The Indian Union Budget Foreword

Transcription

1 INDIAN UNION BUDGET

2 The Indian Union Budget Foreword The fourth budget marks the coming of age of the NDA Government. It marks the upholding of strict discipline in fiscal management of the economy, however, the political compulsion and philosophy is writ large all over the budget. The allocation of resources to various sectors of the economy and to various sections of the society is as per the declared policy of the NDA Government. What is most endearing is there is no attempt to be populist with public money. It is spent in a disciplined manner which has kept the inflation in check. All macro economic parameters of fiscal deficit (3.2% of GDP), revenue deficit (1.9% of GDP) and trade deficit (0.3% of GDP) have been kept within the realm of fiscal prudence. There is no easy money policy or give a ways to any sector for free. All allocation of public funds have to be earned and then spent on the maximum impact basis. The increase in capital allocation of more than 25% shows government s resolve to kick start sluggish investment environment in the country. Coming to the direct tax laws, it is mostly status-quo maintained as is required in a large economy like India. The Finance Minister and the Government are following their evolved policy of maintaining stability in tax regulations and not making too frequent and too many changes therein. Very minimal changes in tax laws have been made, especially in the rates of taxation to most taxpayers both in the space of direct and indirect taxes. The NDA Government continues to tread the path of transparency and good governance. Except for one or two amendments in the Act, which may have been cajoled by bureaucratic compulsions, most of the amendments proposed in the Financial Bill of 2017 are forward looking. The provisions made w.e.f and debarring statutory appellate authorities from looking into the reason to believe or reason to suspect for ordering search and seizure are against the basic grain & tenor of the policies of the NDA Government. It suffers on two counts. Firstly the NDA Government in their manifesto and had reiterated thereafter that they would not and they were not in favour of retrospective amendments to law. Secondly, the transparency that is being brought into the government working is also being compromised by these amendments. It is hoped that these amendments would be relooked at before the Finance Act, 2017 is passed. 1

3 The Indian Union Budget Foreword The reduction in tax rate on companies having gross receipts/turnover of less than Rs.50 Crores (96% of the total companies) is a laudable step and would go far in incentivizing medium and small scale enterprise to increasing their tax compliance and reporting of true incomes. The Transfer provisions are being fine tuned with each successive year and in this year three important changes have been made. Transactions between the domestic related companies have been liberalized and transactions between them which have not availed of tax benefit are no longer required to reported and are outside the Transfer compliance net. The second important change having been brought is with respect to rule against thin capitalization of companies. It will no longer be possible to reduce profits in the Indian tax payers hand and transfer of profits by way of interest on AE, on loans/debts given directly or indirectly. Thirdly the secondary adjustment rule is being introduced to bring cash/tax profit and actual profit in line with each other. The Finance Minister in his speech has also laid emphasis on reforming tax administration and digitizing most interfaces between the tax payer and the tax administration thereby relieving the tax payer of a great compliance burden. This is indeed very welcome The Budget of 2017 is a forward looking budget, takes forward all the socio-economic and political policies of the NDA Government in transforming India and creating a new normal for remonetized, clean India. 2

4 Direct and Indirect Tax Highlights 3

5 Changes in the Tax laws affecting Individuals () Change in Tax rates applicable to Individuals / HUFs The exemption limit for individuals remains unchanged. However, income tax rates reduced from 10% to 5% if income is in the range of ` 2.5 lakhs to 5 lakhs. For balance slabs, tax rate remains unchanged. Income-tax rates for senior citizens reduced from 10% to 5% if income is in the range of ` 3 lakhs to 5 lakhs and for balance slabs, tax rate remains unchanged. Introduction of Surcharge on income between ` 50 lakhs to ` 1 Crore- Surcharge of 10% on personal income - tax applicable on income exceeding ` 50 Lakhs up to 1 Crore. Rates of Education cess and Higher Secondary Cess remain unchanged. No change in Surcharge rate if individual s income exceeds ` 1 crore. Marginal change in Tax liability of Individuals, HUFs, earning taxable income above ` 1 crore due to benefit of proposed 5% slab as against 10% earlier. Rationalization of Rebate u/s 87A-Rebate reduced from ` 5,000 p.a. to ` 2,500 p.a for resident individuals whose total income does not exceed ` 3.5 Lakhs. TDS on rent paid by individual/huf (other than those liable for Tax Audit) TDS shall be 5% on payment of rent of over ` 50,000 per month by individual/huf deductors in the last month of the year or the last month of tenancy, if the property is vacated during the year, which ever is earlier. Not required to obtain TAN u/s 203 of the Act, TDS will be deducted on the basis of PAN of tenantin parity with procedure fortds by individuals/huf for purchaseof immovableproperty. 4

6 Changes in the Tax laws affecting Individuals () Analysis of Proposed and Existing Effective Tax Rate for Individuals/HUFs/AOP/BOI Total Income Tax Rate Surcharge (% of Tax Rate) Cess (% of Tax Rate & Surcharge) Existing Tax Rate Net Proposed Tax Rate Upto ` 2.50 Lakhs Nil Nil Nil Nil Nil ` 2.50Lakhs - ` 5 Lakhs 5% % 10.30% 5.15% ` 5.Lakhs- ` 10 Lakhs 20% % 20.60% 20.60% `10 Lakhs- ` 50 Lakhs 30% % 30.90% 30.90% ` 50Lakhs- `1 Crore 30% 3% 0.99% 30.90% 33.99% Above `1 Crore 30% 4.50% 1.04% 35.54% 35.54% Example 1 Particulars If Taxable Income is ` 75,00,000/- As per Proposed Tax Rates If Taxable Income is ` 75,00,000/- As per Old Tax Rates Example 2 If Taxable Income is ` 1,20,00,000/- As per Proposed Tax Rates If Taxable Income is ` 1,20,00,000/- As per Old Tax Rates Taxable Amount Surcharge (% of Tax Rate) Cess (% of Tax Rate & Surcharge) Net Net Tax Liability 20,62,500 2,06,250 68,063 23,36,813 20,75,000-62,250 21,37,250 34,12,500 5,11,875 1,17,731 40,42,106 34,25,000 5,13,750 1,18,163 40,56,913 5

7 Changes in the Tax laws affecting Individuals () Benefit to NPS Subscribers Now tax exemption is available to NPS Subscribers on partial withdrawal not exceeding 25% of contribution made by subscribers. Deduction under NPS will be 20% of the gross income of the self-employed individual (Individual other than salaried class) as against 10% available earlier. Interest income received by individuals from Non-Resident External (NRE) Accounts is exempt. The definition of a person resident outside India for the purposes of this exemption is now aligned with the Foreign Exchange Management Act, Deduction u/s 80CCG- Taxpayers having gross total income of less than ` 12 Lakhs were entitled to a deduction of upto ` 25,000 for three consecutive assessment years for investments in an equity savings scheme subject to fulfilment of certain conditions. This deduction has been discontinued going forward and will be phased out from Financial Year (FY) Threshold for Maintenance of Books of Accounts increased u/s 44AA Threshold for maintenance of books of accounts for individual/huf whose turnover/gross receipts is upto ` 25 lakhs (earlier ` 10 lakhs) or income is upto ` 2.5 lakhs (earlier ` 1.2lakhs) not required to maintain books of accounts. 6

8 Changes in the Tax laws affecting Individuals () Promoting digital payment in small unorganised businesses For Eligible assessee and eligible business under section 44AD of the Act. Reduction in existing rate of deemed total income of 8% to 6% in respect of turnover or gross receipts provided that such receipts are received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year. Rationalisation of Advance tax for professionals under presumptive scheme (u/s 44ADA) Under scheme for presumptive taxation for professionals with receipt upto ` 50 lakhs p.a. advance tax can be paid in one instalment instead of four instalments and accordingly interest for delay in payment will be charged for 1 payment. Form 15G/15H for Insurance Commission The provisions of section 197A providing non-deduction/lower deduction of TDS by filing self declaration form in 15G/15H benefit extended to the recipient of insurance commission. Expanding Scope of Exemption u/s 54EC Exemption is extended to invest in any bond redeemable after 3 years as notified by Central Govt. 7

9 Changes in the Tax laws affecting Individuals () Incentive to Andhra Pradesh under Land Pooling Scheme New Sec 10(37A) inserted to exempt capital gains on transfer of specified assets as covered under Andhra Pradesh Capital City Land Pooling Scheme Rules, 2015 under Income Tax Act, Joint Development Agreement - New Sec 45(5A) inserted Any Capital Gain arising on the transfer of capital assets being land or building or both under specified agreement* shall be chargeable to Income Tax. Such income will be chargeable to tax in the year in which certificate of completion for whole or part of the project issued by competent Authority. Full value of consideration shall be Stamp Duty value on the date of issue of completion certificate and increased by if any considerationreceived in cash. Any person responsible for paying any consideration other than in kind, shall required to deduct 10% u/s 194IC (newly inserted) at the time of credit of such sum or payment whichever is earlier. *Specified agreement- a registered agreement in which a person owing land or building or both, agrees to allow another persons to develop a real estate on such land or building or both, inconsideration of share in it whether with or without payment of part consideration in cash. 8

10 Changes in the Tax laws affecting assessees tax rate reduced For companies with total turnover or gross receipts not exceeding ` 50 crores in FY , tax rate reduced to 25%. No change in other tax rates for corporate. Levies of Surcharge & Education cess along with Higher Secondary Education Cess remains the same Carry forward of minimum alternate tax credit (MAT) extended upto 15 th assessment year from 10 years. (Sec 115JAA and Sec 115JD) Relief to Real Estate Sector Relaxation of norms for Profit linked benefit from Housing Projects :- Size of Residential Unit shall be measured by carpet Area instead of Built up Area Restriction of 30 sq. mtrs on size of residential unit removed for places located within a distance of 25kms from the municipal limits of Chennai/Delhi/Calcutta/Mumbai. Time Limit for project completion has been increased from 3 years to 5 years Widening scope of taxation of Dividend received Section 115BBDA amended dividend received in excess of ` 10 Lakhs was chargeable to tax at the rate of 10% on gross basis in the hands of the recipient being individual, HUF & Firm, this has now been extended to apply to all resident assessees except domestic company and certain notified funds, trusts, institutions, etc. 9

11 Changes in the Tax laws affecting assessees Providing Incentives to Start-ups The loss incurred by a startup in the 1 st seven years of incorporation can be carried forward and set off against the income of the subsequent previous years, if : o o all the promoter shareholders of such company which held shares carrying voting power on the last day of the year in which loss was incurred continue to hold shares on last day of the previous year in which the set off is sought Accordingly, the condition of 51% of the shareholding pattern remaining the same for all other companies that seek such set off (sec 79) has been relaxed for start-ups to facilitate ease of doing business. Currently, Startups are allowed deduction of 100% of the profits (sec 80-IAC) earned in 3 consecutive assessment years out of 5 years from incorporation, the period for claiming the deduction has been increased for any 3 consecutive assessment years out of 7 years. Notional income from house property for stock-in-trade held by Real Estate Developers after 1 year from Certificate of Completion Where house property is held as stock-in-trade which is not let out during the whole or any part of the year, Notional Income shall be computed after one year from the end of the financial year in which the certificate of completion of construction is obtained from the competent authority. 10

12 Changes in the Tax laws affecting assessees Clarificatory Amendment for Long Term Capital Gain on Equity shares Equity Shares of a company in which public is not substantially interested shall continue to be 10% without benefit of indexation retrospectively from AY Carbon credits now Taxable at concessional rate Income from transfer of carbon credits shall be taxable at concessional rate of 10% (plus surcharge & cess), without allowance of any expenditure for the same (Sec 115BBG inserted). This is to put to rest litigation of treating it revenue receipt and 30% by revenue authorities and claiming them to be tax exempt as capital receipts by the assessee. Disallowance of Capital Expenditure & Depreciation thereon if incurred in Cash In order to discourage cash transactions, it is proposed to amend Sec 40A(3) to disallow the capital expenditure in addition to the revenue expenditure incurred in cash but would apply prospectively from A.Y Consequently it has also been proposed to amend Sec 43 (cost of acquisition) to provide that any capital expenditure exceeding ten thousand in cash shall be ignored for determining actual cost of asset. 11

13 Changes in the Tax laws affecting assessees Book profits for MAT to be computed in line with Indian Accounting Standards (Ind AS) with effect from AY for companies to which Ind AS applies. Starting point for computation of book profit to be Net profit before Other Comprehensive Income (OCI). Items in OCI not be reclassified to P&L for items such as Revaluation of Property, Plant, Equipment, Intangible assets, Financial Instruments etc. to be included in book profits at the time of disposal / retirement / transferred. On first time adoption, transition amount to be included in book profit over a period of 5 years. In case of demerger, impact of fair value accounting under Ind AS to be ignored. Proposed to amend Sec 115JB to provide framework for computation of book profit for Ind AS compliant companies. FTC credit not allowed to be carried forward the foreign tax credit shall not be allowed to be carry forward to the extent of the difference between foreign tax credit allowed against MAT and normal provisions. Widening Scope of Income from other sources [Sec 56(2)] Scope of Income from other sources extended to cover any sum of money or property received by all assessees without consideration or with inadequate consideration exceeding ` 50,000/-, which was earlier applicable only to individuals, HUF and in certain cases to firms and companies. Scope of exceptions extended to include within its ambit certain trusts and institutions and transfer not regarded as transfers under Capital gains (Sec 47). 12

14 Changes in the Tax laws affecting all Assessees Tax Rate for corporate societies, local authorities and firms Rate of Tax, education cess, higher secondary education cess and surcharge will remain the same. Amendment under the Alternate Minimum Tax (AMT) Carry forward ofamt extended upto 15 assessment years from 10 years. Restricting cash donation (Sec 80G) Cash donation exceeding ` 2,000/- shall not be allowed as deduction u/s 80G of the Act, earlier the limit was ` 10,000/-. Electoral reforms - amendment in section 13A and insertion of two additional conditions for availing Nil Tax benefit by the political parties:- No donation of ` 2,000 or more can be received in the form of cash. Furnishing the return of income on or before the due date specified u/s 139. FTC credit not allowed to be carried forward The foreign tax credit shall not be allowed to be carry forward to the extent of the difference between foreign tax credit allowed against AMT and normal provisions. 13

15 Changes in the Tax laws affecting all Assessees Amendment under the Head Capital Gain Period of holding reduced [u/s 2(42A)] - reduced from 36 months to 24 months to determine LTCG in case of immovable property [Effective From 1st April 2018 (AY18-19)] Base year indexation shifted from to in the definition of Indexed cost of acquisition u/s 48 of Act. Accordingly sec 55 of Act amended, cost of acquisition of assets acquired before shall be allowed to be taken as fair market value as on and the cost of improvement before shall be ignored. Tax neutral conversion of preference shares to equity shares - Conversion of preference share of a company into its equity share shall not be treated as transfer u/s 47. Accordingly, period of holding of preference shares shall be considered for the purpose of capital gain and cost of acquisition would be same as that of preference shares. Withdrawal of exemption from long term capital gains tax (Anti-Abuse Measure for Penny stock cases) Income arising on transfer of equity shares acquired or on after 1 st day of October, 2004 shall be exempt u/s 10(38) if acquisition of such shares was chargeable to STT. However, condition of chargeability to STT on acquisition shall not be applicable on certain notified transfers and acquisitions in IPO, FPO, bonus or right by a listed company, acquisition by non-resident in accordance with FDI policy of the Government etc. 14

16 Changes in the Tax laws affecting all Assessees Discourage Cash Transaction and reduce the threshold limit of cash payment from ` 20,000 to ` 10,000 in Section 40A(3) & 40A(3A) of the Act. Sec 40A(3) Any Payment in cash above ` 10,000/- (earlier it was ` 20,000) to a person in a day shall not be allowed as deduction in computing Business income. Sec 40A(3A) A payment would be deemed as Business income, if the expenditure is so incurred in a particular year, but the payment for which is made in cash in a subsequent year of a sum exceeding ` 10,000/- (earlier it was ` 20,000) to a person in a single day. Consequential amendment in section 43 that the cash payment exceeding ` 10,000/- in respect of capital assets shall not be treated as part of actual cost of assets. Special provision for determining full value of consideration on transfer of share other than quoted share (New section 50CA inserted) For the purposes of computing "Capital gains" if consideration for transfer of share of a company (other than quoted share) is less than the FMV of such share determined as per prescribed rules then FMV shall be deemed to be the full value of consideration. Rules yet to be prescribed. 15

17 Changes in the Tax laws affecting all Assessees Ban on cash Transaction above ` 3,00,000 New section 269ST inserted to restrict the cash transactions of ` 3 Lakh or above except by the government, any banking company, post office savings bank or cooperative bank. Accordingly penal section 271DA inserted for levy of penalty of sum of equal amount to the value of the transaction in case of cash transaction is ` 3 lakh or more. Consequently Sec 206C amended for omission of 1% on cash sale of jewellery exceeding Rs 5,00,000/- TCS not apply in case of certain specified buyer [Sec 206C(1F)] 1% on sale of motor vehicles exceeding ` 10 laks will not apply to certain buyers namely central government, an embassy, a high commission, legation, commission, consulate, trade representation of foreign state, local authority as defined in sec 10(20), a public sector company engaged in the business of carrying passengers. Strengthening of PAN quoting mechanism in the TCS regime In line with TDS provisions, a new section 206CC is inserted to mandate the quoting of PAN on TCS failing which tax shall be collected at the twice the rate mentioned in relevant section or at 5% whichever is higher. TDS cut for BPOs to improve working capital availability (Sec 194J) Rate of TDS has been reduced to 2% from 10% if the payee engaged only in the business of operation of call centre. 16

18 Changes in the Tax laws affecting all Assessees Withholding of refund only by reason record in writing and with approval of PCIT/CIT Sec 143(1D) & 241A Earlier sec 143(1D) states that processing of return u/s 143(1) shall not be necessary where a scrutiny notice u/s 143(2) has been issued to assessee but w.e.f from sec 143(1D) shall cease to apply in respect of return furnished for AY and onwards. Therefore, processing of return u/s 143(1) shall be necessary in all the cases in respect of return furnished AY and onwards. It means from AY and onwards the assessee can get the refund even if the case is selected in scrutiny u/s 143(2). Correspondingly new section 241A inserted which states AO can withhold the refund of the assessee by reason recorded in writing and with the previous approval of PCIT/CIT only if: returns are furnished during or after AY , where the refund of assessee becomes due u/s 143(1) and AO is of the opinion that grant of refund may adversely affect the recovery of revenue. Interest is payable if refund due to TDS deductor Sec 244A(IB) The deductor of excess TDS and TCS, in line with interest payable on advance tax to assessees, now interest will be payable to the deductor at a simple 0.5 % for every month or part of month on any refund due to him out of TDS / TCS deducted. 17

19 Changes in the Tax laws affecting all Assessees CBDT empowered to issue directions in respect of penalty u/s 271C/271CA for failure to deduct or collect tax at source (Sec Amendment u/s 119(2)(a)) Reduction in the time limit for filing revised income tax return From A.Y a return can be revised u/s 139(5) on or before the end of relevant A.Y. or before the completion of assessment, whichever is earlier i.e. for FY17-18 if the due date for filing of ITR was 30 th September, 18 then the revised return can be filed by March Restrictions on set off of losses from house property inter head From A.Y Monetary restriction of ` 2 lakh imposed for set off of loss from house property against inter head income from other heads of income in the same year. 18

20 Changes in the Tax laws affecting all Assessees Time limits for completion of assessment & Re-assessment etc. Revised Assessments Existing Time Limit Proposed Time Limit Assessment u/s 143(3) & months from the end of A.Y. in For A.Y time limit of which income was first assessment 18 months from the end assessable. of relevant A.Y. For A.Y onwards time limit is further reduced to 12 months Assessment u/s months from the end of financial year in which notice u/s 148 was served. Where notice served u/s 148 on or after , time limit for completion of assessment is 12 months from end of F.Y. in which notice served. Fresh assessment in respect to order u/s 254/263/264 9 months from the end of financial year in which order u/s 254/263/264 is passed. For order passed or received in the F.Y and onwards, the time limit would be 12 months from the end of F.Y. in which order u/s 254/263/264 is passed or received. 19

21 Changes in the Tax laws affecting all Assessees Assessments Existing Time Limit Proposed Time Limit Assessment u/s 153A Assessment u/s 153C 21 months from the end of the F.Y. in which the last authorisations for search u/s 132 or for requisition u/s 132A was executed. Time limit to make assessment u/s 153A of in case of person on whom search is conducted (i.e. 21 months) or 9 months from the end of the F.Y. in which books of accounts or documents or assets seized or requisitioned are handed over u/s 153C to the AO having jurisdiction over such other persons, whichever is later a) Where search and seizure conducted in F.Y months from the end of the F.Y. in which the last authorisations for search u/s 132 or for requisition u/s 132A was executed. b) Where search and seizure conducted in F.Y and onwards - 12 months from the end of the F.Y. in which the last authorisations for search u/s 132 or for requisition u/s 132A was executed. Time limit to make assessment u/s 153A of in case of person on whom search is conducted (i.e. 18 months) or 12 months from the end of the F.Y. in which books of accounts or documents or assets seized or requisitioned are handed over u/s 153C to the AO having jurisdiction over such other persons, whichever is later 20

22 Changes in the Tax laws affecting all Assessees Penalty on professionals for furnishing incorrect information New section 271J inserted to penalise professionals (accountants, merchant banker and register valuer) for furnishing incorrect information in report or certificate under the provision of Income Tax Act or Rules there under and a penalty of ` 10,000/- for each such report/certificate may be imposed. Section 273B is accordingly amended to provide exception if reasonable cause for any such failure can be proved. Disallowance for non-deduction of tax from payment to resident Section 58 which specifies the amount which are not deductible while computing the Income from Other Sources now to include the payments which are disallowed under section 40(a)(ia) to improve compliance of provisions related to TDS. Fee for delay in filing of return u/s 139(1) imposed New section 234F inserted to levy fee for delay in filing return u/s 139(1) ` 5,000/- if return is furnished after due date but on or before 31 st December of the relevant A.Y. ` 10,000/- if filed after 31 st December of the relevant A.Y. Not exceed ` 1,000/- if total income is less than ` 5 lakh Consequential changes made in Section 140A & Section 143(1) to take effect of Section 234F. Further, penalty u/s 271F will not be levied. 21

23 Changes in the Tax laws affecting all Assessees Extension of the power to survey Power to conduct Survey 133A(1) on any place where activity for charitable purpose is carried on has been granted Reasons to believe to conduct search etc not to be disclosed w.e.f "Reasons to believe" recorded by the competent authority debarred from being disclosed to any person, authority or appellant tribunal. Retrospective amendment to section 132(1A)/ 132A(1) of the I.T. Act w.e.f Reason to Suspect" recorded by the competent authority debarred from being disclosed to any person, authority or appellant tribunal. Power of provisional attachment and to make reference to Valuation Officer to authorised officer New sub-sections (9B), (9C) & (9D) inserted to section 132 to provide wide powers to the Tax Investigating authorities to attach properties of the searched persons during the course of a search or seizure or within a period of 60 days from the date on which the last panchnama was executed and get the same valued from the district valuation officers u/s 142A of the I.T. Act. 22

24 Changes in the Tax laws affecting all Assessees Centralised issuance of notice and processing of information Provision of Section 133C amended to empower the CBDT to make a scheme for Centralised issuance of notice calling for information / documents for verification of information in its possession and processing of the same and making available the outcome to theao. Rationalisation of provisions of the Income Declaration Scheme, 2016 and consequential amendment to section 153A and 153C Rationalisation of provisions of the Income Declaration Scheme, 2016, where search u/s 132 is initiated or requisition u/s 132A is made on or after the 1 st day of April, 2017, notice u/s 153A can be issued for an A.Y(s) beyond the 6 A.Y.(s) already provided up to the 10 A.Y.(s) subject to escaped income of Rs 50 lakh or more represented in the form of assets in 1 or 4 year(s) in aggregate (falling beyond the sixth year). 23

25 Changes in the Tax laws affecting Transactions & Transfer Surcharge of 10% of tax payable on nonresident individuals whose annual income is between Rs 50 lakhs and Rs 1 crore Tax on Non-Resident Individual reduced from 10% to 5% for income range of ` 2.5 lakhs to ` 5 lakhs and balance tax rate remains unchanged. No change in Tax Rates of Foreign Companies. Existing Levies of Surcharge & Education cess along with Higher Secondary Education Cess remains the same. Grant of foreign tax credit [Sec. 155]: It is proposed that in case the taxpayer has not been granted credit of tax paid outside India owing to a dispute, the taxpayer can approach tax officer within 6 months from the end of the month in which the dispute is settled. Surcharge on Non Resident Individuals: Additional surcharge of 10% on personal income-tax applicable on income ranging from ` 50 Lakhs to ` 1 Crore. Surcharge on TDS deducted on Non Resident Individuals: Similarly, additional 10% is proposed to be levied on withholding tax on non-resident individual having taxable income within the bracket of ` 50 lakhs to ` 1 Crore. No change in POEM and GAAR provisions The provisions would continue to be applicable for financial year

26 Changes in the Tax laws affecting Transactions & Transfer This move by the Govt. to extend the benefit of concessional rates, clarification on indirect transfers would go a long way in promoting inflow of foreign funds to India Indirect Transfer Provisions further clarified for FIIs/FPIs [Sec 9A]: It is proposed to clarify that in case of FIIs/Foreign Portfolio Investor (FPI) Category I & II, indirect transfer provisions shall not apply in case of redemption of shares or interests outside India as a result of redemption or sale of investment in India which is chargeable to tax in India. Provision relating to Concessional rate of withholding 5% liberalized [194LC]: The Government has proposed to extend benefit of concessional withholding 5% on external borrowings for another 3 years. Therefore, borrowings availed till 1 st July 2020 would be eligible for such benefit. Further, in line with the clarification issued earlier, the borrowings by way of issue of rupee denominated bonds would also be included within the domain of eligible borrowings for above concessional tax rate. Exemption from capital gain tax for Rupee (`) denominated bonds [Sec 47]: It is proposed to exempt capital gain tax on income arising from transfer by a non-resident to another non-resident of rupee denominated bonds (issued by an Indian Company) from April 1, Clarification on interpretation of terms used in tax treaties [90/90A]: As per proposed amendment, the terms not defined in a tax treaty would be given the same meaning as defined in the Indian Income-tax Act. Any term defined in a tax treaty would be assigned meaning in accordance with the said treaty. It is clarified that Cost of acquisition of shares of an Indian company transferred in a tax neutral demerger of a foreign company to a resultant foreign company would be the same as if it was in the hands of the demerged foreign company [Sec 49]. 25

27 Changes in the Tax laws affecting Transactions & Transfer Adoption of BEPS Action plan 4, thin capitalization rules prescribed. Abridgment of Domestic transfer pricing to transactions concerning tax holidays to ease compliance burden. Relaxation from domestic transfer pricing compliances [Section 92BA] It is proposed to exclude the expenditure transactions [as referred in section 40A(2)] from the purview of domestic transfer pricing provisions. Thus, from F.Y , only the transactions involving the benefit of tax holiday would be required to comply with the transfer pricing provisions. This amendment would significantly reduce the cost and effort of compliance on part of various domestic taxpayers. Secondary adjustment mandatory following primary transfer pricing adjustment [Section 92CE] Taxpayer shall be required to make a corresponding adjustment (secondary) in its books of accounts to reflect the actual allocation of profits between them as a result of primary adjustment if it is more than ` 1 crore commencing from April 1, 2016 (F.Y ). Further, excess amount arising from primary adjustment would be required to be repatriated to India within such time as may be prescribed, else it shall be deemed to be a loan advanced by the taxpayer to its AE and interest on such advance shall also be deemed to be the income of the taxpayer. BEPS Initiative-Action Plan 4 Adoption of Thin capitalization rules- restriction on interest payment to AE [Section 94B] Deduction of interest payment made by Indian company or a PE of a foreign company to a non-resident associated enterprise-ae (in excess of ` 1 crore) is proposed to be restricted to 30% of EBITDA in line with recommendations of BEPS- Action Plan 4. Provisions would also be applicable to debts extended by non-ae, guaranteed by AE. However, unabsorbed interest payment would be allowed to be carried forward for deduction in subsequent years (upto eight assessment years) subject to a threshold of 30% of EBIDTA. 26

28 Changes in the Tax laws for There are minimal changes in the indirect taxes regime as the Govt. hopes to roll out a unified Goods and Sales Tax (GST) to replace existing tax such as Service Tax, Excise Duty, VAT/CST and Custom duty on imported materials. No change in peak rate of Customs, Excise & Service Tax Service Tax Key Legislative changes Services provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government is now exempt from Service Tax. Exempted Service provided by Indian Institute of Management to its students w.r.t. 2 year Residential Management Programme is now being extended to non-residential programmes as well. Exemption w.r.t. Regional Connectivity Scheme granted. CENVAT Credit availed and reversal of CENVAT credit is not apply to Banks and Financial Institutions including NBFCs engaged in providing services by way of extending deposits, loans or advances. Service portion in execution of works contract involving transfer of goods and land or undivided share of land shall not include value of property in land or undivided share of land while deterring value under Rule 2A of Service tax (Determination of value) Rules, Definition of process amounting to manufacture or production of goods under Negative list entry has been deleted and is being incorporated in the Mega Exemption Notification. 27

29 Changes in the Tax laws for Changes in Customs Duty rates on account of the following: Miniaturised card readers and mpos micro ATMs standards for version 1.5.1, finger print readers, scanners and iris scanners- Exemption of BCD (basic custom duties), CVD (countervailing duties), SAD (special additional duty). Solar tempered glass- BCD abolished. Liquefied Natural Gas (LNG) -BCD reduced from 5% to 2.5%. Populated printed circuit boards (PCBs)-Increase in duty from nil to 2 %. Parts used for manufacturing of LED lights - will attract basic customs duty 5% and CVD of 6% from nil earlier. Changes in Excise duty rates on account of the following: Tobacco and tobacco products Increase in Excise Duty in rate from 4.2% to 8.3% almost double. Chewing tobacco, Jarda scented tobacco and Pan Masala containing tobacco- Increase in Excise Duty from 10% to 12%. Cigarettes - Increase in Excise Duty across all lengths filter and non filter. Miniaturised card readers and mpos micro ATMs standards for version 1.5.1, finger print readers, scanners and iris scanners - Exemption of Excise duties. Resin and catalyst for manufacture of cast components for Wind operated Energy Generators- Excise Duty abolished. Rationalisation Measures Authority for Advance Rulings of Income Tax proposed to be merged to hear matters of Central Excise, Customs and Service Tax with a view to promote ease of doing business. 28

30 Conclusion In line with the growth in previous years, India is making its place in the world economy having improved in the world rankings of Ease of Doing Business. Despite global economic woes like BREXIT, US Elections etc., the Indian economy is chugging along quite well. Our FDI Policy is being further liberalized and the government is taking strong measures to build infrastructure, and provide a clean environment for the youth of the country. India is on a long-term path of progress and transformation in creating a new normal of remonetized clean India. Sources Speech of Hon ble Finance Minister Shri Arun Jaitley Finance Bill, 2017 Memorandum to Finance Bill, 2017 Economic Survey of India 2017 S.R. Dinodia & Co. LLP Your Intelligent Connect For more information on how S.R. Dinodia & Co. LLP can provide business solutions that work for you Contact us at srdinodia@srdinodia.com or visit us at This information contained herein is in summary form and is therefore intended for general guidance only. This publication is not intended to address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. This publication is not a substitute for detailed research and opinion. Before acting on any matters contained herein, reference should be made to subject matter experts and professional judgment needs to be exercised. S.R. Dinodia & CO. LLP cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. 29

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