u.s.gandhi budget 2016 2017 analysis - finance bill 2016

BUDGET 2016-17

An Analysis of the Implications on Businesses and

Individuals

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Index● Foreword● Budget Flash● Direct Tax Proposal● International Tax● Indirect Tax Proposal● Contact Us

Foreword

The Union Budget for 2016 comes at a time of unusual volatility in the international economic environment. Amidst this gloomy landscape, the Economic Survey for 2015-16 calls India “… a haven of stability and an outpost of opportunity”. Achievements made in last year are remarkable as they have been accomplished in the face of poor global scenario and a second successive season of poor rainfall. The task now on hand is to sustain in an even more difficult global environment. It was in the above economic backdrop that the FM presented the Union Budget 2016-17 in the Parliament today.

Investment continues to be the underlying theme in this Budget. The Budget seeks to revive growth and investment and promote domestic manufacturing and ‘Make in India’. The Budget contains a number of tax proposals for providing relief to small taxpayers, measures to boost growth and employment generation, measures to promote new manufacturing companies and start-ups, incentivizing domestic value addition, reducing litigation and providing certainty, and for simplification and rationalization of taxation.

The budget has structural reforms at center to maintain vital fundamentals of the country.

SStjeftatisticsStatistics

Budget Statistics

Service tax and other taxes9%

Union excise duties

12%

Customs

9%

Income Tax

14%

Corporation Tax

19%Borrowing and other liabilities21%Non – debt capital receipts3%Non Tax Revenue

13%

Budget Statistics

Plan assistance to state and UT Govts9%

Non plan assistance to state & UT5%

Subsidies

10%

Defence

10%

Interest Payment

19%State’s share of taxes and duties23%Central plan

12%Other non plan expenditure12%

Budget Statistics

Non Tax Revenue

9%

Tax Revenue

19%Revenue Deficit

10%Planned Revenue Expenditure12%Non Planned Revenue Expenditure38%

Budget Flash

Personal TaxationBUDGET FLASH

● Income-tax rates for individuals remains unchanged.● Surcharge has been increased from 12% to 15% on

income-tax for income exceeding Rs. 1 Crore for individual, HUF, AOP, BOI or artificial judicial person.

● No requirement to furnish PAN by non- resident individuals and foreign companies in respect of certain incomes, subject to prescribed conditions.

● Increase the limit of deduction of rent paid u/s 80GG from Rs. 24000 p.a. to Rs. 60000 p.a., to provide relief to those who live in rented houses.

● Exemption on funds withdrawn from RPF/SAF in respect of contributions made on or after 1st April, 2016 restricted to 40% of such contribution.

● Exemption limit of employer’s contribution to RPF on behalf of employee is equal to 12% of employee’s salary or INR 150,000, whichever is less.

Personal TaxationBUDGET FLASH

● Exemption limit of employer’s contribution to an approved SAF increased from Rs. 100,000 to Rs. 150,000.

● Up to 40% of the amount withdrawn from NPS upon closure of account or opting out of the scheme is exempt from tax.

● Dividend income from domestic companies received by resident Individuals, HUFs and Firms in excess of Rs. 10 Lakhs taxable at the rate of 10%

● Royalty income earned by an Indian resident from a patent developed and registered in India shall be taxable on a gross basis at the rate of 10%.

● A person earning exempt income from sale of long term capital asset (shares and units etc.) required to furnish return of income within due date if the income without giving effect to such exemption exceeds the maximum amount which is chargeable to tax.

Corporate TaxationBUDGET FLASH

● Rates of corporate tax remain unchanged for both domestic and foreign companies except the following:

○ Corporate tax rate of 25% for domestic companies,

if set-up and registered after 1st March 2016 and does not claim any tax incentives.

○ Corporate tax rate of 29% for domestic companies if total turnover or gross receipts in the F.Y. 2014-15 does not exceed Rs. 5 Crores.

● Rate of surcharge & cess remains unchanged for domestic and foreign companies.

● MAT provisions will not be applicable to foreign companies having no PE in India or having no registration requirement under any other law in India. This amendment is proposed to be made effective retrospectively from A.Y. 2001-02

Corporate TaxationBUDGET FLASH

● Benefit of initial additional depreciation extended to

business of transmission of power. ● Investment allowance in respect of investment in new

plant and machinery rationalized.● Deduction of 100% of profits and gains derived from

the business of developing and building affordable housing projects approved by competent authority.

Other ProposalsBUDGET FLASH

● Increase in threshold limit of taxes to be withheld at source on various payments under section 192A, 194BB, 194C, 194LA, 194D, 194G and 194H.

● Revision in rates of taxes to be withheld on various payments under section 194DA, 194EE, 194D, 194G and 194H

● Tax is collected at source at 1% by seller on sale of motor vehicle having value more than Rs. 10 Lakhs, on sale of goods or services more than Rs. 200,000 in cash; no tax is collected at source where withholding tax is deducted by payer.

● Phasing out of various profit linked deductions, accelerated depreciation on assets and weighted deductions over a period of time.

● Additional levy of tax where the charitable institution ceases to exist or merges / converts into non-charitable organization.


● Three year tax holiday proposed for eligible start-ups.● Exemption from long term capital gains available when

proceeds are invested in the Government’s Start-up Fund of Funds.

● Sunset clause introduced under section 10AA for SEZ units that commence operations on or after 1st April, 2020.

● Rule 8D amended to limit disallowance (of expenditure incurred for earning exempt income) to 1% of the average monthly value of investments yielding exempt income or the actual expenditure, whichever is lower.

● GAAR provisions to be effective from 1st April, 2017.● For the purpose of carry forward of loss of specified

business, a person would now be required to file a return of income within due date.


● Any person who has filed a belated return can also file a revised return.

● A return filed without payment of self-assessment tax along with interest shall not be treated as a defective return.

● The scope of adjustments while processing the return of income under section 143(1) widened to include certain other items. Further, processing of return before passing the assessment order has been made mandatory.

● Time limit for completion of assessment or reassessment has been reduced by 3 months.

● Time lines for passing appeal effect order have been provided.

● Interest on refund will be allowed on self-assessment tax. Further, additional interest to be granted at the rate of 3% in case of delay beyond prescribed time limit.


● Mandatory for the assessing officer to grant stay of demand once the assessee pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals)

● Introduction of time limit for disposing applications made for reduction/waiver of interest/penalty/ immunity from penalty proceedings

● Introduction of new section to levy penalty in case of “under-reported and misreported income”.

● To reduce litigation, it is proposed that no appeal can be filed by the Assessing Officer against the directions issued by the Dispute Resolution Panel.

● New scheme proposed to allow disclosing of undisclosed income up to F.Y. 2015-16 by paying tax, surcharge and penalty at a combined rate of 45% of undisclosed income.

International TaxationBUDGET FLASH

● Introduction of new equalization levy of 6% to address challenges of the “digital economy” on the amount of consideration received by non-resident for any specified services.

● Income arising to a foreign company which is subject to Equalisation Levy, exempt from tax.

● Provisions governing place of effective management of a company deferred by one year.

● Exemption available to a foreign company in respect of income arising from sale of crude oil (stored in a facility in India) to an Indian resident.

Service TaxBUDGET FLASH

● Krishi Kalyan cess at the rate of 0.5% on the value of service proposed to be levied with effect from 1st June 2016 over and above Service Tax & Swachh Bharat Cess.

● Restoration of certain exemptions for infrastructure sector which were withdrawn with effect from 1st March 2015, subject to specified conditions.

● Rationalization of abatement rates and conditions thereof for availment of CENVAT credit.

● Taxability of services provided by Government or local authorities or governmental authorities expanded.

● Point of Taxation Rules to apply in case of new levy on services.

● Interest rates rationalized from 18% - 30% to uniform 15% in general cases and 24% in cases non-payment of collected tax.

● Annual return has been introduced.● Indirect Tax Dispute Resolution Scheme 2016

introduced to bring down litigations pending at Commissioner (Appeal) level.

Excise DutyBUDGET FLASH

● Median excise duty retained at 12.50%.● Interest rate on delayed payment of duty reduced from

18% to 15%. ○ BED increased on branded readymade

garments with MRP of Rs. 1,000 or above, articles of jewellery, charger, battery of mobiles, set-top box, etc.

○ Monthly excise returns can be revised before end of the month in which the original was submitted by the due date.

○ Exemption extended to media with recorded information technology software on which MRP is not required to be declared where service tax is leviable.

Custom DutyBUDGET FLASH

● Median rate of BCD retained at 10%.

● Effective peak rate of customs duty remains at 29.44%.

○ New Baggage Rules, 2016 introduced with simplification of procedures and ease of monetary limits

Direct Tax Proposals

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

RATES

The surcharge has been increased to 15% from 12% for income over Rs. 1 crore. The Education Cess rate has been kept intact at 3%

It has been proposed to amend section 87A in order to increase the maximum limit of the rebate for resident individuals having a total income of less than Rs. 5,00,000/- from Rs. 2,000 to Rs. 5,000.

Individual Senior citizen (60 – 80 years)

Super Senior Citizen (80 years & above) Tax Rate

Up to Rs. 2,50,000 Up to Rs. 3,00,000 Up to Rs. 5,00,000 NIL

Rs. 2,50,001 to Rs. 5,00,000 Rs. 3,00,001 to Rs. 5,00,000 N.A. 10%

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

10,00,000 20%

Above Rs. 10,00,001 Above Rs. 10,00,001 Above Rs. 10,00,001 30%

Partnership Firms, Co-operative Societies & Local Authorities

TAX RATES

The income tax rates for co-operative societies, local authorities and partnership firms continue to be 30%. The surcharge is to be levied at 12% for Income over Rs.1Crores. Education Cess at 3% is to be charged on Income Tax & Surcharge

Domestic Companies

* Taxation on “Start Ups” have been dealt in detail later.

TAX RATES

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

Taxable Income > Rs. 10 crores

Turnover < Rs. 5 crores in F.Y. 2014-15

Tax Rate 30% 30% 29%

Surcharge 7% 12% 7%

Tax + Surcharge 32.10% 33.60% 31.03%

Education Cess thereon 3% 3% 3%

Effective Tax Rate 33.06% 34.61% 31.96%

Foreign Company

Particulars Taxable Income > INR 1 crore, but < INR 10 crore

Taxable Income > INR 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%

TAX RATES

Major changes made in Finance Bill with respect to Individual/HUF/AOP/BOI

●Dividend Income to be taxed in certain case It has been proposed to insert a new section 115 BBDA relating to tax on certain dividends received from Domestic Companies.This section proposes to provide that any income by way of dividend declared, distributed or paid by a Domestic Company, in excess of Rs. 10 lakhs shall be taxable at the rate of 10% in the hands of the recipient (Resident Individual, H.U.F. and Firm). It also proposes to provide that no deduction in respect of expenses or set off of loss will be allowed against such dividend income.

● Increase in deduction towards rent paid In order to provide relief to the individual tax payers, it is proposed to amend section 80GG so as to increase the maximum limit of deduction from existing Rs. 2000 p.m. to Rs. 5000 p.m.

●No taxation on individuals and HUF on shares received through business reorganization It is proposed to amend the Section 56(2)(vii) of the Act so as to provide that any shares received without consideration/inadequate consideration exceeding Rs.50,000 by an individual or HUF as a consequence of demerger or amalgamation of a company shall not be taxable in their hands.

● Increase in time period for acquisition or construction of self-occupied house property for claiming deduction of interestFor claiming deduction of interest u/s 24(b) on capital borrowed, the time period for acquisition or construction of self occupied house property has been increased from 3 years to 5 years from the end of the financial year in which the capital was borrowed.

●Taxation of unrealised rent and arrears of rent It is proposed to provide arrear of rent or unrealized rent shall be taxed in the year in which it is realized or received. The standard deduction of 30% u/s 24(a) shall also be allowed.

●Enabling of Filing of Form 15G/15H for rental payments

It is proposed to amend the provisions of section 197A by making the recipients of rent eligible for filing self-declaration in Form 15G/15H for non-deduction of tax at source.These amendments will take effect from 1st June, 2016.

●Tax treatment on withdrawal of corpus of Recognised Provident Funds, Pension Funds and National Pension Scheme

It is proposed to amend section 10 in order to provide tax exemption on withdrawal of contributions up to 40% of the accumulated balance of provident fund or superannuation fund or annuity fund on contributions made on or after the 1st April, 2016 by an employee.

It is further proposed that on withdrawal up to 40% of the corpus at the time of retirement to be exempted from tax in the case of National Pension Scheme (NPS). Further, Annuity fund received by legal heir will not be taxable.

●Enabling of Filing of Form 15G/15H for rental paymentsIt is proposed to amend the provisions of section 197A by making the recipients of rent eligible for filing self-declaration in Form 15G/15H for non-deduction of tax at source.

These amendments will take effect from 1st June, 2016.

●Tax treatment on withdrawal of corpus of Recognised Provident Funds, Pension Funds and National Pension Scheme

It is proposed to amend section 10 in order to provide tax exemption on withdrawal of contributions up to 40% of the accumulated balance of provident fund or superannuation fund or annuity fund on contributions made on or after the 1st April, 2016 by an employee.

It is further proposed that on withdrawal up to 40% of the corpus at the time of retirement to be exempted from tax in the case of National Pension Scheme (NPS). Further, Annuity fund received by legal heir will not be taxable

It has been clarified that only interest accrued on Employee Provident Fund (EPF) on deposits made on or after the 1st April, 2016 will be subject to tax. However, the same shall be subject to tax only at the time of withdrawal that also only up to 60% of such interest portion accrued or credited on EPF deposits made on or after 1st April, 2016. This will involve calculation of interest credited before 31st March, 2016 and accrued post 31st March, 2016 in all cases.

Further, employees with salary up to Rs.15,000 p.m. income will be kept out of purview of proposed taxation of provident fund.

Further it is proposed to increase the limit of employer’s contribution to Rs. 1.50 lakhs from Rs 1 lakh without attracting tax liability u/s 17.

●Capital gain exemption on Sovereign Gold Bond Scheme, 2015It has been proposed that redemption of sovereign gold bond by an individual will not be regarded as transfer and therefore, no capital gain. Further, in case of transfer of sovereign gold bond before its redemption, capital gains will be attracted and indexation benefit will be available on such LTCG.

● Introduction of Presumptive taxation scheme for persons having income from professionPresumptive taxation scheme (U/s 44 ADA) has been introduced for professionals as defined under the Act. The same shall be applicable for professionals having gross receipts up to Rs. 50 lakhs. The presumptive income shall be 50% of the gross receipt.

● Increase in threshold limit for tax audit for persons having income from professionIt is proposed to increase the threshold limit of total gross receipts, specified under section 44AB for getting accounts audited, from Rs. 25 lakhs to Rs. 50 lakhs in the case of professionals.

● Increase in threshold limit for presumptive taxation scheme for persons having income from business.It is proposed to increase the threshold limit of Rs. 1 crore to Rs. 2 crores U/s 44AD. Further, the expenditure in the nature of salary, remuneration, interest etc. paid to the partner as per clause (b) of section 40 shall not be deductible.

Major changes made in Finance Bill with respect to Corporates

●Tax on distributed income to shareholderIt is proposed to amend section 115QA by levying tax on buyback of unlisted shares at 20% undertaken by the company in accordance with any law for the time being in force relating to companies i.e. Companies Act 2013.

These amendments will take effect from 1st June, 2016.

●Phasing out of deductions and exemptionsIt has been proposed to phase out deductions and exemptions as below :Proposed Phase out plan of incentives (Profit linked Deductions/weighted deduction) available under the Act.

Sr. No Section Incentive currently available

in the ActProposed phase out measures/Amendment

Applicability of Proposed Amendment

1 10AA- Special provision in respect of newly established units in Special economic zones (SEZ).

Profit linked deductions for units in SEZ for profit derived from export of articles or things or services.

No deduction shall be available to units commencing manufacture or production of article or thing or start providing services.

On or after 1.4.2020 (i.e. from previous year 2020-21 onwards).

2 35AC-Expenditure on eligible projects or schemes.

Deduction 100% for expenditure incurred by way of payment of any sum to a public sector company or a local authority or to an approved association or institution, etc. on certain eligible social development project or a scheme.

No deduction shall be available.

On or after 1.4.2017 (i.e. from previous year 2017-18 and subsequent years).

3 35CCD-Expenditure on any notified skill development project by a company.

Weighted deduction of 150% on any expenditure incurred (not being expenditure in the nature of cost of any land or building)

Deduction shall be restricted to 100%.


●Proposed Phase out plan of incentives (Accelerated Depreciation/Weighted Deduction) available under the Act

4 Deduction in respect of profits derive from a) development, operation and maintenance of an infrastructure facility (80-IA)(b) development of special economic zone (80-IAB)(c) production of mineral oil and natural gas [80-IB(9)]

100% profit linked deductions for specified period on eligible business carried on by industrial undertakings or enterprises referred in section 80IA; 80IAB, and 80IB.

No deduction shall be available.

If the specified activity commences on or after 1st day April, 2017. (i.e. from previous year 2017-18 and subsequent years).

Sl. No Section Incentive currently available in

the ActProposed phase out measures/ Amendment

Applicability of Proposed Amendment

1 32 read with rule 5 of Income-tax Rules, 1962- AcceleratedDepreciation.

Accelerated depreciation is provided to certain Industrial sectors in order to give impetus for investment. The depreciation under the Income-tax Act is available up to 100% in respect of certain block of assets.

Highest rate of depreciationUnder the Income-tax Act shall be restricted to 40%. The new rate is proposed to be made applicable to all the assets (whether old or new) falling in the relevant block of assets.

On or after 1.4.2017. (i.e. from previous year 2017-18 and subsequent years).

2 35(1)(ii)- Expenditure on scientific research.

Weighted deduction from the business income to the extent of 175% of any sum paid to an approved scientific research association which has the object of undertaking scientific research. Similar deduction is also available if a sum is paid to an approved university, college or other institution and if such sum is used for scientific research.

Weighted deduction shall be restricted to 150%

From 1.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20)

Deduction shall be restricted to 100%


3 35(1)(iia)-Expenditure onscientific research.

Weighted deduction from the business income to the extent of 125% of any sum paid as contribution to an approved scientific research company.


On or after with 1.04.2017 (i.e. from previous year 2017-18 and subsequent years).

4 35(1)(iii)- Expenditure on scientific research.

Weighted deduction from the business income to the extent of 125% of contribution to an approved research association or university or college or other institution to be used for research in social science or statistical research.


On or after with 1.04.2017 (i.e. from previous year 2017-18 and subsequent years).

5 35(2AA)- Expenditure on scientific research.

Weighted deduction from the business income to the extent of 200% of any sum paid to a National Laboratory or a university or an Indian Institute of Technology or a specified person for the purpose of approved scientific research programme.


From 1.04.2017 to 31.03.2020 (i.e. from previous year 2017-18 to previous year 2019-20)

Deduction shall be restricted to100%


6 35(2AB)- Expenditure on scientific research.

Weighted deduction of 200% of the expenditure (not being expenditure in the nature of cost of any land or building) incurred by a company, engaged in the business of bio-technology or in the business of manufacture or production of any article or thing except some items appearing in the negative list specified in Schedule-XI, on scientific research on approved in-house research and development facility.


From 1.04.2017 to 31.03.2020 (i.e.from previous year 2017-18 to previous year 2019-20)

Deduction shall be restricted to100%


7 35AD- Deduction in respect of specified business.

In case of a cold chain facility, warehousing facility for storage of agricultural produce, an affordable housing project, production of fertilizer and hospital weighted deduction of 150% of capital expenditure (other than expenditure on land, goodwill and financial assets) is allowed.



8 35CCC- Expenditure on notified agricultural extension project.

Weighted deduction of 150% of expenditure incurred on notified agricultural extension project.


On or after 1.4.2017 (i.e from previous year 2017-18 onwards).

Amortization of Spectrum Fee for purchase of Spectrum

It is proposed to insert a new section 35 ABA in the Act to provide for tax treatment of spectrum fee. The section seeks to provide :

● any capital expenditure incurred and actually paid by an assessee on the acquisition of any right to use spectrum for telecommunication services, deduction will be allowed in equal instalments over the period for which the right to use spectrum remains in force.

● where the spectrum is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, then the balance shall be allowed as deduction in the previous year in which the spectrum has been transferred as reduced by the proceeds of transfer.

● if the spectrum is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the spectrum has been transferred.

● unallowed expenses in a case where a part of the spectrum is transferred would continued to be amortised.

● under the scheme of amalgamation, if the amalgamating company sells or transfer the spectrum to an amalgamated company, being an Indian company, then the provisions of this section will apply to amalgamated company as they would have applied to amalgamating company if later has not transferred the spectrum.

Clarification regarding set off losses against deemed undisclosed income It is proposed to amend section 115BBE(2) to expressly provide that no set off of any loss shall be allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D.

Additional condition for non-taxability of conversion of a company into Limited Liability Partnership (LLP)It is proposed to amend section 47(xiib) by inserting an additional requirement for converting a company into LLP. The additional condition proposed is that the value of the total assets in the books of accounts of the company should not exceed Rs. 5 crore in any of the 3 previous years preceding to the previous year in which the conversion takes place

Applicability of Minimum Alternate Tax (MAT) on foreign companies for the period prior to 01.04.2015.It is proposed to amend the Income-tax Act so as to provide that with effect from 01.04.2001, the provisions of section 115JB shall not be applicable to a foreign company if -

● the assessee is a resident of a country or a specified territory with which India has an agreement referred to in section 90(1) or the Central Government has adopted any agreement under section 90A(1) and the assessee does not have a permanent establishment in India in accordance with the provisions of such Agreement; or

● the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) above and the assessee is not required to seek registration under any law for the time being in force relating to companies.

Exemption of income to Foreign Company from storage and sale of crude oil stored as part of strategic reserves It is proposed to amend the provisions of section 10 to provide that any income accruing or arising to a foreign company on account of storage of crude oil facility in India and sale of crude oil therefrom to any person resident in India shall not be included in the total income, if, -

1. the storage and sale by the foreign company is pursuant to an agreement or an

arrangement entered into by the Central Government or approved by the Central Government; and

2. having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.

This amendment will take effect retrospectively from assessment year 2016-17.

Deferment of place of effective management ruleIt is proposed to defer the applicability of place of effective management (POEM) based residence test by one year and the determination of residence based on POEM shall be applicable from 01.04.2017.

Exemption in respect of certain activity related to diamond trading in "Special Notified Zone".It is proposed to amend section 9 of the Act to provide that in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Zone notified by the Central Government in the Official Gazette in this behalf.This amendment will take effect retrospectively from assessment year 2016-17.

Major changes made in Finance Bill with respect Deductions under Chapter VI-A

Incentives for Promoting Housing for All It is proposed to insert a new section 80-IBA so as to provide for 100% deduction of the profits from the business of developing and building affordable housing projects provided it is approved by the competent authority before the 31st March, 2019 subject to below mentioned conditions:-

1. The project is completed within a period of 3 years from the date of approval,2. The project is on a plot of land measuring not less than 1000 sq. metres where the

project is within 25 km from the municipal limits of 4 metros namely Delhi, Mumbai, Chennai & Kolkata and in any other area, it is measuring not less than 2000 sq. metres where the size of the residential unit in the said areas is not more than 30 sq. metres and 60 sq. metres, respectively,

3. where residential unit is allotted to an individual, no such unit shall be allotted to him or any member of his family, etc.

Tax incentive for employment generation It is proposed to amend Section 80JJAA in order to provide deduction with respect to expenses incurred on any employee whose total compensations are less than or equal to Rs. 25,000/- per month. However, no deduction shall be allowed in respect of cost incurred on those employees, for whom the entire contribution under Employees' Pension Scheme notified in accordance with Employees' Provident Fund and Miscellaneous Provisions Act, 1952, is paid by the Government.The incentive is proposed to be provided to all sectors as against only the manufacturing sector under the existing provision.It is further proposed to relax minimum number of days of employment in a financial year from 300 days to 240 days. Further, it is proposed to delete the condition of 10% increase in number of employees every year. It is also proposed to provide that in the first year of a new business, 30% of all compensations paid or payable to the employees employed during the previous year shall be allowed as deduction.

Additional Deduction of Interest on housing loan

It is proposed to amend section 80EE by providing additional deduction of Rs. 50000/- p.a. for the first time home buyers if

1. The amount of loan sanctioned for acquisition of the residential house property does not exceed Rs. 35 lakh;

2. The value of residential house property does not exceed Rs. 50 lakhs;3. The assessee does not own any residential house property on the date of sanction of loan.

It has been further provided that the loan has been sanctioned by the financial institution during the period beginning from 1st April, 2016 and ending on 31st March, 2017.

It is to be noted that the deduction proposed is over and above the limit of Rs 2,00,000 provided for a self-occupied property under section 24 of the Act.

Major changes made in Finance Bill applicable to all the assesseeTax incentives for start-upsIt is proposed to provide a deduction of 100% of the profits and gains derived by an eligible start-up which is set up before 01.04.2019, from a business involving innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

It is proposed to insert a new Section 54EE to provide exemption up to Rs. 50 lakhs from capital gains tax if the long term capital gains proceeds are invested by an assessee in units of such specified fund, as may be notified by the Central Government in this behalf, subject to the condition that the amount remains invested for 3 years failing which the exemption shall be withdrawn.

It is further proposed to provide relief to an individual or HUF on transfer of a residential property if such capital gains is invested in subscription of shares of a company which qualifies to be an eligible start-up subject to the condition that the individual or HUF holds more than 50% shares of the company and such company utilises the amount invested in shares to purchase new asset before due date of filing of return by the investor.

It is also proposed to include computers or computer software under the definition of “new assets” in case of technology driven start-ups as certified by the Inter-Ministerial Board of Certification notified by the Central Government in the official Gazette.

Taxation of Income from 'Patents' It is proposed to insert new section 115 BBF to provide that where the total income of a person resident in India and who is a patentee includes any income by way of royalty in respect of a patent developed and registered in India, then such royalty shall be taxable at the rate of 10% (plus applicable surcharge and cess) on the gross amount of royalty. No expenditure or allowance in respect of such royalty income shall be allowed under the Act.

Consolidation of 'plans' within a 'scheme' of mutual fund is not transfer for the purpose of capital gainIt is proposed to amend Section 47 so as to provide that allotment of units in the consolidating plan of a mutual fund scheme shall not be considered transfer for capital gain tax.

Investments in Gold Monetization Scheme, 2015 not to be regarded as capital assetsIt is proposed to amend Clause (14) of section 2, so as to exclude Deposit Certificates issued under Gold Monetisation Scheme, 2015 notified by the Central Government, from the definition of capital asset and thereby to exempt it from capital gains tax.It is also proposed to amend clause (15) of section 10 so as to provide that the interest on Deposit Certificates issued under the Scheme, shall be exempt from income tax.

Change in rate of Securities Transaction Tax on Option PremiumIt is proposed to increase the rate of Securities Transaction Tax in case where option is not exercised w.e.f.1st June,2016.

Clarification regarding the definition of the term 'unlisted securities'It is proposed that the long-term capital gains arising from the transfer of a capital asset being shares of a company not being a company in which the public are substantially interested, shall be chargeable to tax @10% under section 112(1)(c).

Taxation of Non-compete fees and exclusivity rights in case of Profession It is proposed to amend section 28(va) to bring the non-compete fee received/receivable (which are recurring in nature) in relation to not carrying out any profession, within the scope of section 28 i.e. as business/professional gains.It is further proposed that the cost shall also be taken as 'nil'.

Old Rate New Rate

0.017 % of the option premium 0.050 % of the option premium

Provision for bank guarantee against provisional attachment of property This amendment will take effect retrospectively from assessment year 2016-17.It is proposed amend section 281B to provide that the assessing officer shall revoke provisional attachment of property in case where the assessee furnishes bank guarantee for and amount not less than the FMV of such property or an amount which is sufficient to protect the interest of revenue.This is effective from 1st June, 2016.

E-Assessment & E-SahyogIt is proposed to expand E-Sahyog project so that all mis-matches in income tax returns be resolved online and there is no requirement to attend to income tax office to resolve the same. It is proposed to expand E-Assessment to all assessee in 7 megacities. In assessment unless assessee wants himself to be heard or for special reasons to be recorded assessing officer wants to hear the party, there will be no face to face contact.

Sec 282A(1) amended to include electronic form as method to send notices and documents by income tax authority.Sec 282A(1) amended to include electronic form as method to send notices and documents by income tax authority.It is further proposed to amend the definition of the term "hearing" in order to include communication of data and documents through electronic mode.These amendments will take effect from the 1st June, 2016.

Rationalization of Section 50C in case sale consideration is fixed under agreement executed prior to the date of registration of immovable propertyIt is proposed to amend the provisions of section 50C to provide that the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration where the date of the agreement for the transfer of immovable property and the date of registration are not the same.It is further proposed to provide that this provision shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by way of an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account, on or before the date of the agreement for the transfer of such immovable property.

Payment of interest on refundIt is proposed to amend section 244A to provide that the period for calculating interest on refund shall begin from the date of filing of return where the return is filed after the due date instead of calculating from the first day of the assessment year and ends on the date on which refund is granted.Further, it is proposed to pay interest on refund arising due to payment of additional self-assessment tax from the date of payment of self-assessment tax or filing of return whichever is later to the date of determination of refund.It is further proposed that the Assessing Officer has to complete all the orders giving effect within 3 months from the end of receipt of the order or such extended time limit failing which an additional interest at the rate of 3% p.a. is to be given.These amendments will take effect from 1st June, 2016.

Exemption of Central Government subsidy or grant or cash assistance, etc. towards corpus of fund established for specific purposes from the definition of IncomeIt is proposed to amend the definition of Income under Sec 2(24) to provide that subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or State government shall not form part of income.

Extension of scope of section 43B to include certain payments made to Railways It is proposed to amend section 43B so as to expand its scope to include payments made to Indian Railways for use of Railway assets within its ambit.

Rationalization of Advance Tax PaymentAdvance tax on the current income shall be payable by all the assessee’s (Individual, H.U.F., Firm & Company) in 4 installments as mentioned below:

It is also proposed that an eligible assessee in respect of an eligible business u/s 44AD opting for computation of income on presumptive basis, is now required to pay advance tax in one installment on 15th March of the financial year. Consequently, amendments are proposed to be made in Sec 234C.Also, interest u/s 234C will not be charged in case of an assessee showing income under the head ‘Profits & Gains from Business & Profession’ for the first time, subject to certain conditions.These amendments are applicable from 1st June, 2016.

Due date Individual/H.U.F./Firm/Companies

15th June 15%15th September 45%15th December 75%15th March 100%

Levy of tax where the charitable institution ceases to exist or converts into a non-charitable organization (Exit Tax) It is proposed to amend the provisions of the Act and introduce a new Chapter XII-EB to provide for levy of additional income-tax on special provisions relating to tax on accredited income of certain trusts and institutions. It shall be levied at the time of conversion, merger or transfer of assets on dissolution of any charitable form to non-charitable institution.For this purpose, a trust shall be deemed to have been converted into a non-charitable institution in the following circumstances:

● the registration granted to it has been cancelled● objects of the institution are modified and such modification does not confirm to the

conditions of registration and no fresh registration is applied for or application for fresh registration is rejected.

Accreted income shall be aggregate amount of FMV for total assets as reduced by the total liability and the same shall be chargeable to tax at maximum marginal rate as on the specified date. The same is in addition to any income chargeable to tax in the hands of the entity.In case of failure of payment of tax within the prescribed time a simple interest @ 1% p.m. or part of it shall be applicable for the period of non-payment.These amendments will take effect from 1st June, 2016

New Taxation Regime for securitisation trust and its investors Currently, the income distributed by the securitization trust (“ST”) is subject to distribution tax (i.e. for individual / HUF – 25%*; Others - 30%*).

● No distribution tax levied if the distribution is made to exempt entity.● The income received by Investor is exempt from tax.

The income received by Investor is exempt from tax.It is proposed that

● New regime be introduced - Reconstruction companies or securitization companies included under the definition of “securitization trust”.

● Investors to be taxed on accrual basis – by eliminating distribution tax.● No distribution tax applicable to ST .● ST to withhold tax (Individual / HUF -25%*, Others – 30%* and for non-resident at the rates

in force)● Investors can obtain low or nil deduction of tax certificate

These amendments will take effect from the 1st day of June, 2016.

Major changes made in Finance Bill with respect to Assessment ProceduresAssumption of jurisdiction of Assessing Officer It is proposed to amend section 124(3) to specifically provide that cases where search is initiated under section 132 or books of accounts, other documents or any assets are requisitioned under section 132A, no person shall be entitled to call into question the jurisdiction of an Assessing Officer after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.This amendment will take effect from the 1st day of June, 2016.

Expansion in the scope of section 143(1) In order to expeditiously remove the mismatch between the return and the information available with the Department, it is proposed to expand the scope of adjustments that can be made at the time of processing of returns under section 143(1). It is proposed that such adjustments can be made based on the data available with the Department in the form of audit report filed by the assessee, returns of earlier years of the assessee, 26AS statement, Form 16, and Form 16A.

Filing of return of IncomeIt is proposed to amend the sixth proviso to sub-section (1) of the section 139 to include that if a person during the previous year earns income which is exempt U/s. 10 (38) and income of such person without giving effect to the said clause of section 10 exceeds the maximum amount which is not chargeable to tax, shall also be liable to file return of income for the previous year within the due date.

● Belated Return - It is also proposed to substitute section 139(4) in order to provide that any person who has not furnished a return within the time allowed to him u/s 139(1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

● Revised Return - It is further proposed to substitute section 139(5) in order to provide that if any person, who have furnished a return u/s 139(1) or u/s. 139(4), or u/s. 142(1), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

● Defective Return - It is further proposed to not consider a return as defective return merely on the grounds that self-assessment tax and interest thereon has not been paid on or before the date of furnishing of the return by omitting clause (aa) of the Explanation to section 139(9).

Processing under section 143(1) be mandated before assessmentIt is proposed to amend section 143(1D) to provide that a return shall be processed under 143(1) before making an assessment under sub-section (3) of section 143.

Changes in time limit for assessment, reassessment and recomputationIt is proposed to substitute the provisions of section 153 with the following changes in time limit from the existing time limits:

● Scrutiny Assessment (Sec. 143) & Best Judgement Assessment (Sec. 144)The period for completion of assessment under section 143 or section 144 be changed from 24 months to 21 months from the end of the assessment year in which the income was first assessable;

● Reassessment (Sec. 147) The period for completion of assessment under section 147 be changed from 12 months to 9 months from the end of the financial year in which the notice under section 148 was served.

● Assessment in pursuance of order of CIT(A) & ITAT

The period for completion of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment be changed from one year to nine months from the end of the financial year in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, or the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner.

● Order giving EffectWhere effect to an order of CIT(A), ITAT or Courts or an order of Settlement Commission can be given wholly or partly only by making fresh assessment or reassessment, the same shall be completed within a period of 3 months from the end of receipt of the order. It is also proposed to allow additional time of 6 months provided reasons are given in writing.However, in respect of cases pending as on 1st June 2016, the time limit for passing such order is proposed to be extended to 31.3.2017.It is also proposed that the time limit for completing the assessment made on a partner of the firm in consequence of an assessment made on the firm under section 147 shall be 12 months from the end of the month in which the assessment order in the case of the firm is passed. However, for cases pending as on 1.6.2016, the time limit for taking requisite action is proposed to be 31.3.2017 or 12 months from the end of the end of the month in which order of firm is passed, whichever is later. It is further proposed to make necessary changes with respect to time limit provided to Transfer Pricing Officer. These amendments will take effect from 1st June, 2016.

● Time limit for assessment in search cases

It is proposed to change the time limit for completion of assessment under section 153A from 24 months to 21 months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed. It is proposed to change the time limit for completion of assessment under section 153C from 24 months to 21 months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed or nine months (changed from the existing 1 year) from the end of the financial year in which the books of account or documents or assets seized or requisitioned are handed over under section 153C to the Assessing Officer having jurisdiction over such other person, whichever is later.These amendments will take effect from 1st June, 2016.

Rationalisation of the provisions relating to Appellate TribunalIt is proposed to omit sub-sections (2A) & (3A) of section 253 which relates to filing of appeal by Assessing Officer against the order of DRP.These amendments will take effect from 1st June, 2016.It is also proposed to retrospectively provide that no fee shall be payable where Department is already in appeal against the directions of DRP (as it stood before the amendment of the Finance Act, 2016).it is further proposed to amend section 254(2) for providing time limit for rectifying any mistake apparent from the record by Tribunal in its order at any time within 6 months from the end of the month in which the order was passed.

Major changes made in Finance Bill with respect TDS provisionsIt is also proposed to revise the threshold limit for TDS with respect to following services;

Section Head Existing threshold limit

Proposed threshold limit

192A Payment of accumulated balance due to an employee

30,000 50,000

194BB Winnings from Horse Race 5,000 10,000

194C Payments to Contractors

Aggregate annual limit of Rs. 75,000/-

Aggregate annual limit of Rs. 1,00,000/-

194LA Payment of Compensation on acquisition of certain

2,00,000 2,50,000

194D Insurance commission 20,000 15,000

194G Commission on sale of lottery tickets 1,000 15,000

194H Commission or Brokerage 5,000 15,000

It is also proposed to revise the rates of TDS with respect to following services;

It is also proposed to abolish TDS u/s. 194K & 194L of the Act.

Section Head Existing Rate Proposed Rate

194DA Payment in respect of Life Insurance Policy 2% 1%

194EE Payment in respect of NSS Deposits 20% 10%

194DA Insurance Commission 10% 5%

194G Commission on sale of lottery tickets 10% 5%

194H Commission or Brokerage 10% 5%

194LBCIncome payable to investor in respect of an investment in securitisation trust

-

Resident Individual or HUF – 25%Any other resident – 30%NRs – rates in force

Widening of Tax Base and Anti Abuse MeasuresIt is proposed to amend the provisions of Sec 206C of Tax Collection at Source (TCS) by providing that the;

● Seller shall collect 1% from the purchaser on sale of motor vehicle (exceeding Rs. 10 lakhs) &

● Seller shall collect 1% from the purchaser on sale of any goods (other than bullion and jewellery)or providing of any services (other than payments on which tax is deducted at source under Chapter XVII-B) exceeding Rs. 2 lakhs

These amendments will take effect from 1st June, 2016

Rationalization of tax deduction at source provisions relating to payments by Category-I and Category-II Alternate Investment Funds to its investors.Sec 197 is amended to include Sec 194LBB as list of eligible sections for which lower TDS certificate can be obtained. Sec194LBB is proposed to be amended as, where the payee is a resident TDS shall be at 10% and where the payee is a non-resident (not being a company) or a foreign company than at the rates in force so NR can claim DTAA benefits. These amendments will take effect from 1st June, 2016.

Major changes made in Finance Bill with respect to PenaltyImmunity from penalty and prosecution in certain cases by inserting new section 270AA It is proposed to provide that an assessee may make an application to the Assessing Officer for grant of immunity from imposition of penalty in cases of under reporting and misreporting of income and initiation of proceedings under section 276C, provided he pays the tax and interest payable as per the order of assessment or reassessment within the period specified in such notice of demand and does not prefer an appeal against such assessment order.It is proposed that the Assessing Officer shall, on fulfilment of the above conditions and after the expiry of period of filing appeal as specified in sub-section (2) of section 249, grant immunity from initiation if the penalty proceedings under section 270A has not been initiated.Providing Time limit for disposing applications made by assessee for waiver of interest & penaltyIt is proposed to amend section 273A, 273AA or 220(2A) by providing a time limit of 12 months from end of month in which application towards waiver of interest, penalty is received to pass the necessary order. Also in case of rejection of application, assessing officer first needs to give assessee an opportunity of being heard before rejecting the application.

Rationalisation of penalty provisionsIt is proposed that section 271 shall be replaced by insertion of new section 270A with effect from 1st April, 2017. The new section 270A provides for levy of penalty in cases of under reporting and misreporting of income.

Particulars Earlier provisions Proposed provisions

Defaults attracting penaltyConcealment of particulars of income or furnishing of inaccurate particulars of income

Under-reporting and misreporting of income

Penalty amount 100% to 300% of the tax sought to be evaded

● 50% of the tax payable on under-reported income;

● 200% of the tax payable on misreported income

OthersIt is proposed to amend the section 271AAB(1)(c) with respect to penalty on search cases for levy of penalty on undisclosed income at a flat rate of 60% which earlier ranged from 30 to 90 percent at the discretion of assessing officer.It is proposed to amend section 272A (1) by levying penalty of Rs. 10000/- on failure to comply with notice issued u/s 142(1) (inquiry before assessment), 143(2) (regular assessment) and 142(2A) (Audit of accounts).

The Income Declaration Scheme, 2016A New scheme is proposed to be implemented under which a person is given opportunity to declare the undisclosed income and pay tax totaling to 45% of such undisclosed income declared. The detail of tax payable is as below;

Particulars Rate

Tax 30%

Krishi Kalyan cess 7.50%

Penalty 7.50%

Total 45%

The scheme shall come into effect from 1st June 2016.Following cases shall not be eligible for the scheme:

● where notices have been issued under income tax for assessments.● where a search or survey has been conducted● where information is received under an agreement with foreign countries.

● cases covered under the Black Money Act, 2015, or cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988

● persons notified under Special Court Act, 1992Scheme shall only be applied to income disclosed under this scheme and only to person making disclosure. Also taxes as determined shall be paid by the date later decided by government else the declaration under scheme shall be void and income disclosed will be chargeable to tax as per normal income tax provisions.

The Direct Tax Dispute Resolution Scheme, 2016It is proposed to introduce new scheme “Direct Tax Dispute Resolution Scheme, 2016. It is introduced in relation to appeals pending before CIT (A) for tax arrears and specified tax. The salient features of the proposed scheme are as under.

● Tax arrears shall include tax, interest or penalty determined under Income Tax or Wealth Tax in respect of which appeal is pending before the CIT Appeals as on the 29.02.2016.

● The pending appeal could be against an assessment order or a penalty order.● The declarant under the scheme be required to pay tax at the applicable rate plus interest

up to the date of assessment. However, in case of disputed tax exceeding Rs. 10 lakh, 25% of the minimum penalty leviable shall also be required to be paid.

● In case of pending appeal against a penalty order, 25% of minimum penalty leviable shall be payable along with the tax and interest payable on account of assessment or reassessment.

● Consequent to such declaration, appeal shall be deemed to be withdrawn.● Tax liability determined shall be paid within 30 days of determining the liability.● Person making declaration gets immunity from prosecution. ● Person making declaration gets immunity from any penalty liability other than penalty

payable as per the scheme.

In case of any retrospective amendment pertaining to any transaction, if tax liability on that particular transaction is under dispute on 29.02.2016, then a person can also make declaration provided he withdraws appeal from CIT / ITAT / HC or SC and submits evidence of same. It is also said that such person shall drop all arbitration conciliation or mediation proceedings also waive the right to approach to this options in future.

If any conditions are violated than declaration will be rejected and all appeals shall stand revived.

Following person shall not be eligible for the scheme: -● Cases where prosecution has been initiated before 29.02.2016.● Search or survey cases.● Cases relating to undisclosed foreign income and assets.● Cases based on information received under Double Taxation Avoidance Agreement.● Person notified under Special Courts Act, 1992● Cases covered under Narcotic Drugs and Psychotropic Substances Act, Indian Penal Code,

Prevention of Corruption Act or Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974.

International Tax Proposals

Exemption to International Financial Services Centre(IFSC)● No Capital gains tax on capital gain arising from transactions undertaken in foreign

currency on a recognised stock exchange even when securities transaction tax is not paid.

● MAT provision shall not be applicable to companies established in IFSC.● No dividend distribution tax for companies established in IFSC.

No DDT on dividend paid to REITs and Infrastructure Investment Trusts. It is proposed to provide exemption from levy of dividend distribution tax on dividend distributed by SPV to Business Trust with certain conditions.

Deduction in respect of provision for bad and doubtful debts in the case of Non-Banking Financial companies.

Considering the fact that Non-Banking Financial companies (NBFCs) are also engaged in financial lending to different sectors of society, it is proposed to amend the provisions of clause (viia) of section 36(1) so as to provide deduction from total income on account of provision for bad and doubtful debts to the extent of 5% of the total income in the case of NBFCs.

Simplification of condition for investment allowance under section 32ACUnder the new provision for claiming allowance u/s 32AC (1A), acquisition and installation of plant and machinery need not take place in same year.

Extending the benefit of initial additional depreciation under section 32(1)(iia) for power sector It is proposed to amend this section so as to provide additional depreciation of 20% on actual cost of new machinery or plant acquired and installed in a previous year for the assessee engaged in the business of transmission of power.

Relief to Newly Set up Domestic Manufacturing Companies: It is proposed to insert new section 115 BA to provide relief to any Domestic Manufacturing Company provided it satisfies the following conditions:

● The Company is incorporated on or after 1st March, 2016.● The company is engaged in the manufacture or production of any article or thing and

not in any other business.● The Company while computing its total income has not claimed any benefit u/s 10AA,

benefit of accelerated or additional depreciation, investment allowance, expenditure on scientific research or deductions u/s 80C (except Sec 80JJAA) i.e. profit linked investments.

● The option if opted needs to be furnished before the due date of furnishing Return of Income.

If the above conditions are satisfied, the company is liable to pay income tax on total income at the rate of 25% plus cess and if total income exceeds Rs. 1 crore then surcharge as applicable.

Major changes made in Finance Bill with respect to International Taxation/Transfer Pricing/Non residentsEqualisation Levy In order to address the challenges faced in taxing the digital transaction, “Equalisation Levy” is proposed to be levied at the rate of 6% on the amount of consideration for specified services received or receivable by a non-resident from a person resident in India or from a non-resident having a PE in India.

It is further proposed that the equalisation levy will not be charged if ● a non-resident providing specified services has a PE in India and specified services is

effectively connected to such PE;● the payment for specified services is not for the purpose of carrying out business or

profession;● the aggregate consideration for specified services is less than rupees 1 lakh in any

previous year.

For the purpose of such levy, specified services means Online advertisement, any provision of digital advertising space or any other facility / service for the purpose of online advertisement and includes any other service as may be notified by the Central Government.

Further, it is proposed that the expenses incurred towards specified services chargeable to equalisation levy shall not be allowed as deduction in case of failure by payer to deduct and deposit equalisation levy to the credit of the Central Government on or before the due date of filing the return by inserting a new sub-clause (ib) to section 40(a).

Where equalisation levy has been deducted in any subsequent year or has been deducted during the previous year but paid after the due date of filing the return of income, such sum shall be allowed as deduction in the year in which such levy has been paid.

Income arising from specified services that has been subjected to equalisation levy, to be exempt in the hands of the recipient non-resident.

The proposed amendment is yet to be notified.

Exemption to non-resident with respect to gain arising on account of Exchange rate difference on Rupee Denominated BondRecently RBI permitted corporates to issue rupee denominated bonds outside India as a measure to enable corporates to raise funds from outside India. Accordingly, with a view to provide relief to non-resident investor who bears the risk of currency fluctuation, it is proposed to amend section 48 of the Act so as to provide that the capital gains, arising in case of appreciation of rupee between the date of issue and the date of redemption against the foreign currency in which the investment is made shall be exempt from tax on capital gains.

Rationalization of withholding tax provision for payments to non-residents In order to reduce compliance burden, it is proposed to amend the section 206AA so as to provide that the provisions of this section shall also not apply to a non-resident, not being a company, or to a foreign company, in respect of any other payment, other than interest on bonds, subject to such conditions as may be prescribed.

Extension of time limit to Transfer Pricing Officer It is proposed to amend section 92CA(3A)by extending the time limit for completing the assessment by 60 days where the time available to the Transfer Pricing Officer for making an order after excluding the time for which assessment proceedings were stayed or the time taken for receipt of information, as the case may be, is less than 60 days.

The amendment will take effect from 1st day of June, 2016.

Applicability of Minimum Alternate Tax (MAT) on foreign companies for the period prior to 01.04.2015.It is proposed to amend the Income-tax Act so as to provide that with effect from 01.04.2001, the provisions of section 115JB shall not be applicable to a foreign company if -

● the assessee is a resident of a country or a specified territory with which India has an agreement referred to in section 90(1) or the Central Government has adopted any agreement under section 90A(1) and the assesse does not have a permanent establishment in India in accordance with the provisions of such Agreement; or

● The assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) above and the assessee is not required to seek registration under any law for the time being in force relating to companies.

Exemption of income to Foreign Company from storage and sale of crude oil stored as part of strategic reserves It is proposed to amend the provisions of section 10 to provide that any income accruing or arising to a foreign company on account of storage of crude oil facility in India and sale of crude oil therefrom to any person resident in India shall not be included in the total income, if, -

1) the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by the Central Government or approved by the Central Government; and

2) having regard to the national interest, the foreign company and the agreement or arrangement are notified by the Central Government in this behalf.

This amendment will take effect retrospectively from assessment year 2016-17.

Indirect Tax Proposals

Service Tax Proposals In Financial Bill 2016

INDIRECT TAX PROPOSALS

Amendment in Tax Rate

Changes in Service Tax Rate - Levy of Krishi Kalyan Cess (“KKC”) :

1. It is proposed to levy KKC, on all taxable services @ 0.5% of value of taxable services. Thus total service tax rate will be 15%. (14% Service Tax + 0.5% Swacch Bharat Cess + 0.5% KKC).

2. Credit of KKC paid on services received will be allowed as input for KKC payable on services provided.

Above changes shall be Effective from 1 June 2016.



Legislative Amendments :1. Proposed amendments in Negative List (Section 66D):

a. Removal of entry relating to specified education services relating to Pre-school education and education up to higher secondary school or equivalent.

b. Remove service of passenger transport by State Carriage.c. Services by an aircraft or vessel from place outside India up to the custom

station of clearance in India.2. Amendment in Declared Services (Section 66E) :

a. Right given by the Government to use the radio-frequency spectrum and subsequent transfers thereof is proposed to be declared as a service and not sale of intangible goods. (Effective from enactment of Finance Bill)



Legislative Amendments :

3. Amendment in provision related to limitation period for recovery of tax (Section 73) :a. The limitation period for recovery of service tax for cases not involving fraud,

collusion, suppression etc. is proposed to be enhanced from 18 months to 30 months. (Effective from enactment of Finance Bill)

4. Interest on delayed payment of service tax (Section 75) :b. Interest rates on delayed payment of Service Tax rationalised to 15% except for

cases where Service Tax collected but not deposited. In cases where Service Tax is collected but not deposited, the rate would be 24%. (Effective from enactment of Finance Bill)




5. Enhancement in limit for triggering prosecution provision (Section 89) :a. It is proposed to enhance monetary limit for prosecution provision from existing

Rs. 50 lakhs to Rs. 2 Crores. (Effective from enactment of Finance Bill) 6. Amendment in provisions related to powers to arrest (Section 91) :

a. The power to arrest is proposed to be restricted only to situations where the tax payer has collected the tax above Rs.2 Crore but not deposited the same. (Effective from enactment of Finance Bill)

7. Service Tax exemption canal, dam or other irrigation works with retrospective effect (Section 101):

a. Service Tax exemption to canal, dam or other irrigation works now given retrospective effect to cover period from 1 July 2012 to 29 January 2014 (Effective from enactment of Finance Bill)




8. Restoration of exemption for certain construction contracts entered prior to 01/04/2015:

a. It is proposed to exempt services provided to the Government or a local authority or a governmental authority by way of construction, erection of civil structure or original work or residential complex - predominantly meant for self use or use of employees.

b. It is proposed to restore the exemption for services provided by way of construction, erection etc. for original work pertaining to airport, port. This exemption is restored till 31/03/2020. (Effective from enactment of Finance Bill)



Indirect Tax Dispute Resolution Scheme 2016 : (Effective from enactment of Finance Bill)

● Indirect tax Dispute Resolution Scheme, 2016, is proposed, wherein a scheme in respect of cases pending before Commissioner (Appeals), the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration, is being introduced. In such cases the proceedings against the assessee will be closed and he will also get immunity from prosecution. However, this scheme will not apply in certain specified type of cases.

1. Changes in Mega Exemption Notification 25/2015 ST (Notification No. 06/2015 ST)

SERVICE TAX NOTIFICATIONS

ServicesImpact on Exemptions

Existing Proposed Effective Date

Services provided by Senior Advocate to an Advocate or partnership firm of Advocates Exempt

Taxable – Forward Charge

01-Apr-16

Person represented on an arbitral tribunal to an arbitral tribunal Exempt Taxable 01-Apr-16Services by a performing artist in folk or classical art forms of music/dance/theatre, excluding services provided by such artist as a brand ambassador, if consideration is not more than one lakh fifty thousand rupees

Taxable (Exemption limited to Rs.1 Lac)

Exempted 01-Apr-16

Transport of passengers with or without accompanied belongings by stage carriage other than air-conditioned stage carriage

Negative List Exempt 01-Jun-16

Transport of passengers by ropeway, cable car or aerial tramway now taxable Exempt Taxable 01-Apr-16

Services Effective Date

Specified services provided by Indian Institutes of Management as per guidelines of Central Government to their students

01-Mar-16

Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under IRDA Act, 1999

01-Apr-16

Services provided by Employees‟ Provident Fund Organisation to persons governed under notified Provident Fund statutes

01-Apr-16

Specified services provided by Indian Institutes of Management as per guidelines of Central Government to their students

01-Mar-16

Services of general insurance provided under Niramaya Health Insurance Scheme implemented by Trust constituted under provisions of National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities (specified)

01-Apr-16

Services of life insurance business provided by way of annuity under National Pension System regulated under specified Authority

01-Apr-16

Services by way of construction, erection, commissioning, or installation of original works pertaining to low cost houses up to a carpet area of 60 square metres per house in housing project approved by competent authority

01-Mar-16

Services provided by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of:A. Civil structure or any other original works pertaining to In-situ rehabilitation of existing slum dwellers using land as a resource through private participation ‟under Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana, only for existing slum dwellersB. Civil structure or any other original works pertaining to Beneficiary-led individual house construction / enhancement under Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana

01-Mar-16

New Exemption

Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship (under Skill Development Initiative Scheme) 01-Apr-16

Services provided by training providers under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under Ministry of Rural Development (offering notified certified courses) 01-Apr-16

Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer‟s Welfare by way of cold chain knowledge dissemination 01-Apr-16

2. Amendment in abatement Notification No. 26/2012 ST (Notification No. 08/2016 ST)

Description of Services` Abatement Rate Pre-Budget

Abatement Rate Post-Budget

Transport of passengers by rail 70% without CENVAT credit 70% with only input service credit

Transport of goods, other than in containers, by rail 70% without CENVAT credit 70% with only input service

credit

Transport of goods in containers by rail 70% without CENVAT credit 60% with only input service credit

Transport of goods by vessel 70% without CENVAT credit 70% with only input service credit

Services by way of construction of residential complex, building, civil structure, or a part thereof

75%/70% 70%

Services by tour operator:

-in relation to packaged tour and other than packaged tour.

-Only for arranging or booking accommodation

- Others

75%/60%

90%

70%Shifting of used household goods by GTA 70% 60%Services provided by foreman to chit fund, provided no cenvat credit taken.

70%

Renting of motor-cab services, provided no cenvat credit taken.

60% on gross value 60% on gross value shall include fuel cost

3. Amendments in Reverse Charge Notification No. 30/2012 ST (Notification No.18/2016 ST)

● Services provided by mutual fund agents/distributors to an asset management company removed from reverse charge and brought to forward charge i.e., mutual fund agent/distributor will be liable to charge and pay service tax for services provided by them.

● Service provided by Government or a local authority to business entities brought under reverse charge mechanism.

4. Amendment in Service Tax Rules 1994 (Notification No. 19/2016 ST)

● One person Company and HUF are also now allowed to make payment of service tax on cash basis where aggregate value of services provided is up to Rs. 50 Lakhs .

● The service tax liability on single premium annuity (insurance) policies is being rationalized and new effective alternate service tax rate (composition rate) prescribed at 1.4% of as against earlier rate of 3.5% of total premium charged

● Annual Return : ○ Service tax assessees above a certain threshold will be required to file an

annual return. The threshold limit is not yet prescribed.○ The annual return to be filed by the assessee by 30th November of succeeding

financial year.○ Annual return can be revised once within 90 of filing original return.○ Late filing fees of Rs. 100 per day of delay will be payable by assessee subject

to a maximum of Rs. 20,000.

Amendments in CENVAT Credit Rules, 2004:


CENVAT Definition changes

1. Definition of inputs amended to include:a. All capital goods having value up to INR 10,000 per piece.b. goods used for pumping of water.

2. Definition of capital goods amended to include:a. Wagons of subheading 8606 92.b. Equipment or appliance used in an office located within a factory.

3. Cenvat credit eligibility extended to tools falling under Chapter 82 even in the following situations:

a. Where the tools are sent to another manufacturer or a job worker for manufacture on behalf of the principal manufacturer .

b. Directly sent to another manufacturer or job worker without bringing to the premises of the principal manufacturer.



Cenvat on right to use natural resources

1. Cenvat credit of service tax paid on charges paid to Government or any other person for assigning rights to use any natural resources to be available proportionately over the period of right.

2. In case of further assignment of such rights, Cenvat credit to be allowed as per the following:

a. Credit to be allowed to the extent of service tax payable on the consideration charged for such assignment.

b. Credit to be allowed in the same financial year in which such right is further assigned.

3. Cenvat credit of service tax on monthly or annual user charges for assignment of right to use natural resources to be allowed in the same financial year.



Cenvat reversal

1. Significant amendment in provisions relating to reversal of Cenvat credit on inputs and input services commonly used for manufacture of taxable and exempted goods or provision of taxable or exempted services :

a. In case of option for payment of amount based on value of exempted goods or services; maximum amount not to exceed the total credit available.

b. Full credit on inputs and input services used exclusively for taxable goods/services.c. Proportionate reversal to be restricted to the credits on common inputs and input

services used for taxable and exempted goods/services.d. Failure to follow procedure for selecting an option for reversal of credit to attract

penal interest subject to permission from the service tax authorities.e. Existing provisions to be applicable till 30 June 2016 for the financial year 2015-16.

2. Banks and financial institutions will now have option to either reverse on actual basis in addition to the option of 50% reversal provided earlier.

3. Provisions pertaining to reversal of CENVAT Credit will not be applicable to services of transportation of goods by a vessel from Customs Station in India to a place outside India

Input Service Distributor (ISD)

Distribution of credit by ISD expanded and rationalized:

4. Credit distribution permitted to an outsourced manufacturing unit – definition to be adopted from Rule 10A of the Central Excise Valuation Rules .

5. Outsourced manufacturing unit to maintain separate account for each ISD and utilization to be restricted to payment of duty for respective ISD.

6. Credits as on 31 March 2016 will not be eligible for distribution to outsourced manufacturing unit.

7. Credit pertaining to input services attributable to one unit to be distributed to that unit.8. For services attributable to multiple units but not all units- distribution to be restricted to

only those units based on turnover of such units.

6. For services attributable to all units- distribution to be based on turnover of all the units.7. Provisions pertaining to reversal of credit on common inputs and input services will not

be applicable to ISD. Other procedural changes

8. Manufacturers will be eligible to take Cenvat credit on an invoice issued by his own warehouse receiving inputs – warehouse to be regarded as first stage or second stage dealer.

9. Manufacturer and service providers required to submit annual return by November 30 of the succeeding year.

10.Utilization of ineligible credit to bedetermined by examination of minimum balance of credit – FIFO method introduced in the previous year omitted.

Changes in Provisions

INDIRECT TAX PROPOSALS - CUSTOMS

1. Normal limitation period for issuance of notice for recovery increased from one year to 2 years.

2. Deferred payment of duties for importers and exporters with proven track record introduced.

3. Transit of goods and conveyance without payment of Custom duty to be allowed subject to conditions to be prescribed by the Board.

4. Limit of warehousing bond increased from twice to thrice the amount of duty assessed on warehoused goods.

5. Time limit for warehousing of goods meant for EOU / STP / EHTP and other warehouse undertaking manufacture or other operations dispensed with till their clearance or consumption, as the case may be.

In case of ImportsRate / Duty Changes

Sr. Particulars Duty Existing Rates

Proposed Rates from 01/03/2016

1 Magnetron of capacity of 1 KW to 1.5 KW* when used for manufacture of Domestic microwave ovens

Basic Custom Duty

10% NIL

2 Braille paper 10% NIL

3 Polypropylene granules / resins when used for manufacture of Capacitor grade plastic films 7.50% NIL

4 Specified fibres and yarns 5% 2.50%

5 Refrigerated containers 10% 5%

6All acyclic hydrocarbons and all cyclic hydrocarbons [other than para-xylene which attracts Nil BCD and styrene which attracts 2% BCD]

5%/ 2.5% 2.50%

7 Preform of silica for manufacture of telecom grade optical fibre /cables NIL 10%

8 Plans, drawings and designs NIL 10%

9 Specified telecommunication equipment NIL 10%10 Pri Primary aluminium 5% 7.50%11 mary aluminium12 Zinc alloys 5% 7.50%13 Specified machinery required for construction of roads Countervaili

ng DutyNIL 12.50%

14 imported media with recorded Information Technology Software to the extent of value on which service tax is leviable

Exempt

15 Populated PCBs for manufacture of personal computers (laptop or desktop)

Special Additional Duty

NIL 4%

16 Populated PCBs for manufacture of mobile phone/tablet computer

NIL 2%

17 Charger / adapter, battery and wired headsets / speakers for manufacture of mobile phone

Multiple BCD, CVD and SAD – NIL

BCD and CVD – 12.5%, SAD – 4%

Sr. Particulars Existing Rates Proposed Rates from 01/03/2016

1 Iron ore fines with Fe content below 58% 10% NIL

2 Iron ore lumps with Fe content below 58% 30% NIL

3 Chromium ores and concentrates, all sorts 30% NIL

4 Bauxite (natural), not calcined or calcined 20% 15%

In case of Exports

Excise Duty


Interest liability on provisional assessment will arise from the original date of payment of duty till the date of actual payment.

Single registration to be allowed for manufacturers having two or more premises subject to following conditions:

● the premises are located within a close area● the premises fall within the jurisdiction of a Range Superintendent● the manufacturing processes are interlinked● the units are not operating under area based exemption

Duplicate copy of invoice meant for transporter if digitally signed would not be required to be self attested by the manufacturer

Above changes are effective 1 March 2016.

Refund & Rebate on Excise Duty


Limitation period prescribed for Refund Claim under Rule 5 of Cenvat Credit Rules, 2004

For Manufacturer, refund is to be claimed before the expiry of the period specified in section 11B of the Central Excise Act

For Service Provider refund is to be claimed before expiry of 1 year from the date of receipt of payment in convertible foreign exchange, where provision of service had been completed prior to receipt of such payment; or

issue of invoice, where payment for the service had been received in advance prior to the date of issue of the invoice

Limitation period of one year to be applicable in case of rebate on export of goods under Rule 18


Effect on Jewellery sectorINDIRECT TAX PROPOSALS

SSI threshold exemption to manufacturer of specified jewellery articles is increased to INR 6 Crores

Such manufacturer are now required to pay Basic Excise Duty at 1% (without Cenvat Credit) or 12.5% (with Cenvat Credit)

Following facilities provided to jewellery manufacturer (other than manufacturer of silver jewellery without studded with specified precious stones):Optional centralized central excise registration

Requirement of post registration verification of premises is removed

Quarterly payment of Excise Duty liability if aggregate value of clearances of excisable goods for home consumption does not exceed INR12 Crores

Removal of prescribed tariff value for the purpose of levy of Excise DutyNo physical visits by authorities in normal course


Infrastructure Cess (a Duty of Excise) will be imposed on selected motor vehicles.

Excisable Goods RateThree wheeled vehicles, Electrically operated vehicles, Hybrid vehicles, Hydrogen vehicles based on fuel cell technology, Motor vehicles which after clearance have been registered for use solely as taxi, Cars for physically handicapped persons, Motor vehicles cleared as ambulances or registered for use solely as ambulance

Nil

Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc 1%Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc 2.50%

All Categories of motor vehicles other than those listed above (to include SUVs) 4%

ProductExcise Duty

Up to 29 February 2016

From 1 March 2016

Ready Mix Concrete (RMC) manufactured at the site of construction for use in construction work at site

2% without Cenvat Credit or 6% with Cenvat Credit

Nil

Solar Lamp 12.50% Nil

Capital goods, raw materials, parts etc. used by ship repair unit for repairs of ocean going vessel – subject to actual user condition

12.50% Nil

Readymade Garments sold under brand name and having RSP of Rs. 1000 and above (Tariff Value on readymade garments increased from 30 % to 60 % of RSP w.e.f. 1 March 2016)

NIL without Cenvat Credit or 6% / 12.5% with Cenvat Credit

2% without Cenvat Credit or 12.50% with Cenvat Credit

Polyester Staple Fiber / Polyester Filament Yarn manufactured from plastic scrap or plastic waste

2% without Cenvat Credit or 6% with Cenvat Credit

2% without Cenvat Credit or 12.50% with Cenvat Credit

Specified goods for supply to mobile phone manufacturers as original equipment manufacturer

Nil 2% without Cenvat Credit or 12.50% with Cenvat Credit

ProductExcise Duty

Up to 29 February 2016

From 1 March 2016

Specified inputs, parts and component for manufacture of charger / adapter / battery / headsets / speakers of mobile phone – subject to actual user conditions

12.50% Nil

Routers, set-top boxes for TV, CCTV camera etc. 12.50% 4% without Cenvat Credit or 12.50% with Cenvat Credit

Specified inputs, parts and component of routers, set-top boxes, CCTV camera etc.

12.50% Nil

Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured

18% 21%

Aviation Turbine Fuel other than for supply to Scheduled Commuter Airlines from the Regional Connectivity Scheme airports

8% 14%

Specified material used to manufacture rotor blades or parts / sub parts of rotor blades for wind operated electricity generator

Nil 6%

Specified parts of Electric Vehicles and Hybrid Vehicles 6% Up to 31.03.2016 6% without time limit

Engines for hybrid electric vehicle 12.50% 6%

Refrigerated containers 12.50% 6%

RSP based assessment extended to following goods

Product Abatement (%) Abatement (%)

Extended to remaining goods falling under heading 3401 and 3402 (Soap and other than soap)

Not under RSP based assessment 30

Aluminium foils of a thickness not exceeding 0.2 mm


Wrist wearable smart watches Not under RSP based assessment 35

Accessories of motor vehicle and certain other specified goods


Abatement from RSP for all footwear increased from 25% to 30% w.e.f. 1 March 2016Tobacco products

Product Additional Duty of Excise (Rs.)Per 1000 sticks Per 1000 sticks

Non filter / filter Cigarettes not exceeding 65 mm 70 215Non filter Cigarettes exceeding 65 mm but not exceeding 70 mm / Filter exceeding 70 mm but not exceeding 75 mm 110 370

Filter Cigarettes exceeding 65 mm but not exceeding 70 mm 70 260Others 180 560

● Tools and kits procured by specified person for maintenance, repair and overhauling

of aircraft has been exempted

● Clean Energy Cess is renamed as Clean Environment Cess

● Effective rate of Clean Environment Cess on coal, lignite and peat is increased from INR 200 per tonne to INR 400 per tonne.

● Oil Industrial Development Cess on domestic crude oil is reduced from 4500 PMT to 20% ad valorem

Contact Us

Address215, Sundervilla, 19,S.V.Road, Santacruz (West), Mumbai-400054 India

[email protected]

Mobile+91 9821458072

Websitewww.usgandhigroup.com

Tel: +91-22-26601159/ 2259 | Fax: +91-22-26600059

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