1. UNION BUDGET 2015-16 INSIGHTS & ANALYSIS Mr. Sunil Kumar Partner

2. Contents Broad Themes of Tax Proposals Major Challenges Ahead Tax Policy Statement Direct Tax proposals Indirect Tax Proposals Unresolved Tax Issues 2

3. Broad Themes of Tax Proposals Measures to promote domestic manufacturing and improving investment climate (‘Make in India’) Measures to ensure ease of doing business in India Measures to curb black money Goods and Service Tax to be rolled out from 01.04.2016 Tax rationalization measures 3

4. Promoting and incentivizing ‘Make in India’ Income tax on royalty and fee for technical services received by non- residents reduced to 10 from 25%. Basic customs duty reduced on certain inputs, raw materials, intermediaries and components, addressing duty inversion and thereby reducing manufacturing cost in several sectors. Implementation of GAAR deferred by two years, to be applicable from FY 2017-18. Investments made up to 31.03.2017 immune from GAAR. Threshold for weighted deduction from corporate tax for wages of new workmen reduced from 100 to 50. Benefit extended to non-corporate taxpayers as well. 4

5. ‘Pass through’ status under income tax extended to all the sub categories of category I and also to Category II Alternative Investment Funds (AIFs) governed by SEBI. Extension in excise duty exemption and concessions for manufacture of cleaner technology vehicles (i.e. hybrid and electrically operated vehicles) Special additional duty exemption on import of raw material for use in manufacture of specific goods (ITA bound goods, LED lights, pacemakers) 5

6. Measures to ensure ease of doing business in India Comprehensive Bankruptcy Code, in line with global standards Forward Markets Commission to be merged with SEBI to strengthen regulation of commodity forward markets and reduce speculation. Distinction between different forms of foreign investments especially FPI and FDI to be done away with. Replacement with composite caps for various sectors Time limit for taking CENVAT credit increased from six months to one year Online central excise and service tax registration in two working days. 6

7. Measures to curb black money Comprehensive law for dealing with black money parked outside India Under the new law, evasion of tax in relation to foreign assets to be made punishable with rigorous imprisonment up to 10 years.  Offence non-compoundable  Offenders not permitted to approach settlement commission  Penalty for such concealment of income and assets at 300% of tax Benami Transactions (Prohibition) Bill for curbing domestic black money CBDT and CBEC to have access to information in each other’s database Payment of an advance of Rs. 20,000 or more in cash for purchase of immovable property prohibited. PAN to be quoted for transaction exceeding Rs. 1,00,000 7

8. GOODS & SERVICE TAX Strong commitment towards implementation of GST from 1st April 2016. Steps taken as a run up to GST – Increase in service tax by 2%, broadening excise and service tax base, subsuming education and higher education cess Visible thrust on e-compliances in line with GST – Time bound online registrations under excise and service tax, maintenance of electronic records. Higher budgetary allocations to state governments (total share of states now being 62% of the tax receipts) – Likely to reduce the trust deficit between states and the centre, pave way for early implementation of GST. 8

9. Tax Rationalization Measures Wealth Tax Act, 1957 abolished. Compensated by an increase in surcharge by 2% on super rich (persons with income exceeding Rs. 1 Crore) Phased reduction of corporate tax rate to 25 per cent in the next four years accompanied by rationalization and removal of tax exemptions and incentives. Rationalization of penalty provisions under Central Excise, Service Tax and Customs duty Income from transaction in securities arising to FIIs (other than Short term capital gain on which STT is not chargeable) excluded from ambit of minimum alternate tax (MAT) 9

10. Agricultural income under stress Need for public investment in infrastructure Decline in manufacture from 18 to 17 per cent of GDP Need for fiscal discipline in spite of rising demands for public investment. Meeting fiscal deficit target – 4.1 per cent of GDP 10 Major challenges ahead

11. Tax Policy Statement

12. Improve Tax recoveries. Stable & Predictable Tax regime. Rationalize Tax provisions – facilitate ease of doing business Streamline Tax Administration – Implement recommendations of TARC Expand scope of non adversarial Dispute Resolution— Authority for Advance Ruling (AAR) Jurisprudence under Income Tax Act well evolved – Direct Tax Code scrapped No Retrospective Tax legislation 12

13. Direct Tax Proposals

14. Personal Income Tax No change in the income-slabs, tax rates, cess for individuals. Surcharge increased from 10 to 12 percent where income exceeds Rs. 1 crore Exemption in transport allowance increased from Rs. 800 to Rs. 1600 per month. Deduction for contribution to National Pension scheme (NPS) increased from Rs. 1,00,000 to 1,50,000. Additional deduction of Rs. 50,000 per annum, over and above the limit of 1,50,000 in respect of individual’s contribution to NPS 14

15. Direct Tax Proposals (continued) Donations (other than CSR contributions) made to swachch Bharat Kosh, Clean Ganga Fund and National Fund for Control of Drug Abuse to be eligible for 100% deduction u/s 80G Deduction limit of Rs. 60,000 for expenditure on account of specified diseases increased to Rs. 80,000 Additional deduction of Rs. 25,000 for differently abled persons under section 80DD and 80U Deduction u/s 80D in respect of health insurance premium increased from 15,000 to 25,000 and from 20,000 to 30,000 (in case of senior citizens) 15

16. Direct Tax Proposals (continued) As a result of concessions, total tax benefits for an individual tax payer stand at Rs. 4,44,200 16 DeductionAmount (Rs.) Section 80C 1,50,000 80 CCD 50,000 Interest on housing property loan (Self occoupied) 2,00,000 80 D 25,000 Exemption of Transport allowance 19,200 Total 4,44,200

17. Direct Tax Proposals (continued) Corporate Tax Phased reduction of corporate tax rate to 25 percent over the next four years No change in corporate tax rate for FY 2015-16 Surcharge on domestic companies increased by 2 percent, now to be levied at 7 percent (where total income exceeds Rs. 1 crore) and 12 percent (where total income exceeds 10 crore) Threshold for applicability of Domestic Transfer Pricing increased from Rs. 5 crore to Rs. 20 crore. Understatement of income under MAT/AMT provisions made liable for penalty. 17

18. Direct Tax Proposals (continued) Clarification on indirect transfer of assets Share or interest of foreign company deemed to derive its value substantially from Indian assets if on specified date (date of transfer or last day of accounting year as stipulated):  Value of Indian assets exceeds Rs. 10 crores, and  It represents 50 percent of value of all assets owned by foreign company/entity Value of assets to be FMV (without reduction of the corresponding liabilities) and underlying gains to be apportioned proportionately to Indian assets as per methods to be prescribed. Clarification effective from FY 2015-16 – Would not aid in resolution of pending litigation 18

19. Direct Tax Proposals (continued) Residential status of a company in India A company whose place of effective management, at any time during the year, is in India shall be resident in India Place of effective management means a place where key management and commercial decisions (necessary for the conduct of business of an entity as a whole) are made in substance. Erstwhile provision facilitated creation of shell companies incorporated outside, but in effect, controlled from India. 19

20. Direct Tax Proposals (continued) Capital gains In case of domestic demergers, cost of capital assets transferred to resulting company shall be cost of such assets to the demerged company Similarly, period of holding of such assets in hands of resulting company shall include period of holding in hands of the demerged company Tax Incentives Additional depreciation (20 percent) on new plant and machinery used for less than 180 days in the year of acquisition and installation is restricted to 50 percent (i.e. effective deduction is only 10 percent). Balance 50 percent can now be claimed in immediate succeeding FY 20

21. Direct Tax Proposals (continued) Mere presence of the fund managers in India shall not constitute a business connection for the offshore fund Fund management activity undertaken in India (by eligible fund manager on behalf of eligible offshore fund) not to constitute business connection of the offshore fund in India. Under the existing taxation structure, the presence of the fund managers in India may constitute business connection and consequently the profits made by the fund may be liable to tax in India. The amendment to reverse brain drain of highly qualified fund managers no based abroad to manage offshore funds in a tax efficient manner. 21

22. Direct Tax Proposals (continued) Withholding Tax Provisions Exemption from deduction of tax at on payments made to transport contractors (who submit their PAN) now available only if the contractor does not own more than ten goods carriages at any time during the year. Threshold limits for TDS on interest payable to depositors to be applied at entity level for banking company/ co-operative society/public company where core banking solutions have been adopted at an instead of branch level. 22

23. Direct Tax Proposals (continued) Settlement Commission Application to settlement commission can now be made in respect of assessment years other than the assessment year for which notice for reassessment has been issued. Restriction to approach the settlement commission strengthened to provide that any person related (as defined) to the person who has already approached settlement commission once cannot approach subsequently. Proceedings before settlement commission to abate if an order passed without providing for terms of settlement. 23

24. Direct Tax Proposals (continued) Administration and assessment procedures Clarity on interpretation of the expression ‘erroneous in so far prejudicial to the interest of the revenue’ in respect of power of the commissioner to revise an order u/s 263 Assessing officer empowered to hand over seized assets belonging to or seized books of accounts or documents pertaining to any other person to the Assessing officer having jurisdiction over such other person Where department is in appeal before the supreme court on a question of law for an earlier year, Assessing Officer subject to acceptance by the taxpayer can file an application before the ITAT stating appeal on the same question of law in the relevant case can be filed when the decision on the question of law becomes final in the earlier case. This would avoid repetitive appeals. 24

25. Indirect Tax Proposals

26. Service Tax Rates Effective service tax rate increased from 12.36 percent to 14 percent. Education and Higher Education cess (3 per cent) subsumed in base rate Enabling provision to empower Central Government to impose Swachh Bharat Cess at 2 percent on services from a date to be notified. 26

27. Indirect Tax proposals (continued) Service Tax Exemptions Ambulance services provided by way of transport of patient Life insurance services provided under Varistha pension Bima yojna Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo. Services provided by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables which do not change/ alter the essential characteristics of fruits or vegetables Services provided by common Effluent Treatment Plant operator for treatment of effluent. 27

28. Indirect Tax proposals (continued) Exemptions pruned Services by transportation of food stuff except milk, salt and food grain (including pulses, flour and rice) Services provided by mutual fund agents, distributors to mutual fund/asset management companies and marketing agents of lottery tickets Carrying out intermediate production process as job work for manufacture of alcoholic liquor for human consumption Services by way of construction, erection, commissioning or installation of original works pertaining to airports and ports Services by way of making telephone calls from a public telephone. 28

29. Indirect Tax proposals (continued) Abatements rationalized Uniform abatement of 70 percent for transport by rail, road and vessel. Tax shall be levied on 30 percent of value Service tax payable on 60 percent (instead of 40 percent) of service value in case of air transport services of passenger in other than economy class Reverse Charge mechanism made applicable to Manpower supply and security services provided by an individual, HUF, or partnership Services provided by mutual fund agents and distributors to a mutual fund and Asset management company Service provided by a lottery agent to a distributor 29

30. Indirect Tax proposals (continued) Other Online registration to be completed within two working days Issue of digitally signed invoices and maintenance of records in electronic form permitted Value of taxable services to include all reimbursable expenditure or cost incurred or charged by the service provider Scope of Advance Ruling extended to cover all resident firms such as one person company, sole proprietor, partnership firm etc. Provision for waiver of penalty withdrawn even in cases where assessee proves reasonable cause for failure to pay service tax Appeal against the order of commissioner (Appeals) in matters relating to rebate of service tax shall be filed with Central Government and not tribunal 30

31. Indirect Tax proposals (continued) Central Excise Duty Rate Excise duty rate increased form 12.36 per cent to 12.5 percent Education cess of 2 percent and Secondary & Higher Education cess of 1 per cent rolled into base rate Exemptions granted Specified raw material for use in manufacture of pacemakers Round copper wire and tine alloys for use in he manufacture of specified component of solar PV cells and modules Pig iron SG grade and Ferro-silicon-magnesium for manufacture of wind operated electricity generators Cess on petroleum products including petrol and high speed diesel 31

32. Indirect Tax proposals (continued) Revision in rate of Excise Duty with respect to certain industries 32 INDUSTRY RATE (%) From↑↓To TOBACCO PRODUCTS Cigarettes of length not exceeding 65mm72↑90 Cigarettes of other length21↑24.15 Cut tobacco (Rs.) 60 per Kg↑70 per Kg AUTOMOBILES chassis for ambulances 24↓12.5 ELECTRONICS / HARDWARE Wafers for manufacture of integrated circuit modules for smart cards 12↓6

33. Indirect Tax proposals (continued) 33 INDUSTRY RATE (%) From↑↓To CONSUMER GOODS Leather footwear of RSP > Rs. 1000 per pair12↓6 Waters including mineral/aerated water12↑18 Peanut butter0↑ 2 (without CENVAT) 6 (with CENVAT) Condensed milk0↑ 2 (without CENVAT) 6 (with CENVAT RENEWABLE ENERGY SECTOR Solar water heater and system0↑12.5 (with CENVAT)

34. Indirect Tax proposals (continued) 34 INDUSTRY RATE (%) From↑↓To TEXTILES Inputs for manufacture of LED drivers and MCPCB for LED lights 12↓6 Tablet computers0↑ 2 (without CENVAT) 12.5 (with CENVAT Mobile Phones 6 (with CENVAT) ↑12.5 (with CENVAT)

35. Indirect Tax proposals (continued) Other Online registration to be completed within two working days Facility for issuance of digitally signed invoices introduced Preservation of records in electronic form permitted to manufacturers Scope of Advance Ruling extended to cover all resident firms such as one person company, sole proprietor, partnership firm etc. Time limit for availing credit on inputs increased from six months to one year Duty on cigarettes increased by 25 per cent for cigarettes of length not exceeding 65 mm and by 15 percent for cigarettes other lengths. Duty on petrol and diesel rationalized without any overall impact Duty on plastic bags for non-industrial use increased to 15 per cent 35

36. Indirect Tax proposals (continued) Customs Duty Rate Basic Customs duty (‘BCD’) and education cess maintained at 10 and 3 per cent respectively Due to increase in the basic Excise Duty, effective Customs Duty rate has marginally increased from 25.85 per cent to 26.43 per cent in case of capital goods and 28.85 per cent to 29.44 per cent for other than capital goods. 36

37. Indirect Tax proposals (continued) 37 Reduction in BCD on certain inputs to address duty inversion PARTICULARS RATE (%) From↑↓To Metal Parts used in the manufacture of electrical insulators 10↓7.5 Sulphuric acid for use in the manufacture of fertilizers7.5↓5 Anthraquinone for manufacture of hydrogen peroxide7.5↓2.5 Ethylene-Propylene-non-conjugated-Diene Rubber (EPDM) water blocking tape and Mica glass tape for use in manufacture of insulated wires and cables 10↓7.5

38. Indirect Tax proposals (continued) 38 Reduction in BCD to reduce cost of raw material INDUSTRY RATE (%) From↑↓To CHEMICALS, PETROCHEMICALS AND FERTILIZERS Butyl acrylate7.5↓5 Isoprene and Liquefied butanes5↓2.5 Ulexite ore2.5↓0 Antimony metal, antimony waste and scrap5↓2.5 Ethylene dichloride (EDC), vinyl chloride monomer (VCM) and Styrene monomer (SM) 2.5↓2 ENERGY Active Energy controller used in the manufacture of renewable power system inverters subject to certification by MNRE 24↓12.5 Bituminous coal 55↓10

39. Indirect Tax proposals (continued) 39 INDUSTRY RATE (%) From↑↓To ELECTRONICS HDPE used in the manufacture of telecommunication grade optical fibre cables 7.5↓0 Back light unit module used in the manudacture of LCD/LED TV panels 10↓0 Organic LED (OLED) TV Panels 10↓0 Specified inputs in the manufacture of flexible medical video endoscope 5↓2.5

40. Indirect Tax proposals (continued) Other changes in rate of duty BCD on metallurgical coke increased from 2.5 per cent to 5 per cent BCD increased on commercial vehicles from 10 per cent to 20 per cent except in CKD condition, where 10 percent BCD continues Exemption from BCD extended up to 31 st March 2016 for specified goods used in the manufacture of hybrid and electrically operated vehivles Reduction in Special Additional Duty on certain goods and inputs to address the problem of CENVAT credit accumulation Miscellaneous Scope of Advance Ruling extended to cover all resident firms such as one person company, sole proprietor, partnership firm etc. Penalty provisions rationalized 40

41. Indirect Tax proposals (continued) CENVAT Credit Time limit for availment of CENVAT credit on inputs and input services increased from six months to one year Credit of inputs and capital goods available upon delivery/receipt of goods directly at the job worker’s premises on the discretion of the manufacturer/output service provider CENVAT credit of inputs allowable even on transfer to subsequent job worker from the premises of the principal job worker for undertaking specified activities, provided the same are received back within 180 days Increase in time limit for return of capital goods sent to job worker for carrying out specific activities from 180 days to 2 years 41

42. Tax Issues

43. No detailed roadmap for phased reduction of Corporate Tax & phase out of Exemptions (e.g. SEZ, S. 80 IA, Accelerated Depreciation) No MAT exemption for foreign companies not having presence in India & for SEZ developers and units. MAT exemption to FIIs prospective – No clarity on past notices New residency criterion for companies (POEM) to adversely affect Indian companies having subsidiaries overseas. May result in new stream of litigation No measures for implementation of TARC spelt out. Vision for internationally competitive Direct Tax regime, without exemptions, no tax from intermediaries, incentives for savings – only declaration of intent 43

44. Mr. Sunil Kumar Partner sunil.kumar@rsplaw.in www.rsplaw.net Thank You!

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