final presentation for budget 2014 11072014-tax- updated
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India Union Budget
2014 Highlights
Contents
1. The budget backdrop
2. Foreign direct investment
3. Direct tax proposals
4. Transfer pricing proposals
5. Indirect tax proposals
6. Questions and Answers
Budget 2014 Highlights
|2© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The budget backdropBudget 2014 Highlights
3
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The budget backdrop
45 days of the government Budget expectations
• Backdrop of turbulent tax year
• High expectations from a majority
government
• Bold move in the form of rail price increase
• Determination to reduce subsidies
• Stable foreign exchange regime liberalisation
• Buoyant stock market
• Reform-oriented budget expected in the
backdrop of political stability
• Stable tax regime; action on manifesto
promises
• Indicators in the economic survey
Slow growth with the hope of recovery in
2016-2017
Low GDP ratio
High inflation, hope of lower interest
rates towards the end of the year
Current account deficit under control
Need for fiscal consolidation
Varying monsoon season and changes
in global outlook
4
Budget 2014 Highlights
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Key policy announcementsOutlook for 2014–
2015
• Investment revival
might happen
gradually
Commitment to a stable and predictable
tax regime
No use of retrospective amendments, to
create fresh liabilities
Slew of measures to reduce tax litigation
Composite cap of foreign direct
investment to be raised to 49 per cent in
defense and insurance
Comprehensive approach; SMEs,
entrepreneurs, socio economic plans,
financial services, infrastructure impetus
Economic survey
2013–2014
The budget backdrop
• Improved balance of
payments situation and
modest global growth
revival
• Current account deficit
reduced to
1.7 per cent in 2013–
2014 from 4.7 per cent
in 2012–2013
• Lower than 5 per cent
growth of gross
domestic product (GDP)
for 2012–2013 and
2013–2014
• Expectation of better
performance in
manufacturing
• Reversion to a growth
rate of around 7–8 per
cent may occur only
beyond the ongoing
and the next fiscal
year
• Fiscal deficit of 4.5 per
cent of the GDP in
2013–2014, as
compared to the
budgeted target of
4.8 per cent.
|5© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Foreign direct investmentBudget 2014 Highlights
|6© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Budget 2014 Highlights
Policy changes in foreign
direct investment
Insurance
Currently at 26 per cent; FDI allowed under automatic route
Increased to 49 per cent under FIPB approval route with full Indian
management and control
Insurance law amendment bill to be tabled in the parliament soon.
Defence
Currently at 26 per cent; FDI allowed under approval route
Increased to 49 per cent; FDI with full Indian management and control
through the FIPB approval route.
E-commerce
Manufacturing units (under automatic route) under retail, allowed to sell
their products through e-commerce platforms without additional approval.
Real Estate
Minimum built-up area and capitalisation requirements reduced from
50,000 sq. metres to 20,000 sq. metres and from INR60 crore to INR30
crore respectively with a 3 three year post completion lock-in
Exemption available to projects which commit at least 30 per cent to low
cost affordable housing.
|7© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Direct tax proposalsBudget 2014 Highlights
8
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Corporate tax
Retrospective amendments
• Government to not use retrospective amendment ordinarily, as it
may create fresh liability
• To improve tax administration, a high level committee to be
constituted by CBDT for scrutinising fresh cases arising out of the
retrospective amendments in indirect transfers.
Dispute resolution mechanisms/ administrative measures
• Authority for Advance Rulings (‘AAR’):
- Proposal to extend AAR mechanism to residents, subject to
threshold requirement
- AAR to be strengthened by constituting additional benches
• Scope of income-tax settlement commission enlarged
• Government to set-up a high level committee to interact with trade
and industry on a regular basis to ascertain areas requiring clarity in
tax laws.
9
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Corporate tax
Lower withholding tax on foreign borrowings/bonds
• Lower withholding tax rate at 5 five per cent (plus applicable surcharge
and cess) on interest payable to a non-resident on borrowings in foreign
currency, extended to all types of bonds (currently long-term
infrastructure bonds are covered)
• Time limit extended from 30 June 2015 to 30 June 2017
Characterisation of income for FII
• Security held by FII (FPI) to be treated as capital asset and income on
transfer of such securities to be taxed as capital gains
• Addresses ambiguity on characterisation of FII’s income that promote
presence of a fund manager in India.
10
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Corporate tax
Incentives
• Tax holiday in holiday in power sector; commencement date extended
till 31 March 2017
• Investment linked deduction extended to two new sectors (slurry
pipelines for the transportation of iron ore, semi-conductor wafer
fabrication units)
• Investment allowance to a manufacturing company
- Additional deduction of 15 per cent to manufacturing companies
which invest more than INR25 crore in new plant and machinery in
a year, up to 31 March 2017
- Existing benefit on investment of INR100 crore extended till 31
March 2017 and to run parallel to the above benefit.
11
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Corporate tax
Dividend distribution tax (‘DDT’)
• Revised mechanism for calculation of DDT; dividends distributed by
domestic companies and mutual funds to be grossed up
• Effective DDT rate to go up by approximately three per cent with
effect from 1 October 2014
• Similar amendment on distribution by mutual funds
Corporate social responsibility (‘CSR’)
• Expenditure incurred on CSR activities not allowed as a deduction
under section 37 of the Act
• CSR expenditure covered under section 30 to 36 may be allowed as
a deduction subject to fulfillment of certain conditions.
12
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Corporate tax
Other key changes
• No change in corporate tax rates
• New categories of investment vehicles announced i.e. Real Estate
Investment Trust (REITs) and Infrastructure Investment Trusts to
enjoy tax pass through status (subject to conditions)
• Concessional tax rate of 15 per cent on dividend earned by Indian
companies received from specified foreign companies (shareholding
of 26 per cent or more) to continue without any sunset
• Unlisted security and units (other than equity oriented mutual fund)
to be short-term capital asset if held up to 36 months
• Long Term Capital Gain from transfer of units of mutual funds, other
than equity oriented funds, to be taxed at 20 per cent as against 10
per cent.
13
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Corporate tax
Personal taxation
• Individual income-tax slab for resident senior citizens, limit raised to
INR3,00,000 from INR2,50,000. For all others, limit raised to
INR2,50,000 from INR2,00,000
• Deduction towards specified investments under section 80C increased
to INR1,50,000 from INR1,00,000
• Deduction towards interest on housing loan for self occupied property
increased to INR2,00,000 from INR1,50,000.
|14© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Transfer pricing proposalsBudget 2014 Highlights
15
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Transfer pricing
• Proposal to introduce ‘rollback’ for maximum, four previous years;
• Conditions, procedure and manner of rollback to be prescribed;
• Applicable w.e.f. 1 October 2014.
Advance pricing agreement rollback provisions
Key questions (Illustrative)
• Opting of selective years out of four prior years (sequential or otherwise)
• Opting of APA rollback for APA already applied and currently pending for
disposal
• Prevention of double taxation for unilateral APA and also requirement of
initiation of MAP for prior years
• Penalty waiver for rollback years
Range concept
• ‘Range concept’ for arm’s length price instead of arithmetical mean
• Arithmetic mean to continue where adequate comparables not available
• No amendments currently proposed in Finance Bill. ‘Relevant data is
under analysis and appropriate rules will be prescribed’.
16
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Transfer pricing
Multiple year data
• Proposal to allow use of multiple year data
• No amendments proposed in Finance Bill, necessary legislative
amendments expected subsequently
Deemed international transaction to include transactions with
third parties in India
• Section 92B(2) proposed to be amended to include domestic
transactions with third parties in India as ‘international transactions’
• Applicable w.e.f. 1 April 2015
TPO empowered to levy penalty for failure to furnish
documentation required under section 92D (TP
documentation)
• Section 271G proposed to be amended to include TPO as an authority
competent to levy penalty for failure to furnish information and
documentation, two percent of the value of international transactions.
• Currently, only Assessing Officer or CIT(Appeal) empowered to levy such
penalty and TPO at best can recommend in his order
• Applicable w.e.f. 1 October 2014.
17
Indirect tax proposalsBudget 2014 Highlights
18
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Service tax
• Service tax negative list pruned. Service tax now applicable on:
˗ sale of space or time on online and mobile advertising media
˗ services provided by radio taxis or radio cabs
(4.944 per cent abated rate)
• Certain service tax exemptions withdrawn
˗ clinical research on human participants
˗ air-conditioned point to point contract carriages services like buses
• Certain service tax exemptions rationalised, like
˗ ‘auxiliary educational services’ procured by educational institutions
• New service tax exemptions announced:
˗ services provided by Indian tour operators to foreign tourists in
relation to a tour wholly conducted outside India.
19
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Service tax
• CENVAT Credit:
˗ Time limit of six months prescribed for availing credit
˗ Service tax paid under full reverse charge mechanism (associated
enterprises), credit available immediately after tax payment
• Place of provision of services rules amended:
˗ Repair services provided on goods temporarily imported into India
for such repair and exported thereafter, not to attract service tax
˗ Services provided by ‘intermediary’ of goods (like commission
agent), to be taxed on the basis of location of service provider
• Service tax on all kinds of works contract except ‘original works’
rationalised to 8.65 per cent.
20
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Service tax
• Service tax exemption on services provided to SEZ unit/developer, made
subject to stricter compliances
• Expansion in scope of reverse charge mechanism under service tax
• Mandatory pre-deposit (subject to ceiling of INR10 crore)
˗7.5 per cent for filing first stage appeal before Commissioner (Appeals
or Tribunal)
˗10 per cent for filing second stage appeal (before Tribunal)
• Service tax dues of a predecessor made recoverable from the assets of a
successor
• Interest rate for delayed payment of service tax increased from 18 per cent
to a range of 18 to 30 per cent, based on the period of delay.
21
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Customs duty
• To boost domestic manufacture and to address the issue of inverted
duties, basic customs duty (BCD) reduced on certain items
• Concessional duty of 5 five per cent extended to machinery and
equipment required for setting up of solar energy project and exemption
of duty on specified raw materials for solar PV cells or modules
• Harmonisation of customs duty on coal to eliminate classification
disputes on non-agglomerated coal
• Exemption from SAD on all inputs/components used in manufacture of
personal computers (laptops/desktops) and tablet computers.
22
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Customs duty
• Imposition of 10 per cent BCD on non-ITA bound telecom equipment and
customs education cess levied on ITA bound items
• Plants and equipment imported prior to 2008 for use in projects financed
by UN/international organisation, which could not be transferred/sold/re-
exported are now being allowed subject to the conditions
• No customs duties to be recovered on mineral oils including petroleum
and natural gas extracted or produced in the continental shelf of India or
the exclusive economic zone for the period prior to 7 February, 2002
• For passenger facilitation, free baggage allowance increased from
INR35,000 to INR45,000.
23
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Customs duty
• Compulsory pre-deposit of 7.5 per cent of the duty demanded/penalty
imposed/both for filing appeal before Commissioner (Appeals)/Tribunal
at the first stage and another 10 per cent of the duty demanded or
penalty imposed or both for filing second stage appeal before the
Tribunal (subject to a ceiling of INR10 crore)
• Safeguard duty on inputs/raw materials applicable on import by EOU
when cleared into DTA as such or are used in the manufacture of final
products and cleared into DTA
• 24X7 customs clearance facility extended to 13 more airports and 14
more sea ports in respect of specified import and export goods.
24
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Excise duty
• Goods supplied against international competitive bidding; clarification
provided to state that exemption also available to sub-contractors for
manufacture and supply of goods for or on behalf of the main contractor
(who has won the bid for the project through ICB) subject to compliance
with specified conditions
• FIAT decision over turned; transaction value to be adopted if seller does
not get any additional consideration
• Place of removal now defined to be a factory, depot, warehouse or other
place from where goods are removed for sale
• Time limit of six months introduced taking CENVAT credit on inputs/input
services.
25
Budget 2014 Highlights
© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Excise duty
• Assessee to self compute and pay penalty at one per cent per month on
the amount of duty not paid beyond one month from due date for each
month or part thereof
• AAR; scheme of advance ruling extended to resident private limited
companies
• Excise duty increased on numerous products like cigars, cigarettes,
aerated water with sugar
• Education cess exempted on goods cleared by EOU to DTA.
Questions and answersBudget 2014 Highlights
27
Budget 2014 Highlights
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