India’s Budget 2015:

Impact Analysis – Overseas

Indians

4 March 2015

• State of Economy

• Proposals with direct impact

• Recent Updates (not forming part of the Budget)

• Proposals with impact on business set up in India

• Personal Taxation

Agenda

State of Economy

2014-15

In summary

Recent economic performance

• GDP growth prospects improve

GDP growth at 7.4% in 2014-15

• Monetary policy turns accommodative

Repo rate cut by 0.25% to 7.75%, more cuts on the horizon

• SENSEX has hit an all time high

Recently crossed the 29,000 mark

• Foreign fund inflows have experienced a surge

Net FII inflow of US$ 38.4 billion in 2014-15 (Apr-Dec)

• Fiscal Deficit, a new consolidation path

Fiscal deficit meets FY’15 target of 4.1% of GDP

• Inflation clearly on a downtrend

CPI at 5.1% in January expected to remain ranged

• Rupee has been stable

Likely to hover around ₹ 61 - 63 per US$

• CAD contained within the comfort zone

Contained at 1.3% of GDP for 2014-15

4 © 2015 Deloitte Touche Tohmatsu India Private Limited

Proposals with direct

impact

Key policy proposals

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Financial Market

• Proposal to amend Section 6 of FEMA to clearly provide that control on capital

flows as equity will be exercised by the Government, in consultation with the

RBI on the premise that capital account control is a policy rather than a

regulatory matter.

• Currently, Section 6 provides that RBI may in consultation with the Central

Government, specify:

– any class or classes of capital account transaction which are permissible

– the limit up to which foreign exchange shall be admissible for such

transactions

Monetising Gold

• Introduction of Gold Monetization Scheme to allow depositors of gold to earn

interest and jewelers to obtain loans in their metal accounts

• To introduce a Sovereign Gold Bond*, as an alternative to purchasing metal

gold

• Developing an Indian Gold coin

Infrastructure

• Public Private Partnership (PPP) mode of investment in infrastructure to be

revitalized

• Issuance of tax free infrastructure bonds* for the projects in rail, road and

irrigation sectors

* Currently, NRIs can invest in bonds issued by a public sector undertaking (PSU) in India We

have to wait for the fine prints of the Infrastructure Bond and Sovereign Gold Bond scheme to

analyze the permissibility of NRI investment in these Bonds.

Focus Sectors Key policy proposals

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Banking & Investment

• Allowing foreign investment in Alternative Investment Funds

• Rationalization of foreign investments

– Distinction between different types of foreign investments, especially

between foreign portfolio investments and foreign direct investments to

be done away with

– Composite caps to be brought in

eBiz

• Appointment of Expert Committee to examine the possibility to replace

multiple prior permissions with a pre-existing regulatory mechanism

Others

• Proposal to set up GIFT as International Finance Centre (IFC) in Gujarat on

same lines as IFC in Singapore and Dubai

• Extension of visa on arrival facility from 43 countries to 150 countries, in

stages

Recent Updates (not

forming part of the

Budget)

Recent updates

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FDI cap in Insurance raised to 49%

• Composite cap of FDI in Insurance sector raised to 49% from 26% -

Investment beyond 26% would be under Government route

− Foreign Investment cap includes all kinds of foreign investment such as

FDI, FII, QFI, NRI, etc.

− Indian insurance company should be owned and controlled by resident

Indian entities at all times

− Foreign Investment in Indian insurance company shall be in terms of

pricing guidelines specified by RBI under FEMA

NRI non-repatriable funds - Proposal

• It is been recently reported in the media that DIPP is in the process of

seeking Cabinet approval to treat non-repatriable investment by NRI’s at par

with domestic investment and not as FDI

Proposals with impact on

business set up in India

Corporate tax rates

Corporate taxation

Corporate tax

• Proposed to reduce from 30% to 25% over next four years

• Reduction to be accompanied by rationalization and removal of various kinds of tax exemptions and incentives for

corporate taxpayers

• Changes to take effect from FY 2016-17; no change proposed in rate in FY 2015-16 (remains 30%)

• Additional surcharge of 2% for domestic companies in case taxable income exceeds ₹ 10 million

Minimum Alternate Tax (MAT)

• MAT rate to continue at 18.5% (plus applicable surcharge and cess)

• Additional surcharge of 2% for domestic companies in case taxable income exceeds ₹ 10 million

• Definition of Book profit proposed to be changed for FIIs

Dividend Distribution Tax (DDT)

• No change in DDT rates

• Surcharge increased by 2%

• Effective tax rate to be increased

− from 19.99% to 20.36% for companies in case taxable income exceeds ₹ 100 million

− from 19.09% to 19.45% for companies in case taxable income exceeds ₹ 10 million upto ₹ 100 million

© 2015 Deloitte Touche Tohmatsu India Private Limited

No change in tax rate of a foreign company (40%)

18

Corporate taxation

Existing provisions Proposed provisions under Finance Bill 2015

A company is said to be resident in India if

• It is an Indian company

• During that year, the control and management of

its affairs is situated wholly in India

A company is said to be resident in India if

• It is an Indian company;

• Its Place of Effective Management (PoEM), at any

time in that year, is in India

Residential status of companies – change in

definition

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PoEM has been defined in the Finance Bill, 2015 to mean a place 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

Alternate Investment Funds (AIFs)

Corporate taxation

• Investment in AIF Trust can be made by NRIs through FDI route with prior FIPB approval

• Pass through status has been granted to entire Category I and Category II AIFs registered with SEBI

• For AIFs

− Income other than business income to be exempt from tax

− Business income to be taxable at rates applicable depending on the form (company, trust, Limited Liability

Partnerships, etc.)

− Provisions relating to DDT (for companies) and tax on distributed income shall not apply

− Loss, if any, is not permitted to be passed on to the investors and is to be retained at the Investment Funds level

− Any income, other than business income, payable to unit holders, shall be subject to withholding tax @ 10%

− Mandatory filing requirements with tax authorities

• For Unit holders

− Income (other than business income) shall be chargeable to tax in the same manner as if the investments were

made directly

− Business income distributed by Investment Funds to unit holders shall be exempt (as the same is taxable at the

Investment Funds level)

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Indirect Transfer

• Transfer of shares of a foreign company deriving substantial value from India

• Taxation proposal -

Share or interest in a foreign company or entity deemed to derive its value substantially from assets (whether tangible or

intangible) located in India where value of Indian assets on the specified date:

− Exceeds ₹ 10 crore; and

− Represents at least 50% of the value of all the assets owned by the foreign company or entity

• Value of an asset to mean the fair market value of such asset (without reduction of liabilities in respect of the asset) as

on the specified date

− Manner of determination of fair market to be prescribed

• Taxation of gains to be on proportional basis – method to be prescribed

• Certain exemptions prescribed in case of direct holding company, in a scheme of amalgamation or demerger, etc.

subject to specified conditions

Corporate taxation

Key Proposals

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Fund managers – no business connection

• Fund management activity carried out through an Eligible Fund Manager (EFM) in India, acting on behalf of Eligible

Investment Fund (EIF) shall not constitute business connection in India

• EIF means a Fund established or incorporated or registered outside India, which collects funds from its members for

investing it for their benefit and satisfies the conditions specified

Taxation for REIT

• Sale of units of REIT and INVIT at the time of “offer for sale” / post listing of units shall be subject to payment of

Securities Transaction Tax (STT) and taxed as per the provisions applicable for STT paid securities

• Rental / leasing income on assets directly owned by REITs to be exempt from tax in its hands – Distribution of such

income to unit holders will be taxable in their hands and subject to withholding at 10% for residents and at applicable

rates for non-residents

Taxation of Royalty and Fees for Technical Services (FTS)

• Rate of tax is proposed to be reduced from the current 25% to 10% - Withholding tax rate to be 20% in the absence of

Permanent Account Number

Withholding tax

• Effective 1 June 2015, the withholding tax provisions are proposed to be amended to provide reporting requirement to

be applicable to any sum, whether chargeable to tax or not, to a non-resident in a form and manner to be prescribed

Corporate taxation

Key Proposals

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Key Proposals

Corporate taxation

Incentives for the States of Andhra Pradesh and Telangana

• An additional investment allowance is proposed for an amount equal to 15% of the cost of new asset acquired and

installed by a taxpayer subject to prescribed conditions

Additional depreciation for assets used for less than 180 days

• It is proposed to allow further depreciation of 10% for assets used for less than 180 days – this additional depreciation to

be allowed in the immediately succeeding financial year – Currently, only 10% (out of 20%) of additional depreciation is

allowed for such assets

Deduction in respect of employment of new workmen

• Benefit of the deduction of 30% of additional wages to new regular workmen extended to non corporate taxpayers

• Limit of 100 workmen reduced to 50

Transfer Pricing

• Specific Domestic Transfer Pricing threshold proposed to be increased from ₹ 50 million to ₹ 200 million

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Customs Duty

• General Customs Duty rate retained at 10%

• Standard ad-valorem rate of Countervailing Duty (CVD) increased from the existing rate of 12% to 12.5%

• Effective peak rate of Customs duty increased from 28.85% to 29.44%

Excise Duty

• Peak rate of Excise Duty increased from 12 to 12.5%

• Digital signing of invoices and records allowed

Service Tax

• Rate of Service Tax will be increased from 12.36% to 14%

• Swachh Bharat Cess at 2% on the value of taxable services proposed to be imposed

• Digital signing of invoices and documents allowed

• Concept of aggregator introduced - Aggregator located outside of India also made liable to pay service tax through a

representative in India (Aggregator is a person, who owns and manages a web based software application, to enable a

potential customer to connect with service providers of a particular kind under its own brand name or trade name)

Goods and Service Tax

• Constitution Amendment Bill already introduced in the Parliament

• Commitment towards introduction of GST by 1 April 2016

• GST is expected to put in place a state-of-the art Indirect Tax system

• Central Excise duty and Service Tax increased to facilitate a smooth transition to GST

Indirect taxes

Key Proposals

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Penalty provisions rationalised to encourage self compliance and end

protracted litigation

Personal Taxation

• Surcharge increased from 10 to 12% (on income exceeding ₹ 10 million)

• Education cess remains at 3%

• Additional deduction of ₹ 50,000 for contribution towards National Pension Scheme (NPS)

Personal taxation

Tax Rates

© 2015. For information, contact Deloitte Touche Tohmatsu Limited.

Tax Rates in respect of income earned during the period

1 April 2015 to 31 March 2016

Slab of Income (₹) Rate of Tax (%)

Up-to 250,000 Nil

250,001 - 500,000 10

20

30

500,001 – 1,000,000

1,000,001 and above

• No change in personal tax rates and income slab

Key Proposals

Personal taxation

20

Particulars

Proposed amendment

Abolishment of wealth

tax

• Statement of Assets required under the current Wealth tax form to be included in the new

Tax Return Form

TDS on withdrawal

from Employee

Provident Fund

Scheme

• TDS at 10% on taxable withdrawals

• No TDS if withdrawal is less than ₹ 30,000

• If no PAN, then TDS at maximum marginal rate

Residential Status • Rules to be prescribed for calculating period of stay to determine the residential status of an

Indian citizen being a member of a crew of a foreign bound ship leaving India

Foreign tax credit • Central Board of Direct Taxes, apex tax body, to notify rules to determine FTC

Black Money Law • Announcement of new law to Curb Black Money

© 2015 Deloitte Touche Tohmatsu India Private Limited

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