid or short paid, then such short/non-payment shall be recovered in the prescribed manner to be notified at later date. Sec. 11A of CEA provides certain restrictions on the authorities to recover tax beyond 1 year etc. If by virtue of this amendment, the recovery of unpaid tax which has been admitted in the return is taken out of the purview of the said section recovered new set of provisions. At the outset, it must be understood that till the new Sec. 11AC becomes operative, the present provisions does not empower the Government to impose penalty in case of short payment or non-payment of duty or erroneous refund of the duty, if such non-payment etc. has not arisen as a result of collusion, fraud, mis-statement, suppression etc. with the intent Comments and Sec. 11AC of the CEA is being substituted by a through separate prescribed procedure, it is expected that the facilities like limitation by time etc. hitherto available to the assessee would not henceforth be made available. Similar amendments have been proposed under to evade to duty. For the first time in the history of Central Excise, penalty is being proposed to be imposed even in a case of non-compliance without intent to evade payment of duty. It is a matter to be examined legally as to whether the Government has the power to impose penalty in a case where the assessee has acted without malafide intentions and has simply lodged a claim for an exemption. It has so far been the precedent position that in a bonafide case no penalty can be imposed where there is no intent to evade 96 97 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS payment duty. In this case reference may be made of the duty provided the transaction is recorded the period of 30 days would be counted from the • The SCN has been issued after the Finance Act, to the case of Chemphar Drugs Liniments Vs. CCE in the specified records as defined in clause (c) date of the Order of the Appellate Authority or 2015 receives assent of the president and the [1989 (40) E.L.T. 276 (S.C.)] in support of the said of Explanation 1 to Sec. 11A. It may be noted that Court. Order is also passed for obvious reason after the proposition. existing Sec. 11AC(1)(b) read with clause (c) of In the new Sec. 11AC (1)(a), even in a bonafide case, imposition of a mandatory penalty of 10% of the duty involved or `5000 which ever is higher is being proposed. However, to give some relief a proviso has been inserted in the same sub-section to the effect that the penalty would not be payable if the duty involved is paid alongwith interest either before the issue of SCN or within 30 days of the issue of SCN and the proceeding would be deemed to be concluded. There is a further proposition in the Bill which relates to a bonafide non payment of duty which is suo moto paid by the assessee alongwith interest within 30 days of the receipt of the order, the new Sec. 11AC(1)(b) proposes to impose a penalty of 25% of the penalty confirmed in the Order provided that the penalty is also paid within 30 days of the receipt of the order alongwith the duty and interest. Thus, in this case the bonafide assessee would be liable to pay penalty equal to 2.5% of duty Explanation 1 to Sec. 11A had been introduced w.e.f 08-04-2011. Hence, the facility under the existing Sec. 11AC(1)(b) has been allowed to continue till the Finance Act, 2015 is enacted and receives the assent of the President. However, this proviso will become redundant once the Finance Bill, 2015 receives the assent of the President. Thus, in this budget the Government proposed to de-recognised the fact that the assessee may have failed to pay the duty but have maintained appropriate records of the transaction in the specified manner and thereby has acted in a bon-fide manner. 11AC(1)(d): If the duty demanded in the notice and the interest payable thereon u/s 11AA is paid within 30 days of the communication of the SCN then the assessee would be liable to pay penalty @ 15% of the duty sought to be imposed subject to the condition that such penalty is also paid alongwith the duty and interest and then such proceeding will be deemed to be concluded. involved and confirmed by the order (25% of 10% 11AC(1)(e): If the duty confirmed in the order and of the penalty). the interest payable thereon u/s 11AA is paid Sec. 11AC(1)(c), (d) and (e) all deal with imposition of penalty in cases involving suppression of fact etc. the following have been proposed through these sub-sections: 11AC(1)(c): As a fundamental provision, if duty is not paid or short paid or erroneously refunded, the assessee is liable to pay penalty to the extent of 100% of the duty involved. However, a proviso has been inserted in the proposed sub-section to the effect that in cases where the details related to such transactions are recorded in the specific records beginning with 08-04-2011 upto the date on which Finance Bill receives the assent of the President the penalty shall be 50% of the duty. This proposition is to cover the existing Sec. 11AC (1)(c) where the assessee is given the option to pay 50% within 30 days of the communication of the Order then the assessee would be liable to penalty @ 25% of the duty sought to be imposed, subject to the condition that such penalty is also paid alongwith the duty and interest and then such proceeding will be deemed to be concluded. Sec. 11AC(2) and (3) deals with a situation where the amount of duty involved is modified in the Order passed by the Central Excise Officer u/s 11A(10). In case the Appellate Authority or Court modifies the amount of duty then the amount of penalty payable under 11AC(1)(c) and Interest payable u/s 11AA shall stand modified accordingly and would have to be paid by the assessee. In 11AC(3) it has been provided that where the duty or penalty is increased by the Appellate Authority or Court then Explanation 1 and 2 have been inserted in Sec. 11AC where the following has been clarified: Clause (1) of Explanation (1) – Cases involving pending proceedings where no SCN has been issued before the enactment would be governed by the amended provision of Sec. 11AC. This Explanation is seeking to impose penalty, which may be higher in certain circumstances for an offence committed prior to the enactment of the section. It is a matter of legal examination as to enactment of the Finance Bill, 2015 in that case the application of 11AC(1)(b) and (e) is perfectly in order. •However, if we consider a situation where the SCN is issued prior to even the Finance Bill, 2015 in that event 11AC would not have been invoked in a bonafide case or without suppression and hence this provision cannot be then applied because 11AC can only be invoked in cases where intention to evade duty is established. whether a higher penalty can be imposed for an 8.3.3 Changes related to Settlement Commission offence committed earlier when for the same •Proviso to clause (c) of Sec. 31 of the CEA has offence lower penalty was prescribed at that point been amended to omit the expression “in any of time. It is a settled position that penalty prevalent appeal or revision”. Prior to the amendment, at the time when the offence was committed can remand proceedings arising out of appeal and only be imposed. Reference in this regard may revisions only were not eligible to approach be made to the cases of Elgi Equipments Ltd. vs. the Settlement Commission. In view of the Commissioner of Central Excise Coimbatore [2001 said amendment, remands by Courts or (128) E.L.T. 52 (S.C.)] & Lal Mining Engg Works Vs. Appellate Tribunal or any other authority under CCE, Mumbai any proceedings would not be entitled for Clause (2) of Explanation (1) clarifies that where the Order has not been passed before the date on which Finance Bill, 2015 receives the assent of the President, the assessee will still be eligible to approaching Settlement Commission. Thus, one can approach the Settlement Commission, if the matter is pending before adjudicating authority and has not been adjudicated. follow proviso to Sec. 11AC(1)(a) or Sec. 11AC(1) •Sec. 32B is proposed to be amended so as (d), as the case maybe, subject to the condition to enable Vice Chairman or Member of the that the duty, interest and reduced penalty is made Settlement Commission to officiate as Chairman within 30 days from the date on which the Finance in the absence of the Chairman of the Settlement Bill, 2015 receives assent of the President. Commission. Prior to the proposed amendment, Clause (3) of Explanation (1) clarifies that where an Order is passed after the date on which the Finance only one of the Vice Chairman could officiate in the absence of Chairman. Bill, 2015 has received assent of the President, 8.3.4 Retrospective amendments in respect of then the assessee would be eligible to reduce Excise duty on value of rails penalty under Sec. 11AC(1)(b), 11AC(1)(e), as the •The Third Schedule annexed to the Finance case may be subject to the condition that payment Bill, 2015 amends Notification No. 12/2012-CE of penalty is also made within the prescribed dated 17-03-2012 as amended by Notification time. In this context we can examine two different No. 3/2014 CE dated 03-02-2014. In the Third situation are examined here-in-below: Schedule, the amendment made on 03-02-2014 has been given retrospective effect from 17-03- 98 99 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS 2012. It may be seen that entry in Sl.No. 205A claim would be subject to the provisions of Sec. 11(7) in order to make the provisions of Rule 11 Similar simpler procedures for de-registration has was inserted in 2014 and the value of rails used 11B of CEA. applicable to a registered importer who issues a been proposed in the Notification. as inputs were exempted from the levy of excise duty @ 12% subject to the condition that no 8.3.5 Other Legislative Changes CENAVTABLE invoice. Circular No. F. No. 201/24/2013-CX.6 dated 28- Minimum penalty u/s 37(4) or u/s 37(5) of the CEA 8.4.4 Recovery proceeding extended to penalty 02-2015 in this regard has been issued by CBEC has been increased from H2000/- to H5000/-. Sec. The power to initiate recovery of duty, declared detailing the registration procedures. •In Sec. 102 of the Finance Bill, 2015 the power 37(4) or 37 (5) of CEA are invoked in specified as payable in the return, and interest as provided to make this amendment retrospective has been situations like removal of excisable goods in in Rule 8(4) of CER has been extended to cover given and it has also been provided that in view contravention etc. for confiscation of goods and ‘penalty’ imposed u/r 8(3A), which was earlier not of this amendment, if any refund arises, it would imposition of penalty. Prior to the proposed included therein. be granted provided the application of refund amendment, such penalties were imposable for the claim is made within six month from the equal to the duty involved on the goods or H2,000 date of on which the Finance Bill, 2015 receives whichever was greater. CENVAT credit was availed on the same. the assent of the President and that refund 8.4 Central Excise Rule, 2002 [Effective from 01-03-2015 unless otherwise specified] 8.4.1 Daily Stock account may be now maintained Similar procedural amendments have been made digitally in Service Tax Rules. •Rule 10 of CER is being amended to provide for issue of digitally signed invoices and preservation of records in electronic form by a manufacturer. 8.4.3 Procedures prescribed for raising invoice for direct dispatch of goods to job workers/ customers for use on board or supplied to a foreign going Penalty of one hundred rupees per day subject aircraft. The term has been now been explicitly to a maximum of twenty thousand rupees for the clarified to include export of goods outside India as period of delay has been introduced in case of delay well. [Notification No. 8/2015-Central Excise (N.T.) of submission of return or statement prescribed in dated 01-03-2015] Rule 12 of CER Rules, 2002 applied to Registered Importers also for an importer [Notification No. 10/2015-Central Excise (N.T.) Hitherto, the provisions of confiscation and penalty dated 01-03-2015] were not applicable to a registered importer under Hitherto, where a manufacturer, first stage or Rule 25 of CER. second stage dealer, or an exporter including Rule 25 has been amended to apply to the registered importer as well. Further the amount of in Rule 11 of CER. Rule has now been amended goods from the supplier to job worker/job workers. 8.4.7 Amendment in Registration provisions to allow the manufacturer to authenticate an The procedure has been prescribed by inserting a Vide Notification No. 7/2015-CE (N.T), amendments invoice by using digital signature. Further, where proviso in Rule 11(2) of CER which provides that to the registration process in Central excise has transporter’s copy is digitally signed, the hard the invoice issued by the supplier should indicate been made to simplify the registration formalities copy of the same shall be self attested by the that manufacturer or the output service provider like mandatory online application, mandatory manufacturer. as the buyer and the job worker as the consignee. quoting of PAN etc. to ensure that registration is Identical proviso has been inserted separately for granted within two working days of the receipt of a suppliers who are registered dealer or importer. duly completed application form. safeguards and procedures to be followed by an assessee preserving digitally signed records is Further, in case goods imported under the cover of expected from CBEC in this regard. bill of entry are sent directly to buyer’s premises; Comments This amendment is flowing from Digital India initiative and is a welcome change for the benefit for assesses at large. importer’s invoice shall specifically mention that the goods are directly sent from place or port of import to the buyer’s premises. Consequential amendment has been made in Rule 8.4.9 Restriction under Rule 12CCC of Excise 8.4.6 Confiscation and penal provision introduced introduced to expressly permit direct movement of conditions, of duty in case of export. The term export has been CER New sub-rules (8) and (9) have been introduced for The existing provisions of Rule 18 provide for rebate restricted to mean goods shipped as provision In the Union budget 2015 provisions have been notifications for the purpose of rebate 8.4.5 Penal provision introduced under Rule 12 of 8.4.2 Authentication of invoice by digital signature Corresponding 8.4.8 Scope of the definition of ‘export’ clarified penalty has been increased from H2,000 to H5,000. a merchant exporter is prima facie found to be knowingly involved in any of the acts such as removal of goods without the cover of an invoice and without payment of duty, issuing duty of excise invoice without delivery of goods specified in the said invoice etc. the Chief Commissioner of Central Excise may order for withdrawal of facilities or impose the restrictions as specified in this notification. The said restrictions have been now been made applicable to Registered Importers also. 100 101 8.5 INDIA BUDGET 2015-16 Central Excise(Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 [Effective from 01-03-2015 unless otherwise specified] 8.5.1 Amendment in Central Excise (Removal provide that instead of general bond with surety of Goods at Concessional Rate of Duty for or security, submitting letter of undertaking would Manufacture of Excisable Goods) Rules, 2001 be sufficient for manufacturers against whom no [Notification No. 09/2015 Central Excise (N.T.) show cause notice has been issued alleging willful dated 01-03-2015] non-payment or suppression of duty, or where no A manufacturer who intended to receive subject action is proposed under any notification issued in goods for specified use at concessional rate of duty pursuance of Rule 12CCC of CER or Rule 12AAA of had to earlier execute a general bond with surety CCR, i.e. manufacturers with clean track record. BASICS Sl. No. BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES Particulars 7 Leather Footwear 8 Wafers for use in the manufacture of Integrated Circuit (IC) modules for smart cards 9 inputs or capital goods used in the manufacture 10 - Non-availment of Cenvat credit on inputs or capital goods - Availing CENVAT credit 12 Post budget (A) Changes in Effective Duty Rates Impact abatement) + H120 per MT 12.5 % of inputs or input service or capital goods used in (RSP less the manufacture of such goods) 30% of 14 abatement) + H125 per 15 MT 12% 12.5% 16 4 High Speed Diesel Sacks and Bags (including cones) of polymers, ethylene, poly (vinyl Chloride) and others 5 Sacks and Bags of polymers of ethylene, other 6 12.5% 12% NIL 12% NIL 12% NIL 12% NIL 12% NIL 24% 12.5% 12% NIL H900 per H1000 per tonne tonne 12% 6% Chassis for use in the manufacture of motor with all fitments, furniture and accessories 12% 18% necessary for an ambulance from the factory manufacturing such motor vehicles 14% + H5 14% + H15 per Litre per Litre 12% 18% 17 Certain Goods used in the manufacture of pacemaker, namely:- Battery, Titanium, Palladium wire, Eutectic wire, Diodes etc. 18 Ordinary Portland cement 12% 15% Cigarettes, containing tobacco, other than filter H990 per H1280 per driver or MCPCB for LED lights and fixtures or cigarettes of length not exceeding 65 mm thousand thousand LED Lamps than for industrial use 6% vehicles cleared as ambulance duly fitted sweetening matter or flavoured 3 1% parts thereof Waters, including mineral waters and aerated waters, containing added sugar or other 1% Parts, components or accessories for use in the manufacture of tablet computer, including sub- Bulk Cement 2 Parts for use in the manufacture of solar water heater and system - Packaged Cement (Non Trade meant for institutional / industrial consumer – NFR) & 2% Solar water heater and System (provided no credit has been taken in respect of less 30% of 12% photovoltaic cells or modules 13 12% of (RSP 6% Tin alloys for use in the manufacture of interconnect) for manufacture of solar Cement other than from Mini cement plant - Packaged Cement (Trade) 12% generators [Effective from 01-03-2015 unless otherwise specified] Photovoltaic (PV) ribbon (tinned copper 1 6% Pig iron SG grade and Ferro-Siliconcomponents of wind operated electricity Changes in Tariff / Effective Duty Rates Pre budget 12% Impact Mobile handsets including cellular phones Magnesium for manufacture of cast Particulars Post budget of such goods) 11 Sl. No. Pre budget Tablet Computer (provided no credit has been taken in respect of or security. Now, the Rule has been amended to 8.6 MISCELLANEOUS 19 All inputs for use in the manufacture of LED - 102 103 Sl. No. 20 Particulars Pre budget Post budget Condensed Milk put up in unit containers - Non-availment of Cenvat credit on inputs or input services - Availing CENVAT credit Impact BASICS Sl. No. 10 12% 2% 12% 6% (B) Changes in Additional Duty of Excise Petrol H2 per litre H6 per litre 2 High Speed Diesel H2 per litre H6 per litre 3 Waters, including mineral waters and aerated 5% NIL 12% of (RSP + H120 per MT components of wind operated electricity 12 Photovoltaic (PV) ribbon (tinned copper inputs or input service or capital goods used in 30% of abatement) +H125 per MT 12% 12% 5 15 6 7 per Litre 12% 18% 12% 15% Cigarettes, containing tobacco, other than filter H990 per H1280 per cigarettes of length not exceeding 65 mm thousand thousand 12% 6% 8 Leather Footwear Wafers for use in the manufacture of Integrated Circuit (IC) modules for smart cards 9 12% 6% inputs or capital goods used in the manufacture of such goods) 12% NIL 12% NIL 12% NIL 12% NIL 12% NIL 24% 12.5% 12% NIL H900 per H1000 per tonne tonne 12% 6% 12% 2% parts thereof Chassis for use in the manufacture of motor vehicles cleared as ambulance duly fitted with all fitments, furniture and accessories manufacturing such motor vehicles 17 Certain Goods used in the manufacture of pacemaker, namely:- Battery, Titanium, Palladium wire, Eutectic wire, Diodes etc. 18 19 Ordinary Portland cement All inputs for use in the manufacture of LED driver or MCPCB for LED lights and fixtures or LED Lamps 20 Condensed Milk put up in unit containers - Non-availment of Cenvat credit on inputs or input services Tablet Computer (provided no credit has been taken in respect of 12.5% necessary for an ambulance from the factory per Litre than for industrial use 6% Parts, components or accessories for use in the manufacture of tablet computer, including sub- 18% 14% + H15 Sacks and Bags of polymers of ethylene, other Parts for use in the manufacture of solar water heater and system 16 14% + H5 ethylene, poly (vinyl Chloride) and others - the manufacture of such goods) 14 12.5% Waters, including mineral waters and aerated Sacks and Bags (including cones) of polymers, 1% Solar water heater and System (provided no credit has been taken in respect of sweetening matter or flavoured 4 1% Tin alloys for use in the manufacture of (RSP less Bulk Cement High Speed Diesel Impact generators 12.5 % of - Packaged Cement (Non Trade meant for 3 Post budget Pig iron SG grade and Ferro-SiliconMagnesium for manufacture of cast 13 abatement) waters, containing added sugar or other Pre budget photovoltaic cells or modules less 30% of 2 MISCELLANEOUS Mobile handsets including cellular phones interconnect) for manufacture of solar Cement other than from Mini cement plant institutional / industrial consumer – NFR) & Particulars - Availing CENVAT credit (C) Changes in Effective Duty Rates - Packaged Cement (Trade) BUDGET PROPOSAL INDIRECT TAXES capital goods sweetening matter or flavoured 1 BUDGET PROPOSAL DIRECT TAXES - Non-availment of Cenvat credit on inputs or 11 1 waters, containing added sugar or other INDIA BUDGET 2015-16 12% 2% 104 105 Sl. No. Particulars Pre budget Post budget 12% 6% - Availing CENVAT credit INDIA BUDGET 2015-16 Impact BASICS 8.7 BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Other Changes [Effective from 01-03-2015 unless otherwise specified] (D) Changes in Additional Duty of Excise 1 Petrol H2 per litre H6 per litre 2 High Speed Diesel H2 per litre H6 per litre 3 Waters, including mineral waters and aerated waters, containing added sugar or other 5% NIL sweetening matter or flavoured 8.7.1 “Resident Firms” – eligible to apply for 10 of the said Notification. In case of goods for a Advance Ruling defined. Project for which certificate regarding Ultra Mega Vide Notification No.11/2015-CE (N.T.) dated 01- Power Project status is provisional, the exemption 03-2015], ‘Resident firms’ has been now defined as is subject inter alia to condition that the Chief a class of person for the purposes of Sec. 31 of CEA Executive Officer of the Project furnishes a bank and the expressions “firm”, “sole proprietorship”, guarantee or fixed deposit receipt for a term of 36 “One person company” and “resident” has been months or more. defined. 8.6.2 Other Changes in Tariff / Effective Duty Rates • Abatement in MRP valuation Abatement from all Footwear reduced to 25% • Clean Energy Cess The tariff rate of Clean Energy Cess levied on coal, lignite and peat, is being proposed to be increased from H100 per tonne to H300 per tonne. However the effective rate of Clean Energy Cess is proposed to be increased from H100 per tonne from 35% 1 8.7.2 Conditions for Customs exemption apply Notification No.12/2015-CE, dated 01-03-2015 to to domestic manufactured goods against ICB prescribe furnishing of bank guarantee or fixed projects deposit receipts for a period of 42 months from 36 Following goods are being notified under Sec. Presently goods manufactured domestically and months. 4A of the CEA for the purpose of assessment supplied against ICB are eligible for full excise of Central Excise duty with reference to the duty exemption provided that such goods when Retail Sale Price: imported are exempted from BCD & CVD. to H200 per tonne. Sl. No. The above condition No. 42 is being amended vide Particulars Extracts, essences and concentrates, of tea or mate and preparation with a Abatement 30% basis of these extracts, essences or concentrates or with a basis of tea or mates 2 Condensed Milk put up in unit containers 30% 3 LED lights or fixtures 35% 4 All goods specified under chapter 2202 except mineral waters and aerated 35% waters •Full exemption from excise duty is being extended to captively consumed intermediate compound coming into existence during the manufacture of Agarbattis. 8.7.4 Extension of tenure of BG for compliance of conditions in case of Mega Power Project status Notification No. 12/2012-CE dated 17-3-2012 The said condition no. 41 is being amended vide provided Nil excise duty on goods for setting up of Notification No.12/2015-CE, dated 01-03-2015 so Mega Power Project specified in List No. 11 of the as to provide that if imported goods are eligible said Notification. In case of goods for a Project for for exemption of BCD & CVD subject to certain which certificate regarding Mega Power Project conditions, then the said conditions shall also status is provisional, the exemption is subject inter apply mutatis mutandis to such goods when alia to condition that the Chief Executive Officer of manufactured domestically and supplied against the Project furnishes a bank guarantee or fixed ICB for the purposes of availing of the said excise deposit receipt for a term of 36 months or more. duty exemption. The above condition no. 43 is being amended vide 8.7.3 Extension of tenure of BG for compliance of Notification No.12/2015-CE, dated 01-03-2015 to conditions in case of Ultra Mega Power Projects prescribe for furnishing of bank guarantee or fixed Notification No. 12/2012-CE dated 17-3-2012 deposit receipts for a period of 66 months from 36 provided Nil excise duty on goods for setting up months. of Ultra Mega Power Project specified in List No. 106 107 8.8 INDIA BUDGET 2015-16 Various Clarifications under Central Excise BASICS BUDGET PROPOSAL DIRECT TAXES CX dated 28-02-2015 issued by CBEC that where on and Recovery of arrears in instalments identical allegation a Noticee has been exonerated Sec. 11(2) of CEA empowers the Central Excise in the quasi-judicial proceedings and such order Officers to issue an order to any other person from has attained finality, Chief Commissioner shall whom money is due to such person from whom give direction to the Central Excise Officer in the recovery of arrears is required to be made. Such concerned Commissionerate to file an application notice for recovery to other person is generally referred to as Garnishee Notice. goods or exempted service has not been amended, This amendment was necessary since there was a thereby restricting the implication of this change working capital blockage in CENVAT credit till the to rule 6 of CCR. to the manufacturer. With the above amendment, the said blockage has been lifted. CENVAT credit of input services was allowed on transferred to job worker or after the date on which the payment is made Rule 4(5a) of CCR has been amended in the of the value of the input service and the service through Public Prosecutor requesting the court to following manner: tax paid or payable as indicated in the invoice. allow withdrawal of the prosecution in accordance • Availment of CENVAT Credit would be permissible These instructions shall mutatis mutandis apply to a job worker and from there subsequently to relation to the powers of recovery officer to amend the prosecution filed under the Finance Act, 1994 or withdraw the Garnishee Notice. and under the Customs Act, 1962. The circular clarifies that on occasions when the 8.8.3 Clarification issued for ‘place of removal’ assessee comes forward to pay the arrears, the Clarification has been issued vide Circular No. within 180 days has been extended to 2 years. recovery officers have the powers to add, amend, 999/6/2015-CX dated 28-02-2015 for ‘place of • The period of 180 days/2 years in case of inputs/ vary or rescind the Garnishee Notice. Further removal’ as follows: capital goods, as applicable, shall be computed •For manufacturer exporter - Port/ICD/CFS from the date of receipt of the input and/ of arrears of taxes, interest and penalty in instalments upto a 24 months. 8.8.2 Clarifications relating to withdrawal of prosecution filed in a court It has been clarified vide Circular No. 998/5/2015- where the goods are handed over for further delivery to the foreign buyer • Merchant exporter - Factory gate, warehouse or depot of the manufacturer where the goods are handed over to the transporter another job worker for further processing •The requirement of reversal of CENVAT credit if capital goods not returned from a job worker or capital by the first job worker, in terms of amended provisions of rule 4(5a) of CCR. 8.9.4 Scope of reversal of CENVAT Credit under Rule 6 extended to non-excisable goods •Requirement of CENVAT credit reversal in rule 6 of CCR in respect of clearance of exempted goods has been extended to clearance of non excisable goods also. 8.9 CENVAT Credit Rules •An Explanation has been inserted to define the [Effective from 01-03-2015 unless otherwise specified] value of non-excisable goods which shall be the invoice value and where such invoice value is not available value shall be determined by using 8.9.1 Extension of time limit for availing CENVAT to facilitate manufacturers or output service Credit on input and input services from 6 months providers to send inputs or capital goods directly to 1 year to job worker Time limit for availing CENVAT credit on input and Rule 4(1) and Rule 4(2) of CCR has been amended input services extended from 6 month to 1 year to allow the manufacturer or output service from the date of issue of invoice or prescribed provider to avail CENVAT credit on receipt of inputs/ documents under Rule 9(1) of CCR. capital goods by the job worker sent directly by the Comments manufacturer. It is pertinent to note that the definition of exempted 8.9.2 Specific and express provisions inserted partial reverse charge [Effective from 01-04-2015] 4(5a) of CCR covering inputs and/or capital goods Circular No. 996/3/2015-CX dated 28-02-2015 in also has discretionary powers to allow recovery CENVAT Credit on input services pertaining to •Hitherto in case of partial reverse charge, the even if inputs and/or capital goods are sent to Circular also provides that the Commissioner 8.9.5 Changes in the conditions for availment of 8.9.3 Further consequential amendments in Rule with law. Clarification has been issued by CBEC vide MISCELLANEOUS Comments time it is received from job worker after processing 8.8.1 Clarifications relating to Garnishee Notice BUDGET PROPOSAL INDIRECT TAXES reasonable means consistent with the principles of valuation under CE Act. • Thus, CENVAT credit pertaining to inputs or input services used in or in relation the manufacture of non-excisable goods is not allowed However, pursuant to the amendment, the credit is allowed after the payment of the service tax alone and the requirement of payment of the value of service has been done away with. •Further, in case of partial reverse charge, if the value of input service and the service tax payable thereon was not paid within 3 months from the date of invoice, the manufacturer or service provider was required to reverse the entire CENVAT credit availed in this regard. However, second proviso to Rule 4(7) of the CCR has been amended to provide for reversal of service tax only to the extent paid by the service provider. 8.9.6 Recovery of CENVAT Credit wrongly taken but not utilized The amendments made in Rule 14 of CCR vide Notification No. 6/2015 – CE (N.T.) dated 01-032015 is in respect of recovery of CENVAT Credit wrongly taken or erroneously refunded. The erstwhile Rule 14 as it stood prior to the amendment applied only to cases where credit had been taken and utilised wrongly or has been erroneously refunded. In terms of the earlier provisions in such a situation the credit was recoverable alongwith interest and the provision of Sec. 11A and 11AA of the CE Act was applicable in respect of a manufacturer and it was recoverable with interest and the provisions of Sec. 73 and 75 under the Finance Act, 1994 was applicable in output service provider. Hence, in the erstwhile provision, there was no machinery provision to 108 109 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS recover credit purported to be wrongly availed but The sub-rule (2) of Rule 14 has been made •Rule 15 of the CCR has been suitably amended •In other cases 10% penalty or H5,000/- (only in not utilised. applicable to both Rule 14(1)(i) and (ii). However, to align the provisions of penalties pertaining to case of CE Act) whichever is higher, would be Rule 14(2) has two parts to it, the first part is to contravention of the provisions of the CCR, in imposable on him; ascertain when the purported wrong credit is lines with the amended penal provisions under taken and the second is when it is deemed to the central excise and service tax regulations In the amended provision, the authority have been given powers to recover the credit amount even in the case where the credit has taken wrongly but not utilized but no interest is chargeable for the obvious reason that no prejudice has been caused to the revenue authorities since the amount has remained unutilized. In view thereof in the amended Rule 14(1)(i), the machinery provision of the Sec. 11AA of the CE Act and Sec. 75 of the Finance Act, 1994 has not been invoked. Thus, legally speaking once it is accepted that the purported wrong credit has not been utilized, it cannot be subjected to imposition of interest since in 14(1)(i) the provision for imposition of interest has not been invoked. The amendment has curved out a separate provision (Rule 14(1)(ii) to cover cases where credit has been wrongly taken and utilized or has been erroneously refunded and in that case the credit so taken and utilized would be recovered alongwith interest from the manufacturer or provider of output service and the provision of Sec. 11A and 11AA of CE Act and Sec. 73 and 75 of the Finance Act, 1994 shall apply mutatis mutandis. In the amended Rule 14, a new sub-rule (2) has also been introduced which lays down the method have been utilized. Since Rule 14(1) applies to a specific situation that credit has been taken but not utilized, the second leg of Rule 14(2) cannot be applied to the situation covered under Rule 14(1)(i). If this interpretation is not taken, then a situation will arise where in the very next month when the wrong credit was availed but not utilized, it would form a part of the opening balance and by applying the second leg of Rule 14 (2), it would be deemed to be utilized. This would give rise to a situation where the Rule 14(1)(i) would be redundant, and it is a settled position of law that an interpretation cannot be taken which renders below: • The opening balance of the month to be utilized first; •Credit admissible in terms of the CCR taken during the month to be utilized next; •Credit inadmissible in terms of the CCR taken during the month to be utilized thereafter is disputed by the department or the matter is already under dispute in respect of other assessees and avails the credit but does not utilize it and discloses the availment in the return. Once the above amendment becomes effective after the enactment of the Finance Bill, 2015, the assessee would be subject to the following situations: Cases not involving fraud, collusion, decision in the case of Jagir Singh vs Ranbir Singh and Anr.[(1979) 1 SCC 560] wherein it was held that what cannot be done directly cannot be allowed to be done indirectly as that would be an evasion of statute. It was further held that it is a well known principle of law that the provisions of law cannot be evaded by shift or contrivance and in an indirect mis- or circuitous manner the objects of a statute wrong utilisation of CENVAT Credit [Effective from enactment of the Bill] • Hitherto, as per Rule 15 of the CCR, if any person takes or utilizes CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of the provisions of CCR, such person is liable to penalty not exceeding the duty or service tax, as the case may be or H2000/whichever is greater. Where the CENVAT credit has been taken or utilized by a manufacturer or output service provider for the reasons of fraud etc. Provisions of Sec. 11AC of CEA or Sec. 78 of Finance Act respectively were applicable. Show Cause Notice or within 30 days of issuance of the Notice, no penalty would be imposable on him; •If he reverses the credit within 30 days of the receipt of the Order, then penalty @ 2.5% would be imposable on him; etc.: •If he reverses the credit within 30 days of the receipt of the Show Cause Notice, then penalty @ 15% would be imposable on him; •If he reverses the credit within 30 days of the receipt of the Order, then penalty @ 25% would be imposable on him; • If he reverses the credit pertaining to transactions recorded between 08-04-2011 to the assent of the Finance Bill, 2015, then penalty @ 50% would be imposable on him;(only in case •If he reverses the credit before the issuance of 8.9.7 Amendments to penalty provisions for of a deeming fiction which has been described as some input, capital goods or input service which reference is made is the Hon’ble Supreme Court’s and when the utilization occurred. It is provided The utilization would be ascertained by application desirous of lodging a claim of CENVAT credit on statement, etc. : cannot be defeated. month that would be considered as credit taken. There may be a situation where the assessee is a provision redundant or otiose. In this regard of ascertaining as to when credit has been taken that in all cases it would be the last day of the Comments Cases involving fraud, collusion, mis-statements, of CE Act) •In any other cases 100% penalty would be imposable on him. It is needless to say that even if the assessee suo moto reverses the credit, he does not lose the legal recourse otherwise available to him, inorder to contest the denial of credit. 110 111 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES SECTION 9 CUSTOMS MISCELLANEOUS 112 113 INDIA BUDGET 2015-16 BASICS 9.1 BUDGET PROPOSAL DIRECT TAXES Proposed changes in the Finance Act contained in Notifications Nos. 6-11/2015-Customs all dated clauses 80-88 of Chapter IV of the Bill, effective 01-03-2015 have been issued, notifying effective from the date of enactment. rates of duty as well as changes in various Tariff 89 of the Finance Bill, 2015 so that the changes Page rates which have become effective from the date of Notification made through this clause take effect immediately Notifications No. 27/2015-Customs (N.T.) dated from the midnight of 28th February/1st March 01-03-2015 have been issued, amending Sec. 2015. The other clauses would be effective from 28E of the Customs Act, 1962 and have become the date of enactment of Finance Bill, 2015. effective from the date of the notification 9.2 Particulars MISCELLANEOUS Pattern of changes proposed A declaration has been made in respect of Clause Sl. No. BUDGET PROPOSAL INDIRECT TAXES Changes proposed in the Finance Bill, 2015 [Effective from enactment of the Bill] 9.2.1 Waiver of Penalty under Sec. 28(2). 9.2.3 Conclusion of Proceedings in certain cases 9.1 Pattern of Changes Proposed 113 Proviso inserted in Sec. 28(2) of the Customs Act, Explanation – 3 inserted in Sec. 28 of the Act, in 9.2 Changes proposed in the Finance Bill, 2015 113 1962 (Act for short) in terms of which in case a terms of which, in cases where a notice has been show cause notice has been issued u/s 28(1) of issued but not adjudicated before the Finance Bill 113 the Act and the proper officer is satisfied that the 2015 is enacted, the proceedings would be deemed duty demanded along with the applicable interest to be concluded, if the proper officer is satisfied that has been paid by the noticee, no penalty shall be the noticee has paid the duty, applicable interest imposed and the proceedings would be deemed and penalty (wherever applicable) within 30 days of to be closed. Earlier, the facility was available only the enactment of the Finance Bill. The conclusion prior to issuance of the notice in cases, which did of the proceedings would be without prejudice not involve fraud, collusion, suppression of fact to Sec. 135, 135A and 140 of the Act (relating to etc. prosecution and offenses by companies). 9.2.2 Reduction of Penalty from 25% to 15% u/s 9.2.4 Reduction of payment of penalty to 10% or 28(5). H5000 whichever is higher u/s 112(b)(ii) Sec. 28(5) of the Act has been amended requiring Sec. 112(b)(ii) of the Act has been amended to the noticee to pay 15% penalty in place of earlier allow noticee to pay penalty @ 10% of the duty or 25% in cases where the noticee suo moto pays H5,000/- whichever is higher if the duty demanded the duty demanded along with interest within 30 for improper importation of goods is paid alongwith days of the receipt of the notice. This provision applicable interest within 30 days of the receipt is applicable in cases where duty has not been of the order. Earlier there was no such facility paid or has been short paid or refund has been available to the noticee and he had to mandatorily erroneously granted by reason of fraud, collusion, pay 100% penalty in cases where Sec. 112 of the suppression of facts etc. Act was invoked. [Effective from enactment of the Bill] 9.2.1 Waiver of Penalty under Sec. 28(2). 9.2.2 Reduction of Penalty from 25% to 15% u/s 28(5). 113 9.2.3 Conclusion of Proceedings in certain cases 113 9.2.4 Reduction of payment of penalty to 10% or H5000 whichever is higher u/s 113 112(b)(ii) 9.2.5 Reduction of payment of penalty to 10% or H5000 whichever is higher u/s 114 114(ii) 9.2.6 Matters remanded to the adjudicating authority not to be considered as 114 eligible for application before the Settlement Commission. 9.2.7 Provisions pertaining to Settlement commission omitted, wherever 114 rendered redundant 9.3 Miscellaneous changes 114 [Effective from 01-03-2015] 9.4 9.3.1 “Resident Firms” – eligible to apply for Advance Ruling defined. 114 9.3.2 Increase in the rate of additional duty of customs/Road Cess 114 9.3.3 Education Cesses in respect of CVD abolished 114 Major changes in rates of duties of Customs [Effective from 01-03-2015] 115 114 115 INDIA BUDGET 2015-16 9.2.5 Reduction of payment of penalty to 10% or amended to omit the expression “in any appeal H5000 whichever is higher u/s 114(ii) or revision” has been removed. Prior to the Sec. 114(ii) of the Act applicable for improper amendment, remand proceedings arising out of export of goods have been amended to allow appeal and revisions only would not be eligible noticee to pay penalty @ 10% of the duty or H5000/- to approach the Settlement Commission. In view whichever is higher if the duty demanded for of the said amendment, remands by Courts or Sl. No. improper exportation of goods is paid alongwith Appellate Tribunal or any other authority under applicable interest within 30 days of the receipt any proceedings would also be covered. (A) BCD of the order. Earlier there was no such facility available to the noticee and he had to mandatorily pay 100% penalty in cases where Sec. 114 of the Act was invoked. 9.2.7 Provisions commission pertaining omitted, to wherever Settlement rendered redundant Various provisions pertaining to the Settlement 9.2.6 Matters remanded to the adjudicating Commission viz. Sec. 127B(1A), Sec. 127(6), Sec. authority not to be considered as eligible for 127E, explanation to Sec. 127H and Sec. 127E of application before the Settlement Commission. the Act, omitted being redundant. Proviso to Sec. 127A(b) of the Act has been 9.3 Miscellaneous Changes [Effective from 01-03-2015] BUDGET PROPOSAL DIRECT TAXES BASICS 9.4 BUDGET PROPOSAL INDIRECT TAXES Major changes in rates of duties of Customs [Effective from 01-03-2015] Particulars Pre budget Post budget 1 Ulexite Ore 2.50% Nil 2 Metallurgical Coke 2.50% 5.00% 3 Butanes 5.00% 2.50% 4 Sulphuric Acid for manufacture of fertilizers 7.50% 5.00% 5 Isoprene 5.00% 2.50% 6 Styrene 2.50% 2.00% 7 Ethylene Dichloride (EDC) 2.50% 2.00% 8 Vinyl Chloride Monomer (VCM) 2.50% 2.00% 9 Anthraquinone 7.50% 2.50% 10 Butyl Acrylate 7.50% 5.00% 11 Water blocking tape for use in the manufacture 10.00% 7.50% 10.00% 7.50% 10.00% 7.50% 10.00% 7.50% of insulated wires and cables falling under 9.3.1 “Resident Firms” – eligible to apply for vide Notifications 13/2012-Cus and 14/2012-Cus Advance Ruling defined. dated 17-03-2012. The effect of these Notifications Vide Notification No. 27/2015-Customs (N.T.) dated was that the imported goods post 17-03-2012 01-03-2015 “resident firms” has been defined as attracted EC & SHC once on the BCD. a class of person for the purposes of Sec. 28E(c) (iii) of the Act and the expressions “firm”, “sole proprietorship”, “One person company” and “resident” has been defined. Sec. 28(E)(c)(iii) of the Act covers definition for the purposes of Advance Ruling. 12 rubber (EPDM) for use in the manufacture of insulated wires and cables falling under heading 8544 (except sub-heading 8544 11) 13 of insulated wires and cables falling under heading 8544 (except sub-heading 8544 11) Notification No.15/2015-CE dated 01-03-2015. of excisable goods, the aforesaid Customs customs/ Road Cess Notifications have been considered redundant No. 6/2015-Customs, 7/2015-Customs both dated 01-03-2015, the additional duty leviable on motor spirit/petrol and high speed diesel has been increased to H6 per litre. Earlier the duty was H2/- litre. Mica glass tape for use in the manufacture Notification No.14/2015-CE dated 01-03-2015 and 14 With the exemption of EC and SHEC on clearance Notification Ethylene – Propylene – non-conjugated diene w-e-f 01-03-2015 is exempted vide exemption 9.3.2 Increase in the rate of additional duty of Vide heading 8544 (except sub-heading 8544 11) In the Union Budget 2015, EC & SHEC on excise duty for the clearances of excisable goods made and hence have been rescinded vide Notification 9/2015-Cus dated 01-03-2015. noted Excise Duty and Service tax EC and SHEC have 9.3.3 Education Cesses in respect of CVD been subsumed as a part of the movement towards abolished GST. As BCD would not be a part of the proposed The EC and SHEC on CVD were earlier exempted GST, cess on the same is not being subsumed. ‘Metal parts’ for use in the manufacture of electrical insulators 15 Unwrought antimony; powders 5.00% 2.50% 16 Antimony waste and scrap 5.00% 2.50% 17 Ceria zirconia compounds for use in 7.50% 5.00% 7.50% 5.00% 7.50% 5.00% manufacture of washcoat for catalytic Comment EC and SHEC on BCD as earlier continues. It may be MISCELLANEOUS converters 18 Cerium compounds for use in manufacture of washcoat for catalytic converters 19 Zeolite for use in manufacture of washcoat for catalytic converters Impact 116 117 Sl. No. 20 Particulars Pre budget Post budget The following goods for use in the manufacture INDIA BUDGET 2015-16 Impact Sl. No. 30 of refrigerator compressor falling under tariff item 8414 30 00:- 21 5.00% Over Load Protector (OLP) and positive thermal maximum storage(including the expanded 7.50% 5.00% Evacuated tubes with three layers of solar 7.50% Nil solar water heater and system 31 Organic LED(OLED) TV panels 32 Black Light Unit Module for manufacture of LCD and LED TV panels 33 34 7.50% or Machining Centres (tariff item 8457 10 10, 7.50% (b) Sub-parts for use in the manufacture of (b) In a form other than (a) above. 7.50% 2.50% Parts and accessories of the machines of heading 8472 28 35 single sequence, using the maximum storage(including the expanded capacity) 10.00% 20.00% 10.00% 10.00% 5.00% 2.50% mechanism not in a pre-assembled condition, or not 36 7.50% Nil The following goods for use in the manufacture of Flexible Medical Video Endoscope (heading 9018), namely:- 7.50% 5.00% (i) CCD/CMOS Camera Sensor; (ii) Main printed circuit board of CCD/CMOS Camera Sensor; (iii)Objective Lens for CCD/CMOS Camera of recording video with minimum resolution per second , for atleast 30 minutes in a 10.00% - in a Completely Knocked Down (CKD) kit Nil Digital Still Image Video Cameras capable of 800*600 pixels, at minimum 23 frames 10.00% kit with engine, gear box and transmission 7.50% inverters 29 Nil Electrically operated vehicles whether, imported or sub-assemblies, for assembling a complete Active Energy Controller(AEC) for use in manufacture of Renewable Power System(RPS) 5.00% containing all the necessary components, parts items mentioned in (a) above. 27 Nil a pre-assembled condition; (a) Parts, components or accessories for use in the manufacture of tablet computer. 10.00% gearbox and transmission mechanism not in 2.50% 8457 10 20) 26 Nil Motor vehicles: assembling a complete vehicle with engine, CNC Systems for use in the manufacture of CNC Lathes (tariff item 8458 11 00, 8458 91 00) Magnetron(upto 1 KW) used for the manufacture components, parts or sub-assemblies , for 8457 10 10, 8457 10 20) 25 10.00% Down(CKD) kit containing all the necessary Linear Motion Guides for use in the 00, 8458 91 00) or Machining Centres (tariff item Nil (a) imported as a Completely Knocked 2.50% 10 20) manufacture of CNC Lathes (tariff item 8458 11 5.00% Impact capacity) of domestic microwave oven Ball screws for use in the manufacture of CNC Machining Centres (tariff item 8457 10 10, 8457 Post budget with minimum resolution of 800*600 pixels, at 30 minutes in a single sequence, using the Lathes (tariff item 8458 11 00, 8458 91 00) or Pre budget Parts and components of Digital Still Image minimum 23 frames per second , for atleast selective coating for use in the manufacture of MISCELLANEOUS Video Cameras capable of recording video 7.50% 8414 30 00. 24 Particulars ii. Crankshafts refrigerator compressor falling under tariff item 23 BUDGET PROPOSAL INDIRECT TAXES i. C-Block compressor coefficient for use in the manufacture of 22 BUDGET PROPOSAL DIRECT TAXES BASICS Sensor; 10.00% Nil (iv)Light Guide/Image Guide optical fiber bundle; (v) Ultrasound Transducer; (vi)Main printed circuit board of Ultrasound Transducer. - 118 119 Sl. No. Particulars 37 Artificial Heart(left ventricular assist device) 38 High Density Polyethylene(HDPE) for manufacture of telecommunication grade Pre budget Post budget 5.00% Nil Impact 7.50% Nil (B) CVD u/s 3(5), i.e. SAD Sl. No. 9 11 (a) Parts, components or accessories for use in the manufacture of tablet computer. (b) Sub-parts for use in the manufacture of 1 (iv) Eutectic Wire ; 4.00% Nil 4.00% Nil 4.00% 2.00% 4.00% 2.00% 4.00% 2.00% 4.00% 2.00% 4.00% 2.00% (vii) Reed Switch; (viii)Diodes; (ix)Transistors; (x)Capacitors; (xi)Controllers; (xii) Coils(steel) ; (xiii) Tubing (silicone). All goods(except populated Printed Circuit Boards) for use in the manufacture of ITA bound 24/2005, 25/2005 and 21/2012 as amended via Notification No 11/2015. 5 Ethylene Dichloride(EDC) for use in the manufacture of excisable goods 6 Vinyl chloride Monomer(VCM) for use in the manufacture of excisable goods 7 Naptha for use in the manufacture of excisable goods 8 The following goods, namely:(a) Melting scrap of iron or steel; (b) Stainless steel scrap, for the purpose of melting. Ilmenite, upgraded(beneficiated ilmenite including ilmenite ground) (v) Silicone Resins and Silicone Rubbers; goods Post budget 4.00% 2.00% 4.00% 2.00% 4.00% Nil 5.00% 2.50% (C) Export Duty (iii) Palladium wire; Styrene for use in the manufacture of excisable Pre budget items mentioned in (a) above. (ii)Titanium; 4 MISCELLANEOUS The following goods, namely:- Aluminium scrap (i)Battery; goods covered by Notification numbers 25/1998, Particulars 10 of pacemakers (tariff item 9021 50 00), namely:- 2 BUDGET PROPOSAL INDIRECT TAXES (b) Brass scrap. The following goods for use in the manufacture (vi) Solder Paste; BUDGET PROPOSAL DIRECT TAXES BASICS (a) Copper scrap; optical fibres or optical fibre cables 1 INDIA BUDGET 2015-16 Impact 120 121 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES SECTION 10 SERVICE TAX MISCELLANEOUS 122 123 INDIA BUDGET 2015-16 BUDGET PROPOSAL DIRECT TAXES BASICS Sl. No. 10.3 BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Particulars Amendments to Notification No. 25/2012-ST [Mega Exemption Notification] Page 129 [Effective from 01-04-2015] 10.4 10.3.1 Insertions in Mega Exemption Notification 129 10.3.2 Deletions in Mega Exemption Notification 130 Amendments to Notification No. 26/2012-ST [Abatement Notification] 131 [Effective from 01-04-2015] 10.5 Amendments to Notification No.30/2012-ST [Reverse Charge Mechanism] 132 [Effective from 01-03-2015 or 01-04-2015 unless otherwise specified] 10.6 Amendments to ST Rules 133 [Effective from 01—3-2015 or from a date to be notified] 10.7 Notification 42/2012-S.T. dated 29-06-2012 rescinded 135 [Effective from 01-03-2015] 10.8 Exemption to services of a GTA for transport of export goods widened 135 [Effective from 01-04-2015] 10.9 Scope of Advance Ruling extended to all specified resident firms [Effective from 01-03-2015] Sl. No. Particulars Page 10.1 Pattern of Changes Proposed 124 10.2 Changes proposed in the Bill 124 [Effective from enactment of the Bill or from a date to be notified] 10.2.1 Amendments in Sec. 65B of the FA Act 124 10.2.2 Change in the service tax rate - Sec. 66B of the FA, Act 125 10.2.3 Levy of Swachh Bharat Cess – Clause 117 of the Bill read with Para 123 of 125 the Budget Speech 10.2.4 Changes in the Negative List – Sec. 66D of the FA Act 125 10.2.5 Other Changes proposed in the Bill 126 135 124 125 10.1 INDIA BUDGET 2015-16 Pattern of changes proposed BASICS BUDGET PROPOSAL DIRECT TAXES taxable services. This levy would be on the value of Delhi Chit Fund Association. This decision was such services from a date to be notified later. by dismissing the SLP filed by the Department 2015 have been issued, amending Mega exemption clauses 105–116 of Chapter V of the Bill, effective notification, from the date of enactment or from a date to be Charge mechanism, ST Rules, and few other notified by the Central Government. notifications. Abatement notification, Reverse Notification No. 03-09/2015-ST all dated 01-03- against the High Court Order [2014-TIOL-23SC-ST]. In view of the proposed amendment any activity, including activities carried out by a distributor/selling agent of lottery tickets or by a foreman of chit fund for a consideration 10.2 or selling agent in relation to promotion/ •The under mentioned terms have now been marketing/selling of the lottery defined under the FA Act: “Foreman of chit fund” shall have the same meaning as is assigned to the term “Foreman” in clause (j) of Sec. 2 of the Chit Funds Act, 1982; Court in the case of Delhi Chit Fund (supra), the clarification in the education guide could not be To overcome the divergent legal positions, the above amendment is proposed to validate the intention of the legislature to tax the aforesaid conducting or organising a chit in any manner activities carried out by a lottery distributor, foreman of chit fund specifically. At present, the definition of ‘Service’ excludes a •Definitions of phrases “Amusement facility” & “Government” means the Departments of the transaction in money or actionable claim [Sec. “Entertainment event” is proposed to be deleted Central Government, a State Government and 65B(44)(a)(iii)]. Disputes arose whether services from Sec. 65B(9) and Sec. 65B(24) of FA Act, its Departments and a Union territory and its in relation to ‘chit fund’ or ‘lottery etc’ were in line with the amendment in the Negative Departments, but shall not include any entity, exempt from levy of service tax in view of the List wherein services by way of admission to whether created by a statute or otherwise, the said exclusion. entertainment events or access to amusement accounts of which are not required to be kept in accordance with article 150 of the Constitution The taxability of ‘chit fund’ had been dealt with Bharat initiatives or any related purpose. The provisions of FA Act with respect to levy and collection of service tax shall mutatis mutandis Comments Services provided by a foreman of chit fund for Comments the purpose of financing and promoting Swachh in money or actionable claim has now been applied or implemented. 10.2.1 Amendments in Sec. 65B of the FA Act to the Consolidated Funds of India and used for apply to the levy of Swachh Bharat Cess as well. In view of the decision of the Hon’ble Delhi High [Effective from enactment of the Bill or from a date to be notified] The collection on this account would be credited in relation to or for facilitation of a transaction brought within the tax net. Changes proposed by the Bill MISCELLANEOUS due consideration upheld the contention of the further upheld by the Hon’ble Supreme Court Proposed changes in the FA Act contained in BUDGET PROPOSAL INDIRECT TAXES facilities has been made leviable to service tax. In Para 123 of his Budget speech, the Hon’ble Finance Minister has indicated that the levy may be @ 2% or less when it is introduced. The levy of Swachh Bharat cess @2% on the value of services may therefore effectively enhance the service tax rate from 12.36% to 16%. Although the Swachh Bharat Cess is proposed to be collected as Service Tax, there is no clarity a to whether, CENVAT Credit of such levy would be extended in line with education cess to a manufacturer or output service provider. The TRU letter dated 28-02-2015 related to changes in Service Tax is also silent in this regard. However, one view could be that the levy being collected as service tax would be covered in Rule 3(1) (ixb) of CCR, which allows credit of service tax leviable on eligible input service. By extending the said view, it would be also permissible for a manufacturer to in the education guide issued in June 2012 10.2.2 Change in the service tax rate – Sec. 66B avail and utilise the Swachh Cess for payment of wherein it had been specifically clarified that of the FA Act his output excise liability. “Lottery distributor or selling agent” means a providing services in relation to chit fund is not a The Central Government has proposed to enhance person appointed or authorised by a State for transaction only in money and the consideration the basic service tax rate from 12% to 14% vide the purposes of promoting, marketing, selling received for such services shall be chargeable to amendment of Sec. 66B. The education cess (2%) or facilitating in organising lottery of any kind, service tax. and secondary and higher education cess (1%) is or the rules made there under. in any manner, organised by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998. The assessee in the case of Delhi Chit Fund Association vs. UOI [2013 (30) STR 347 (Del)] contended that the activities performed by abolished and subsumed in the above rate of 14% to be effective from a date to be notified by the Government. •Definition of “Service” in Sec. 65B (44) of FA them is covered in the expression ‘transaction 10.2.3 Levy of ‘Swachh Bharat Cess’ – Clause Act has been amended to specifically cover the in money or actionable claim’ and hence not 117 of the Bill read with Para 123 of the Budget following activities under the service tax net exigible to service tax in view of Sec. 65B (44)(a) Speech (iii) of the FA Act. The Hon’ble High Court after It is proposed to introduce ‘Swachh Bharat Cess’ Services provided by a Lottery distributor @ 2% or less, as a service tax, on all or any of the 10.2.4 Changes in the Negative List – Sec. 66D of the FA Act •Levy of service tax on any service received by a business entity from Government or local authority Presently, only ‘support services’ [as defined in Sec. 65B (49) of FA Act] provided by Government/ Local authority to business entities are liable to service tax. The expression ‘support services’ contained in Sec. 66D (a)(iv) of FA Act has been replaced 126 127 with ‘any service’. Correspondingly, ‘any service’ INDIA BUDGET 2015-16 At present, Sec. 66D(j) of FA Act excludes to to exemplify the scope of this provision. This become taxable from a date to be notified. entertainment event or access to amusement amendment is in the nature of a clarification To facilitate all stake holders, the term facility from the ambit of service tax. It is and hence is likely to apply retrospectively ‘Government’ has now been defined under proposed to bring such activity within the tax net and the principles of interpretation should be Sec. 65B (26A) to mean departments of Central by omitting Clause (j) from Sec. 66D. accordingly applicable. reverse charge basis by the business entities. ‘Local Authority’ is already defined in Sec. 65B(31) of FA Act, which would continue to apply. As a consequential amendment, the definition of the term ‘support services’ contained in Sec. 65B (49) of FA Act has been omitted. • Levy of service tax on job work involving process amounting to manufacture of alcoholic liquor for human consumption admission is proposed to be introduced in this section consideration Territory. The tax would have to be paid on 100% for BUDGET PROPOSAL DIRECT TAXES provided by Government/local authority would Government, State Government and Union charged BASICS Accordingly, service tax is proposed to be levied on fees charged for services provided by amusement parks, amusement arcades, water parks and theme parks. reimbursable expenditure or cost incurred and entertainment event of concerts, pageants, charged by the service provider, except in such musical circumstances, and subject to such conditions performances concerts, award functions and sporting events will be liable to service tax. However by way of a specific entry in Mega Exemption notification, exemption has exceed H500 per person. Recognized sporting worker which involves process amounting to events where the participants represent any manufacture of any goods (as defined in Sec. district, state, zone or country shall however 65B (40) of FA Act) is exempted in view of the continue to be exempted. FA Act, the process amounting to manufacture of liquor for human consumption is taken out of the Negative List and brought under the service tax net. This appears to have been done primarily for the reason that liquor for human consumption does not attract central excise duty but is exigible to state excise duty levied under the State Acts. As a consequential amendment, it is proposed to omit the expression ‘alcoholic liquors for human consumption’ from Sec. 65B(40) of FA Act. changes have been brought in Entry 30 of Mega Exemption Notification covering job-work arrangements. •Levy of service tax on admission to an entertainment event or access to amusement facility as may be prescribed. Sec. 66F (1) prescribes that reference to a main service shall not include reference to any service which is used for providing the main service. To now been proposed to be inserted on a situation involving agency services provided by any bank omitted. • Proposed amendments in Penal provisions Sec. 76 & 78 of FA Act. In the Bill, vide Clause 111, the existing Sec. 76 of the FA Act is proposed to be substituted by a new set of provisions. At the outset, it is necessary to take note that Sec. 76 of FA Act, till the amendment becomes operative, only covers short payment or non-payment of tax due to reasons other than resulting from suppression or 1% per month till the failure continues, Delhi High Court in the case of Intercontinental whichever is higher, subject to a maximum of Consultants & Technocrats Pvt. Ltd. vs. Union 50% of the service tax payable. of India [2013 (29) STR 9 (Del.)] wherein it was held that the reimbursements will not be liable The revenue is in challenge against the said services - Sec. 66 F of FA Act are available on specified records has been impose penalty amounting to H100/- per day ‘Betting, gambling or lottery’ of interpretation of specified description of true and complete details of transactions in the back drop of the decision of the Hon’ble provision for valuation in Sec. 67 of the FA Act. •Illustration inserted to explain the principles Sec. 73(4A) providing for reduced penalty if the FA Act with Rule 5(1) of the Valuation Rules distribution/selling of lottery not covered under 10.2.5 Other changes proposed in the Bill Rules by omitting sub-rule 6A. of facts etc. The present provision seeks to to service tax in absence of any machinery Please refer to Para 10.2.1(b) above. MISCELLANEOUS The proposed amendment is an attempt to align • Conducting a chit fund and activities of facilitate all stake holders an illustration has In line with the above amendment, corresponding amended to provide that consideration for In view thereof, fees for admission to an At present, services provided by a job- By this proposed amendment in Sec. 66D(f) of Explanation to Sec. 67 of the FA Act has been a taxable service shall now also include all been provided to events where the fee does not Negative List contained in Sec. 66D. • Valuation of taxable services – Sec. 67 BUDGET PROPOSAL INDIRECT TAXES order before the Hon’ble Supreme Court and the matter has been admitted. •Recovery of service tax not levied/ not paid or short levied/ short paid – Sec. 73 Service tax authorities are being empowered to effect recovery without service of notice by invoking the provision of Sec. 87 in cases where the admitted service tax payable as disclosed in the ST-3 return has not been paid by the assessee either in full or in part. Comment to RBI. Services by RBI is in the Negative List Sec. 87 provides for different coercive measures [Sec. 66D(b) of FA Act]. Through the illustration it for recovery of unpaid dues which includes has been clarified that agency services provided deduction of money owed to the tax payer, by other banks to RBI would not be exempted detention of movable or immovable properties from the levy as it is an ‘input service’ for RBI and belonging to the tax payer etc. Consequential not a service provided by RBI. The illustration amendment has been made in Rule 6 of ST The proposed substitution of Sec. 76 of FA Act with the new provision is similar to the amendments being sought in Central Excise in Sec. 11AC (1)(a) & Sec. 11AC(1)(b) of the CEA. The amended provision would continue to cover only cases where a notice has been issued. In the new Sec. 76(1) of FA Act, in a bonafide case, imposition of a mandatory penalty not exceeding 10% of the tax involved is being proposed. However, to give relief a proviso (i) has been inserted in the same sub-section to the effect that the penalty would not be payable if the tax involved is paid along-with interest within 30 days of the receipt of SCN. However, there is no clarity as to whether the proceedings would be deemed to be concluded. To continue with the relief, proviso (ii) has been inserted to the effect that penalty of 25% of the penalty imposed under Sec. 76(1) would be payable if the tax along with interest and the said penalty is also paid within 30 days of the receipt of the order. Thus, in this case the bonafide assessee would be liable to pay penalty equal to 2.5% of duty involved and 128 129 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS confirmed by the order (25% of 10% of the proceedings. In case of such modification, the At present, Sec. 80 of the FA Act empowers the will now face hardships. It is however, also penalty), if maximum penalty of 10% has been amount of penalty payable under Sec. 78(1) shall adjudicating/appellate authority to exercise a matter of legal examination as to whether confirmed. also stand modified accordingly and where the their judicious discretion and waive penalty penalty can be at all levied in case of non- duty or penalty is increased by the Appellate imposable u/s 76 & 77 of the FA Act in cases payment or short payment of tax due to bonafide Authority or Court then the period of 30 days where the tax payer could establish reasonable reason e.g. claiming an exemption or pursuing a would be counted from the date of receipt of cause for non-compliance. reasonable interpretation of the legal provisions. Proposed Sec. 76(2) of FA deals with a situation where the amount of tax involved in the Order passed by the Central Excise Officer u/s 73(2) of FA is modified in appeal or court proceedings. In case of such modification, the amount of penalty payable under Sec. 76(1) shall also stand modified accordingly and where the duty or penalty is increased by the Appellate Authority or Court then the period of 30 days would be counted from the date of receipt of the Order of the Appellate Authority or Court to claim the benefit of reduced penalty. In the Bill, vide Clause 112, the existing Sec. 76 of the FA Act is proposed to be substituted by a new set of provisions. Sec. 78 of FA Act covers provisions relating to imposition of 100% penalty in cases where service tax has not been paid or short paid or erroneously refunded in situations involving suppression of fact etc. Sec. 78 is proposed to be substituted with new provisions where 100% penalty is sought to be imposed in case of short payment or non-payment of tax or erroneous refunds involving suppression of fact etc. The proposed Sec. 78(1) is similar to Sec. 76(1) discussed here-in-before. It is proposed that the assessee would have to pay 15% of service tax as penalty, in case the tax demanded is paid along with interest and such penalty, within 30 days of receipt of the notice [proviso (i) of Sec. 78(1)]. To continue with the relief, proviso (ii) has been inserted to the effect that penalty of 25% of the service tax demand confirmed in the order would be payable, if the tax along with interest is also paid within 30 days of the receipt of the order. Proposed Sec. 78(2) of FA Act deals with a situation where the amount of tax involved in the Order passed by the Central Excise Officer u/s 73(2) of FA Act is modified in appeal or court the Order of the Appellate Authority or Court to claim the benefit of reduced penalty. the Hon’ble Tribunals have been pleased • Transitory Provisions - Sec. 78B to waive penalty in cases holding that the This new provision is proposed to introduce transitory provision in relation to the new Sec. 76 & 78 of FA Act and are discussed here-in-below: Sec. 78B(1) – Cases, involving There are a plethora of judgments wherein pending proceedings where no SCN has been issued till the enactment of the Finance Bill 2015, would be governed by the amended provision of Sec. 76 or Sec. 78 of FA Act as enacted. This new provision is seeking to impose penalty, which may be higher in certain circumstances for an appellants had shown reasonable cause for non compliance. [Atwood Oceanics Pacific Ltd. vs CST, Ahmedabad [2013 (32) STR 756 (Tri-Ahmd)] and Mount Housing & Infrastructure Ltd. vs. CCE &ST, Coimbatore [2014 (35) STR 389 (TriChennai)]]. It is proposed to withdraw the said Sec.80 from the FA Act. With the withdrawal of the said section many bonafide assessees who could • Appeals to Appellate Tribunal – Sec. 86 Appeals to the Appellate Tribunal against order of Commissioner (Appeals) in case of service tax export rebate would henceforth lie before Revisional authority set up by the Central Government. Such case already pending before Tribunal from the date on which the Finance Bill 2012 was enacted till the date on which the Bill is enacted would be transferred to the Revisional Authority in accordance with Sec. 35EE of the CE Act. otherwise have received the waiver of penalty offence committed prior to the enactment of the section. It is a matter of legal examination as to whether a higher penalty can be imposed for an offence committed earlier when for the same offence lower penalty was prescribed at Amendments to Notification No. 25/2012-ST [Mega Exemption Notification] 10.3 [Effective from 01-04-2015/from a date to be notified] that point of time. It is a settled position that penalty prevalent at the time when the offence was committed can only be imposed. Reference in this regard may be made to the cases of Elgi Equipments Ltd. vs. Commissioner of Central Changes made in Mega Exemption Notification Comments No. 25/2012–ST dated 20-06-2012 vide Notification Hitherto, all health care services provided by a No. 06/2015–ST dated 01-03-2015. clinical establishment including the services of Excise Coimbatore [2001 (128) E.L.T. 52 (S.C.)] & 10.3.1 Lal Mining Engg Works Vs. CCE, Mumbai in Mega Exemption Notification: Sec. 78B(2) – Provides that in cases covered under existing Sec. 73(4A) of FA Act (dealing with situations where the non payment or short payments have been noticed during the course of audit/investigation or verification) if notice has not been served or no order has been passed before enactment of the Bill, the penalty leviable shall not exceed 50% of service tax involved. •Power to waive penalty in certain cases now withdrawn – Sec. 80 Specific Services exempted by insertion •Entry no. 2 of the Mega Exemption Notification exempts Health care services provided by a clinical establishment, authorised medical transportation of patients in an ambulance were exempt from service tax. With this amendment, the scope of the exemption has been widened to include ambulance services provided by other parties as well. practitioner or para medics. Entry no. 2 has •Services of life insurance business provided been now split in two parts. Entry No. 2(i) retains under the “Varishtha Pension Bima Yojna” the earlier exemption provided to Health Care scheme. (Entry No. 26A) Services and Entry No. 2(ii) is being introduced to grant exemption to services provided by way of transportation of a patient in an ambulance even by persons other than those specified in Entry no. 2. •Services by operator of Common Effluent Treatment Plant by way of treatment of effluent. (Entry 43) • Services by way of pre-conditioning, pre-cooling, 130 131 INDIA BUDGET 2015-16 ripening, waxing, retail packing, labeling of fruits a structure meant predominantly for use as (i) and vegetables which do not change or alter the an educational, (ii) a clinical, or (iii) an art or essential characteristics of the said fruits or cultural establishment. vegetables. (Entry 44) a residential complex predominantly meant for self-use or the use of their employees or national park, wildlife sanctuary, tiger reserve or other persons specified in the Explanation 1 zoo. (Entry 45) to clause 44 of Sec. 65B of the said FA Act. • Service provided by way of exhibition of movie by The above exemption has been withdrawn and an exhibitor to the distributor or an association hence-forth the exemption shall only be limited of persons consisting of the exhibitor as one of to the construction, erection, commissioning, its members. (Entry no. 46) installation, completion, fitting out, repair, exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet. or alteration performance or any sporting event other than a recognized sporting event, where the consideration for admission is not more than H500 per person. [Entry No. 47] of ‘national park’, ‘recognised sporting event’, ‘tiger reserve’, ‘trade union’, ‘wildlife sanctuary’ and ‘zoo’ have been incorporated. from Mega Exemption Notification: • At present, services provided to the Government, a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of the following are exempted from service tax: a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or liquor for human consumption now chargeable has been continued. to service tax. [to come into effect from a date to now attract service tax: a mutual fund agent/distributor to a mutual fund or AMC shall now attract service tax. selling or marketing agent of lottery tickets to a distributer or a selling agent. [Entry No. 29] •Carrying out of any intermediate production be notified] [Entry No. 30] •The exemption to services by way of making telephone calls from (i) departmentally run public telephone, (ii) guaranteed public telephone operating only for local calls and (iii) free telephone at airport and hospital where no bills are being issued has been withdrawn. [Entry No. 32] process as a job worker in respect of alcoholic of importance, canals, dams or irrigation works, plants for water supply, water treatment and erection, commissioning or installation of original works pertaining to airports and ports will now attract service tax. [Entry No. 14] •Consideration charged by a performing artist for services in folk or classical art forms of (i) In-line with the above additions, the definitions MISCELLANEOUS historical monuments, sites of archaeological • Construction, award function, concert, pageant, musical profession. renovation, sewerage treatment. [Entry No. 12] recognised sporting event. 10.3.2Deletions maintenance, BUDGET PROPOSAL INDIRECT TAXES 21(a) of the Mega Notification, as it stands today, •Services provided by the following persons shall •Services by way of admission to a museum, • Services by way of right to admission to- BUDGET PROPOSAL DIRECT TAXES BASICS music, or (ii) dance, or (iii) theatre brought into the service tax net if such consideration exceeds H1,00,000. Services provided by such artists as a brand ambassador continues to be taxable irrespective of the consideration charged. [Entry No. 16] •Transportation of tea, coffee, jaggery, sugar, milk products and edible oil by rail or a vessel or by a goods transport agency in a goods carriage were earlier exempt from service tax and have now been brought within the service tax ambit. These services were earlier exempt under Entry No. 20 (i) and 21 (d). The exemption is now limited to transportation of milk, salt and food grains including flours, pulses and rice. It may be noted that the exemption to transportation of agricultural produce granted in Entry 20(h) and 10.4 Abatement Notification No. 26/2012-ST [Effective from 01-04-2015] Changes made in Notification No. 26/2012–ST • Services provided in relation to chit dated 20-06-2012 vide Notification No. 08/2015–ST Abatement of 30% on “Services provided in dated 01-03-2015. relation to chit” has been withdrawn. • Transport of goods/ passengers by rail • Transport of goods in a vessel Hitherto, service tax was payable on 30% of Abatement on “Transportation of goods in a the value of services of rail transport of goods vessel” was 60% which has now been increased and passengers (with or without accompanied to 70%. belongings) without any condition. Now, the abatement shall be available subject to the condition that Cenvat credit on inputs, capital goods and input services, used for providing the taxable services has not been taken under CCR. • Transport of passengers by air Hitherto, an abatement of 60% was provided on taxable services of transport of passengers by air (with or without accompanied belongings). The said abatement continues for economy • Goods Transport Agency class travel and in case of other than economy Abatement on “Transportation of goods by class the abatement has been reduced to 40%. Goods Transport Agency” was 75% which has now been reduced to 70%. 132 133 10.5 INDIA BUDGET 2015-16 Amendments in Notification No.30/2012-ST [Reverse Charge Mechanism] 10.6 [Effective from 01-03-2015/01-04-2015/from a date to be notified] BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Amendments to ST Rules [Effective from 01-03-2015/ 01-04-2015/ from a date to be notified] 10.5.1 Changes made in Notification No. 30/2012–ST dated 20-06-2012 (Reverse Charge Mechanism) vide Changes made in ST Rules vide Notification No. be submitted, revocation of registration etc. In Notification No. 07/2015 – ST dated 01-03-2015: 05/2015–ST dated 01-03-2015 as under: case of applicants seeking registration for single Pre Budget Sl. No. 1B Particulars Services provided by a mutual fund agent/ distributor to a mutual fund/AMC 1C Services provided by a selling/ marketing agent of lottery tickets to a lottery distributor/ selling agent 8 % of service tax payable by the person providing service Post Budget % of service tax payable by the person receiving the service % of service tax payable by the person providing service % of service tax payable by any person liable for paying service tax other than the service provider 25/2012-S.T dated 20-06- NIL 100 the service tax registration shall be granted within 2 days of on-line filing of the ACES form. a person who owns/manages a web based Further, the assessee can download the software application and who enables a potential Registration Certificate from the ACES website customer to connect by means of the application and such certificate would be accepted as proof and a communication device with persons of registration. There will be no need for a signed providing service of a particular kind under the copy. Further, the aggregator or his representative • Option to maintain e-records & authentication by digital signature whosoever is situated in the taxable territory Assesses may opt to authenticate the service shall be liable to pay service tax. In the absence invoices/bill/challan issued under Rule 4A/ Exempt vide Mega of the physical presence of the aggregator or consignment notes issued under Rule 4B by Exemption Notification No. his representative in the taxable territory, the means of a digital signature. Simultaneously, aggregator shall appoint a person in the taxable option of maintaining records in electronic form territory who shall be the person liable to pay is provided to the tax payer. The above shall be in the service tax. accordance with the corresponding notifications 25/2012-S.T dated 20-06- NIL 100 2012 [Sl. No. 29 (e)] 25 75 NIL 100 services 11 An “aggregator” has been defined to mean premises, it has been clarified by the CBEC that 2012 [Sl. No. 29 (c)&(d)] Services provided by way of supply of manpower or security “aggregator” brand name or trade name of the aggregator. Exempt vide Mega Exemption Notification No. • Services provided by a person involving an • Registration issued by the CBEC, if any. Changes brought in Rule 4 of the ST Rules [Sub- • Upward Revision in the alternate rate for Services provided by a person rule (1A) omitted & sub-rule 9 inserted] by way payment of service as provided in Sub-Rules (7), involving an aggregator in any of an Order No. 1/2015-ST dated 28-02-2015 to (7A), (7B) & (7C) of Rule 6 in respect of services specify the procedure for obtaining service tax provided by Air Travel Agents, insurer carrying registration such as steps for on-line filling on life insurance business, money changer, up of Form ST-1, time limit for submission of lottery distributor/selling agent are as under:- manner [Effective from 01-03-2015] Not Applicable NIL 100 documents, nature of documents required to 134 135 INDIA BUDGET 2015-16 Particulars Pre-budget Post-budget Services of booking of (i) 0.6% of the basic fare in case of (i) 0.7% of the basic fare in case of tickets for travel by air provided by an air travel agent domestic bookings (ii) 1.2% of the basic fare in case of domestic bookings (ii) 1.4% of the basic fare in case of international bookings international bookings Services provided by an 3% of the premium charged from 3.5% of the premium charged from insurer carrying on life policy holders in the first year and policy holders in the first year and insurance business 1.5% of the premium charged in the 1.75% of the premium charged in the subsequent years subsequent years (i) 0.12% of the gross amount (i) 0.14% of the gross amount Services of purchase or sale of foreign currency, of currency exchanged for an of currency exchanged for an including money amount upto H1,00,000 subject to amount upto H1,00,000 subject to changing the minimum amount of H30 the minimum amount of H35 (ii) H120 and 0.06% of the gross (ii) H140 and 0.07% of the gross Services of promoting, amount of currency exchanged amount of currency exchanged for an amount exceeding for an amount exceeding H1,00,000 and upto H10,00,000 H1,00,000 and upto H10,00,000 (iii) H660 and 0.012% of the gross (iii) H770 and 0.014% of the gross amount of currency exchanged amount of currency exchanged for an amount exceeding for an amount exceeding H10,00,000, subject to maximum H10,00,000, subject to maximum amount of H6,000 amount of H7,000 (i) Guaranteed price payout is more marketing, organising 10.7 BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Notification 42/2012-S.T. dated 29-06-2012 rescinded [Effective from 01-03-2015] Initially Notification No. 42/2012 – ST dated 29- The exemption being now available in view of Rule 06-2012 had been issued to exempt the services 9 read with Rule 2(f) of the POPSR (introduced provided by a commission agent located outside w.e.f. 01-07-2012), the notification 42/2012 became India to an Indian exporter on fulfilment of certain redundant and has now been rescinded vide conditions as prescribed in the said Notification. Notification No. 03/2015-ST dated 01-03-2015. 10.8 Exemption to services of a GTA for transport of export goods widened [Effective from 01-04-2015] Vide Notification No. 04/2015–ST dated 01-03- transportation of export goods from any container 2015 exemption has been extended to GTA service freight station/ inland container depot to the port for transportation of goods to a land customs or the airport from which the goods are to be station also. Such exemption already exists for exported. 10.9 Scope of Advance Ruling extended to specified resident firms [Effective from 01-03-2015] (i) Guaranteed price payout is more than 80%: or in any other manner BASICS H7,000 on every H10,00,000 (or than 80%: Vide Notification No. 9/2015-ST dated 01-03-2015, Notification No. 4/2013-ST dated 01-03-2013 ) H8,200 on every H10,00,000 (or ‘resident firms’ has been made eligible to apply and ‘resident private limited company’ (earlier assisting in organising part of H10,00,000) of aggregate part of H10,00,000) of aggregate for Advance Ruling. The expression ‘Firm’ has introduced vide Notification No. 15/2014-S.T lottery provided by a face value of lottery tickets face value of lottery tickets been defined to include partnership firms, LLP, dated 11-07-2014). The expression ‘resident’ shall distributor or selling printed by the organising State printed by the organising State sole proprietorship and one person company. have the meaning assigned to it in Clause (42) of agent for a draw for a draw Earlier, the facility was available only to ‘resident Section 2 of the IT Act, 1961 in so far as it applies public limited company’ (earlier introduced vide to a resident firm. (ii) Guaranteed price payout is less (ii) Guaranteed price payout is less than 80%: H11,000 on every H10,00,000 (or than 80%: H12,800 on every H10,00,000 (or part of H10,00,000) of aggregate part of H10,00,000) of aggregate face value of lottery tickets face value of lottery tickets printed by the organising State printed by the organising State for a draw for a draw PEOPLE INDIA. THE WORLD’S SECOND LARGEST RESOURCE BASE. India is not just a country; it is a statement of endless possibilities. Because the country comprises the second largest population cluster in the world. Because the country accounts for the largest English-speaking engineering student flow in the world. Because the country combines a robust democracy with an impartial judiciary. Enhancing international confidence. Because a number of global investors find in India compelling social realities that can inspire them to invest for the long-term. The moment is now. 138 139 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS SECTION 11 SEBI & CAPITAL MARKETS 140 141 11.1 INDIA BUDGET 2015-16 Expansion in the framework of offer for sale (“OFS”) through stock exchange mechanism BUDGET PROPOSAL DIRECT TAXES BASICS BUDGET PROPOSAL INDIRECT TAXES a) Where option for cut-off price is given: based on the cut-off price determined in the non-retail category. i) Sellers shall mandatorily announce floor price latest by 5 pm on T-1 day to stock exchange In order to encourage retail participation in OFS, demand in retail category at the cut-off price, to enable other large shareholders to use the OFS allocation shall be on proportionate basis. mechanism and expand the universe of companies to use OFS mechanism framework, SEBI issued circular dated 08-08-2014 for modifying OFS framework in the following manner: 11.1.1 The OFS mechanism shall be available to top 200 companies by market capitalization in any of the last four completed quarter 11.1.2 Any non-promoter shareholder of eligible companies holding at least 10% of share capital may also offer shares through the OFS mechanism. Promoters/ promoter group entities of such companies may participate in the OFS to purchase 11.1.7 In case of disclosure of the floor price, seller shall disclose the floor price latest by 5 pm on T-1 day to the stock exchange. Retail investors may be allocated shares at entered by them. d) Allocation to retail investors shall be made 11.2 bids shall take place as per normal secondary market transactions. Amendments to SEBI (Delisting of Equity Shares) Regulations, 2009 SEBI at its Board meeting on 19-11-2014 had that they have contacted all the public or amended shareholders about the offer in the manner Retail investors may be allocated shares at a amendments are detailed below: discount to the bid price entered by them. 11.2.1 Change in Threshold limits for successful 11.2.2 Determination of Offer Price : delisting: SEBI has modified Reverse Book Building process a) 90% of the total share capital of the company (‘RBB’) for determination of offer price i.e it bids of total value of not more than H2,00,000 aggregated across the exchanges. However, if the b) Single clearing price for OFS cumulative bid value of such investors exceeds Retail investors shall be allocated shares at H2,00,000 in the retail category the bids shall a discount to cut off price determined in the become ineligible. Individual retail investors shall retail category. category and non-retail category. h)In respect of bids in the retail category, 11.1.9 Discount to retail investors may be offered 2011. on all valid bids and shall be separate for retail bidding at cut-off price. in the non-retail category. cash equivalents. Pay-in and pay-out for retail the retail category, irrespective of the bid price 11.1.4 The cut off price shall be determined based after allotment shall be eligible for allocation b) Retail investors may enter a price bid or opt for of the bid. upfront in the notice of OFS to the exchange. a discount to the cut-off price determined in general category. g) Any unsubscribed portion of retail category reservation for retail investors shall be disclosed (Substantial have the option to bid in the retail category and the retail portion of OFS. the extent of 100% of order value in cash or Acquisition of Shares and Takeovers) Regulations, mean an individual investor who places cumulative iii there shall be no indicative price for the clearing corporation shall collect margin to reserved for retail investors. Retail investor shall subscription. at the floor price and for price bids at the value a) Multiple Clearing price for OFS- 11.1.3 Minimum 10% of the offer size shall be allocated on proportionate basis in case of over c) Margin for bids placed at cut-off price shall be (Issue of Capital and Disclosure Requirements) SEBI rejected. Retail bids at cut-off price shall be The details of discount and percentage of to compliance with applicable provisions of SEBI and by the seller f) Retail bids below the cut-off price shall be 11.1.8 Seller may offer discount to retail investor. as follows: 2009 bids, based upon the floor price declared e) Seller may offer discount to retail investors on the said cut off price. ii) Exchanges will decide upon the quantity of shares eligible to be considered as retail shares latest by 5 pm on T-2 day (T day being the shares from non-promoter shareholder, subject Regulations, 11.1.6 Seller shall announce intention of sale of day of the OFS) to the stock exchange. MISCELLANEOUS 11.1.10 The discounted price may be below the Delisting Regulation, 2009. Key prescribed. and b)Atleast would be a price at which the shareholding of 25% of the number of public shareholders (holding shares in dematerialized the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90%. floor price. mode as on date of Board of Directors meeting 11.1.11 To make it easier for retail investors to approving such delisting proposal) tender their 11.2.3 Prohibition from making delisting offer: shares in the reverse book building process. The promoter/ promoter group shall be prohibited In subsequent press release dated 22-01- from making a delisting offer if any entity belonging 2015, the above requirement of mandatory to the said group has sold shares of the company participation of 25% of the public shareholders during a period of six months prior to the date of (holding shares in dematerialized mode) has the Board meeting which approves the delisting been done away with provided the acquirer and proposal. participate in OFS, SEBI via its circular dated 0112-2014 decided that seller may give an option to 11.1.5 Any unutilized portion shall be offered to retail investors to place their bid at cut-off price non-retail category of investor. In case of excess in addition to placing price bids. In order to do so, following conditions shall be applicable to the OFS: the Merchant banker are able to demonstrate 142 143 INDIA BUDGET 2015-16 11.2.4 Use of Stock Exchange Platform & 11.2.6 Exemption from RBB process: Appointment of Merchant Banker: Companies whose paid up capital does not exceed a) Stock Exchange platform can be used for offers H10 crs and net worth does not exceed H25 crs as made under Delisting, Buyback and Takeover on the last day of the previous financial year are Regulations. exempted from following the RBB process. The b) Board of Directors of the company will be required to appoint merchant banker. 11.2.5 Failure of attempt to Delisting : Option to the acquirer to delist the shares of the company directly through Delisting Regulations pursuant to triggering Takeover Regulations has been provided. However, if the delisting attempt fails, the acquirer would be required to complete the mandatory open offer process under the takeover Regulations and pay interest @ 10% p.a. for the delayed open offer. BASICS 11.4 BUDGET PROPOSAL DIRECT TAXES exemption would be available only if (a) there was SEBI in its circular dated 30-06-2014 and 30-12- to a Foreign Financial Institution (FFI) agreement, no trading in the shares of the company in the last 2014 (together referred to as “the Circulars”) had may register with US authorities to avoid potential one year from the date of the board resolution laid down the requirement for Indian Financial withholding under FATCA. authorizing the company to go for delisting and Institution to get registered with US authorities (b) trading of shares of the company has not been and obtain a Global Identification Number (GIIN) to suspended for any non-compliance during the avoid potential withholding under Foreign Accounts same period. Tax Compliance Act (FATCA). The Government of India have reached an agreement in substance on 11.2.7 Timelines Delisting timeline has been reduced from 137 calendar days (around 117 working days) to 76 working days. the terms of an Inter-Governmental Agreement (IGA) to implement FATCA and India is now treated as having an IGA w.e.f11-04-2014 11.4.1 Time limit applicable to Indian Financial 1 jurisdiction for the purpose of registration and obtaining GIIN was 31-12-2014. Key amendments to SEBI insider trading Regulations, 2014 11.4.2 Overseas branches of Indian Financial Institutions in a jurisdiction having IGA 2 agreement In a move to align the Insider Trading Regulations that they did not possess UPSI shall be on such or in a jurisdiction that does not have an IGA but in India with international practices and to connected persons. permits financial institutions to register and agree strengthen the legal and enforcement framework, SEBI had approved to bring new SEBI (Prohibition of Insider Trading) Regulations, 2014 at its Board Meeting on 19-11-2014 with following key features: 11.3.3 Wider disclosure requirements: Company is now required to disclose UPSI at least 2 days prior to trading by officials. Officials with access to UPSI all-round the year to formulate 11.3.1 Enhanced Definition of “Insider” their pre-determined trading plans and disclose Definition of ‘Insider’ has been widened to include the same to stock exchanges. Clear prohibition on any person with access to unpublished price communication of UPSI has been provided except sensitive information (‘UPSI’) including persons for legitimate purposes, performance of duties connected on the basis of contractual, fiduciary or or discharge of legal obligations. To facilitate employment relationship. UPSI has been defined legitimate business transactions, UPSI can be as information not generally available and which communicated with safeguards. may impact the price. 11.3.4 Prohibition on directors and key 11.3.2 Definition of “Connected persons” management personnel to trade in derivatives of Immediate relatives would be presumed to be the securities of the company connected persons and onus of establishing MISCELLANEOUS Inter Governmental agreement with United States of America under Foreign Accounts Tax compliance Act (FATCA)Registration Institution having overseas branches in Model 11.3 BUDGET PROPOSAL INDIRECT TAXES 11.4.3 Overseas branches of Indian Financial Institutions in a jurisdiction that does not have an IGA and does not permit financial institutions to register and agree to FFI may not register and their overseas branches would eventually be subject to withholding under FATCA. 11.4.4 It is further advised that if registration of the parent is a pre-requisite for a branch to register, such intermediaries may register as indicated in 11.4.1 & 11.4.2. 11.4.5 As per the circular dated 30-12-2014, it was clarified that FFIs who have registered with US authorities but have not obtained a GIIN should indicate to the withholding agents that GIIN is applied for. 144 145 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS SECTION 12 BUDGET PROPOSALS – DIRECT TAX RATE STRUCTURE 146 147 INDIA BUDGET 2015-16 INCOME TAX RATES: Tax Rates* 0 - 2,50,[email protected] Nil 2,50,001 – 5,00,000+ 10.30% of income exceeding H2,50,000 5,00,001 – 10,00,000 H25,750 plus 20.60% of income exceeding H5,00,000 10,00,001 –1,00,00,000 H1,28,750 plus 30.90% of income exceeding H10,00,000 1,00,00,001 and above H29,09,750 plus 34.608%# of income exceeding H1,00,00,000 Sl. No. respectively. MISCELLANEOUS @ In case of resident individual of age 60 years or more (Senior Citizen) the basic threshold limit of Particulars Tax (%) Surcharge E. Cess S & H E. Cess (%) (%) (%) Effective Tax (%) Domestic companies (with total income less than H1 cr.) 30 - 2 1 30.90 2 Domestic companies (with total income more than H1 cr. but less than H10 crs.) 30 7* 2 1 33.063 3 Other domestic companies 30 12# 2 1 34.608 4 Foreign companies (with total income less than H1 cr.) 40 - 2 1 41.20 5 Foreign companies (with total income more than H1 cr. but less than or equal to H10 crs.) 40 2 2 1 42.024 6 Other foreign companies 40 5 2 1 43.26 # Surcharge has been increased from 10% to 12% in case total income exceeds H1,00,00,000. * Surcharge has been increased from 5% to 7%. H3,00,000 remains unchanged. In case of resident individual of age 80 years or more (Very Senior Citizen) the basic threshold limit of H5,00,000 remains unchanged. # Surcharge has been increased from 10% to 12%. Minimum Alternate Tax (MAT) + Resident individual having total income less than H5,00,000 is eligible to claim Tax Rebate u/s 87A, being lower of tax on total income or H2,000. Sl. No. Tax Rates* 0 -10,000 10.30% 10,001 – 20,000 H1,030 plus 20.60% of income exceeding H10,000 20,001 – 1,00,00,000 H3,090 plus 30.90% of income exceeding H20,000 1,00,00,001 and above H30,86,910 plus 34.608%# of income exceeding H1,00,00,000 * The tax rates are inclusive of education cess and secondary higher education cess @ 2% and 1% respectively. # Surcharge has been increased from 10% to 12% in case total income exceeds H1,00,00,000. For Local Authorities Local Authorities are taxable at the rate of 30%. Surcharge has been increased from 10% to 12% where the total income exceeds H1,00,00,000. Education Cess is applicable at the rate of 2%. Secondary and Higher Education Cess is applicable @ 1% on income tax. Particulars Tax (%) Surcharge E. Cess S & H E. Cess (%) (%) (%) Effective Tax (%) 1 Domestic companies (with total income less than H1 Cr.) 18.5 - 2 1 19.055 2 Domestic companies (with total income more than H1 Cr. but less than H10 Cr.) 18.5 7* 2 1 20.389 3 Other domestic companies 18.5 12# 2 1 21.342 4 Foreign companies (with total income less than H1 Cr.) 18.5 - 2 1 19.055 5 Foreign companies (with total income more than H1 Cr. but less than H10 Cr.) 18.5 2 2 1 19.436 6 Other foreign companies 18.5 5 2 1 20.008 For Co-operative Societies Income Slabs (H) BUDGET PROPOSAL INDIRECT TAXES 1 * Tax rates are inclusive of Education Cess and Secondary Higher Education Cess @ 2% and 1% BUDGET PROPOSAL DIRECT TAXES For Corporates For individuals, Hindu Undivided Family, Association of Persons and Body of Individuals Income Slabs (H) BASICS * Surcharge has been increased from 5% to 7%. # Surcharge has been increased from 10% to 12%. Alternate Minimum Tax (AMT) It is applicable on all persons other than companies. In case of Individual, Hindu Undivided Family, Association of Persons and Body of Individuals, it applies only if Adjusted Total Income exceeds H20,00,000. For Partnership Firms Adjusted Total Income is computed by increasing Total Income by any Deduction claimed under chapter Partnership firms are taxable at the rate of 30%. Surcharge has been increased from 10% to 12% where VIA [Sec. 80-IA to Sec. 80RRB (Except Sec. 80P)] and Sec. 10AA. the total income exceeds H1,00,00,000. Education Cess is applicable at the rate of 2%. Secondary and Higher Education Cess is applicable @ 1% on income tax. AMT would be computed at the rate of 18.5% on adjusted total income. Surcharge has been increased from 10% to 12% where the adjusted total income exceeds H1,00,00,000. Education Cess is applicable at the rate of 2%. Secondary and Higher Education Cess is applicable @ 1% on income tax. 148 149 INDIA BUDGET 2015-16 Securities Transaction Tax (STT) BASICS 1 2 3 4 Transactions Particulars Rate Purchase/Sale of equity shares (delivery based) 0.1% Purchase of units of equity-oriented mutual fund (delivery based) Sale of units of equity-oriented mutual fund (delivery based) Sale of equity shares, units of equity-oriented mutual fund (non-delivery based) Nil Effective Rate* 5.263 6.071 - Resident 33.33 38.449 - Non Resident 42.85 49.432 - Resident 42.85 49.432 - Non Resident 53.85 62.121 (1) Distribution by MF under an Infrastructure Debt fund scheme Purchaser / (2) To an individual or HUF excluding (1) above to a non-resident Seller Purchaser (3) To any other person excluding (1) & (2) above 0.001% Seller 0.025% Seller Sale of an option in securities 0.017% Seller 6 Sale of an option in securities, where option is exercised 0.125% Purchaser 7 Sale of a futures in securities 0.01% Seller 8 Sale of unit of equity oriented fund to the Mutual Fund 0.001% Seller * including surcharge of 12% & Education Cess # Excludes equity oriented funds Capital Gains Short term capital Long term capital gains tax1 gains tax Sale transactions of securities which attract STT Commodities Transaction Tax (CTT) commodities) entered in a recognised association 15% Nil Sale transactions of securities not attracting STT CTT is levied on the value of taxable commodities transaction: Sale of commodity derivative (other than agricultural MISCELLANEOUS Basic Rate Payable by 5 Transactions BUDGET PROPOSAL INDIRECT TAXES DDT Rates for Mutual Fund# (MF) for payments to - STT is levied on the value of taxable securities transaction as under: Sl. No. BUDGET PROPOSAL DIRECT TAXES Rate Payable by 0.01% Seller Individuals (residents and non-residents) Progressive slab 20% with rates indexation; (3) To any other person excluding (1) & (2) above Partnerships (resident and non-resident) 30% 10% without indexation (for listed securities Wealth Tax (WT) Resident companies Levy of Wealth tax has been abolished. 30% /zero coupon bonds) Dividend Distribution Tax (DDT) Dividends distributed by an Indian Company are exempt from income tax in the hands of all shareholders. Overseas financial organizations specified in Sec. 115AB DDT shall be computed on the amount determined after grossing up dividend paid by the rate of tax (excluding surcharge and cess) on such dividend. Grossing up is required to be done only of the Basic Rate and not of the Effective Rate. The rates of DDT 40% (corporate) FIIs 30% 10% Other foreign companies 40% 20% with Local Authority 30% indexation; As per indexation (for progressive slab listed securities/ rates zero coupon are as below: 10% without DDT Rates for Companies Basic Rate Effective Rate* 17.647 20.358 Co-operative Society bonds) *including surcharge of 12% & Education Cess 1 To be increased by surcharge (applicable if any), education cess and secondary and higher education cess 150 151 INDIA BUDGET 2015-16 SPECIAL RATES FOR NON-RESIDENTS The following incomes in the case of non-resident are taxed at special rates on gross basis: Nature of Income Dividend(2) Rate(1) 20% Interest received on loans given in foreign currency to Indian concern or Government of 20% India Interest received on infrastructure debt funds referred to in Sec. 10(47) Interest of the nature and extent referred to in Sec. 194LC and Sec. 194LD Income received in respect of units purchased in foreign currency 5% 5% 20% Royalty or technical fees3 10% Interest on FCCB 10% These rates will further be increased by surcharge (applicable if any), education cess and secondary and 1 higher education cess. 2 Other than dividends on which DDT has been paid. 3 Rate decreased from 25% to 10%. BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS 152 153 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES SECTION 13 GLOSSARY MISCELLANEOUS 154 INDIA BUDGET 2015-16 BASICS BUDGET PROPOSAL DIRECT TAXES BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS Corporate Office ACIT Assistant Commissioner of Income Tax JCIT Joint Commissioner of Income Tax LLP Limited Liability Partnership MAT Minimum Alternate Tax MMR Maximum Marginal Rate NPS National Pension Scheme PAN Permanent Account Number PA Per Annum PE Permanent Establishment POEM Place of Effective Management POPSR Place of Provision of Service Rules, 2012 AE Associated Enterprise AIF Alternative Investment Funds AMT Alternate Minimum Tax AO Assessing Officer AOP Association Of Persons AY Assessment Year BCD Basic Customs Duty BILL The Finance Bill, 2015 CBDT The Central Board of Direct Taxes CIT The Commissioner of Income Tax PY Previous Year CCIT The Chief Commissioner of Income Tax QFI Qualified Institutional Investor R&D Research and Development CBEC Central Board of Excise and Customs RBI Reserve Bank of India CCR CENVAT Credit Rules, 2004 REIT Real Estate Investment Trust CE Act Central Excise Act, 1944 ROI Return of Income RPF Regional Provident Fund Rules The Income Tax Rules, 1962 SAD Special Additional Duty SEBI The Securities and Exchange Board of India Deputy Commissioner of Income Tax SCN Show Cause Notice SPV Special Purpose Vehicle DDT Dividend Distribution Tax STT Securities Transaction Tax DTA Domestic Tariff Area ST Rules Service Tax Rules, 1994 DTAA Double Taxation Avoidance Agreement TCS Tax Collected at Source EOU Export Oriented Unit TDS Tax Deducted at Source FCCB Foreign Currency Convertible Bonds TAN Tax Deduction Account Number GAAR General Anti Avoidance Rule The Act Income-Tax Act, 1961 GDR Global Depository Receipts TPO Transfer Pricing Officer HUF Hindu Undivided Family UOI Union of India Invit Infrastructure Investment Trust VAT Value Added Tax ITAT The Income Tax Appellate Tribunal CE Rules Central Excise Rules, 2002 CTT Commodity Transaction Tax CVD Additional Duty of Customs levied under section 3(1) of the Customs Tariff Act, 1975 DCIT 701, Leela Business Park, Andheri-Kurla Road, Andheri (E), Mumbai - 400 059. Tel: +91 22 6672 9999 | Fax: +91 22 6672 9777 Email : [email protected] | Website : www.dhc.co.in Ahmedabad 703, Venus Atlantis, 100 Ft. Road, Corporate Road, Prahlad Nagar, Ahmedabad - 380 015 Tel: +91 (79) 4032 0441/4032 0442 Bengaluru No. 45, 1st Floor, 2nd Main, Sankey Road, (Above Indian Bank), Lower Palace Orchards, Bengaluru - 560 003. Tel: +91 (80) 6454 2545/6454 2546 Chennai 5B, A Block, 5th Floor, Mena Kampala Arcade, New No 18 & 20, Old No 113/114, Theyagaraya Road, T. Nagar, Chennai - 600 017. Tel: +91 (44) 4213 2024 / 4554 4143 Fax: +91 (44) 4354 6876 Coimbatore Shree Shanmugappriya, 2nd Floor, 454, Ponnaiyan Street, Crosscut Road, Gandhipuram, Coimbatore - 641 012. Tel: +91 (422) 2237793 / 2238793 Fax: +91 (422) 2233793 Hyderabad Raja Pushpa House, 3rd floor, Plot No-34, Silicon Valley, Madhapur, Hyderabad - 500 081. 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Tel: +91 (33) 4025 4900 Mumbai 42, Free Press House, 215, Nariman Point, Mumbai-400 021 Tel: +91 (22) 6132 6999 Fax: +91 6729 9500 / 501 Fax: +91 (020) 6729 9555 (22) 2285 6237 131, Mittal Court, 13th Floor, C Wing, Nariman Point, Mumbai - 400 021. Tel & Fax: +91 (22) 4002 5858 New Delhi 3rd Floor, 52-B, Okhla Industrial Estate, New Delhi - 110 020. Tel: +91 (11) 4711 9999 Fax: +91 (11) 4711 9998 Pune C-10,Godrej Eternia, Old Mumbai Pune Highway, Wakdewadi, Pune - 411005. Tel: +91 (020) Notes A Product [email protected] As the world is converging into a single global entity, technology is blurring the lines between geographies, services and solutions. And in this era of a flat, borderless world, DHC is committed to going beyond service, into value addition in the true sense of the word. • To understanding not just what our clients want, but what their business needs • To meeting not just immediate requirements, but providing long term solutions • To being not just reactive to client’s needs but being proactive to solve their future issues Because at DHC, we believe there’s a thin line between ‘delivering a service’ and ‘delivering value’.
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