India Union Budget. and recent development in regulatory frame work. briefing

Transcription

1 India Union Budget 2016 and recent development in regulatory frame work briefing

2 This briefing is for the use of the clients of Lodha & Co. and its associates and is meant for private circulation only. The budget proposals highlighted in the briefing are subject to approval of both the Houses of the Parliament and the assent of the President. Material discussed herein is meant to provide general information only. Readers should always seek professional advice before acting on the information provided. This document has been prepared based upon details and information available to public and the sources are believed to be reliable. Though due care has been taken to ensure accuracy, no representation is made that it is accurate and complete.

3 FOREWORD The Indian economy has begun on a positive note with the GDP growth having accelerated to 7.6% in the year Considering the challenging global macro-economic scenario, the Indian economy has held its ground in these adverse times. The budget has attempted to balance the conflicting goals of fiscal consolidation and promoting investment. The Government is to continue with the ongoing reform programme and ensure passage of the Goods & Service Tax bill and Insolvency & Bankruptcy law. The time frame on GAAR announced in the budget speech last year has been retained and proposed to be implemented from 1st April, The implementation of POEM guidelines has been deferred by a year to make it applicable from 1st April, The Finance Minister has professed his adherence to the path of fiscal deficit of 3.5% of GDP for financial year which is a decline from 3.9% in The core areas of focus are farm and rural sector, social sector, infrastructure sector, employment generation and recapitalization of the banks. The budget has given a boost to the infrastructure sector by allocating ` 2,21,246 crores for financing infrastructure projects which includes ` 55,000 crores for roads and highways. There is a huge outlay on the rural side which has been increased by 21%, which should help agriculture productivity and demand. The focus put by the FM on rural economy, ease of doing business, ease-of-compliance and relaxing the threshold for presumptive taxation for small businesses, SME s etc could lead to a trickledown effect on growth, better consumption and savings. There have been major reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges, etc.. 100% FDI is to be allowed through FIPB route in marketing of food products produced and manufactured in India. On the Direct Taxation front, there have been no significant changes in tax rates other than an increase in surcharge by 3% on Individuals, HUF, AOP/ BOI having income above ` 1 crore. Further, an additional tax rate of 10% on gross amount of Dividend will be payable by the recipients receiving dividend in excess of ` 10 lakhs p.a. To meet the targeted reduction of corporate tax from 30% to 25% over the next four years, it has been proposed to phase out profit linked, investment linked and area based deductions for both corporate and non-corporate tax payers. With the intent to provide relief to newly set up domestic entity, it has been proposed that new manufacturing companies be taxed at the rate of 25% plus surcharge and cess, provided that they do not claim profit linked or investment linked deductions. It is proposed to provide a uniform tax treatment to the recognised provident fund, national pension system and superannuation fund which might increase the tax burden of the salaried class, with only 40% of the withdrawal of corpus being tax free. The Government is dedicated to provide a stable and predictable taxation regime and phasing out the black money market. Domestic taxpayers can now declare undisclosed income or such income represented in the form of any asset by paying tax at a total of 45% of the undisclosed income. Further, New Dispute Resolution Scheme is to be introduced, for reducing tax disputes for specified taxes. On the Indirect Taxation front, Customs and excise duty structure plays an important role in incentivising domestic value addition towards Make in India campaign of the government. In order to strengthen the domestic manufacturing, the budget has reduced import duty in certain sectors and made changes in customs and excise duty rates on certain inputs to reduce costs and improve competitiveness of the domestic manufacturing industry. At the same time, there has been an upward revision in excise rates on various products such as article of jewellery, readymade garments, various tobacco products, etc. Keeping resource mobilization for agriculture, rural economy and clean environment in mind, the FM has proposed Krishi Kalyan Cess at the rate of 0.5%, Infrastructure cess of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUV. The Budget 2016 is in line with the agenda of the Government to see a More Prosperous India with a vision to Transform India and put it on growth path. Undoubtedly, this reminds us the words of Dr. A.P.J. Abdul Kalam, former president of India- India should walk on her own shadow we must have our own development model. 1st March, 2016 Team Lodha & Co.

4 Contents Budget Highlights 3 Budget Proposals Direct Tax Laws 14 Indirect Tax Laws 36 Recent developments in regulatory framework 56 Macro Economic Indicators 67

5 BUDGET HIGHLIGHTS DIRECT TAXES Tax Rates No changes have been proposed in the basic exemption limit and the tax rates except (i) for reduction in income tax rate in respect of certain specified companies (ii) for increase in surcharge from 12% to 15% on Individuals and HUFs etc. having total income exceeding ` 1 crore. It has been proposed that in case of domestic company, the rate of Income-tax shall be twenty-nine per cent of the total income if the total turnover or gross receipts of the company in the previous year does not exceed ` 5 crores. In order to provide relief to newly setup domestic companies engaged solely in the business of manufacture or production, of article or thing, it has been proposed to amend the Act by way of insertion of new section 115BA, to provide that subject to compliance of specified conditions, the income-tax payable in respect of the total income of a domestic company for any previous year relevant to the assessment year beginning on or after the 1st April, 2017 shall be 25% at the option of the company. Additional 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of ` 10 lakhs per annum. Minimum Alternate Tax In case of certain categories of foreign companies, MAT will not be applicable retrospectively with effect from 1st April, Presumptive Taxation Maximum threshold limit of turnover or gross receipts as prescribed under section 44AD of the Act under Presumptive Taxation Scheme applicable for specified eligible business has been proposed to be increased from ` 1 crore to ` 2 crores. New section 44ADA is proposed to be inserted in the Act to provide for considering the income of an assessee who is engaged in any profession referred to in sub-section (1) of section 44AA and whose total gross receipts does not exceed ` 50 lakhs in a previous year, at a sum equal to fifty per cent of the total gross receipts, or, as the case may be, a sum higher than the aforesaid sum earned by the assessee. It is further proposed to increase the threshold limit of total gross receipts specified under section 44AB for getting accounts audited from ` 25 lakhs to ` 50 lakhs in the case of persons carrying on profession. Capital Gains Long Term Capital Gain derived by non-residents from the transfer of shares of a closely held private limited company is taxable at the rate of 10 per cent. Long Term Capital Gain is exempt for investments made till 31st March 2019 in units of the notified fund focused on startups. It has been proposed to provide that the provisions of section 115QA shall apply to any buy back of unlisted share undertaken by the company in accordance with the provisions of the law relating to the Companies and not necessarily restricted to section 77A of the Companies Act, Deposit certificate issued under Gold Monetisation Scheme will not be considered as capital asset and interest thereon will also be exempted. In case of Individuals, gains from redemption of gold bonds issued by the Reserve Bank of India under Sovereign Gold Bonds Scheme shall not be subject to capital gain. Disclosure and Resolution Schemes Subject to specified terms and conditions, immunity have been granted in case of domestic taxpayers who declares undisclosed income or such income represented in the form of any asset by paying tax at 45% of the undisclosed income. New Dispute Resolution Scheme has been proposed to be introduced for reducing tax disputes for specified taxes. The declarant under the scheme be required to pay tax at the applicable rate plus interest upto the date of assessment. However, in case of disputed tax exceeding ` 10 lakhs, twenty-five percent of the minimum penalty leviable shall also be required to be paid. Any pending appeal against a penalty order can also be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition. Sector Specific Provisions Apart from assessee engaged in the business of generation and distribution of power enjoying benefit of additional 20%, the said benefit has also been extended to the business of transmission of power. Subject to specified conditions, 100% deduction of the profits has been proposed for an entity engaged in undertaking housing project for flats upto 30 square metres in four metro cities and 60 square metres in other cities. Budget Briefing

6 It has been proposed that where the total income of the eligible assessee 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 ten per cent (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. Distribution made out of income of SPV to the REITs and INVITs having specified shareholding will not be subjected to Dividend Distribution Tax, in respect of dividend distributed after the specified date. In the case of NBFCs, it has been proposed to provide deduction from total income (computed before making any deduction under section 36(1)(7a)(c) and Chapter- VIA) on account of provision for bad and doubtful debts to the extent of five per cent of the total income. The Finance Act, 2015 provided that a company would be resident in India in any previous year if it is an Indian company or its Place of Effective Management (POEM) in that year is in India. In order to provide clarity in respect of implementation of POEM based rule of residence and also to address concerns of the stakeholders, it is proposed to defer the applicability of POEM based residence test by one year and the determination of residence based on POEM shall be applicable from 1st April, The provision dealing with certain activities not to constitute business connection in India is relaxed to include fund established/ incorporated/registered in a country or a specified territory notified by the Central Government. Further, the condition that the offshore fund is not carrying out or controlling and managing, directly or indirectly, any business from India has been dispensed with. In order to grant tax neutrality to foreign oil companies, the Government subject to specified conditions has proposed to exempt income of such foreign companies arising on account of storage of crude oil in a facility in India and sale of crude oil therefrom to Indian tax resident. It has been proposed to provide for an equalisation levy of 6% of the amount of consideration for specified services (i.e. online advertising, any provision for digital advertising space or any other facility or service for the purpose of online advertising) received or receivable by a non-resident not having permanent establishment ( PE ) in India from a resident in India who carries out business or profession or from a non-resident having permanent establishment in India. Rental and House Property Income It has been proposed that deduction on account of interest paid on capital borrowed for acquisition or construction of a self-occupied house property shall be available if the acquisition or construction is completed within five years from the end of the financial year in which capital was borrowed as against specified period of three years as per the extant provisions of the Act. It is proposed to provide that an amount of rent received in arrears or an amount of unrealized rent realised subsequently by an assessee shall be charged to income-tax in the financial year in which such rent is received or realised, whether the assessee is the owner of the property or not in that financial year. It is also proposed that thirty per cent of the arrears of rent or an unrealised rent realised subsequently by the assessee shall be allowed as deduction. Deduction for additional interest of ` 50,000 per annum has been proposed for loans upto ` 35 lakhs sanctioned in Financial Year for first time home buyers, where house cost does not exceed ` 50 lakhs. Deduction and Allowances It has been proposed that the deduction of thirty percent of additional wages paid to new regular workmen in a factory for three years shall be available in respect of cost incurred on any employee whose total emoluments are less than or equal to ` 25,000 per month. Norms for minimum number of days of employment in a financial year has also been proposed to be reduced from 300 days to 240 days and the condition of ten per cent increase in number of employees every year is also proposed to be done away. Profit linked, investment linked and area based deductions has been proposed to be phased out for both corporate and non-corporate tax payers. Provisions having a sunset date have not been modified to advance the sunset date. Similarly, the sunset dates provided in the Act has not been extended. In case of tax incentives with no terminal date, a sunset date of 31st March, 2017 has been provided either for commencement of the activity or for claim of benefit depending upon the structure of the relevant provisions of the Act. It has been proposed that no weighted deduction will be allowed with effect from 01st April, Limit of deduction of rent paid under section 80GG has been increased from ` 24,000 per annum to ` 60,000 per annum to provide relief to those who resides in rented houses. Retirement Benefits In case of National Pension System (NPS) referred to in section 80CCD where as per the extant provisions, the terminal benefits on exit or superannuation, in the form of lump sum withdrawals, are taxable, it has now been proposed that withdrawal upto 40% of the corpus at the time of retirement will remain tax exempt. 4 Budget Briefing 2016

7 The limit of contribution by the employee eligible under section 80C of the Act has been increased from ` 1 lakh to ` 1.50 lakhs vide Finance Act (No.2), Therefore, in order to bring parity in the monetary limit for contribution by the employer and the employee, it is proposed to amend the Section 17 and Part-A of Fourth Schedule so as to provide the limit of employer s contribution to ` 1.50 lakhs, without attracting tax. Exemption limit of employer s contribution to superannuation fund enhanced from ` 1 lakh to ` 1.50 lakhs. Exemption on withdrawal of accumulated balances from a recognised Provident Fund is reduced from 100% to 40% to the extent it relates to contribution made by the employee (other than excluded employee as prescribed). Tax deduction and collection at source It has been proposed that the seller shall collect the tax at the rate of one per cent from the purchaser on sale of motor vehicle of the value exceeding ` 10 lakhs and sale in cash 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 ` 2 lakhs. Non-residents (not being a company) or a foreign company would not be liable to a higher initial withholding tax rate of 20 per cent on non-furnishing of PAN, if the conditions to be prescribed are fulfilled. The existing threshold limit for deduction of tax at source and rates thereof has been revised. Return of Income and Assessment Filing of return of income has been made mandatory in respect of every person whose income without giving effect to income exempt under section 10(38) exceeds the maximum amount chargeable to tax. Return of income cannot be regarded as defective merely for non-deposit of self-assessment tax and associated interest within the time limits. Right of the tax department to appeal against the direction of Dispute Resolution Panel to be withdrawn from 1st June, Time limit for assessment (including assessment in search cases), re-assessment and re-computation has been rationalised. 50% for under reporting of income and 200% for misreporting of income has been proposed. Miscellaneous Three Tiered transfer pricing documentation structure has been proposed to be adopted for specified companies. GAAR provisions shall be made applicable from 1st April, Securities Transaction Tax in case of Options in securities where option is not exercised is proposed to be increased from.017% to.05%. Taxation of non-compete fees and exclusivity rights in case of profession is proposed to be brought at par with similar income in the case of business. INDIRECT TAXES CUSTOM DUTY No change in basic customs duty which is 10%. Section 2(43) is being amended so as to add a new class of warehouses for enabling storage of specific goods under physical control of the department, as control over the other types of warehouses would be only record based. The definition of Warehousing station is being omitted. Power to grant exemption from duty omits the requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC. Increase the period of limitation from one year to two years in cases not involving fraud, suppression of facts, willful misstatement, etc. Provide for deferred payment of customs duties for importers and exporters to certain class of importers and exporters. Board to frame regulations for allowing transit of certain goods and conveyance without payment of duty. Licensing by the Principal Commissioner or Commissioner, in place of Deputy/Assistant Commissioner, in case of appointing of public warehouse or licensing of private warehouse. A new class of warehouses is proposed which require continued physical control and will be licensed for storing goods, as may be specified. Procedure of recovery of duties under section 28 to include duty not paid or short paid. Exporter is liable to pay interest on duty not paid / short paid at a minimum rate of 5 % but not exceeding 36%. Importer is liable to pay interest on duty not paid / short paid at a minimum rate of 10 % but not exceeding 36%. Budget Briefing

8 New section 58B is being inserted so as to regulate the process of cancellation of licences which is a necessary concomitant of licencing. The existing section 59 governing warehousing bonds submitted by importers availing duty deferred warehousing is being substituted so as to fix the bond amount at thrice the duty involved and to furnish security as prescribed. The existing section 60 is being substituted to define the date of removal of goods from a customs station and deposit thereof in a warehouse. Extend the period of warehousing for all goods used by Export Oriented Undertakings, Units under Electronic Hardware Technology Parks, Software Technology Parks, Ship Building Yards and other units manufacturing under bond; empower Principal Commissioners and Commissioners to extend the warehousing period upto one year at a time. Section 62 relating to physical control over warehoused goods is being omitted since the conditions for licensing different categories of warehouses and exercising control over the same are being provided under sections 57, 58 and 58A. Section 63 relating to payment of rent and warehouse charges is being omitted in view of the privatization of services, and free market determination of rates, including those by facilities in the public sector. Further, Section 68 and section 69 is being accordingly amended to omit rent and other charges. The existing section 64 relating to owner s rights to deal with warehoused goods is being substituted so as to rationalize the facilities and rights extended under the section. Section 65 is being amended to delete the payment of fees to Customs for supervision of manufacturing facilities under Bond; and empower Principal Commissioner or Commissioner of Customs to licence such facilities. Section 71 is being amended so as to substitute the word exportation with the word export to align with definition contained in sub section (18) of section 2. Section 72 is being amended to delete clause (c) regarding improper removal of samples. Section 73 is being amended to provide for cancellation bond in case of transfer of ownership of the goods, and is thus aligned with sub-section (5) of section 59. New section 73A is being inserted so as to provide for custody of warehoused goods and responsibilities including the liabilities of warehouse keepers. New Baggage Rules introduced to simplify and rationalize multiple slabs of duty free allowance for various categories of passengers with effect from 1st April, Filing of custom declaration required only for those passengers who carry dutiable or prohibited goods. Custom single window project to be implemented at major ports and airports starting from beginning of next financial year. The interest on delayed recoveries of confirmed demands is being reduced from 18% to 15% with effect from 1st April, AMENDMENT IN THE CUSTOMS TARIFF ACT, 1975 To omit Section 8C [Power of Central Government to impose transitional product specific safeguard duty on imports from People s Republic of China]. RETROSPECTIVE AMENDMENT Notifications relating to Advance Authorization and Duty Free Import Authorization Schemes are being amended retrospectively to provide exemption from safeguard duty. EXCISE DUTY Central Excise No change in basic excise duty which is 12.50%. Amendments in Central Excise Act, 1944 The requirement of publishing and offering for sale any notification issued, by the Directorate of Publicity and Public Relations of CBEC is being omitted from Section 5A dealing with power to grant exemption from duty of excise. The period of limitation is being increased from one year to two year for issuance of show cause notice for recovery of duties in cases not involving fraud, suppression of facts, willful misstatement, etc. The Board has been empowered for implementation of any other provisions of the said Act in addition to the power to issue orders, instructions and directions. Amendments in the Central Excise Rules, 2002 and the Cenvat Credit Rules, 2004 Reduction in the number of returns to be filed by a central excise assessee above a certain threshold from 27 to 13 i.e. One annual and 12 monthly returns. E- Filing of Return will be made applicable for annual return. 6 Budget Briefing 2016

9 In cases where invoices are digitally signed, the manual attestation of copy of invoice, meant for transporter, is done away with. The facility for revision of return is being extended to include manufacturer. Interest will be chargeable from the original date of payment of duty in case of finalization of provisional assessment. Amendment in CENVAT Credit Rules, 2004 to improve credit flow, reduced the compliance burden and associated litigations. Instructions to Chief Commissioners of Central Excise to file application to Courts to withdraw prosecution in cases involving duty of less than ` 5 lakhs and pending for more than fifteen years. The Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2001 is being amended to Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2016 so as to simplify the rules. Retail Sale Price [RSP] based assessment of excise duty has been extended to: a) all goods falling under heading 3401 and 3402 [with abatement rate of 30%], b) aluminium foils of a thickness not exceeding 0.2 mm [with abatement rate of 25%], c) wrist wearable devices (commonly known as smart watches ) [with abatement rate of 35%], and d) accessories of motor vehicle and certain other specified goods [with abatement rate of 30%]. The rate of Oil Industries Development Cess, on domestically produced crude oil is being reduced from ` 4500 PMT to 20% ad valorem OIDB Cess. The amendment in the Act will be effective from the date of assent to the Finance Bill, The effective rate of Clean Energy Cess (renamed as Clean Environment Cess) is being increased from ` 200 per tonne to ` 400 per tonne. Infrastructure Cess is being levied on motor vehicles, of heading 8703, as under from 1-4% depending on the length and engine capacity of vehicle. No credit of infrastructure Cess will be available, and credit of no other duty can be utilized for payment of this Infrastructure Cess. Exemption of Excise duty on articles of Jewellery for home consumptions upto ` 6 Crores subject to certain conditions. Certificate is not required for granting exemption for power generation projects if the proper officer is satisfied in respect of valid agreement between producer of power and urban local body. Revised return can be submitted in the calendar month of original return. Definition of capital goods amended to include storage tanks used as an equipment or appliance for office. Filing of Form A for claim of refund before expiry of the period of claim of refund in case of manufacturer and before the expiry of one year from the date of receipt of payment or issue of invoice in case of service provider. Interest on delayed payment of excise duty will be charged at 15% with effect from 1st April, Single registration for multiple premises of same manufacturer located in close proximity is permitted subject to conditions, with effect from 1st March Centralized registration procedure for jewellery manufacturers introduced with effect from 1st March SERVICE TAX No change in the service tax rate of 14% & Swachh Bharat Cess of 0.5%. Krishi Kalyan Cess 0.5% proposed to be levied on all taxable services to finance and promote initiatives to improve agriculture. Credit of Krishi Kalyan cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by service provider. Changes made with retrospective effect Exemptions on services of: construction provided to the Government, a local authority or a governmental authority, in respect of construction of government schools, hospitals etc. construction of ports, airports, [which were withdrawn with effect from 1st April, 2015], are being restored in respect of services provided under contracts which had been entered into prior to 1st March, 2015 on payment of applicable stamp duty. Services provided by way of construction, maintenance etc. of canal, dam or other irrigation works provided to bodies set up by Government but not necessarily by an Act of Parliament or a State Legislature, during the period from the 1st July, 2012 to 29th January, 2014, are being exempted from Service Tax with consequential refunds, subject to the principle of unjust enrichment. Budget Briefing

10 Refund of service tax on services used beyond the factory or any other place or premises of production or manufacture of the goods for export with effect from 1st July, Changes made with immediate effect Exemption on construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 1st March 2016 is being withdrawn. Services by way of construction etc. in respect of housing projects under Housing for All (HFA) (Urban) Mission/ Pradhan Mantri Awas Yojana (PMAY); low cost houses up to a carpet area of 60 square metres in a housing project under Affordable housing in Partnership or under any housing scheme of the State Government is being exempted from service tax. Services provided by the Indian Institutes of Management (IIM) by way of 2 year full time Post Graduate Programmed in Management (PGPM) (other than executive development programmer), Integrated Programme in Management and Fellowship Programme in Management (FPM) are being exempted from Service Tax. To provide level playing field to Indian Shipping lines vis-a-vis foreign shipping lines, it is being proposed to allowed credit of Input Service, Input & Capital goods for zero rate services provided by Indian Shipping lines by way of transportation of goods by a vessel to outside India. Changes which would be made effective from 1st April 2016 Exemption on service provided by a senior advocate to an advocate or partnership firm of advocates providing legal service is being withdrawn. Exemption on service provided by a person represented on an arbitral tribunal to an arbitral tribunal is being withdrawn. Service tax on reverse charge mechanism applicable on any service provided by Government or local authority to business entities. Exemption on the services of transport of passengers, with or without accompanied belongings, by ropeway, cable car or aerial tramway is being withdrawn. Exempt from service tax the Annuity services provided by the National Pension System (NPS) and Services provided by EPFO to employees. Services provided by Insurance Regulatory and Development Authority (IRDA) of India is being exempted from service tax. Regulatory services provided by Securities and Exchange Board of India (SEBI) is being exempted from service tax. Reduce service tax on Single Premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases. Exemption of Service tax on general insurance services provided under Niramaya Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability. Exemption of Service tax on services provided by National Centre for Cold Chain Development under Department of Agriculture, Cooperation and Farmer s Welfare, Government of India, by way of knowledge dissemination. Exemption of Service tax on services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to incubatees. Exemption of service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by Ministry of Skill Development & Entrepreneurship. The threshold exemption to services provided by a performing artist in folk or classical art forms of music, dance or theatre is being enhanced from ` 1 lakh to ` 1.5 lakhs charged per event. The services provided by mutual fund agent/distributor to a mutual fund or asset management company, are being made taxable under forward charge (reverse charge in previous year), so as to enable the small sub-agents down the distribution chain to avail small scale exemption having threshold turnover of Rs 10 lakh per year, subject to fulfillment of other conditions prescribed. The benefit of quarterly payment of Service Tax is being extended to One Person Company (OPC) and HUF. The facility of payment of Service Tax on receipt basis is being extended to One Person Company (OPC). Credit of input services is being allowed on transport of passengers by rail at the existing rate of abatement of 70%. Credit of input services is being allowed on transport of goods, other than in containers, by rail at the existing rate of abatement of 70%. Credit of input services is being allowed on transport of goods in containers by rail at a reduced abatement rate of 60%. 8 Budget Briefing 2016

11 Credit of input services is being allowed on transport of goods by vessel at the existing rate of abatement of 70%. The abatement rate in respect of services by way of construction of residential complex, building, civil structure, or a part thereof, is being rationalized at 70%. The abatement rate in respect of services by a tour operator in relation to packaged tour and other than packaged tour is being rationalized at 70%. The abatement on shifting of used household goods by a Goods Transport Agency (GTA) is being rationalized at the rate of 60%, without CENVAT credit on inputs, input services and capital goods. The abatement rate on services of a foreman to a chit fund is being rationalised at the rate of 30%, without CENVAT credit on inputs, input services and capital goods. The CENVAT credit rules are being amended so as to allow banks and other financial institutions to reverse credit in respect of exempted services on actual basis in addition to the option of 50% reversal. The CENVAT credit rules are being amended to improve credit flow, reduce the compliance burden and associated litigation, particularly those relating to apportionment of credit between exempted and non-exempted final products / services. The CENVAT credit rules are being amended to provide for reversal of CENVAT Credit of inputs/input services which have been commonly used in providing taxable output service and an activity which is not a service under the Finance Act, The CENVAT credit rules are being amended so as to allow CENVAT credit of Service Tax paid on amount charged for assignment by Government or any other person of a natural resource, over such period of time as the period for which the rights have been assigned. To reduce compliance cost, the number of returns to be filed by a central excise assessee, above a certain threshold, is being drastically reduced, from 27 to 13, one annual and 12 monthly returns. Monthly returns are already being e-filed. The annual return will also have to be filed by Service Tax assessees, above a certain threshold. This change shall come into effect from 1st April, Changes which would be made effective from 1st June 2016 Krishi Kalyan Cess 0.5% proposed to be levied on all taxable services to finance and promote initiatives to improve agriculture. Negative List entry that covers service of transportation of passengers, with or without accompanied belongings, by a stage carriage being omitted and tax proposed to be levied on service of transportation of passengers by air conditioned stage carriage, at the abatement of 60% without input tax credit, with effect from 1st June, 5.6%. To provide level playing field to Indian Shipping lines vis-a-vis foreign shipping lines, it is being proposed to impose Service Tax on services provided by them by way of transportation of goods by a vessel from outside India up to the customs station in India so as to complete the credit chain and enable Indian Shipping Lines to avail and utilize input tax credits. Transportation of goods by an aircraft from a place outside India upto the Custom station of clearance to be omitted. Amendments in CENVAT Credit Rules 2004 Definition of Capital Goods and Inputs amended to include certain equipments and goods used for pumping of water for captive use. CENVAT credit not to be utilised for payment of infrastructure cess. CENVAT credit to be allowed where jigs, Fixtures, Moulds, etc. on sending to other manufacturer or job worker. Allow credit on inputs received under the cover of invoice issued by a warehouse. Annual return to replace filing of information relating to principal inputs. New methodology to reduce litigation in respect of apportionment of credit between exempted and nonexempted goods and services. Input Service distributor can distribute CENVAT credit in respect of service tax paid on input services to its outsourced manufacturing units. CENVAT credit on Input services allowed for providing services of transportation of goods by vessel in case of abatement of 50%. Other Changes in Finance Act 1994 Indirect tax Dispute Resolution Scheme, 2016, 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. Section 67A is being amended to obtain rule making powers in respect of the Point of Taxation Rules, 2011, so as to provide that the point in time when service has been provided or agreed to be provided shall be Budget Briefing

12 determined by rules made in this regard. Point of Taxation Rules, 2011 is being amended accordingly. Section 93A of the Finance Act, 1994 is being amended so as to allow rebate by way of notification as well as rules. Explanation 2 in section 65B (44) of the Finance Act, 1994 is being amended so as to clarify that any activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, of the State Government as per the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998), is leviable to Service Tax. Notification No. 27/2012 C.E. (N.T.) dated 18th June, 2012 is being amended with effect from 1st March, 2016 so as to provide that time limit for filing application for refund of CENVAT Credit under Rule 5 of the CENVAT Credit Rules, 2004, in case of export of services, is 1 year from the date of: receipt of payment in convertible foreign exchange, where provision of service has been completed prior to receipt of such payment; or issue of invoice, where payment, for the service has been received in advance prior to the date of issue of the invoice. Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers thereof is being declared as a service under section 66E of the Finance Act, 1994 so as to make it clear that assignment of right to use the spectrum is a service leviable to Service Tax and not sale of intangible goods. A condition mandating inclusion of cost of fuel in the consideration for availing abatement on the services by way of renting of motor-cab is being prescribed with effect from 1st April, Service tax on the services of Information Technology Software on media bearing RSP is being exempted from Service Tax with effect from 1st March, 2016 provided Central Excise duty is paid on RSP in accordance with Section 4A of the Central Excise Act. Mutual exclusiveness of levy of excise duty and Service Tax on Information Technology Software in respect of software recorded on media NOT FOR RETAIL SALE is being ensured by exempting from excise duty only that portion of the transaction value on which Service Tax is paid. Section 73 of the Finance Act, 1994 is being amended so as to increase the limitation period from 18 months to 30 months. The Negative List entry covering educational services by way of (a) pre-school education and education up to higher and secondary school or equivalent, (b) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force and (c) education as a part of an approved vocational education course [Section 66D (l)] and the definition of approved vocational education course [section 65B (11)] are being omitted. However, the exemption shall continue by way of exemption notification No. 25/2012 ST. In the last Budget, the Customs, Central Excise and Service Tax laws were amended to provide for closure of proceedings where the assessee pays duty/tax due, interest and specified penalty. Further amendments are being made to Service Tax law so as to provide for closure of proceedings against co notices, once the proceedings against the main noticee have been closed. The power to arrest in Service Tax is being restricted only to situations where the tax payer has collected the tax but not deposited it to the exchequer, and that too above a threshold of ` 2 crores. The monetary limit for launching prosecution is being increased from ` 1 crore to ` 2 crores of Service Tax evasion. Penalty of ` 100 per day subject to maximum of ` 20,000 for delay in filing of Annual return of Service Tax. Penalty for offences increased from ` 50 lakhs to ` 2 crores. Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%, except in case of Service Tax collected but not deposited to the exchequer, in which case the rate of interest will be 24% from the date on which the Service Tax payment became due. In case of assessee, whose value of taxable services in the preceding year/years covered by the notice is less than ` 60 lakhs, the rate of interest on delayed payment of Service Tax will be 12%. Goods and Service Tax (GST) Act Continue with the ongoing reform programme and ensure passage of the Goods and Service Tax bill. The Central Sales Act, 1956 Where the gas sold or purchased and transported through a common carrier pipeline or any other common transport distribution systems becomes co-mingled and fungible with other gas in the pipeline or system and such gas is introduced into the pipeline or system in one state and is taken out from the pipeline in another state, such sale or purchase of gas shall be deemed to be a movement of goods from one state to another. 10 Budget Briefing 2016

13 OTHER MEASURES AND PRONOUNCEMENTS INFRASTRUCTURE AND INVESTMENT Capital Outlays for infrastructure is of ` 2,21,246 crores including ` 2,18,000 crores for roads and railways. Plan for revival of 160 unserved and underserved airports in partnership with State Governments at cost of ` 50 crores to ` 100 crores each shall be drawn up. Proposal is under consideration for new discoveries and areas which are yet to commence production of rich natural resources including oil and gas, to provide calibrated marketing freedom and to do so at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels. Public Private Partnership for infrastructural development to be revitalised via introduction of (i) Public Utility (Resolution of Disputes) Bill, (ii) Guidelines for renegotiation of PPP Concession Agreements and (iii) New credit rating system for infrastructure projects. Additional finance of ` 31,300 crores to be mobilized by NHAI, PFC, REC, IREDA, NABARD and Inland Water Authority through raising of Bonds. Budgetary allocation upto ` 3,000 crores per annum, together with public sector investments, will be leveraged to facilitate investment in nuclear power generation for 15 to 20 years. Policy for management of Government investment in Public Sector Enterprises, including disinvestment and strategic sale, has been approved. Central Public Sector Enterprises (CPSEs) will be encouraged to divest individual assets like land, manufacturing units, etc. to release their asset value for making investment in new projects and NITI Aayog will identify the CPSEs for strategic sale. FINANCIAL SECTOR Code on Resolution of Financial Firms together with Insolvency and Bankruptcy Code, 2015, when enacted will provide a specialised resolution mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities. RBI Act, 1934 is being amended to provide statutory basis for a Monetary Policy framework and a Monetary Policy Committee. Financial Data Management Centre will be set up to facilitate integrated data aggregation and analysis in the financial sector. RBI shall facilitate retail participation in Government securities through stock exchanges and access to NDS- OM trading platform. Comprehensive Central Legislation proposed to deal with menace of illicit deposit taking schemes. Various measures shall be introduced for deepening of corporate bond market - (i) a dedicated fund to provide credit enhancement to infrastructure projects, (ii) guidelines to encourage large borrowers to access their financing needs through market mechanism instead of banks, (iii) Investment basket of foreign portfolio investors will be expanded to include unlisted debt securities and pass through securities issued by securitisation SPVs, (iv) electronic auction platform for primary debt offer, (v) a complete information repository for corporate bonds and (vi) an electronic framework for repo market in corporate bonds. New derivative products will be developed by SEBI in the Commodity Derivatives market. Amendments in the SARFAESI Act 2002 has been made to enable the sponsor of an ARC (Asset Reconstruction Company) to hold up to 100% stake in the ARC and permit non institutional investors to invest in Securitization Receipts. ` 25,000 crores shall be allocated towards recapitalisation of Public Sector Banks. Necessary assistance for further capital shall be provided to banks, if required. Debt Recovery Tribunal will be strengthened for speedier resolution of stressed assets. Pradhan Mantri Mudra Yojana Scheme to be increased by ` 80,000 crores for the benefit of bottom of the pyramid entrepreneurs. General Insurance Companies owned by the Government will be listed in the stock exchanges in order to promote public shareholding in Government owned companies. ATMs and Micro ATMs in Post Office to be rolled out over three years especially in rural areas. SOCIAL SCHEMES AND HEALTH CARE ` 2,000 crores has been set aside to meet the initial cost of providing LPG connections in the name of women member of poor households. New health protection scheme to provide health cover upto ` 1,00,000 per family and for senior citizens an additional top-up package upto ` 30,000 shall be launched. Budget Briefing

14 3,000 Stores under Prime Minister s Jan Aushadhi Yojana will be opened during to provide quality medicines at affordable cost. National Dialysis Services Programme scheme to be started under National Health Mission through PPP mode to provide dialysis services in all district hospitals. ` 500 crores has been provided for Stand Up India Scheme to promote entrepreneurship among Schedule Caste/Schedule Tribe and women. National Scheduled Caste and Scheduled Tribe Hub in MSME Ministry in partnership with industry associations to be set up to assist Scheduled Caste and Scheduled Tribe in fulfilling the obligations under the Central Government procurement policy Schemes for welfare and skill development for Minorities such as Multi-sectoral Development Programme and USTAAD shall be implemented effectively. AGRICULTURE Allocation for Agriculture and Farmers welfare has been made of ` 35,984 crores with an intention to double their income by the year Pradhan Mantri Krishi Sinchai Yojana will be implemented to bring 28.5 lakh hectares under irrigation. Further, irrigation projects under AIBP will be fast tracked. Long Term Irrigation Fund with an initial corpus of ` 20,000 crores will be created in NABARD. Programme for sustainable management of ground water resources with an estimated cost of ` 6,000 crores will be implemented through multilateral funding. ` 368 crores has been provided for National Project on Soil Health and Fertility which will help farmers get information about nutrient level of soil. ` 412 crores has been allocated for promoting organic farming through Parmparagat Krishi Vikas Yojana and Organic Value Chain Development in North East Region. ` 500 crores under National Food Security Mission has been assigned for enhancement of pulses production. Additional allocation of ` 27,000 crores (including ` 19,000 crores by the Centre) has been made under Pradhan Mantri Gram Sadak Yojana. Provision of ` 15,000 crores has been made towards interest subvention to reduce the burden of loan repayment on farmers. ` 5,500 crores has been allocated under Prime Minister Fasal Bima Yojana for Crop Insurance Scheme. ` 850 crores shall be allocated for four dairying projects - Pashudhan Sanjivani, Nakul Swasthya Patra, E-Pashudhan Haat and National Genomic Centre for indigenous breeds. RURAL SECTOR ` 2.87 lakh crores will be given as Grant in Aid to Gram Panchayats and Municipalities over five year period. ` 38,500 crores has been allocated for MGNREGS. Further, Cluster Facilitation Teams shall be set up to ensure water conservation and natural resource management. 300 Rurban Clusters will be developed under the Shyama Prasad Mukherjee Rurban Mission which will provide infrastructure amenities and market access for the farmers. ` 8,500 crores has been provided for Deendayal Upadhayaya Gram Jyoti Yojna and Integrated Power Development Schemes for electrification of villages. Digital Literacy Mission Scheme for rural India is planned to be launched to cover around 6 crores additional household within the next 3 years. ` 150 crores has been provided for to revamp National Land Record Modernisation Programme under the Digital India Initiative to build an integrated land information management system. ` 655 crores has been proposed for Rashtriya Gram Swaraj Abhiyan Scheme for development of governance capabilities to deliver on the Sustainable Development Goals. EDUCATION AND INSTITUTIONS Share of allocation under Sarva Shiksha Abhiyan has been proposed to increase and 62 new Navodaya Vidyalayas will be opened over the next two years. Higher Education Financing Agency is to be set-up with initial capital base of ` 1,000 crores which shall be a not-for-profit organisation that will leverage funds from the market and supplement them with donations and CSR funds. ` 1,700 crores has been set aside to set up 1500 Multi Skill Training Institutes under Pradhan Mantri Kaushal Vikas Yojana (PMKVY). Entrepreneurship Education and Training will be provided in 2200 colleges, 300 schools, 500 Government ITIs and 50 Vocational Training Centres through Massive Open Online Courses. OTHERS 12 Budget Briefing 2016