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INDIA UNION BUDGET 2016 Sagar Shah Head – Indirect Taxes International Liaison Partner BDO India LLP.

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Presentation on theme: "INDIA UNION BUDGET 2016 Sagar Shah Head – Indirect Taxes International Liaison Partner BDO India LLP."— Presentation transcript:

1 INDIA UNION BUDGET 2016 Sagar Shah Head – Indirect Taxes International Liaison Partner BDO India LLP

2 Key Takeaways Page 2 The larger picture Positives Not so desired Miscellaneous Expectations Missed out

3 The Larger Picture Page 3

4 The balancing Act No increase in rates of Excise duty or Service tax. The tax estimates would mean a dip in Income tax collections and a nominal increase in Indirect taxes. No large measures to impose taxes/remove exemptions Large commitment towards expenditure in infrastructure, agriculture and so on. Most of the reforms are at the micro level when it comes to taxes – with not much increase in revenues, would the country be able to achieve its expenditure commitment? What would be the sources of real revenue to the government? Page 4

5 Positives Legislative Changes Reduction in duties - Make in India Retrospective exemptions CENVAT Credit Central Excise – Jewellers, Real Estate – Simplification, Exemptions Page 5

6 RATIONALISATION OF PROVISIONS (effective date as an when the Bill receives assent) Page 6 Moved from negative list to Mega exemption 25/2012  Normal time limit for invoking extended period for recovery of service tax: Enhanced to thirty months from eighteen months. Similar provision under Central Excise and Customs – period increased to 24 months.. The intention to make departmental officers take more time (not fair!) but look at the benefit!  Interest rates for delay in payments rationalized for service tax: 18% to 30% based upon the period of delay in payment of taxes done away with, rationalized to- a)For tax collected and not paid within specified time – 24% p.a. b)In other cases – 15% p.a. In cases of service providers whose annual taxable turnover is less than INR sixty lacs in preceding financial, the rate of interest would be 21% and 12%.  Change in rate of interest in case of excess collection of service tax: Reduced from 18% to 15%.

7 RATIONALISATION OF PROVISIONS (effective date as an when the Bill receives assent) Page 7 Moved from negative list to Mega exemption 25/2012  Interest under Excise and Customs also now rationalized to 15% p.a  Personal Penalty against directors/managers, etc also deemed to be closed if the proceedings against a company are dropped under Section 73 upon payment of tax and interest within 30 days from date of SCN  Amendment to Section 89- Prosecution provisions –monetary limit of Rs 50 lacs increased to Rs 2 crores.

8 RETROSPECTIVE AMENDMENTS FOR ENABLING REFUNDS / EXEMPTIONS FOR EARLIER PERIOD  Services provided to the Government, a local authority or a governmental authority by way of construction, erection, etc. of: Civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; Structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; A residential complex predominantly meant for self-use or the use of their employees or other persons… (w.e.f. March 01, 2016) The exemption is also being restored till March 31, 2020, exemption is proposed to be extended retrospectively during the period from April 01, 2015 to February 29, 2016. Exemption restored only in respect of services provided in respect of contracts entered prior to 01 March 2015 provided appropriate stamp duty is paid Page 8

9 RETROSPECTIVE AMENDMENTS FOR ENABLING REFUNDS / EXEMPTIONS FOR EARLIER PERIOD  Exemption to construction, erection, commissioning etc. of dam, canal or other irrigation works :  The term ‘Governmental Authority’ was amended w.e.f. January 30, 2014 to include any authority / board / body established by Government  However, services provided prior to 30 January 2014 no such exemption was available in respect of services provided to the services recipient fitting in extended meaning of government authority.  Retrospective exemption now provided for the period 01 July 2012 to 29 January 2014  The service tax paid on services provided for the period from July 01, 2012 to January 30, 2014 allowed as refund subject to unjust enrichment. Refund claim to be filed within 6 months from date of enactment of finance bill (effective date as an when the Bill receives assent) Page 9

10 Exemptions in relation to Housing sector – Low cost  A civil structure or any other original works pertaining to the ‘In-situ rehabilitation of existing slum dwellers using land as a resource through private participation’ under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana only for existing slum dwellers shall be exempt  A civil structure or any other original works pertaining to the ‘Beneficiary-led individual house construction / enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana’ shall be exempt.  Services by way of construction, erection, commissioning or installation of original works pertaining to low cost housing up to carpet area of 60 sq.mt has been extended to projects approved under ‘All (Urban) Mission/Pradhan Mantri Awas Yojana’ and ‘any housing scheme of a State Government’.  Intent vis a vis implementation to be seen… Page 10

11 CENVAT CREDIT RULES, 2004 : KEY PROPOSALS  Definition of Capital Goods is amended to include… (To be effective from 01 April, 2016) Wagons specified under sub-heading 860692 Equipment or appliances used in an office Goods used outside the factory for pumping of water for captive use within the factory  Definition of Inputs is amended to include… (To be effective from 01 April, 2016) Goods used for pumping of water for captive use All capital goods having value up to INR 10,000/ piece Page 11

12 CENVAT CREDIT RULES, 2004 : KEY PROPOSALS  CENVAT Credit of Tools also available (To be effective from 01 April, 2016) CENVAT Credit of tools falling under chapter 82 of CETA is now available to manufacturers along with Jigs, fixtures, moulds and dies which were already available. The above credit would also be available if these goods are directly sent to the premises of another manufacturer/job worker without bringing to the manufacturer’s premises. Page 12

13 CENVAT CREDIT RULES, 2004 : KEY PROPOSALS  CENVAT Credit of service tax paid on assignment of right to use any natural resources… (To be effective from 01 April, 2016) Service Tax paid on the above services shall be equally spread over the number of years for which this right is valid and would be allowed to be taken in equal installments every year over the period for which this right is valid In case this right is further sub-assigned for a consideration in any financial year then the balance un-availed credit to the extent it does not exceed the output Service tax payable on consideration received on sub assignment shall be allowed in the same financial year CENVAT credit in respect of annual/monthly user charges for above assignment of rights shall be allowed as credit in the same financial year in which they are paid Page 13

14 CENVAT CREDIT RULES, 2004 : KEY PROPOSALS Page 14  Changes in Rule 6 of CCR… (To be effective from 01 April, 2016) Definition of exempted service is amended to include following: -Any activity which is not a ‘service’ under Finance Act, 1994 -Value would be contract value/invoice value or determined value if the above values are not available

15 CENVAT CREDIT RULES, 2004 : Amendment to Rule 6 Page 15 REVERSAL OF CENVAT CREDIT OPTION 1 Pay 6% of value of exempted goods and 7% of value of exempted service subject to maximum cap limit total credit available OPTION 2 Pay amount determined as per rule 6(3A)

16 CENVAT CREDIT RULES, 2004 : KEY PROPOSALS Page 16 REVERSAL OF CENVAT CREDIT UNDER RULE 6 CENVAT credit of input / input service exclusively in respect of exempted goods / service Not eligible CENVAT credit of input / input service exclusively in respect of non exempted goods / service Full CENVAT credit is eligible Common Credit of inputs/ input services Proportionate CENVAT credit is eligible as per given formula. CENVAT credit of capital goods exclusively in respect of exempted goods/ services Not allowed for 2 years from the date of commencement of commercial production / provision of service provided used for taxable activities within time limit

17 CENVAT CREDIT RULES, 2004 : KEY PROPOSALS  Procedure to be followed in case reversal is done under Rule 6(3A) Page 17 File a letter for exercising this option Reversal of Common credit on provisional basis Final reversal to be done before 30 th June of succeeding financial year In case of short reversal of CENVAT credit, delay payment will carry an interest @ 15% p.a.

18 Rule 6 other changes Transitional provisions introduced in Rule 6(3A), wherein the current mechanism would be in force till 30 June 2016 in respect of computation to be made for FY 2015-16. For provisional computation, for first year of operations where no preceding financial year turnover available, common credit deemed to be equal to 50%. Currently, in such cases reversal was required to be made on 30 June in subsequent year Banks, Financial institutions and NBFC are now also allowed to reverse CENVAT Credit in terms of Rule 6(1),(2) and (3). Currently they have only one route to reverse 50% of the CENVAT Credit availed on inputs and input services. If procedure under Rule 6(3A) not complied, adjudicating officer given discretion to allow to condone the lapse and reverse credit in terms of Rule 6(3A) subject to payment of interest. Current controversy sought to be avoided Page 18

19 CENVAT CREDIT RULES, 2004 :Changes in ISD Mechanism  Input Service Distributor… (To be effective from 01 April 2016) Distribution of credit now allowed to be made to the outsourced manufacturing units e.g. job worker’s premise. For purpose of ISD mechanism, turnover of an outsourced manufacturing unit shall be the turnover of goods manufactured by such unit for the particular ISD. Outsourced manufacturing unit shall maintain separate account for Input service credit received from each of the ISD’s The above credit shall be used only for payment of duty on goods manufactured for the particular ISD Credit of service tax available with the ISD as on March 31, 2016 shall not be distributed to the outsourced manufacturing units.  Provision of Rule 6 of CCR shall not apply to ISD.  If service to be distributed pertaining to more than one unit, does not relate to all units, then such services would be distributed to the units to which it pertains Page 19

20 CENVAT CREDIT RULES, 2004 : KEY PROPOSALS  CENVAT credit on invoices issued by warehouse… (To be effective from 01 April, 2016) Manufacturer can claim the CENVAT credit on invoices issued by its warehouse which receives inputs on account of purchase under the cover of excise gate pass. The procedure applicable under CCR or CE Rules applicable to first stage/second stage dealer would be applicable to such warehouse mutatis mutandis. Page 20

21 CENVAT Credit Rules, 2004 : KEY PROPOSALS  Definition of exempted services is amended to exclude following… (To be effective from 01 March 2016) service by way of transportation of goods by a vessel from custom station of clearance in India to a place outside India. Such services become exempt in terms of Rule 10 of PPSR Now no CENVAT Credit required to be reversed in case of such services Page 21

22 CENTRAL EXCISE: KEY PROPOSALS  Single registration for 2 or more premises as one factory… (To be effective from 01 March, 2016) Such registration is allowed subject to fulfillment of following conditions: - If the premises of the same factory are located within a area in jurisdiction of range superintendent -Manufacturing process undertaken by premises are interlinked -Units are not operating under any of area based exemption notification Page 22

23 CENTRAL EXCISE: KEY PROPOSALS- Jewellery Sector  All Jewellers (branded/others) now under Excise Net  Optional Centralized registration for manufacturer of Jewellers… (To be effective from 01 March 2016) Manufacturer may opt for centralized registration subject to fulfillment of following conditions: - Manufacturer maintains centralized billing or accounting system for specified goods and should also maintain job work related details at this premises. - Such manufacturer provides the details of all premises (other than those of job workers) from where the specified goods are removed for domestic clearance -In such cases, no physical verification at the time of registration is required Page 23

24 CENTRAL EXCISE: KEY PROPOSALS- Jewellery Sector Such manufacturer should levy excise duty on transaction value instead of tariff value. RSP based levy omitted Higher threshold exemption provided to jewelers of upto 6 Crores provided the preceding year turnover is upto 12 crores. Threshold limit for month of March 2016 is INR 50 lakhs. Capital goods credit can also be availed by Jewellers even if they are availing threshold exemption Silver jewellery other than jewellery studded by diamond, ruby, emerald or saphhire out of tax net Tax rate 1% without CENVAT and 12.5% with CENVAT benefit Page 24

25 CENTRAL EXCISE: KEY PROPOSALS- Real Estate Impact RMC manufactured at the construction site for use in construction activity existing rate is 12.5%. It is now exempted from Central Excise Duty. Impact of Supreme Court ruling in case of Larsen and Toubro sought to be nullified SC had held that concrete mix and RMC are two different products and RMC cannot be considered to be exempt for Notification No. 4/1997-CE dated 01 March 1997 Page 25

26 CENTRAL EXCISE: KEY PROPOSALS  Revision of return under CER (Rule 12)… (To be effective from 01 April 2016) Existing provision: No provision for filing revised return under CER Amendment: -Original return filed under Sub rule 1 and under its 2 nd proviso can be revised within 1 month from the date of filing original return -In case of revised returns, relevant date for the purpose of recovery of Central Excise duty, if any, shall be date of submission of such revised return. Page 26

27 Not so desired New Cess Services to Government Point of taxation Declared Services – Can even sale be a service? Page 27

28 Imposition of Krishi Kalyan Cess (effective date 01 June 2016)  Peak rate of service tax remains unchanged – Currently 14%  New levy of Krishi Kalyan cess is sought to be imposed  It would be levied at the rate of 0.5% of the value of services  Hence effective rate of service tax would now be 15% including the Krishi Kalayan Cess and SBC  CENVAT Credit of Krishi Kalayan cess paid on input side would be allowed as credit against output Krishi Kalyan Cess. Why SBC has been given step motherly treatment??? Page 28

29 AMENDMENT TO 67A and PoT Page 29 Moved from negative list to Mega exemption 25/2012  Current Section 67A provides that applicable rate of tax would be rate as applicable at the time when the taxable service has been provided or agreed to be provided  Currently, there could be disconnect between Section 67A and PoT Rules  67A and PoT Rules sought to be aligned with each other to avoid any possible controversy in case of rate change. - Is this really achieved??  Rule 5 of PoT Rules amended to include explanations (effective date 1 st March 2016) :  It would now be applicable in case of new levies also  New levy would be applicable on all cases except where payment is received before such service/levy became taxable for the first time and invoice is issued either before or within 14 days of the date when service/levy becomes taxable for the first time.  Much needed to Clarify new levies like Swachh Bharat Cess and Krishi Kalyan Cess

30 AMENDMENTS to RCM (Effective from 1 st April 2016)  Taxability of Services provided by government: Ambit Increased to all services………. What all services would be included???  ROC fees, EPF fees, Local Authority Sanction fees….??  Royalties, license fees, fees for transfer of rights…??  Fees for delayed filing of returns?? Page 30

31 Declared Services & Exemptions  Scope of declared Services expanded – more services under service tax net Assignment/further transfers of Radio Frequency Spectrum by Government defined as a “Declared service” – Can this be a deemed service? Is their a difference between assignment and providing services? How can service be further transferred? Page 31

32 Miscellaneous Exemptions – Education, transportation by ship Changes in Rules – Annual Returns, One Person Company Changes in Abatement percentage for services like transportation Indirect Tax Resolution Scheme Page 32

33 Negative List- Pruned (effective date as an when the Bill receives assent)  Scope of negative list reduced – more services under service tax net Services in relation to approved educational courses-Moved from negative list to Mega exemption 25/2012… Registration?? Services provided by a stage carriage in relation to transportation of passengers Deleted- Services in non air conditioned stage carriage would continue to be exempted by 25/2012 and air conditioned carriage chargeable to service tax… (For bringing it at par with Rent-a-cab service) Services by way of transportation of goods from a place outside India to the customs station in India-Moved from negative list to Mega exemption (only in case of air transport) - 25/2012. Services by Shipping companies now taxable (even by reverse charge in case of foreign shipping companies) Page 33

34 EXEMPTIONS WITHDRAWN (Mega exemptions)  Changes in mega exemption notification – services now taxable (effective from 1 st April 2016) Services provided by a senior advocate to an advocate/partnership firm of advocates/ business entities Senior Advocates under Forward charge and others under Reverse charge… Services provided by a person represented on a arbitral tribunal to an arbitral tribunal Services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro.(effective from 1 st March 2016) Page 34

35 EXEMPTIONS ADDED- Information Technology Software (effective from 1st March 2016)  IT Software exemption provided under Service Tax if such software is:  Recorded on media which is notified under Chapter 85 of CETA  On which RSP is required to be declared  The value of package of such media domestically procured /imported has been determined under Section 4A of the Central Excise Act  Excise duty/CVD has been paid by the manufacturer/importer on Retail sale price basis  The service provider has to make declaration on invoice that nothing collected more than RSP  Exemption also introduced under Central Excise for customized software delivered on media not covered under RSP. In case of such software, excise duty/CVD is exempted from so much of such duty to the extent service tax is liable to be paid on value of such software.  Move to avoid double taxation of software under Central Excise/Customs and Service Tax. Page 35

36 CHANGE IN ABATEMENTS Nature of ServiceProposed Effective Rate Effective Current Rate w.e.f. 1 April 2016 w.e.f. 1 st June 2016 (Krishi Kalyan Cess) Transport of goods by rail*4.35% 4.50% Any transport of goods in containers by rail by any person other than Indian railways*(New Entry) 4.35%5.80%6% Services of goods transport agency in relation to transportation of goods other than used household goods. ** 4.35% 4.50% Services of goods transport agency in relation to transportation of used household goods** 4.35%5.8%6% Page 36 Changes in abatement provisions (Effective from 1 st April 2016) *Abatement on services of transportation by road, rail or vessel available subject to non-availment of CENVAT credit on inputs, capital goods. Input service credit available. **Abatement on services of transportation by road, rail or vessel available subject to non- availment of CENVAT credit on inputs, capital goods, input services.

37 CHANGE IN ABATEMENTS Page 37 Changes in abatement provisions (Effective from 1 st April 2016) *Abatement on services of transportation by road, rail or vessel available subject to non-availment of CENVAT credit on inputs, capital goods, Input services. Nature of ServiceProposed Effective Rate Effective Current Rate w.e.f. 1 April 2016 w.e.f. 1 st June 2016 (Krishi Kalyan Cess) Transportation of passengers by a stage carriage* Not taxable 6% Services by a tour operator in relation to,- (i) a tour, only for the purpose of arranging or booking accommodation for any person 1.45% 1.50% Tours other than (i) above ( New Entry)5.8%4.35%6%

38  Amendment In Service Tax Rules 1994 (Effective from 1st April 2016) One Person Company added to the definition- Payment to be made Quarterly for OPC having aggregate value taxable service of less than or equal to INR 50 lakhs in preceding financial year Even HUF included for quarterly tax payments Annual Service tax return- In addition to the half yearly returns it is proposed that an annual return will have to be filed by November 30, of the succeeding financial year, revision can be made within one month from the date of submission Optional Rate of Service tax in case of single premium annuity (Insurance) policies where the amount allocated for investment or savings on behalf of policy holder is not intimated to the policy holder at the time of providing of service shall be 1.4%. Page 38

39 INDIRECT TAX DISPUTE RESOLUTION SCHEME, 2016  The Scheme provides a special window for settlement of disputes pending before the Commissioner (Appeals) as on March 01, 2016 under Central Excise, Service Tax and Customs Regulations  The scheme is applicable to the declarations made up to the December 31, 2016. The benefits under this scheme would be available subject to compliance of the specified conditions Page 39

40 INDIRECT TAX DISPUTE RESOLUTION SCHEME, 2016 Page 40  The Scheme is essentially to reduce litigation and opens up a window for the Assessee to settle the pending dispute  Consequences of availing the benefit, which could incentivize the Assessee to avail the benefit under the proposed Scheme  The success of the proposed Scheme remains to be seen since it really doesn’t specify anything better than what is envisaged in the current provisions under the law realistically..

41 Expectations Missed out No big bang policy transformation reforms Make in India – benefit limited Goods and Service Tax… Page 41

42 BUILD ON A STRONG BRAND & REPUTATION Global advertising Thought leadership Joint vision & corporate values Credentials database BDO Brand Centre Marketing best practices Thank You


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