u.s. gandhi budget 2015 - 2016 analysis

BUDGET 2015-16

An Analysis of the Implications on

Businesses and Individuals

About Us

4

Innovative

On Time

Passionate

Good

ServiceProfessional

CA

Good Quality

We are a multi-disciplinary Chartered

Accountancy firm founded in 1983, with a vision to

provide a myriad array of advisory & support

services to businesses and organizations, both

domestic and international. With a practice

spanning three & a half decades we have

formulated & developed solutions that are

creative, yet realistic and feasible.

We do this by

• blending our knowledge & expertise

with analytical processes

• ensuring the highest standards of

quality & assurance

• cultivating high quality professionals

with a passion for excellence

• mitigating the needs of client for

controls and efficiency.

About us

5

Meet The Team

• He is the founder & managing partner of the firmand is a member of Institute of CharteredAccountants of India (ICAI) & also Institute ofCompany Secretaries of India (ICSI) since pasttwo & a half decades.

• He specializes in direct & indirect tax. He hasmaneuvered the firm’s sphere of practice fromaudit & taxation to areas like process reviews,due diligence reviews, strategic consulting etc.

• He is also an empanelled arbitrator with BombayHigh Court.

• A go-getter at his work, he is constantly lookingat new areas of growth for clients, firm, affiliates& employees. His positive approach to any issueflows into the firm & hence reflects in the firm’sperformance.

• He has led various forensic audits andinvestigations in matters with the EconomicOffences Wing.

CA Uday Gandhi

FOUNDER & MANAGING PARTNER

• He heads the Consulting and Taxationdivisions of the firm. Having represented anumber of top corporates before the Taxauthorities at the assessment and appellateforums, Kunal is extremely proactive andinnovative to achieve client objectives.

• Along with being an active contributor totechnical articles, he is also invited to addressvarious conferences on areas of Taxstructuring, Fund raising andEntrepreneurship.

• Prior to this, Kunal was a Consultant atProtiviti, one of the leading firms in RiskConsulting and internal audit where hisresponsibilities included Process reviews, SOBdesigning and Due diligences.

• Before his stint at Protiviti, he was workingwith N.M. Raiji & Co. involved in statutoryaudits of large listed public and private sectorentities.

CA Kunal Gandhi

PARTNER

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Pragmatism meets Populism in this years budget

FOREWARD

Rarely has there been a budget as highly anticipated as this one.

Coming on the heels of the defeat of the ruling BJP in the recent Delhielections, there were expectations that the original ‘Maximumgovernance, minimum government’ model would give place to a morepopulist agenda.

India Inc on the other hand expected improving the ease of doingbusiness and a more rational tax regime.

While Corporate tax was lowered and Wealth tax was abolished, amajor theme in the budget was creating a social security framework.Targeting a GDP growth rate of 8 – 8.5%, the budget plans to keep thedeficit to within 3.9% of GDP by laying special emphasis oninfrastructure development with a major spend budgeted on Roadbuilding.

All in all, though there were no big bang reforms, the budget 2015 wasa good mix of Pragmatism and Populism. We are optimistic aboutgrowth and believe a lot more reforms are expected in the coming 3years.

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Statistics

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Income Tax break up by sector

Service tax and other taxes

9%Union excise duties

10%

Customs

9%Income Tax

14%Corporation Tax

21%Borrowing and other

liabilities

24%Non – debt capital

receipts

3%

Non Tax

Revenue

10%

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Expense allocation by sector

Other non planned expense

4%Subsidies

10%

Defence

10%Interest Payments

19%Central Plan

24%Planned assistance to

states and UT

8%Non-planned

assistance to states

and UT

4%

Non Tax

Revenue

21%

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Budget Flash

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Personal Taxation

BUDGET FLASH

• Tax slabs for Individual Tax Players to continue

• Transport Allowance exemption increased from Rs 800 pm to Rs

1,600 pm

• Investment in Sukanya Samriddhi Account Scheme will be

eligible for deduction u/s 80C.

• Contributions made to National Pension Scheme a deduction of

up to Rs 50,000 over and above the limit of Rs 1,50,000 u/s

80CCD.

• Limit of deduction u/s 80CCC for contribution to certain pension

funds increased to Rs 1,50,000 from Rs 1,00,000.

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Personal Taxation

BUDGET FLASH

• Limit of deduction under section 80D i.e. Health insurance

increased to Rs 25,000. For senior citizens to Rs 30,000.

• Medical expenditure in the case of very senior citizens, up to Rs

30,000 provided no health insurance coverage has been taken.

• Medical treatment u/s 80DD of persons with disability increased

to Rs 75,000 and in case of person with severe disability to

Rs125,000.

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Personal Taxation

BUDGET FLASH

• Deduction u/s 80DDB for Medical treatment of very senior

citizens with specified diseases with specified ailments increased

to Rs 80000.

• Deduction u/s 80U in case of person with disability increased to

Rs 75,000 and in case of severe disability to Rs 1,25,000.

• 100% deduction allowed u/s 80G of the Act for donations made

to Swachh Bharat Kosh, Clean Ganga Fund and National Fund for

Control of Drug Abuse.

• Quoting PAN a must for all purchases and sale above Rs. 1 Lakh

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Corporate Taxation

BUDGET FLASH

• Corporate tax rate of an Indian company will be reduced from

30% to 25% over a period of 4 years starting from FY 2016-17

• Surcharge @ 7% for income from Rs 1Cr up to Rs 10 Crs and @

12% for income exceeding Rs 10 Crs

• Surcharge rate on income tax payable on distribution of

dividends increased from 10% to 12%.

• Allowance of balance 50% additional depreciation in respect of

assets used for less than 180 days available in the immediately

succeeding previous year.

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Corporate Taxation

BUDGET FLASH

• New Sec. 32AD inserted to provide additional 15% investment

allowance of cost of new Plant & Machinery acquired and

installed in notified backward area of State of Andhra Pradesh &

Telangana. Further, higher additional depreciation on such assets

@ 35%.

• Benefit of deduction u/s 80JJAA of the Act to be extended to all

assesses having manufacturing units. Also minimum 100 regular

workmen has now been reduced to 50.

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Corporate Taxation

BUDGET FLASH

• Income exempt u/s 86 of the Act being share of a member of

AOP or BOI to be excluded while computing book profit u/s

115JB with a corresponding increase in expenditure related to

such income

• Proposes to rationalise capital gains tax regime for the sponsors

exiting at the time of listing of units of REITs. Rental income of

REITs from their own assets to have pass through facility.

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Corporate Taxation

BUDGET FLASH

• Proposed to extend the pass through status to certain Category I

& Category II Alternate Investment Fund regulated by SEBI.

• Benefit of non-deduction of tax at source u/s 194C for plying,

hiring or leasing goods carriages on furnishing of PAN, restricted

to contractor owning upto 10 carriages.

• TDS @10% on premature withdrawal of amount in excess of Rs

30,000 by employee from Recognised Provident Fund. Failure to

furnish PAN to trustees of EPFS would attract TDS @ 30%.

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International Taxation

BUDGET FLASH

• Rate of tax on royalty and fees for technical services u/s. 115A of

the IT Act proposed to be reduced from 25% to 10%

• Domestic Transfer Pricing threshold limit increased from Rs 5Crs

to Rs 20 Crs

• Shell companies abroad to be taxed in India

• If a company has its ‘place of effective management’, at any time

during the year in India, then such company will be considered as

a resident in India.

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Other Proposals

BUDGET FLASH

• Yoga to be included as Charitable Purpose

• Mandatory filing of return in respect of foreign Asset

• Tax evasion with respect to foreign assets would result in

rigorous, non compoundable imprisonment upto 10 years in

addition to penalty of 300% of tax sought to be evaded. Further,

there will be no provision of approaching to settlement

commission.

• Undisclosed income to be taxable at maximum marginal rate

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Other Proposals

BUDGET FLASH

• Monetary limit for disposal of cases by a single member bench of

ITAT where total income computed by the AO revised to Rs 15

lakhs from Rs 5 lakhs

• Wealth tax act to be abolished.

• For the purpose of revisionary proceedings u/s 263, the

expression ‘erroneous in so far as it is prejudicial to the interests

of the revenue’ has been clarified.

• To defer GAAR by 2 years

• Amendment made u/s 271(1)(c) to clarify that penalty would

also apply where the provisions of section 115JB and 115JC (MAT

and AMT) apply.

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Service Tax

BUDGET FLASH

• Rate of Service tax increased to flat 14% from 12.36%

• Introduction of Swachh Bharat Cess @2% on all taxable

services

• Abatement rate for transport of goods by road, rail and vessel

rationalized at 30% on value of services, with effect from 1st

April 2015

• Scope of Service Tax extended by deleting the services from

Negative list or Mega Exemption notification

• Rationalising penalty provisions u/s 76 and 78

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Service Tax

BUDGET FLASH

• The reverse charge mechanism is now extended to services

provided by mutual fund agents/ distributors & lottery

agents to AMC/mutual fund and to the distributor of lottery

respectively.

• Liability of the service recipient of Manpower supply and

security services under partial reverse charge is extended to

100% from 75%

• Reimbursement of expenses to be included in consideration

and service tax also needs to be charged on the same

• Increase in time limit in claiming CENVAT from 6 months to 1

year from the invoice date

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Central Excise

BUDGET FLASH

• Basic Excise Duty (BED) increased to 12.50% from 12% EC

and SHEC leviable on excise duty subsumed in BED with

effect from 1st March 2015

• Excise duty on leather footwear MRP > Rs1000 per pair

reduced from 12% to 6%

• Excise Duty completely withdrawn from captively consumed

intermediate compound coming into existence during the

manufacture of Agarbattis

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Central Excise

BUDGET FLASH

• Time-limit for availing CENVAT credit on inputs and input

services is being extended from 6 months to 1 year from the

invoice date

• Time-limit for return of capital goods from job worker’s

premises extended from 6 months to 2 years

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Custom Duty

BUDGET FLASH

• Standard ad-valorem rate of Counter Veiling Duty (CVD)

proposed to be increased from the existing rate of 12% to

12.5%.

• Education cess and Secondary & Higher Education cess to be

applicable on Basic Custom Duty (BCD).

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Other Indirect Tax Proposals

BUDGET FLASH

• GST to be implemented by next year

• In case of Central Excise Duty and Service Tax, issuance of

digitally signed invoices and maintenance of electronic

records permissible.

• Central Excise and Service Tax registration process simplified

by prescribing documents, time limit and procedure for

registration. Single premises registration shall be granted

within two working days of filing the application.

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Tax Rates

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28Tax Rates

Foreign Company

ParticularsTaxable Income > Rs. 1 crore, but < Rs. 10

crore

Taxable Income > Rs. 10 crore

Corporate Tax rate 40% 40%

Surcharge 2% 5%

Corporate Tax + Surcharge 40.80% 42%

Education cess thereon 3% 3%

Effective tax rate 42.02% 43.26%

Domestic Company/Partnerships

ParticularsTaxable Income > Rs. 1 crore, but < Rs. 10

crore

Taxable Income > Rs. 10 crore

Tax rate 30% 30%Surcharge 7% 12%Tax + Surcharge 32.10% 33.60%

Education cess thereon 3% 3%Effective tax rate 33.06% 34.61%

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Individual or H.U.F or A.O.P or B.O.I

The income tax rates for individuals continues to be the same. While the surcharge has

been increased to 12% for income over Rs. 1 crore, the education cess rates have been

kept intact.

In case of persons other than those specified in II and III below the rates of income-tax on

total income shall be as follows: -

Tax Rates

Personal tax Rates

Income Tax Rate

Up to Rs.2,50,000 NIL

Rs.2,50,001 to Rs.5,00,000 10%

Rs.5,00,001 to Rs.10,00,000 20%

Above Rs.10,00,000 30%

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In case of senior citizens (60 yrs – 80 yrs) the rates of income-tax on total income

shall be as follows:

Tax Rates

Personal tax Rates

Income Tax Rate


Rs.3,00,001 to Rs.5,00,000 10%

Rs.5,00,001 to Rs.10,00,000 20%

Above Rs.10,00,000 30%

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In case of senior most citizens (80 yrs and above) the rates of income-tax on total

income shall be as follows:

Tax Rates

Personal tax Rates

Income Tax Rate


Rs.5,00,001 to Rs.10,00,000 20%

Above Rs.10,00,000 30%

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Direct Tax Proposals

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Deduction for Health insurance premium/Health check-up/Medical expenditure

The existing deduction available under section 80D for payment towards health insurance premiumand preventive health checkup has been enhanced by Rs. 10,000 as under:

Existing limits – Rs. 15,000 for individual, spouse and dependent childrenRs. 20,000 for senior citizens, including payment for parents

Proposed limits – Rs. 25,000 for individuals, spouse and dependent childrenRs. 30,000 for senior citizens, including payment for parents.

It is proposed that medical expenditure incurred for very senior citizens (80 years and above) will bedeductible up to Rs. 30,000 if no payment has been made towards any existing health insurancepolicy for such individuals.

100% deduction for National Fund for Control of Drug Abuse

Deduction of 100% will be allowed in respect of donations made to National Fund for Control ofDrug Abuse u/s 80G.

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Abolition of levy of wealth-tax under Wealth-tax Act, 1957

It is proposed to abolish levy of wealth tax under the Wealth Tax Act,1957 with effect from the 1st

April, 2015.

Contributions for the benefit of girl child

Contributions/ investments made by an individual in the name of girl child to notifiedsecurities/schemes will be eligible for deduction under section 80C. Interest earned onSukanya Samriddhi account will also be exempt.

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Medical treatment of specified diseases

Raising the limit of deduction in case of disability

In view of raising cost of medical care and special needs of disabled person, the limit of deductionu/s 80DD and 80U has been increased from Rs.50,000/- to Rs.75,000/- per annum

And in case of severe disability it has been increased from Rs.1,00,000/- to Rs.1,25,000/- per annum

Under the existing provisions of section 80DDB, a certificate is required from a specialist doctor ina Government hospital for claiming deduction for expenditure incurred for medical treatment ofspecified diseases. It is now proposed that it will suffice if a prescription is obtained from aspecialist doctor (not necessarily from a Government hospital) for this purpose. In addition, thelimit in case of very senior citizens (80 years or above) is proposed to be increased to Rs. 80,000from Rs. 60,000.

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Investment in Life Insurance Corporation (‘LIC’) Annuity Plan / any other Pension Fund under 80CCC

The limit of eligible deduction for investment in LIC Annuity Plan or any other Pension Fund isproposed to be increased to Rs. 150,000 from the existing

Additional deduction for contribution to National Pension Scheme under 80CCD

In order to encourage people to contribute towards National Pension Scheme, an additionaldeduction upto Rs. 50,000 will be available on the employee’s contribution. This is in addition to thededuction available upto 10% of salary within an overall limit of Rs. 150,000

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Relief from withholding of tax on payments from LIC

Currently, tax is deducted @ 2 per cent on sum paid under a life insurance policy, including thesum allocated by way of bonus, which are not exempt under section 10(10D) of the Act. Hence,it is proposed that individuals not having taxable income and receiving payments under LIC uptoRs. 100,000 can claim relief of non-deduction of tax at source by submitting Form 15G / 15H.This amendment will take effect from 1st June,2015

Relaxing the requirement of obtaining TAN for certain deductors

It is proposed to amend the provisions of section 203A of the Act so as to provide that therequirement of obtaining and quoting of TAN under section 203A of the Act shall not apply to thenotified deductors or collectors.This amendment will take effect from 1st June, 2015.

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Section 269SS is amended to prohibit acceptance and repayment of deposits otherwise thanby an account payee cheque for an amount exceeding Rs 20,000 in case of ImmoveablePropertyProvisions of section 269T, 271D and 271E are accordingly amended to include the abovetransactionsWith effect from 1-6-2015

Inclusion of immovable property transaction under the ambit of section 269SS

GAAR would be made applicable from FY 2017-18. It has been clarified that GAAR would applyprospectively to investments made on or after 01.04.2017.

General Anti Avoidance Rules (‘GAAR’) deferred for 2 years

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Deduction under section 80JJAA for new workmen extended to all assessees

The benefit of additional deduction of 30% for wages paid to workmen is extended to all assesseesinstead of companies only. Further limit for minimum number of new employees is reduced fromexisting 100 to 50.

Allowance of balance additional depreciation

Under the existing provisions, additional depreciation is restricted to 50% if the new asset is put touse for a period less than 180 days. This can result in deferral of investment by assessee tobeginning of next year to avail full deduction. It is now proposed that balance additionaldepreciation of 50% shall be allowed in the subsequent year.

Additional Reporting for Weighted deduction for R&D Expenditure

It is proposed to amend the provisions of section 35(2AB) of the Act to provide that deduction underthe said section shall be allowed only if the company enters into an agreement with the prescribedauthority for cooperation in such research and development facility. The entity is also required tomaintain and audit the books of accounts and also furnishes the reports in the prescribed formats. Itis also proposed to send the reports to the Principal Chief Commissioner or Chief Commissionerhaving jurisdiction over the company claiming the weighted deduction under the said section.


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It is proposed to clarify the meaning of “tax sought to be evaded” under section 271(1)(iii) forpurpose of levy of concealment penalty, especially where tax is paid as per MAT/ AMT i.e. itshall be the summation of tax sought to be evaded under the general provisions and the taxsought to be evaded under MAT/AMT provisions. However, if an amount of concealed incomeis considered both, under general provisions and for MAT/AMT purposes, then such amountshall not be considered in computing tax sought to be evaded under MAT/AMT provisions.

Quantification of concealment penalty

Cost of acquisition and period of holding in case of demerger – Clarification

It is now clarified that the cost of acquisition and period of holding of the asset of thedemerged company shall be passed on to the resulting company.

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Pass through treatment to Category –I and Category –II Alternative Investment Funds (‘AIF’)

The present provisions provide a “tax-pass through status” to:▪ The Domestic Venture Capital Fund (either incorporated as a Trust or a Company); or Category I

Alternative Investment Funds.▪ In order to cover the provisions applicable to other form of collective investment vehicles, the provisions

have been extended to Category I and Category II AIFs (‘Investment Funds’). The salient features of theregime are as under:

▪ Income of Investment Funds will not be taxable in the hands of Investment Funds but taxable in the handsof investors.

▪ Business income will not be eligible for ‘pass-through’, and will be taxable in the hands of InvestmentFunds.

▪ Income payable by Investment Funds will be subject to deduction of tax at source at 10%.▪ Receipt of income by such Investment Funds will not be liable to TDS and a notification giving effect to the

proposal shall be issued.▪ MAT may not be applicable to income arising to investors in Investment funds.▪ Express provisions have been provided for filing return of income by Investment Funds.


Pass through status for rental income earned directly by REITs

Under Section 10(23FCA), Rental Income earned by REITs via investment directly in real estate will be givenpass through status and the same will be taxable in hands of unit holders. TDS at 10% would be required to bededucted by the REITs on distribution of rental income to residents and at the rates in force in case ofdistribution to non residents.

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Tax Implications on Migration to Real Estate Investment Trusts (‘REITs’)

Currently, taxability of gains arising on swap of shares of the special purpose vehicle (‘SPV’), beingan Indian company, with the units (‘Swap Units’) of REITs is deferred till transfer of such Swap Units.Further, concessional capital gains tax regime is not available to the gains arising on transfer of suchSwap Units i.e. long term capital gains is taxable at 20% and short term capital gains is taxable at30%. This results in disadvantageous tax position vis-à-vis direct Initial Public Offering (‘IPO’) of theSPV.

In order to give a boost to setting up of REITs, it is proposed that the gains arising on transfer ofSwap Units of REITs would be exempt from tax in case of long term capital gains and would besubject to concessional tax rate of 15% in case of short term capital gains. This capital gains taxtreatment would be available at the time of IPO or subsequent sale on stock exchange (subject tolevy of STT).

Minimum alternate tax (‘MAT’) would continue to apply to holding companies on gains arising fromswap of shares of the SPV for units of the REITs.

No capital gains tax exemption would be available on swap of other assets with units of REITs.

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Threshold limit for Specified Domestic Transactions increased

Section 92BA has been amended to increase the threshold limit of specified domestic transactionsfrom Rs 5 crores to Rs 20 crores.

Definition of Charitable Purpose

Section 2(15) has been amended to include yoga

Presently, in case of an institution carrying on ‘advancement of any other object of general publicutility’, where trade, commerce or business activities are undertaken (and where the receiptsexceed a certain threshold), the institution cannot claim a charitable/tax exempt status. With a viewto protect genuine institutions which carry on trade, commerce or business as a part of theircharitable activities, it is proposed to rationalise the definition and provide that carrying on theaforesaid activities would not impact the charitable status of the institution, if the followingconditions are satisfied:a) Such activities are undertaken in the course of actual conduct of charitable activities; andb) Aggregate receipts from such activities does not exceed 20% of the total receipts of the

charitable institution during the year.

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Condition for availing benefit of income accumulations for charities.

In order to bring clarity with regard to the period within which the charitable institution is requiredto file Form No. 10 with the tax authorities and to ensure timely filing of the return of income, it isproposed that benefit of income accumulation for future will be available only if both, the return ofincome and Form No. 10 are filed within the due date of filing original return of income

Furnishing of return of income by certain universities and hospitals

Entities covered under Sec 10 clause (23C)(iiiab) and (iiiac) that are Universities, educationalinstitutions, hospitals and other institutions for medical treatment which are substantially financedby government are now required to file return of income mandatorily.

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Computed Income limit for cases to be decided by a Single Member Bench of ITAT raised

Section 255(3) of the Act is proposed to be amended to increase the income limit computed by theAO from Rs 5,00,000 to Rs 15,00,000 for cases to be decided by a single member bench of the ITAT.

This amendment is effective from June 01st, 2015.

Investment Allowance and Additional Depreciation of 35% for Andhra Pradesh and Telegana

Under section 32AD, additional investment allowance of 15% of the cost of new assets acquired andinstalled in the Andhra Pradesh and Telegana is allowed subject to certain conditions. This is overand above the allowance allowed under section 32AC.

Additional Depreciation of 35% instead of 20% under section 32 is allowed for new plant andmachinery acquired and installed in Andhra Pradesh and Telegana.

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Tax neutrality on merger of similar schemes of Mutual Funds

It is now proposed to provide tax neutrality to unit holders upon consolidation or merger of mutualfund schemes i.e. consolidation shall not be regarded as a taxable event in the hands of the unitholders.

The key condition for such tax neutrality is that the schemes should be of the same type, i.e. theconsolidation is of two or more schemes of “an equity oriented fund” or two or more schemes of“other than equity oriented funds”.

The cost of acquisition of the units of consolidated scheme shall be the cost of units in theconsolidating scheme and the period of holding of the units of the consolidated scheme shallinclude the period for which the units in consolidating schemes were held by the unit holder.

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Provisions to avoid repetitive appeals by the Tax Department

A new section 158 AA, is introduced to provide that where a question of law arising in case of anassessee for any assessment year is identical to the one pending before the Supreme Court foranother assessment year for the same assesse (due to the appeal or a special leave petition filed bythe revenue), then the Commissioner or Principal Commissioner may direct the Assessing Officer tomake an application to the Tribunal for filing the appeal after the decision of the Supreme Courtbecomes final and the order is in favour of the revenue. This is subject to the acceptance from theassessee that the question of law is identical. This provision is introduced to avoid repetitive filing ofappeals by the revenue on the same issue resulting in needless litigation.


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48Direct Tax Proposals

Levy of interest for default in payment of advance tax

Sec 234B is proposed to be amended to levy interest from 1st April of next financial year till the dateof assessment order passed u/s 147 or 153A or 245C (reassessments)

Expansion of revisionary jurisdiction

Sec 263(1) gives right to commissioner / principle commissioner to revise any order passed. It is nowexpressly clarified that the revisionary proceedings can be initiated in case the Commissioner issatisfied that the Assessing Officer’s order has been passed:• Without making inquiries or verification• Allowing relief without inquiring into the claim• Not in accordance with any order, direction or instruction issued by the CBDT• Not in accordance with any decision of the jurisdictional High Court or Supreme Court which is

prejudicial to the assessee.

Withholding tax on payments to transporters

Presently, all transporters, irrespective of their size, are eligible to claim exemption from withholding tax u/s 194C by furnishing their PAN to the deductor/payer. • An amendment has been proposed to exempt only small transport operators from the purview

of withholding tax. The exemption shall now be available only to such transporters who own less than 10 goods carriage at any time during the previous year and who have also furnished a declaration to this effect along with PAN to the deductor/payer

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TDS will now be applicable on interest paid by banks on recurring deposits if such interest paidexceeds the threshold limit of Rs. 10,000 per year.

Currently, the interest income for the purpose of TDS is computed with reference to a branch of bank/ cooperative society. It has been proposed that, for entities which have adopted core bankingsolution, TDS on interest should be computed on the interest paid at the entity level (and not at abranch level).

Currently, payment of interest to members by a cooperative society is not subject to TDS. It isproposed that this benefit shall not apply on interest on time deposits by the co-operative banks toits members.

It is proposed that TDS shall be applicable only on payment (and not accrual) of interest oncompensation awarded by Motor Accident Claim Tribunal.

Withholding tax on interest payments

The above amendments will come into effect from 1st June, 2015.

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It is proposed to insert provisions to enable correction in and processing of TCS statements onsame lines as TDS under section 206C.

It is also clarified that the intimation generated on processing TCS statements will be regarded asa notice of demand under section 156 and will also be subject to rectification and appeal.

Further, where interest is charged for any period on the tax amount specified in the intimation, itis clarified that no interest would be charged under section 220(2) on the same amount for thesame period

Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS)

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Currently, any sum withdrawn from Recognised Provident Fund (RPF) is exempt. It isproposed to tax any withdrawals by employee before serving continuous service of five years(other than the cases of termination due to ill health, closure of business, etc.) and if he doesnot opt for transfer of accumulated balance to new employer

Deduction of Tax at Source on pre-mature withdrawal from Employee Provident Fund Scheme

A new section 192A will be inserted making the trustees of the RPF responsible to deduct taxat source @ 10% at the time of payment over and above the threshold limit of Rs. 30,000/-. Itis further proposed that non-furnishing of PAN will result in deducting tax at the maximummarginal rate i.e. 30%.

The above amendments will come into effect from 1st June, 2015.

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Rationalisation of provisions pertaining to Settlement Commission

Earlier notices from income tax department were required before approaching the settlementcommission u/s 245 for particular assessment year. It is proposed, if a reassessment notice hasbeen issued for any one year, an assessee can approach Settlement Commission for otherassessment years involving similar issue provided a valid return of income has been furnished.

If the final settlement order does not provide for terms of settlement, the proceedings will beconsidered as abated from the day on which such order was passed.

Existing provision did not provide for correction of order passed by settlement commission byassessee or commissioner. Amended sec 245D sub section (6B) now allows the assessee /commissioner to file application for same in prescribed time limit.

As per amended Sec 245H now settlement commission order shall record reasons in writing if thecommission is granting immunity from prosecution to assessee.

Amended sec 245K now bars such person to approach settlement commission whose relatedperson has already approached settlement commission for similar issues.

Ambit of sec 132 is widened to adjust liability arising as per order of settlement commission againstassets seized.


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53Direct Tax Proposals

Expansion in ambit of appeals to Income Tax Appellate Tribunal

Appeal can now be filed u/s 253(1) before Tribunal against an order passed by the prescribedauthority (Chief Commissioner and Director General) with respect to exemption to any university orother educational institution existing solely for educational purposes, and any hospital or otherinstitution existing solely for philanthropic purposes

Clarification with respect to Search and Seizure assessment

It has been clarified that in case of search and seizure assessment, if any books of account ordocuments (seized or requisitioned) pertain to any person other than the person being assessed,then such other person can also be assessed by the jurisdictional Assessing Officer.

Permission for re-assessment

Complicated permission rules mentioned under erstwhile sec 151 for issue of reassessment noticenow proposed to be simplified . Prior permission of appropriate senior officer as required underthe act made mandatory before issuing reassessment notices.

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It is proposed to amend section 288 of the Act to provide that an auditor who is not eligible tobe appointed as a statutory auditor of a company as per section 141 of the Companies Act,2013 shall not be eligible for carrying out any type of audit or furnishing of anyreport/certificate under any provisions of the Act in respect of that company. However, thisdoes not debar the accountant from attending income tax proceedings and act as anauthorized representative of the company.

Eligibility of Chartered Accountant to furnish reports/certificates

The above amendment will come into effect from 1st June, 2015.

It is further proposed to provide that the any person convicted by a court of an offenceinvolving fraud shall not be eligible to act as an authorised representative for a period of 10years from the date of such conviction.

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Rationalizing MAT provisions

Under the present MAT provisions, a company which is a member of an AOP or BOI is liable to MATon its share of income even if no income tax is payable on the same under the normal provisions.New clause (iib) is inserted to provide that share of members of AOP or BOI on which income tax ispayable in accordance with the provisions of sec 86 of the Act, should be excluded while computingthe MAT liability and corresponding expenses shall be excluded when arriving at book profit for thepurpose of MAT.New clause (iic) is inserted to provide that income from securities of FPI’s shall be considered ascapital gains and hence same shall be excluded while arriving at book profit for MAT purposes.

Disclosure of foreign assets

While the Wealth Tax Act has been abolished, it is proposed that assets currently covered in WealthTax returns will be disclosed in the individual’s Return of Income. Stringent provisions are proposedto be introduced for non-disclosure of foreign assets and any concealment of income. Concealmentof income and non-reporting of foreign assets may lead to prosecution and penalty of 300% of thetax on such concealed income. A new law will be introduced shortly in this regard.

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Lower rate of TDS on interest to foreigners on debt investments

TDS would continue to be deducted at 5% on interest earned on Government Securities and Rupeedenominated Corporate Bonds subject to certain condition upto June 30th, 2017.

Reduction of tax rates on royalties and FTS payments to Non Residents

Section 115A is proposed to be amended whereby non residents would be charged to tax at 10%instead of 25% (plus surcharge as applicable) on royalties and fees for technical services.

Presently, a foreign company is considered resident in India if the control and management of itsaffairs is situated wholly in India. To curb the creation of shell companies which are incorporatedoutside India but controlled from India, the concept of Place of Effective Management is now beingintroduced. Through his concept, a company will said to be resident in India in any previous year, ifit is an Indian company or its place of effective management, at any time in that year is in India.Place of effective management means a place from where key management and commercialdecisions which are necessary for the conduct of the business are undertaken.

Residential status of foreign companies - Concept of place of effective management introduced

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A new section 9A is proposed to be inserted, whereby Fund Managers of offshore funds situated inIndia would not be considered as a permanent establishment of the off shore fund in India subject tovarious conditions being satisfied by both. As a result, offshore funds would not be liable to tax inIndia from its income from investments solely due to the fact that the fund management activity iscarried out in India.

The key conditions specified for investment funds include diversified holding at the fund level and forfund managers include registration with appropriate authority in India, as applicable.

Fund Managers in India not to constitute permanent establishment of offshore funds

Penalty of Rs 5,00,000 under new section 271FAB is proposed if the prescribed particulars are notreported within 90 days from the end of the financial year by the fund

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Clarification regarding Indirect transfer of assets

The following key amendments have been made in Section 9 based on the recommendations of theShome Committee:• A foreign company or entity shall be deemed to derive its value substantially from Indian assets

if the fair market value of Indian assets represent at least 50 per cent of value of all the assetsowned by such foreign company or entity, subject to minimum value of Indian assets of Rs. 100million.

• Indian assets would include both tangible as well as intangible assets (without reduction ofliabilities).

• Specified valuation date is 31 March or accounting year end date (as the case may be),preceding the date of transfer. However, if there is an increase in book value of the assetsbetween balance sheet date and date of transfer, by 15% or more, then valuation date wouldbe date of transfer.

• Capital gains tax would be proportional to the value of assets located in India.• To provide relief to the minority shareholders, capital gains exemption is proposed to be

granted if transferor (along with its associated enterprises) does not hold – (i) right of control ormanagement, and (ii) voting rights or share capital or interest exceeding five per cent, in theforeign company or entity at any time in the 12 months preceding the date of transfer.

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Clarification regarding Indirect transfer of assets (contd.)

Similar exemption is also granted to indirect minority shareholders.Following additional clarifications would be prescribed through the Rules:Manner of determination of FMV of the Indian assets vis-a vis global assetsMethod for determination of proportionate value of Indian assets

The Indian concern in which such foreign company or entity has investments would be under anobligation to furnish necessary information within prescribed time. Specific penalty is proposed fornon-compliance with the above obligation.

Enabling the Board to notify rules for giving foreign tax credit

It is proposed to grant powers to the CBDT to lay down the procedure for granting relief of any taxpaid by Indian residents in any foreign country or specified territory.

This amendment is effective from 1st June , 2015.

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In order to further scrutinize the payments to nonresidents under section 195, it is proposed thatpayer shall be under obligation to report specific information in the prescribed form (whether or notsuch payment is chargeable to tax) by amending the provisions of section 195 of the Act. It is furtherproposed to insert a new provision in the Act to provide that in case of default in furnishing incorrector non-furnishing of information under sub-section (6) of section 195(6) of the Act, a penalty of onelakh rupees shall be levied.

Reporting of payments to non-residents

The above amendments will come into effect from 1st June, 2015

Taxability of interest paid to foreign banks by Indian branches

With an intent to provide clarity on the taxability of interest payments by Indian branch of foreignbanks, it is proposed that:• Indian branch of foreign banks shall be deemed to be a separate and independent person from

its head office or offshore branches (in the context of payment of interest by the Indian branch);• The payer branch in India will withhold income-tax on such interest payments.• This overrules certain tax rulings which held that interest paid by Indian branch of a foreign

bank is not taxable in hands of head office or offshore branches.

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It is proposed to amend the provisions of section 271(1)(iii) of the Act so as to provide thatthe amount of tax sought to be evaded shall be the aggregate of tax sought to be evadedunder the general provisions and the tax sought to be evaded under the provisions of section115JB or 115JC.

The above amendment will come into effect from 1st April, 2016.

Cost of acquisition of capital assets in the hands of Resulting company

It is proposed to amend section 49 (1)(e) of the Act to include transfer of asset under section47 of the Act. It is further proposed to provide that the cost of acquisition of an asset acquiredby resulting company shall be same as the cost for which the demerged company acquiredthe capital asset as increased by the cost of improvement incurred, if any.

The above amendment will come into effect from 1st April, 2016.

Determination of tax sought to be evaded on concealed income for the purpose of penalty


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Indirect Tax Proposals –

Customs and Central

Excise

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The following table shows the new rates of Basic Customs Duty

GoodsExisting

Rates (%)

New

Rates (%)

Butanes 5.00 2.50

Sulphuric acid for manufacture of fertilizers 7.50 5.00

Isoprene 5.00 2.50

Sub-parts, parts, components or accessories for manufacture of tablet

computer

7.50 NIL

Evacuated tubes with three layers of solar selective coating for use in the

manufacture of solar water heater and system

7.50 NIL

Over Load Protector (OLP), positive thermal coefficient, c-block compressor

and crankshafts for manufacture of refrigerator compressor

7.50 5.00

Butyl acrylate 7.50 5.00

Styrene, Ethylene dichloride (EDC) and Vinyl chloride monomer (VCM) 2.5 2 2.50 2.00

Active Energy Controller (AEC) for manufacture of Renewable Power System

(RPS) inverters

7.50 5.00

Custom Duty

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64Custom Duty

GoodsExisting

Rates (%)

New

Rates (%)

Anthraquinone 7.50 2.50

Specified goods for manufacture of pacemakers 10.00 7.50

Artificial Heart (left ventricular assist device) 5.00 0.00

Specified goods for use in manufacture of Flexible Medical Video Endoscope 7.50 2.50

Magnetron (upto 1 KW)for manufacture of domestic microwave ovens 5.00 NIL

Black Light Unit module for manufacture of LCD and LED TV panels 10.00 NIL

Organic LED TV panels 10.00 NIL

Digital Still Image Video Cameras with minimum resolution of 800 x 600

pixels, at minimum 23 frames/ second, for at least 30 minutes in a single

sequence, using the maximum storage (including the expanded) capacity/

Parts and components of above

10/5 NIL

Commercial motor vehicles (other than those imported in CKD form or

electrically operated motor vehicle)

10.00 20.00

Metallurgical coke 2.50 5.00

The above changes will be effective from 1st March 2015

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65Custom Duty

Goods on which SAD is exempted or reduced

GoodsExisting

Rates (%)

New Rates

(%)

All goods [except populated PCBs] for manufacture of ITA bound goods 4.00 NIL

Specified goods for manufacture of pacemakers 4.00 NIL

All inputs for manufacture of LED driver or MCPCB for LED lights and

fixtures or LED lamps

4.00 NIL

Naphtha, Styrene, Ethylene dichloride, Vinyl chloride monomer 4.00 2.00

Melting scrap of iron or steel, Stainless steel scrap, for the purpose of

melting

4.00 2.00

Copper, brass and aluminium scrap 4.00 2.00

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Export Duty on upgraded Ilmenite reduced from 5% to 2.5%

Custom Duty

Concessional BCD rate benefit on import of specified goods for use in manufactureof electrically operated and hybrid motor vehicle extended till 1 April 2016

Increase in Additional Duty of Customs (Road Cess) on imported HSD and MotorSpirits (Petrol) from Rs 2 per litre to Rs 6 per Litre.

The above changes will be effective from 1 March 2015

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Central Excise

Rate of excise duty is increased from 12.36% to 12.50%. However, Education Cess andSecondary Higher Education Cess leviable on excise duty are subsumed in BED witheffect from 1st March 2015

Penalty provisions have been rationalised. However, new penalty provisions will beapplicable only in cases where no show cause notice has been issued prior to the dateon which the Finance Bill, 2015 receives assent.

Penalty on confiscation of goods have been increased from Rs 2,000 to Rs 5,000

Tariff rate on following items have been increased as under;

Particulars Old rate New rate

Cement Rs. 900 per ton Rs. 1,000 per ton

Waters, including mineral waters and aerated waters 12% 18%

Cut tobacco Rs. 60 per kg Rs. 70 per kg

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Central Excise

Registration process will be simplified. It is also proposed that the registration willbe granted within 2 working days of application

A welcome move for allowing records to be signed digitally and keeping the samein electronic form

Clean energy cess increased from Rs. 100 to Rs. 200 per tonne

Time-limit for availing CENVAT credit on inputs and input services is beingextended from 6 months to 1 year from the invoice date

Time-limit for return of capital goods from job worker’s premises extended from6 months to 2 years

Inputs and capital goods allowed to be sent directly to job worker’s premises atthe direction of manufacturer or service provider

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Indirect Tax Proposals –

Service Tax and Cenvat

Credit

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Service Tax Proposals

The rate of Service Tax is being increased from 12% to 14%. The ‘Education Cess’ and‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax.Thus, the effective increase in Service Tax rate will be from the existing rate of 12.36%(inclusive of cesses) to 14%, subsuming the cesses.

Change in Service Tax rate

The Bill empowers the Government to levy Swachh Bharat Cess @ 2% on all or any of thetaxable services, from the date to be notified after enactment of Finance Bill 2015.

Till the time the revised rate comes into effect, the ‘Education Cess’ and ‘Secondary andHigher Education Cess’ will continue to be levied in Service Tax.

Levy of Swachh Bharat Cess

Change in definition of Service

It is proposed to replace existing explanation 2, clarifying the term “transactions in money or actionable claim” with new explanation where “transactions in money or actionable claim” does not include –a) Money changer servicesb) Any activity for consideration in relation to facilitating transaction in money as specified

in act.

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Access to amusement facility will be subject to service tax.Currently, the access to amusement facilities is not taxable as it is covered under the negativelist. The Finance Minister has proposed omission of this entry from the negative list. Thechange will be effective from the notified date.This will result in levy of service tax if the amount charged is more than Rs. 500 for right toadmission to such an event / park.

Amendment in Negative List

Any process amounting to manufacture or production of goods.It is proposed to exclude from its purview any service by way of carrying out any processes forproduction or manufacture of alcoholic liquor for human consumption, by amendingdefinition of manufacture in Section 65(B)(40). Consequently, Service Tax shall be levied oncontract manufacturing/job work for production of potable liquor for a consideration.

Services provided by Central Government or local authorityPresently support services provided by the Central Government or local authority to businessactivity was excluded from negative list and was hence taxable under service tax net, howevernow the Finance Bill proposes to exclude any service provided by the Central Government orlocal authority to the business entity, from the negative list, consequently such services willbe liable to tax.

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Other changes in Finance Act

It is clarified that the for providing main services, if any services are utilized, then the sameshould not take colour of the main service, just because it is used as input service forproviding the main service.

Change in provision relating to valuation of service tax by includinga) Reimbursement of expenses and b) Commission / Discount on sale of lottery ticket in

ambit of service tax.

It is proposed to insert sub section (1B) under Section 73, to provide for recovery of servicetax amount self assessed and declared in the return but not paid shall be made under section87, without serving any notice.Provision relating to penalty of maximum of 25% of the tax amount, which is presentlyapplicable, if true and complete details of transactions were available, is proposed to bedeleted. Hence now the assessee will not get benefit of only 25% penalty.

It is proposed to delete the beneficial provision provided in Section 80, for waiver of penaltywhere there was reasonable cause for failure to the service tax.

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Amendment in provisions relating to penalty for failure to pay service tax


Presently maximum penalty of 50% can be levied in case of failure to pay tax, which does notinvolve fraud, collusion or willful misconduct or suppression of facts.

It is proposed to amend these provisions to rationalize penalty in such cases in followingmannera) The maximum amount of penalty would be 10 percent of service tax liability.b) No penalty will be imposed if service tax and interest is paid within 30 days of service ofShow Cause Notice.c) A reduced penalty of 25 percent of the penalty imposed by the officer if the assesse paysthe service tax along with interest and reduced penalty is paid within thirty days of issuanceof Order.d) If the service tax amount gets modified in the appellate proceedings then the penalty shallaccordingly be modified. This benefit of reduced penalty will be available if the service tax,interest and reduced penalty is paid within thirty days of such appellate order.

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Amendments in provisions of penalty for suppressing value of taxable services


Section 78 is being amended to rationalize penalty, in cases involving fraud or collusion orwilful mis-statement of suppression of facts or contravention of any provision of the Act orrules with the intent to evade payment of Service Tax, in the following manner,-a) Penalty shall be hundred per cent of Service Tax amount involved in such cases.b) A reduced penalty equal to 15% of the Service Tax amount is to be paid if Service Tax,interest and reduced penalty is paid within 30 days of service of notice in this regard.c) A reduced penalty equal to 25% of the Service Tax amount, determined by the CentralExcise officer by an order, is to be paid if the Service Tax, interest and reduced penalty is paidwithin 30 days of such order.d) If the Service Tax amount gets reduced in any appellate proceeding, then the penaltyamount shall also stand modified accordingly, and benefit of reduced penalty (25%) shall beadmissible if Service Tax, interest and reduced penalty is paid within 30 days of such appellateorder.

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A) Exemption for services provided to Government, Local/Governmental authority restricted forspecified structures reduced the exemption with effect from 1 April 2015 to a selective originalwork structures as prescribed.B) Exemption of services of construction, erection, commissioning or installation of original workspertaining to an airport/port withdrawn.C) Exemption of services by an artist in folk, classical art form of music, dance or theatre limitedonly to cases where amount charged is up to Rs. 1,00,000 per performance.D) Exemption for transportation service of food stuff by rail/vessels/road limited to milk, salt, foodgrains including rice, pulses and flour.E) Exemption of services provided by a Mutual fund agent and distributor to a Mutual Fund(‘MF’)/Asset Management Company (‘AMC’) withdrawn .F) Exemption of services by a selling or marketing agent of a lottery ticket to a distributorwithdrawn .G) Exemption to service of departmentally run public telephone, guaranteed public operatingonly local calls and service of making telephone calls from free telephone at airport and hospitalwhen no bill is issued stands withdrawn .H) Rescinding of existing service tax exemption for services provided by a commission agentlocated outside India to an exporter in India with immediate effect .

Significant trimming of exemptions

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Though many services removed from negative list, mega exemption notification is widened toinclude following services as exempt service.A) Any service provided by way of transportation of a patient to and from a clinical establishmentby a clinical establishment was exempt.B) Life insurance services provided by way of Varishtha Pension Bima Yojna .C) Services provided by a Common Effluent Treatment Plant Operator for treatment of effluents.D) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling offruits and vegetables which do not change or alter the essential characteristics of the fruit andvegetables .E) Services provided by way of admission to a museum, zoo, national park, wild life sanctuary anda tiger reserve .F) Services provided by way of exhibition of movie by the exhibitor/theatre owner to thedistributor .G) Enlarging the exemption for road transport services provided for export goods .H) Goods transport agency services provided for transport of export goods by road from the placeof removal to an inland container depot, a container freight station, a port or airport was exemptfrom service tax. Scope of this exemption is widened to exempt such services when provided fortransport of export goods by road from place of removal/ inland container depot/ containerdepot to a land customs station .

Scope of mega exemption notification widened

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A) A uniform abatement rate of 70 percent for transport by rail, road and vessels services. Thisabatement is now available only when CREDIT CREDIT is not availed on inputs, capital goods andinput services. Earlier, abatement on services of rail transport for goods and passengers could beavailed without any such CREDIT CREDIT availment condition.

B) At present, Service Tax is payable on 40% of the value of air transport of passenger foreconomy as well as higher classes, e.g. business class. The abatement for classes other thaneconomy is being reduced and Service Tax would be payable on 60% of the value of such higherclasses.

C) New rates in Reverse Charge Mechanism as per table on next slide.

Modifications to Abatement and Reverse Charge Mechanism

Other compliance simplification amendments

A) Procedure for registration simplified . Service tax registration will be granted within 2 days offiling of an online application for single premises. An appropriate Order No. 1/15-ST dated28.02.2015 deals with this issue. Further, the requirement of filing physical documents has beendone away with effect from 1 March 2015.

B) Digitally signed invoices along with an option to maintain electronic records allowed . A newrule has been inserted that gives an option to authenticate, by means of digital signature, anyinvoice, bill or challan or consignment note.

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Sr No. Nature of service

Existing New

Payable by Payable by

Providor Receiver Providor Receiver

1Manpower Supply & Security Service provided by Induvual, HUF or Partnership Firm to Body Corporate

50% 50% Nil 100%

2

Services provided or agreed to be

- - Nil 100%provided by a mutual fund agent or distributor, to amutual fund or asset management company

3

Service provided or agreed to be

- - Nil 100%provided by a selling or marketing agent of lotterytickets to a lottery distributor or selling agent

4Services provided by a person involving and aggregator In any manner - - Nil 100%

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Change in CREDIT CREDIT rules

Consequent to change in the effect rate of service tax from 12% to 14%, there

will be revision of the alternate rates provided, which will be as under

SrNo. Nature of Service Existing Rate Revise Rate

1 Booking of air ticket for domestic travel 0.60% 0.70%

2 Booking of air ticket for international travel 1.20% 1.40%

3 Insurance premium for 1st year 3.00% 3.50%

4 Insurance premium for subsequent years 1.50% 1.75%

5Gross amount of currency exchange upto Rs.1,00,000/-

0.12%, subject to minimumRs. 30/-

0.14%, subject tominimum Rs. 35/-

6Gross amount of currency exchange exceedingRs. 1,00,000/- and upto Rs. 10,00,000/-

120/- and 0.06% 140/- and 0.07%

7Gross amount of currency exchange exceedingRs. 10,00,000/-

660/- and 0.012%, subjectto maximum of Rs. 6,000/-

770/- and 0.014%, subjectto maximum of Rs. 7,000/-

A) Rule 4(7) is being amended to allow CREDIT CREDIT of Service Tax paid under partial reversecharge by the service receiver without linking it to the payment to the service provider.

B) The period for taking CREDIT CREDIT is being extended from six months from the date ofinvoice to one year from the date of invoice.

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80Cenvat Credit Proposals

Change in CREDIT CREDIT rules

A) Rule 4(7) is being amended to allow CREDIT CREDIT of Service Tax paid under partial reversecharge by the service receiver without linking it to the payment to the service provider.

B) The period for taking CREDIT CREDIT is being extended from six months from the date ofinvoice to one year from the date of invoice.

C) Condition has been inserted that abatement for transport by rail, road and vessels serviceswillnow available only when CREDIT CREDIT is not availed on inputs, capital goods and input services

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