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February 2013Budget PLUS 2013Page 1 Budget PLUS 2013 Key features of India’s Union Budget 2013-14.

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Presentation on theme: "February 2013Budget PLUS 2013Page 1 Budget PLUS 2013 Key features of India’s Union Budget 2013-14."— Presentation transcript:

1 February 2013Budget PLUS 2013Page 1 Budget PLUS 2013 Key features of India’s Union Budget

2 February 2013Budget PLUS 2013Page 2 Taxing GAAR Super rich tax GST Fiscal deficit Retrospective amendments Indirect tax Budget PLUS Budget backdrop 2.Budget 2013 ► Key policy announcements ► Direct Tax proposals ► Indirect Tax proposals Contents

3 Budget 2013–2014— Thought sharing by EYPage 3 Macro view ► Economy expected to grow at around 5.0% in FY ► Agriculture – 1.8% ► Industry – 3.1% ► Services – 6.5% ► GDP growth remains sluggish with higher inflation ► GDP Growth at 6.1% - 6.7% ► Nominal GDP Growth at 13.4% ► Assumed inflation rate at 7% if real GDP growth is about 6.4%

4 Budget 2013–2014— Thought sharing by EYPage 4 Non Plan Expenditure / Subsidies Expenditure (1) BE (2) RE (3) BE (4) % change in (4) over (3) Non Plan Plan TOTAL Major Subsidies(2) RE (3) BE (4) % change in (4) over (3) Food Fertilisers Petroleum (33) TOTAL (10.8) Rs crores

5 Budget 2013–2014— Thought sharing by EYPage 5 Revenue RE BE % change Gross Tax Revenue % Non tax Revenue % Total Revenue Receipts % Corporate Tax % Surcharge % Education Cess % Taxes on income % Surcharge Education Cess % Customs % Excise % Service Tax % Rs crores

6 Budget 2013–2014— Thought sharing by EYPage 6 Implied tax buoyancies # Type of tax FY14 Tax buoyancy (% change in tax revenue/ % change in GDP at market prices) 1 Gross Tax Revenue Corporation Tax T axes on Income other than Corporation Tax Customs Union Excise duties Service Tax2.67 ► Overall expenditure increase of 16.4% is being financed by assuming a nominal growth of 13.4% and a buoyancy of nearly 1.5 in gross tax revenues. This seems unrealistic. ► This buoyancy was 0.93 in FY12 and 1.3 with respect to RE in FY13.

7 February 2013Budget PLUS 2013Page 7 Taxing GAAR Super rich tax GST Fiscal deficit Retrospective amendments Indirect tax Budget PLUS Budget backdrop 2.Budget 2013 ► Key policy announcements ► Direct Tax proposals ► Indirect Tax proposals Contents

8 February 2013Budget PLUS 2013Page 8 Key policy announcements ‘Higher growth leading to inclusive and sustainable development’ to be the mool mantra Government believes in inclusive development with emphasis on improving human development indicators specially of women, the SC, the ST, the minorities and some backward classes. Fiscal deficit, current account deficit and inflation ► Foreign investment is imperative in view of the high current account deficit (‘CAD’). FII, FDI and ECB three main sources of CAD Financing. Foreign investment to be encouraged. Financial sector ► Standing Council of Experts in the Ministry of Finance to be constituted to analyse the international competitiveness of the Indian financial sector

9 February 2013Budget PLUS 2013Page 9 Key policy announcements Capital markets ► Simplification by SEBI of procedures and uniform registration and other norms for entry for foreign portfolio investor to be prescribed ► Clarity of what constitutes FII and FDI investment ► FIIs to be permitted to participate in exchange traded currency derivative segment ► SEBI to prescribe requirement for angel investor pools to be recognised as Category I AIF venture capital fund ► Stock exchanges allowed to introduce a dedicated debt segment

10 February 2013Budget PLUS 2013Page 10 Key policy announcements Banking ► Compliance of public sector banks with Basel III regulations to be ensured ► India’s first Women’s Bank as a public sector bank to be set-up Insurance sector ► A multi-pronged approach to increase the penetration of insurance, both life and general ► Insurance companies to be permitted to open branches in Tier II cities and below without the prior approval of IRDA ► Banks to be permitted to act as insurance brokers ► Hope for consensus to pass insurance and pension amendment bill

11 February 2013Budget PLUS 2013Page 11 Key policy announcements Tax reforms ► Endeavour to re-introduce DTC before the end of the Budget session ► Work on draft GST Constitutional Amendment Bill and GST Law expected to be taken forward ► Rules on Safe Harbour to be issued shortly ► Fifth large tax payer unit to open at Kolkata shortly ► Number of administrative measures such as extension of refund banker system, extension of e-payment through more banks, expansion in the scope of AIR to be introduced

12 February 2013Budget PLUS 2013Page 12 Key policy announcements Investment, Infrastructure and Industry ► Infrastructure Debt Funds (IDF) to be encouraged ► IIFCL to offer credit enhancement Road construction ► A regulatory authority for road sector Savings ► Rajiv Gandhi Equity Savings Scheme to be liberalised

13 February 2013Budget PLUS 2013Page 13 Taxing GAAR Super rich tax GST Fiscal deficit Retrospective amendments Indirect tax Budget PLUS Budget backdrop 2.Budget 2013 ► Key policy announcements ► Direct Tax proposals ► Indirect Tax proposals Contents

14 February 2013Budget PLUS 2013Page 14 Rates of tax – individuals ► No change in tax rates and tax slabs for individuals ► Rebate upto INR 2,000 for resident individuals earning up to INR 0.5 million ► Surcharge of 10% on tax on INR 10 Million plus income earners (marginal relief available) ► Education cess of 3% to continue

15 February 2013Budget PLUS 2013Page 15 Rates of tax - companies ► No change in corporate tax rates ► Rate of surcharge on domestic companies with income exceeding INR 100 million increased from 5% to 10% ► Rate of surcharge on non-resident companies with income exceeding INR 100 million increased from 2% to 5% ► Rate of surcharge on dividend distribution tax increased from 5% to 10%; effective rate would now be % ► Where book profits of a domestic company exceed INR 100 million, the rate of MAT to increase to 20.96%

16 February 2013Budget PLUS 2013Page 16 Rates of tax - companies Foreign dividend ► Beneficial tax rate of 15% on dividend declared, distributed or paid by specified foreign company again extended for one more year ► The above foreign dividend if received from subsidiary, is to be reduced for the purpose of DDT payable by the domestic company

17 February 2013Budget PLUS 2013Page 17 Securities Transaction Tax (STT) STT rates revised as follows: Nature of transactionPayable byPresent (%)Proposed (%)* Delivery based purchase of units of an equity oriented fund on a recognized stock exchange Purchaser0.1Nil Delivery based sale of units of an equity oriented fund on a recognized stock exchange Seller Sale of futures in securitiesSeller Sale of a unit of an equity oriented fund to the mutual fund Seller * Effective from 1st June, 2013

18 February 2013Budget PLUS 2013Page 18 Commodities Transaction Tax (CTT) ► CTT to be levied on taxable commodities transactions (other than in agricultural commodities) from the date the Finance Bill is notified ► CTT to be levied at 0.01% and would be payable by the seller ► CTT paid to be deductible in computing business income from taxable commodities transactions

19 February 2013Budget PLUS 2013Page 19 Dividend Distribution Tax ► Tax on income distribution by mutual funds ► Tax on distribution of income by mutual funds (other than equity oriented funds) to individuals or HUFs to be increased from 12.5% to 25% ► Tax on income distributed by infrastructure debt funds set up as mutual funds to be reduced to 5% for parity with infrastructure debt funds set up as NBFCs

20 February 2013Budget PLUS 2013Page 20 Key international tax proposals Royalty and fees for technical services ► Tax on royalty and fees for technical services earned by non resident taxpayers increased from 10% to 25% ► Above rate applicable to all agreements entered post 31 March 1976 ► Tax treaty protection available Tax Residency Certificate ► Submission of tax residency certificate a necessary but not a sufficient condition for claiming benefits under tax treaty ► Amendment to take effect from FY

21 February 2013Budget PLUS 2013Page 21 Widening of tax net Business income on transfer of immoveable property ► Higher of stamp duty value or consideration received or accruing on transfer of land and/ or building (not being capital assets) to be taken as full value of consideration ► In case of difference between date of agreement and date of registration, stamp duty value as on date of agreement to be considered ► Applicable only if consideration (in non-cash mode) is paid on or before date of such agreement ► Buyer to withhold tax at the rate of 1% in case of transfer of immovable property (other than agricultural land) to a resident where sale consideration exceeds INR 5 million

22 February 2013Budget PLUS 2013Page 22 Widening of tax net Additional income-tax tax on buyback of shares ► Effective 1 June 2013, unlisted company liable to pay additional income-tax of 20% on distribution of income through buyback of its shares ► Tax payable on difference between consideration paid on buyback of shares and amount received by company at the time of issue of such shares ► Consideration received by shareholder is exempt from further income-tax ► No deduction allowed on the distribution tax paid by the company

23 February 2013Budget PLUS 2013Page 23 Widening of tax net Taxability of immovable property received for inadequate consideration ► Where an Individual or HUF receives immovable property for consideration less than stamp duty value of property, then the differential amount will be subject to tax in the hands of individual or HUF ► Stamp duty value will be considered as on date of agreement fixing the amount of consideration as long as the consideration, or part thereof, has been paid by any mode other than cash on or before date of agreement ► Otherwise, the date of registration of agreement will be considered for computing stamp duty value

24 February 2013Budget PLUS 2013Page 24 Provisions relating to venture capital funds Category 1 AIF registered under the sub-category ‘Venture Capital Funds’ granted pass through status, subject to the following: ► the units/ shares (of the fund) are not listed on a recognized stock exchange ► the fund invests atleast 2/3 rd of investible funds in unlisted equity shares/ equity linked instruments of Venture Capital Undertakings (VCUs) ► the fund does not invest in any VCU in which the director/ substantial shareholder (>10% of equity share capital) holds (in aggregate) more than 15% of paid-up equity capital of the VCU VCFs registered before 21 May 2012 under the SEBI (Venture Capital Fund) Regulations 2012 will continue to enjoy the pass through status Amendment proposed retrospectively from 1 April 2012

25 February 2013Budget PLUS 2013Page 25 Provisions relating to securitization trusts Income earned by specified securitization trusts to be exempt from tax ► ‘Specified purpose distinct entity’ regulated under the SEBI (Public Offer and listing of Securitized Debt Instruments) Regulations, 2008 and ‘Special Purpose Vehicles’ regulated by the guidelines on securitsation of standard assets issued by the RBI, to qualify for the exemption Distributions by the specified securitization trusts to be liable to additional income-tax at the following rates: ► 25% in case of income distributed to individuals and Hindu Undivided Families ► 30% in case of income distributed to others ► No additional income-tax to be payable in respect of any income distributed to any person whose income is not chargeable to tax under the Act

26 February 2013Budget PLUS 2013Page 26 General Anti Avoidance Rules (GAAR) ► Certain recommendations of the Expert Committee accepted with modifications ► GAAR to be deferred to FY ► Only arrangements which have the main purpose (as opposed to one of the main purposes) of obtaining tax benefit would be covered by GAAR ► Treaty override provisions applicable in case GAAR is invoked ► The Commissioner of Income-tax to issue a notice to the taxpayer setting out the reasons and basis of invoking GAAR and the taxpayer to be given an opportunity to prove that obtaining tax benefit is not the main purpose of the arrangement ► Directions of the Approving Panel to be binding on the taxpayer as well as the Income-tax authorities

27 February 2013Budget PLUS 2013Page 27 GAAR ► Following conditions relevant though not sufficient to determine whether an arrangement is an Impermissible Avoidance Arrangement ► Period of time for which an arrangement exists ► Payment of taxes, directly or indirectly, under the arrangement ► Availability of exit route under the arrangement ► An arrangement shall also be considered to be lacking commercial substance, if it does not have a significant effect upon business risks, or net cash flows apart from the tax benefit ► Term of the Approving Panel to be one year (extendable to three years) ► Definition of “associated person” and “connected person” combined under an inclusive definition of “connected person” ► Central Board of Direct Taxes empowered to make rules in relation to GAAR provisions and matters relating to Approving Panel

28 February 2013Budget PLUS 2013Page 28 Exemptions and deductions Deduction in respect of generation, distribution and transmission of power ► Sunset clause extended to 31 March 2014 Additional investment allowance for manufacturing companies investing INR 1000 million in specified new assets between 1 April 2013 and 31 March 2015 ► 15% of the actual cost of specified new assets acquired between 1 April 2013 and 31 March 2014 in assessment year ; and ► 15% of the actual cost of specified new assets acquired between 1 April 2013 and 31 March 2015 in assessment year , as reduced by the amount of deduction allowed, if any in assessment year

29 February 2013Budget PLUS 2013Page 29 Exemptions and deductions Deduction of wages to workmen (100 or more) to be restricted to Indian companies deriving profits from manufacture of goods in factories only ► Deduction would not be available if the factory is hived off, transferred or acquired by amalgamation with another company Deduction of health insurance premium payments up to INR 15,000 extended to other Central and State Government Health schemes (to be notified) similar to the existing Central Government Health Scheme (CGHS)

30 February 2013Budget PLUS 2013Page 30 Exemptions and deductions ► Deduction of investment made under equity savings scheme subject to lower of 50% of investment or INR 25,000 ► Extended to listed equity oriented fund units ► Made applicable for resident individuals with gross total income not exceeding INR 1.2 million ► Deduction available for three consecutive years beginning with the year of investment

31 February 2013Budget PLUS 2013Page 31 Exemptions and deductions Tax incentive for funding of Infrastructure bonds ► Reduced tax rate of 5% for interest received by a non-resident has been extended to include the following ► Where the non-resident deposits foreign currency in a designated bank account and such money as converted in rupees is utilized for subscription to long term infrastructure bonds issued by the Indian company ► Claims for bad debts written off by banks and specified financial institutions to be allowed only to the extent the write off exceeds the credit balance in the provision for bad and doubtful debts account created from all types of advances including advances made by rural branches.

32 February 2013Budget PLUS 2013Page 32 Exemptions and deductions ► Exemption under section 10(10D) not available to any sum received under keyman insurance policy ► Keyman insurance policy assigned to any person with or without consideration during its term now to be treated as a keyman insurance policy ► Deduction of contribution to National Children’s Fund to be increased from 50% to 100% of the amount donated

33 February 2013Budget PLUS 2013Page 33 Assessments, appeals and other provisions Liability of directors of private company in liquidation ► Definition of ‘tax due’ from directors of a private company in liquidation expanded to include penalty, interest or any other sum payable under the Act Penalty for non-filing of Annual Information Return (AIR) ► INR 100 for every day of delay if a person fails to furnish AIR within prescribed time ► INR 500 per day proposed to be levied for delay in filing AIR beyond time specified in the notice requiring AIR filing

34 February 2013Budget PLUS 2013Page 34 Exemptions and deductions ► New Section 80EE to be introduced to provide for additional deduction of INR 100,000 for interest on housing loan from any financial institution provided ► individual does not own any residential house property on the date of sanction ► the loan is sanctioned between 1 April 2013 and 31 March 2014 ► loan amount is not exceeding INR 2.5 million ► value of house property is not exceeding INR 4 million ► Unutilized deduction to be carried forward till 31 March 2015

35 February 2013Budget PLUS 2013Page 35 Assessments, appeals and other provisions ► Seized assets not to be allowed to be adjusted against advance tax liability ► Return filed without payment of tax (along with interest, if any) to be regarded as defective return ► Scope of direction for special audit to be extended to include parameters like volume of accounts, correctness of accounts, multiplicity of transactions and specialized nature of business activity of the taxpayer ► In case of payments to non resident individuals exceeding INR 10 million, rate of TDS to be increased by a 10% surcharge

36 February 2013Budget PLUS 2013Page 36 Assessments, appeals and other provisions ► Extension of time limit from 31 March 2013 to 31 March 2014 for Provident Funds to get approval from Provident Fund Authorities for continuation of income tax recognition

37 February 2013Budget PLUS 2013Page 37 Taxing GAAR Super rich tax GST Fiscal deficit Retrospective amendments Indirect tax Budget PLUS Budget backdrop 2.Budget 2013 ► Key policy announcements ► Direct Tax proposals ► Indirect Tax proposals Contents

38 February 2013Budget PLUS 2013Page 38 Customs duty ► Peak rate of BCD maintained at 10% ► Peak rate of CVD and SAD rate also maintained ► Passenger Baggage ► Duty free limits on jewellery for Indian passenger residing abroad for over 1 year enhanced ► Men – INR 10,000 to INR 50,000 ► Lady – INR 20,000 to INR 100,000

39 February 2013Budget PLUS 2013Page 39 Customs duty – effective 1 March 2013 PresentProposed ProductsRate Cars /motor vehicles (CIF > USD regardless of engine capacity) 75%100% Cars /motor vehicles (capacity > 3000cc for petrol-run/ 2500cc diesel run regardless of value) 75%100% Luxury motorcycles (capacity > 800cc)60%75% Old cars100%125% ► BCD increased on certain products such as ► BCD reduced on certain products such as PresentProposed ProductsRate 20 specified machinery for leather and footwear industry 7.5%5% Textile machinery and parts7.5%5%

40 February 2013Budget PLUS 2013Page 40 Customs duty – effective 1 March 2013 ► Bituminous and steam coal to attract uniform BCD and CVD of 2% each to avoid mis-classification ► BCD and CVD exemption extended to parts and testing equipments for MRO of aircraft parts ► Similar exemption extended to private aircrafts and parts ► Time consumption /installation extended from 3 months to 1 year ► CVD exempted on specified ships and vessels

41 February 2013Budget PLUS 2013Page 41 Customs duty ► Amendments from date of enactment of Finance Bill ► Scope of Advance Ruling expanded to allow existing importer/exporter to seek ruling for a new line of business ► Arrest provisions amended to make certain offences non-bailable ► Power of Tribunal to grant stay limited to a maximum of 365 days ► Post 365 days, stay order shall stand vacated even if disposal of case pending ► Interest free period for payment of import duty reduced from 5 days to 2 days ► Responsibility on ‘agents’ to make correct self-assessment on behalf of importer / exporter

42 February 2013Budget PLUS 2013Page 42 Central excise PresentProposed ProductsRate SUV (except those registered as taxi)27%30% Chassis fitted with engines for trucks and lorries (other than petrol driven) 14%13% Mobile phones with RSP > INR 2,0001%6% Ships & other vessels (including cargo ships, barges, Tugs, Light-vessels, Dredgers, floating cranes, floating docks, floating or submersible drilling or production platforms) 2%Nil ► No change in median rate of central excise duty ► Rate movement

43 February 2013Budget PLUS 2013Page 43 Central excise ► Option of NIL excise duty or CENVAT credit reintroduced for branded readymade garments and made ups ► MRP based assessment expanded to include branded Ayurvedic/ Unani/ Siddha/ Homeopathic/ Bio-chemic system medicaments with abatement of 35% ► Dues of excise can now be recovered ► Against customs receivables; and ► From any other person who holds or would be holding money for or on behalf of assessee ► Power of Tribunal to grant Stay limited to a maximum of 365 days

44 February 2013Budget PLUS 2013Page 44 Central excise ► For Advance Ruling, definition of ‘activity’ to also include any new business or production or manufacture proposed to be undertaken by existing producer or manufacturer ► Advance Ruling extended to resident public limited companies ► Advance Ruling may also be sought for determining admissibility of credit of service tax paid on input services used in manufacture of goods

45 February 2013Budget PLUS 2013Page 45 Cenvat credit ► Amendment to clearly provide recovery in case of non reversal of CENVAT credit on: ► ‘As such’ removal of inputs or capital goods; ► Removal after use of capital goods; or ► Full/ partial write off of inputs or capital goods.

46 February 2013Budget PLUS 2013Page 46 Service tax ► Service tax rate unchanged at 12% ► Negative List basis of levy of service tax to include (enactment of Finance Bill): ► Vocational courses offered by institutes affiliated to State Council of Vocational Training ► All testing in relation to agricultural produce ► Process under Medicinal and Toilet Preparations (Excise Duties) Act, 1955

47 February 2013Budget PLUS 2013Page 47 Service tax ► Exemptions withdrawn (effective 1 April 2013) ► All temporary transfer of copyright relating to cinematography films taxable except films exhibited in cinema halls ► Services provided to Government, local / government authority by way of repair or maintenance of aircraft ► Services by way of vehicle parking to general public ► Services provided by air conditioned restaurants taxable even if no license to serve alcohol ► Renting of immovable property and other auxiliary education services provided by an education institution ► Charities providing services for advancement of any other object of general public utility (upto INR 2.5 million)

48 February 2013Budget PLUS 2013Page 48 Service tax ► Exemptions amended (effective 1 April 2013) ► Exemption for items covered by goods transport agencies expanded to include agricultural produce, food stuff, chemical fertilisers, newspapers / magazines and defense equipment ► Exemption to petroleum products, postal / mail bags and household effects by rail or coastal transport withdrawn ► Impact on Valuation Rules ► Construction contracts for property with carpet area of 2000 square feet or more or value of Rs 10 million ► Abatement reduced from 75% to 70% (effective 1 March 2013) – 3.09% to 3.708%

49 February 2013Budget PLUS 2013Page 49 Service tax ► Punitive measures for offences ► New provisions to prescribe penalty on directors and officials for specified willful actions upto INR 100,000 ► One time amnesty scheme for tax payment and return filing from October 2007 to December 2012 ► Amnesty from interest, penalty and prosecution ► Advance ruling extended to resident public limited companies ► Power of Tribunal to grant stay limited to a maximum of 365 days ► Post 365 days, stay order shall stand vacated even if disposal of case pending (Above provisions applicable on enactment of Finance Bill)

50 February 2013Budget PLUS 2013Page 50 Goods and Service Tax (GST) ► Announcements suggest that a fair majority of states are in favour of GST ► Positive move - Provision of INR 90 billion for CST compensation ► Efforts for early introduction of draft Constitutional amendment bill / GST legislation – a welcome step

51 February 2013Budget PLUS 2013Page 51 This presentation contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young Pvt. Ltd. nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. Visit our Iwww.ey.com/in/BudgetPLUS2013 to read our published thought leadership series on the Union Budget Iwww.ey.com/in/BudgetPLUS2013 You may also visit our Tax & Regulatory Services webpage to know more about our services.Tax & Regulatory Services webpage Questions?

52 February 2013Budget PLUS 2013Page 52 Ernst & Young Pvt. Ltd. © 2013 Ernst & Young. All Rights Reserved. Ernst & Young is a registered trademark. Thank you


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