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India Budget Impact2017-18 01 February, 2016INDIA UNION BUDGET2017-18

01 FEBRUARY 2017

Contents

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Snapshot of the year gone by Agenda and focus for year

2017-18 Key Policy Announcements Key Direct Tax Proposals Key Indirect Tax Proposals

Snapshot of the year gone by

Demonetization of high denomination currency notes

Introduction of income disclosure and immunity schemes

Passage of Constitutional Amendment Bill enabling GST passed

The GST Council has finalised its recommendations on almost all the issues based on consensus on the basis of 9 meetings held

Successful renegotiation of key tax treaties with Mauritius, Cyprus & Singapore resulting in removal of capital gain exemptions

Final Guidelines for Place of Effective Management (‘POEM’) framed

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Snapshot of the year gone by

GAAR clarifications issued – provisions come into force on 1 April 2017

Indirect transfers valuation and reporting rules notified

New Insolvency and Benami Property laws brought into force

Easwar Committee Report on tax simplification submitted

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‘TEC’ is the agenda for year 2017-18

TRANSFORM The quality of governance and quality of life of our people

ENERGISE Various sections of the society, especially the youth and the vulnerable, and enable them to unleash their true potential

CLEAN The Country from the evils of corruption, black money and non-transparent political funding

Agenda for year 2017-18

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FarmersRural

Population Youth Poor

Infrastructure Financial Sector

Digital Economy

Public Service

FiscalManagement

TaxAdministration

Focus – 10 Distinct Themes

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Key Policy AnnouncementsKEY POLICY ANNOUNCEMENTS

Key Policy Announcements Proposal to abolish Foreign Investment Promotion Board (‘FIPB’) and further

liberalization of Foreign Direct Investment (‘FDI’) policy is under consideration

Shares of Railway PSEs like IRCTC, IRFC and IRCON will be listed in stock exchanges

Railway lines of 3500 kms will be commissioned in 2017-18

Proposal to set up strategic crude oil reserves at two more locations

Second phase of Solar Park development to be taken up for additional 20,000 MW capacity

Incredible India 2.0 Campaign will be launched across the world to promote tourism and employment

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Key Policy Announcements Proposal to mandate all Government receipts through digital means beyond a

prescribed limit is under consideration

Proposal to launch Aadhar Pay, a merchant version of Aadhar Enabled Payment System

Proposal to launch two new schemes to promote Government e-payment app (BHIM app); these are, Referral Bonus Scheme for individuals and a Cashback Scheme for merchants

Proposal to incentivise credit, debit card transactions. Move to discourage cash transaction and track black money

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Key Policy Announcements The Finance Minister expressed the Government’s readiness on all spheres for the

introduction of GST

The extensive reach-out efforts to trade and industry for GST will start from 1 April 2017 to make them aware of the new taxation system

Maximise efforts for e-assessment in the coming year

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Key Direct Tax ProposalsKEY DIRECT TAX PROPOSAL

Personal Income Tax Tax rate reduced from 10% to 5% in respect of incomes between INR 250,000 and INR

500,000 for Individuals, Hindu Undivided Family (’HUF’) and Association of Persons (‘AOP’)

Tax rate reduced from 10% to 5% in respect of incomes between INR 300,000 and INR 500,000 for senior citizens

Surcharge of 10% of tax introduced for incomes between INR 5 million and INR 10 million

Proposal to introduce simple one page form to file Income tax return for the category of individuals having taxable income upto INR 500,000 other than business income

Introduction of withholding tax regime @ 5% for payment of rent exceeding INR 50,000 per month by Individuals and HUF’s

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Corporate income tax Tax rate reduced to 25% for medium and small companies with annual turnover of less

than INR 500 million

No other reduction in Minimum Alternate Tax (‘MAT’) and corporate tax rates

MAT/ Alternate Minimum Tax (‘AMT’) credit allowed to be carried forward for 15 years (from existing 10 years)

Rationalisation of MAT in line with treatment under Indian Accounting Standards (‘Ind AS’) (from AY 2017-18)

No announcement on scrapping of Income Computation Disclosure Standards (‘ICDS’)

Proposal of concessional tax rate of 10% for sale of carbon credits

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Capital Gains Exemption for long term capital gains on sale of listed shares not available for shares

acquired after 1 October 2004 without payment of Securities Transaction Tax – Exceptions to be notified

Joint Development Agreements (‘JDAs’) – relaxation of capital gains on deemed transfer of immovable properties in JDAs

Land & Building – change in holding period reduced from 3 years to 2 years for long term eligibility

Base year for computing cost of acquisition and improvement changed from 1981 to 2001

Conversion of preference shares to equity shareholding not to be considered as capital gain

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International Tax Investments held directly or indirectly by a non-resident in a Category I or a Category II

Foreign Portfolio Investors (‘FPI’) excluded from indirect transfer provisions – retrospective from AY 2012-13

Clarifications proposed to be issued to exclude offshore redemptions consequent to sale of investments chargeable to tax in India from the ambit of indirect transfer provisions

Benefit of 5% rate of interest on External Commercial Borrowings (‘ECB’) & Bonds extended to year 2020

Proposal to enable provisions for rectification of assessment to grant Foreign Tax Credit (‘FTC’) on payment of disputed tax abroad

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Transfer Pricing Domestic Transfer Pricing (‘DTP’) scope restricted – transactions between two

domestic related parties not to trigger specified domestic transaction provisions except where one of the parties is claiming a profit linked deduction

Proposal to introduce secondary adjustment where primary adjustment exceeds INR 10 million

Proposal to restrict interest deduction in line with recommendation of BEPS Action Plan 4 - restricts deduction towards interest paid to non-resident associated enterprises (’AE’) to 30% of EBITDA (earnings before interest, taxes, depreciation and amortization). Provision to trigger only when interest expenditure exceeds INR 10 million

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Other announcements Time limit for completion of assessments proposed to be reduced in respect of:

AY 2018-19 to 18 months from 21 months AY 2019-20 to 12 months from 21 months

Restriction on loss carry forward for start ups relaxed for change in shareholding due to capital infusions

Tax refunds claimed in tax returns cannot be withheld in case scrutiny assessments without the approval of higher authorities

Cash transactions in excess of INR 300,000 prohibited: penalty leviable

Depreciation and deduction not allowed in respect of cash payments in excess of INR 10,000

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KEY INDIRECT TAX PROPOSAL

Common legislative changes No change in peak rate of customs, excise and service tax – due to likelihood of GST

implementation in near future. However, no definitive announcement on the GO-LIVE date

The Research and Development (‘R&D’) Cess Act, 1986 abolished. Consequential amendments made in the Service tax law for withdrawal of notification granting deduction of R&D cess paid (effective from the date of enactment of the Finance Bill, 2017)

Application to be filed for transfer of Cenvat Credit on account of change in ownership/ sale/ merger/ lease/ transfer etc. of business/ factory. Such application to be allowed within a period of 3 months from the date of receipt of application (effective from 02 February 2017)

Authority for Advance Ruling under Indirect taxes merged with the one under the Direct tax legislation

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Key changes – Tariff rates Change in custom duty/ excise duty tariff rates:

To incentivise domestic value addition ‘Make in India’ (e.g LNG, parts of LED) To address problems of inverted duty structure (e.g Solar tempered glass) To provide protection to the domestic industry (e.g PCB’s for mobile) To promote cashless transactions and domestic manufacturing of device (e.g POS card reader, micro

ATM, scanner and components) To improve ease of doing business and export promotion (e.g increase the limit of duty free import of input

for leather/ synthetic footwear) Anti avoidance measure (eg. Silver coins)

Key legislative change – Customs: Ambit of importer/ exporter under customs widened to include beneficial owner Ceiling of one day from the date of arrival of vessel/ aircraft/ vehicle introduced for filing bill of entry in

case of imports for home consumption or warehousing

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