ANALYSIS OF 2015 Powered by: info@resurgentindia.com
Contents Slide Foreword 3 State of the Economy 4-7 Key Policy Announcements 8-10 Budget Financials 11-12 Direct Tax s 13-30 Indirect Tax s 31-36
Foreword The 9 months of new Government has come with a budget which lays emphasis on a great vision for future India with many forward looking at well intended plans and programs. Strong macro economic fundamentals are depicted both in the economic survey and the budget. Budget 2015 is a bold attempt to foster growth whilst managing fiscal deficit. Increased allocations have been made to priority sectors such as infrastructure, rural development and more impetus given on socio-economic schemes. Laudable measures has been taken in the direction of empowering MSME who are the back bone of the economy. The labor welfare scheme in the form of NPS is clearly directed at the future. Major Steps have been taken to usher in GST, future progressive tax code, good governance and stable tax regime. Less fiscal headroom has led to missed popular expectation (MAT Reduction, Personal Taxes, etc.) Bringing the corporate tax rates down to 25% gradually (at par with China) over the next four years, reiterating that doing business in India would be made easy by giving a fundamental framework, compliance of which would be adequate to commence operations subject to formal approvals, bolsters India s position as a favored investment destination in the coming days. Every budget is a balancing act and this one is no exception. On the whole, with an eye on fuelling growth in the economy without losing sight of its investments in the social sector, this budget seems to have done well on all scores! The roadmap is clear and the key is - State Centre Relationship - Continuity of favorable external factors such as oil prices; and - Relentless execution This document envisages to bring out an analysis of the amendments and its impacts, and has broadly covered Budget proposals.
State of the Economy Summary One of the redeeming features has been the emergence of India among the few large economies with propitious economic outlook, amidst the mood of pessimism and uncertainties that engulf a number of advanced and emerging economies. Brighter prospects in India owe mainly to the fact that the economy stands largely relieved of the vulnerabilities associated with an economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances, and oscillating value of the rupee in 2011-12 and 2012-13. From the macroeconomic perspective, the worst is clearly behind us. The latest indicators point to the fact that the revival of growth had started in 2013-14 and attained further vigor in 2014-15. Factors like: - the steep decline in oil prices, - plentiful flow of funds from the rest of the world, and - potential impact of the reform initiatives of the new government at the center along with its commitment to calibrated fiscal management and consolidation bode well for the growth prospects and the overall macroeconomic situation.
State of the Economy Summary Encouraged by the greater macro-economic stability and the reformist intent and actions of the government, coupled with improved business sentiments in the country, institutions like the IMF and the World Bank have presented an optimistic growth outlook for India for the year 2015 and beyond. The possible headwinds to such promising prospects, however, emanate from factors like inadequate support from the global economy saddled with subdued demand conditions, particularly in Europe and Japan, recent slowdown in China, and, on the domestic front, from possible spill-overs of below normal agricultural growth and challenges relating to the massive requirements of skill creation and infrastructural up gradation. The encouraging results from the Advance Estimates for 2014-15 suggest that though the global sluggishness has partly fed into the lacklusture growth in foreign trade; yet this downward pressure has been compensated by strong domestic demand, keeping the growth momentum going.
State of the Economy Economic Performance Data Categories Units FY 13-14 FY 14-15 GDP and Related Indicators - GDP (constant market prices) - Growth Rate - GVA at Basic prices (2011-12 prices) - Saving Rate - Capital Formation Rate Production Index of Industrial Production (growth) (The IIP has been revised since 2005-06 on base (2004-05=100) Prices - Inflation (WPI) (Average) - Inflation CPI - IW) (average) External Sector - Export growth ( US$) % - Import growth (US$) % - Current Account Balance (CAB)/GDP INR Crore % INR Crore % of GDP % of GDP 99,21,106 6.9 91,69,787 30.6 32.3 106,56,925 7.4 98,57,672 NA NA % -0.1 2.1 % % % 6.0 9.7 4.7-8.3-1.7 3.4 6.2 4.0 3.6-1.9 (H1) Fiscal Indicators (Centre) - Gross Fiscal Deficit % of GDP 4.5 4.1
State of the Economy Performance of the three sectors industry, agriculture and services* Data Categories FY 13-14 FY 14-15 Agriculture, forestry & fishing 3.7 1.1 Industry - Mining & quarrying - Manufacturing - Electricity, gas, water supply,& other utility services - Construction Services - Trade, hotels & restaurants, transport & communication - Financing, insurance, real estate & business services - Community, social,& personal services 5.4 5.3 4.8 2.5 11.1 7.9 7.9 2.3 6.8 9.6 4.5 8.4 13.7 9.0 *Growth in GVA at Constant (2011-12) Basic Prices (per cent)
Key Policy Announcements Financial Services & Capital Markets Comprehensive Bankruptcy Code of global standards to be brought in fiscal towards ease of doing business. Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of INR 20,000 crores, and credit guarantee corpus of INR 3,000 crores to be created. In lending, priority will be given to SC/ST enterprises. It shall be responsible for refinancing all Micro-finance Institutions which are in the business of lending to such small entities of business through a Pradhan Mantri Mudra Yojana. NBFCs registered with RBI and having asset size of INR 500 crore and above may be considered for notifications as Financial Institution in terms of the SARFAESI Act, 2002. Forward Markets commission to be merged with SEBI. For Consumer Protection, Indian Financial Code to be introduced soon in Parliament. Socio-Economic security To allow employee to opt for EPF or New Pension Scheme. For employee s below a certain threshold of monthly income, contribution to EPF to be optional, without affecting employees contribution. Pradhan Mantri Suraksha Bima Yojna to cover accidental death risk of INR 2 Lakh for a premium of just INR 12 per year. Atal Pension Yojana to provide a defined pension, depending on the contribution and the period of contribution. Government to contribute 50% of the beneficiaries premium limited to INR 1,000 each year, for five years, in the new accounts opened before 31st December 2015. Pradhan Mantri Jeevan Jyoti Bima Yojana to cover both natural and accidental death risk of INR 2 lakh at premium of INR 330 per year for the age group of 18-50.
Key Policy Announcements Manufacturing & Industry 5 new Ultra Mega Power Projects, each of 4000 MW, in the Plug-and-Play mode. Government to bear major part of Risk in PPP. Target of renewable energy capacity revised to 175000 MW till 2022, comprising 100000 MW Solar, 60000 MW Wind, 10000 MW Biomass and 5000 MW Small Hydro. National Investment and Infrastructure Fund (NIIF) to be established with an annual flow of INR 20,000 crores to it. Tax free infrastructure bonds for the projects in the rail, road and irrigation sectoinr Atal Innovation Mission (AIM) to be established in NITI to provide Innovation Promotion Platform involving academicians, and drawing upon national and international experiences to foster a culture of innovation, research and development. A sum of INR 150 crore will be earmarked. (SETU) Self-Employment and Talent Utilization) to be established as Techno-financial, incubation and facilitation program to support all aspects of start-up business. INR 1000 crore to be set aside as initial amount in NITI. Ports in public sector will be encouraged, to corporatize, and become companies under the Companies Act to attract investment and leverage the huge land resources. Gold Monetization Gold monetization scheme to allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account to be introduced.
Key Policy Announcements Agriculture INR 5,300 crore to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana. States urged to chip in. INR 25,000 crore in to the corpus of Rural Infrastructure Development Fund (RIDF) set up in NABARD; INR 15,000 crore for Long Term Rural Credit Fund; INR 45,000 crore for Short Term Cooperative Rural Credit Refinance Fund; and INR 15,000 crore for Short Term RRB Refinance Fund. Target of INR 8.5 lakh crore of agricultural credit during the year. Government to work with the States, in NITI, for the creation of a Unified National Agriculture Market. Social & Human Development INR 1000 crores to the Nirbhaya Fund. Visas on arrival to be increased to 150 countries in stages. An IIT to be set up in Karnataka and Indian School of Mines, Dhanbad to be upgraded in to a fullfledged IIT. New All India Institute of Medical Science (AIIMS) to be set up in J&K, Punjab, Tamil Nadu, Himachal Pradesh and Assam. Another AIIMS like institutions to be set up in Bihar. The first phase of GIFT to become a reality very soon. Special assistance to Bihar & West Bengal to be provided as in the case of Andhra Pradesh.
Budget Financials Where the Rupee comes from Where the Rupee goes to Corporation Tax State's Share of Taxes & Duties Income Tax Non-Plan Assistance to States & UTs 24% 20% Customs Union Excise Duties 10% 11% 23% Plan Assistance to States & UTs Central Plan 4% 10% 9% 10% 9% 14% Service Tax & Other Taxes Non-Tax Revenue 11% 20% 11% 9% 5% Interest Payments Defence Non-Debt Capital Receipts Subsidies Borrowings and Other Liabilities Other Non-Plan Expenditure
Budget Financials Budget at a Glance Particulars FY 13-14 Actuals FY 14-15 Budget Estimates FY 14-15 Revised Estimates In Rupees Crore FY 14-15 Budget Estimates 1. Revenue Receipts 10,14,724 11,89,763 11,26,294 11,41,575 2. Capital Receipts 5,44,723 6,05,129 5,54,864 6,35,902 3. Total Receipts (1 + 2) 15,59,447 17,94,892 16,81,158 17,77,477 4. Non Plan Expenditure 11,06,120 12,19,892 12,13,224 13,12,200 5. Plan Expenditure 4,53,327 5,75,000 4,67,934 4,65,277 6. Total Expenditure (4 + 5) 15,59,447 1794892 1681158 17,77,477 7. Revenue Expenditure 13,71,772 15,68,111 14,88,780 15,36,047 8. Capital Expenditure 1,87,675 2,26,781 1,92,378 2,41,430 9. Revenue Deficit (7-1) 3,57,048 378348 3,62,486 3,94,472 10. As a percentage of GDP 3.10% 2.90% 2.90% 2.80% 11. Fiscal Deficit {6-(1+Recoveries of Loans + Other Receipts)} 5,02,858 5,31,177 5,12,628 5,55,649 12. As a percentage of GDP 4.40% 4.10% 4.10% 3.90% 13. Primary Deficit {10- Interest Payments} 1,28,604 1,04,166 1,01,274 99,504 14. As a percentage of GDP 1.10% 0.80% 0.80% 0.70%
Direct Tax s Index Sl. No. Budget s impacting Slide 1. Personal Taxation 14-17 2. Curbing Black Money 18 3. Corporate Taxation 19-23 4. International Taxation 24 5. Transfer Pricing & GAAR 25 6. Other Entities Taxation REITs, AIF & Trust 26-27 7. General 28-30
Direct Tax s Personal Taxation Clause & Section 1. No change in basic personal tax rates & slabs 2. Clause 2 - Under Chapter II 3. Under Rule 2BB of Income Tax Rules 4. Clause 18 Under section 80D Rate of surcharge on Income exceeding INR 1 crore is to be increased to 12% from 10% Exemption Limit for transport allowance is to be increased to INR 1600 per month from INR 800 per month Deduction for medical insurance premium paid for self and family is proposed to be increased to INR 25,000 from INR 15,000. Similar deduction for premium paid for parents is also proposed to be increased to INR 25,000 from INR 15,000. Where premium is paid for senior citizens (aged 60 years and above), the deduction is proposed to be increased from INR 20,000 to INR 30,000.For uninsured very senior citizens (aged 80 years and above), the deduction within the above ceiling of INR 30,000 is available for medical expenses incurred. This will increase Maximum Marginal rate of Tax from 33.99% to 34.61% for the super rich. This will enable tax savings This will enable tax savings
Direct Tax s Personal Taxation Clause & Section 5. Clause 17 Under section 80CCD 6. Clause 16 Under section 80CCC 7. Clause 7 & 15 Under section 80C 8. Clause 7 & 21 Under section 80G Deduction for contributions to the New Pension Scheme is currently capped at INR 1 lakh. It is proposed to remove such cap and allow deduction up to the overall ceiling of INR 1.5 lakh (as available for deduction in various savings instruments). Further, an additional deduction of INR 50,000 for contributions to the NPS is proposed. Cap for the deduction for contributions to prescribed annuity pension plan such as that of Life Insurance Corporation has gone up from INR 1 lakh to INR 1.5 lakh. To be introduced retrospectively from FY 2014-15 for subscriptions made towards Sukanya Samriddhi Scheme, relating to education of the girl child. Further, any payment received from such a scheme is proposed to be exempt from tax. To be introduced retrospectively from FY 2014-15 for donation made to Swachh Bharat Kosh and Clean Ganga Fund to the extent of 100% of the donation. Similar deduction is available for donations made to National Fund for Control of Drug Abuse from. Taxpayer can claim deductions for contributions to the New Pension Scheme up to the overall ceiling of INR 1.5 lakh. Further, an additional deduction of INR 50,000 will enable tax savings This will enable a taxpayer to claim deduction for contributions to such plans up to the overall ceiling of INR 1.5 lakh. This will enable the parent/legal guardian of girl child to not only claim deduction on investment but also save tax on payments received from the scheme. This will enable tax saving on the full amount of donation made to these funds.
Direct Tax s Personal Taxation Clause & Section 9. Clause 79 Under section 3 of Wealth Tax Act, 1957 It is proposed to abolish wealth tax from financial year. This will lower the compliance burden on taxpayers who will not have to value their taxable assets and file a separate wealth tax return. It will also ease the administrative burden on the tax department. However, the assets will now have to be disclosed in the income tax return. 10. Clause 40 Under section 192 11. Clause 41 & 49 Under section 194A & 197A It is proposed to make the employer responsible for obtaining evidence of deductions/exemptions/set-off of certain losses of employees for computing the amount of tax deductible at source. It is proposed to deduct tax @ 10% on premature taxable withdrawal from the provident fund where such payment exceeds INR 30,000. Where the employee has not quoted his PAN, the deduction of tax will be required to be made at the applicable maximum marginal rate. This will increase the administrative burden for employers This will enable tax authorities to ensure tax compliance on such premature withdrawals from the provident fund
Direct Tax s Personal Taxation Clause & Section 12. Clause 19, 20 & 23 Under Section 80DDB, 80 DD & 80U Section 80U which seeks to provide deduction to disabled resident individual is proposed to be amended to raise the limit of deduction to INR 75,000 in case of person suffering with disability and to INR 1,25,000 in case of person suffering with severe disability. Section 80DD to give additional deduction of INR 25,000 to differently-abled persons. As per the proposed amendment additional deduction would be available for medical treatment of dependent persons with disability or severe disability Additional deduction of INR 20,000 under Section 80DDB to Super Senior Citizens (80 years or above), for sum incurred on medical treatment of prescribed disease or ailment. The new deduction for a super senior citizen shall be INR 80,000 under this provision. This will enable more tax savings.
Direct Tax s Curbing Black Money Clause & Section 1. Clause 66, 67, 69 & 70 Under Section 269SS & 269T It is proposed that no person will accept from any person any loan deposit/advance, in relation to transfer of an immovable property, in cash for INR 20,000 or more. Also, it is proposed that no person will repay any loan deposit/advance, in relation to transfer of an immovable property, in cash for INR 20,000 or more. New Law to deal with Black Money COMING SOON This move is intended to curb generation of black money by way of dealings in cash in immovable property transactions. Undisclosed income from foreign assets taxable at the Maximum Marginal Rate Evasion of Tax: rigorous imprisonment up to 10 years, a penalty rate of 300% and no settlement commission route available All assesses liable for prosecution and penalty Beneficiary of foreign asset to file returns, even if there is no taxable income Non-filing/filing of returns with inadequate disclosures rigorous imprisonment up to 7 years Benami Transactions (Prohibition) Bill to curb domestic black money to be introduced. Foreign exchange/security/immovable property suspected to be held in contravention of FEMA power to authorized officer to seize equivalent value situated within India. Power to regulate Capital Account Transactions proposed to be transferred to Govt. from RBI
Direct Tax s Corporate Tax Clause & Section 1. Clause 4 Under Section 6 Crew Members Rules are proposed to be prescribed for determination of residential status of an Indian Citizen who is a member of crew of a foreign bound ships where the destination of such voyage is outside India. This would give clarity Company Section 6 is proposed to be amended to provide that a company shall be said to be resident in India if its place of effective management, at any time in that year, is in India. In other words, the concept of Control or Management (wholly in India) is replaced with Place of Effective Management (at any time in India). 2. Rate of Income Tax Rate of surcharge for domestic companies having total income exceeding INR 1 crore but not exceeding INR 10 crore to be increased from 5% to 7%. Similarly, rate of surcharge for domestic companies having income exceeding INR 10 crore to be increased from 10% to 12% The effective corporate tax rate for domestic companies having income exceeding INR 1 crore but not exceeding INR 10 crore would increase from 32.445% to 33.063% and effective rate of MAT would increase from 20.01% to 20.38%. The effective corporate tax rate for domestic companies having income exceeding INR 10 crore would increase from 33.99% to 34.60% and effective rate of MAT would increase from 20.96% to 21.34% 3. Rate of Income Tax Increase in surcharge on DDT and tax on income distributed by mutual funds from 10% to 12% Effective increase in tax outflow from DDT and from tax on income distributed by mutual funds, will consequentially reduce the dividend income received by the shareholder / unit holder
Direct Tax s Corporate Tax Clause & Section 4. Rate of Income Tax Increase in surcharge on buy back tax from 10% to 12% The effective tax rate would increase from 22.66% to 23.07% thus creating further additional burden on the companies buying back its shares 5. Clause 27 & Under section 115A The rate of tax on royalty and fees for technical services reduced from 25% to 10% The finance minister has brought back the lower tax rate of 10% (instead of 25%) on income of foreign entities in the nature of royalty and fees for technical services. This move would attract foreign technology in India, providing much needed technological advancement for Indian startups. The effective tax rate would reduce from 27.04% to 10.82% (where income of the foreign entities exceeds INR 10 crore). A few tax treaties, such as those with Netherlands and Singapore already provided for a tax rate of 10%. This reduction of 10% in the I-T Act will also help suppliers in other countries such as US and UK where the tax rate under the treaty was much higher 6. Clause 22 & under section 80JJAA Limit on number of new workmen required for claiming additional deduction for wages of new workmen (available to manufacturing companies) reduced from 100 to 50 This would boost the employment in manufacturing companies who can now claim additional deduction for wages on employment of even 50 or more workmen
Direct Tax s Corporate Tax Clause & Section 7. Clause 5,13,14,72,75,76 & Under section 9 Indirect transfer Clarity relating to indirect transfer provisions provided by explaining the meaning of substantial interest. A foreign entity is said to be deriving substantial value of its shares from assets located in India if the value of Indian assets held directly/indirectly by it exceeds INR 10 crore and represent at least 50% of the value of all the assets owned by it. Payment by PE to HO It is proposed that, in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the PE in India, of such nonresident, to the head office or any PE or any other part of such nonresident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the PE in India The PE in India shall be deemed to be a person separate and independent of the non-resident person of which it is a PE and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery would apply. This provision is a welcome move for the foreign investor community as it provides the much needed clarity by removing the uncertainty and litigation surrounding the issue of taxability of indirect transfer of shares Decision of the ITAT in Sumitomo Mitsui Banking Corporation {136 ITD-66 TBOM} nullified Accordingly, the PE in India shall be obligated to deduct tax at source on any interest payable to either the head office or any other branch or PE, etc. of the non-resident outside India.
Direct Tax s Corporate Tax Clause & Section 8. Under Clause 13 & section 47 9. Under Clause 72 & section 271GA Capital gain exemption has been provided in respect of certain transfers arising from amalgamation demerger of two foreign companies where the shares of the transferor company derives its value substantially from assets located in India, on fulfilment of certain conditions Indian company to furnish information in the incometax return relating to modification of its ownership structure or control, penalty leviable in case of noncompliance to the tune of 2% of the value of transaction or INR 5,00,000, as the case may be. This amendment would facilitate global internal reorganization of companies deriving substantial value from assets located in India This could increase the compliance and reporting burden on the companies as they would have to report any change in the global ownership structure as a result of direct indirect transfer of shares interest by its holding company 10. Clause 29 & under section 115 JB Long term capital gains of FIIs on which STT is paid are excluded while computing the MAT liability This would further augment the foreign investment in India 11. Clause 10 & 11 & under section 32 Clarification has been provided on availability of balance additional depreciation (i.e. 10%) granted to manufacturing companies in case where the assets are put to use for less than 180 days Incentives for investment in backward areas of Andhra Pradesh & Telangana. This would bring in the much needed clarity and rationalize the provisions relating to availability of additional depreciation in case where the assets are put to use for less than 180 days Fiscal Measures to promote investment.
Direct Tax s Corporate Tax Clause & Section 12. Under Clause 5 & section 9A 13. Under Clause 12 & section 35(2AA) & 35(2AB) 14. Clause 29 & under section 115 JB Presence of fund manager in India not to result in existence of business connection of foreign investment funds in India To insert reference of the Principal Chief Commissioner or Chief Commissioner in section 35(2AA) and section 35(2AB) of the Act so that the report regarding feasibility of research may also be sent to the Principal Chief Commissioner or Chief Commissioner having jurisdiction over the assessee claiming the deduction under the said section. No MAT on share of income received by a Companymember from AOP/ BOI if such AOP/BOI is chargeable to tax at maximum marginal rate. This would bring in the requisite clarity on the ongoing litigation existing on this issue To ensure a better and meaningful monitoring mechanism for deductions Excluded since no income tax is payable on such income in accordance with the provisions of section 86 of the Act
Direct Tax s International Taxation Clause & Section 1. Clause 78 & under section 295 2. Clause 28 & under section 115ACA The Income-tax Act does not provide the manner for granting credit of taxes paid in any country outside India. Accordingly, it is proposed to amend Section 295(2) of the Act so as to provide that CBDT may make rules to provide the procedure for granting relief or deduction, as the case may be, of any income-tax paid in any country. The definition of GDR is proposed to cover resident employee-investor as well, however, the current provision extends benefits to only non-resident employees. Further, it is proposed that only GDRs issued by the listed companies are covered for benefit under the provisions of Section 115ACA. To provide Clarity on Foreign Tax Credit Currently the provision is applicable to GDRs issued by any company. So, this benefit is restricted to listed companies.
Direct Tax s Transfer Pricing & GAAR Clause & Section 1. Clause 24 & under section 92BA 2. Clause 25 & under section 95 Threshold limit of domestic transfer pricing provisions enhanced to INR 20 crore from the existing limit of INR 5 crore Implementation of GAAR is proposed to be deferred by two year. Further, clarity has been provided that investment made up to 31 March 2017 would be protected from its application This would reduce the compliance burden on smaller corporate tax payers This move would provide additional time to resolve certain contentious issues existing in the current GAAR provisions. Further, as GAAR would apply only to new investment transactions, the existing investments stand protected Pending Promises on Transfer Pricing Broad-brush announcements made last year not seen light of day: 1. APA rollback rules 2. Use of multi-year data for comparability 3. Range based arm s length determination No Clarity on TP applicability for transactions which does not give rise to income Where fund manager is now located in India whether cost plus model would be acceptable
Direct Tax s Other Entities Taxation Trust, REITs & AIF Clause & Section 1. Clause 3 & under section 2(15) Trust The Finance bill has proposed to include Yoga as an independent limp of charitable purpose. This shall remove undue hardship to the charitable institutions. Further, a proviso is proposed to be inserted in Section 2(15) to replace the existing provisos in regard to the term advancement of any other object of general public utility. It is provided that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, for a cess or fee or any other consideration unless: a) Such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and b) the aggregate receipts from such activity or activities during the previous year, do not exceed 20% the total receipts, of the trust undertaking such activity.
Direct Tax s Other Entities Taxation Trust, REITs & AIFs Clause & Section 2. Clause 3,7.26,31,44 & 45 Pass-through Status = REIT s clarifies following issues: a) Pass through status for rental income: It is proposed to provide an exemption to REITs for rental income if they invest directly in the properties and not through SPV. b) Exemption of capital gain: Where sponsor or transferor disposes the units of REITs which were acquired by virtue of exchange of shares of SPV then the same will now be covered under section 10(38) and will be exempt if subjected to STT and if qualified to be a long term capital asset. c) Reduced tax rate on short-term capital gain: Section 111A has been proposed to be amended to provide the benefit of taxation of short-term capital gain at a reduced rate of 15% to the transferor or sponsor. 3. Clause 3,7.26,31,44 & 45 Pass-through Status = AIFs At present, Section 10(23FB) read with section 115U provides complete pass through status to venture capital funds or venture capital companies which are registered under SEBI (VCF) Regulations, 1996. Now, Finance Bill, 2015 is proposed to introduce a new direct tax regime to provide complete pass through status to Category I and Category II alternative investment funds. Clarification is welcomed Alternative Investment Funds (AIFs) are privatelypooled investment vehicles, which collects funds from Indian / foreign investors and made investment in accordance with a defined investment policy for the benefit of its investors SEBI has categorized alternative investment funds into 3 categories, viz. Category I AIF, Category II AIF and Category III AIF, which covers Venture Capital Fund/Venture Capital Company, Private equity funds, Debts funds etc. Changes are in line with SEBI Categorization.
Direct Tax s General Clause & Section 1. Clause 77 & under section 288 2. Clause 34 & under section 139 Auditor An auditor who is not eligible to be appointed as an auditor under Companies Act, 2013 shall not be eligible for carrying out audit in respect of corporate assessees. Filing of Return Educational Institutions or Hospitals 10(23C) The Finance Bill, 2015 proposes that return filing shall be mandatory for universities or educational institutions and hospitals wholly or substantially funded by the Government. To protect the interest of the revenue Exemption withdrawn 3. Clause 68 & under section 271(1)(iii) Investment Funds Resultantly, a new clause (4F) is inserted in Section 139 to make it mandatory for the investment fund to file return of income. Concealment penalty to be imposed even in cases where additions disallowance are made under the normal provisions of the Income-tax Act and the taxes are paid under MAT. Since, a new chapter XII-FB is being introduced to tax income of investment funds and income received from such funds. This amendment seek to nullify the ratio laid down by various courts that such addition to total income would not be liable to imposition of penalty and the proposal is harmful to the taxpayer's interest 4. Clause 39 & under section 158 AA Option provided to the tax authorities to make an application to apply the result of Supreme Court decisions to other cases instead of filing appeal in every case. This would help in reducing the multiplicity of proceedings before lower judicial authorities thereby reduce the burden of judiciary
Direct Tax s General Clause & Section 5. Clause 35,56,57,58,59,60 & 61 Settlement Commission 1. Once the reassessment notice is issued to the assessee for one year, it can approach the settlement commission for other years involving similar issues as well. 2. An individual who has approached the Settlement Commission once can subsequently approach again through an entity controlled by him. 1. This provision would open the doors of settlement commission to the companies for multiple years 2. The Finance Bill, 2015 has proposed amendments to plug this loophole. 6. Clause 65 & under section 263 3. Scope of levy of interest u/s234b for default in payment of advance tax extended on income declared before settlement commission A favorable order passed by the tax officers can now be revised by the Commissioner of Income tax (higher authority) under the circumstances The order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. 3. This proposal will increase tax burden of the companies who have already filed application before the settlement commission for earlier years Thus, taxpayers who had obtained favorable tax orders from the lower authorities, may find thieir orders being amended
Direct Tax s General Clause & Section 7. Clause 43 & under section 194C The exemption from deduction of tax at source from payments to contractors engaged in the business of transport by submitting PAN to be eligible only if the contractor does not own more than ten goods carriages at any time during the year The benefit is restricted to small transport vendors
Indirect Tax s Excise, Customs & Service Tax Act & Section 1. Customs Act Section 28 & 28AA ; 111 & 114 Service Tax Section 76 & 78 Central Excise Act Section 11AC 2. Customs Act Section 127E Central Excise Act Section 32H 3. Customs Tariff Act Chapter 27 4. Customs Tariff Act Chapter 72 & 73 5. Customs Tariff Act Chapter 8702 & 8704 No penalty is payable if, Duty and Interest paid within 30 days of serving Notice Reduction in Penalty from 25% to 15% in cases where Notice is issued citing Collusion or wilful misstatement or suppression of facts In above cases, Duty along with Interest & Penalty if paid within 30 days of Order then penalty reduces to 25% of penalty determined This section empowered the Settlement Commission to reopen any completed proceedings connected with a case pending before it. This section has been omitted 2701 12 00 Bituminous Coal Customs Duty rate reduced from 55% to 10% Rate of Duty on all the items under Chapter 72 & 73 has been increased from 10% to 15% Rate of Duty on all the items under Chapter 8702 & 8704 has been increased from 10% to 40% Catalyst for compliance and adherence to Notices from the Department Any completed proceedings under this act, before application for settlement shall not be reopened by Settlement Commission Base metals & Articles of Base metal such as Pig Iron, Ferro-alloys, Ferrous waste and scrap, Iron & Steel Alloy products, Stainless steel, Articles of Iron or Steel to become costly if imported Import of Motor vehicles i) meant for carrying 10 or more people and ii) for Transport of Goods will become costly
Indirect Tax s Excise, Customs & Service Tax Act & Section 6. Central Excise Act Section 37 (4) & (5) 7. Central Excise, Customs & Service Tax 8. Service Tax Section 66D & 68 General contraventions viz., unauthorised removal of goods or manufacturing without registration or concealing details etc. are liable for higher minimum penalty Education Cess & Secondary and Higher Education Cess EXEMPTED in case of Central Excise Duty & Service Tax Continues in case of Customs Duty Swacch Bharat Cess enabling provision introduced in Service Tax Excise Duty rates increased to 12.5% as against current 12.36% subsuming Education Cess & Secondary & Higher Education Cess Service Tax rate increased from 12.36% to 14% Clean Energy Cess on coal, lignite and peat increased from INR 100 per tonne to INR 300 tonne Support Services received from Government, scope expanded to ANY SERVICE received from Government Government defined under Section 65B Minimum penalty increased from INR 2,000 to INR 5,000 Excise duty change would come into force by 1 st March 2015 Service Tax rate change would come into force when the Finance Bill receives Presidents assent Swacch Bharat Cess, though termed as Cess, it has been proposed on the Gross value, hence if introduced it would push Service Tax rate to 16% Service Tax becomes applicable for any Service received from Government which is not Sovereign in nature Tax is payable under Reverse Charge Mechanism
Indirect Tax s Excise, Customs & Service Tax Act & Section 9. Central Excise Tariff Act Additional Duty of Excise on Petrol & High Speed Diesel increased Condensed Milk, Lemonades & Iced Tea brought under MRP based valuation under Section 4A Duty on chassis of Ambulances reduced from 24% to 12.5% Excise duty on Cigarettes and other Tobacco products increased Tablet computers manufacturers given option of paying 2% without CENVAT credit or 12.5% with CENVAT credit Duty on leather footwear with Retail price more than INR 1,000 per pair reduced from 12% to 6% 10. Service Tax Section 66D (Negative List) 11. Service Tax Section 66D (Negative List) 12. Service Tax Section 66D (Negative List) Following changes made to Negative list which makes these Services taxable subject to exemptions proposed Lottery Distributor Chit Funds Aggregator (online market place providers like Uber) Entertainment services excluded from Negative List but an exemption for such entertainment events included in Mega Exemption For the purpose of Manufacture or Production of goods under negative list, activities which are involved in manufacture or production of Alcoholic Liquor for Human consumption has been excluded Exclusion of Chit Funds from Negative List is to specifically nullify the Delhi HC Judgement on Delhi Chit Fund Association case Entrance to any entertainment facility charging up to INR 500/- is exempt Service tax shall therefore shall be levied on contract manufacturing/ job work for production of alcoholic liquor
Indirect Tax s Excise, Customs & Service Tax Act & Section 13. Service Tax Reverse Charge Mechanism 14. Service Tax Reverse Charge Mechanism 15. Service Tax Goods Transport Agency 16. Service Tax Transport of Passengers by Air 17. Service Tax Transport of goods in a vessel 18. Service Tax Section 67 Services by Mutual fund agent or distributor to Asset Management Company Lottery ticket distributor or agent Manpower supply service and Security Service which were earlier covered under Joint Charge is now subject to 100% Reverse Charge This becomes applicable from 1 st March 2015 Current abatement of 75% has been reduced to 70% This becomes applicable from 1 st March 2015 If travel by Other than Economy class, abatement reduced to 40% from 60% Abatement increased from 60% to 70% Definition of Consideration widened Lottery agency service specifically brought under section 67 Recipient of Service is liable to pay Service tax Recipient of Service is liable to pay total Service tax Higher outflow of Service tax since taxability has been increased Travel by other than economy class to become costly This now ensures that any transport by Rail, Road or Vessel the Taxable amount is 30% uniformly Section 67 read with Section 94 (2) (aa) makes Reimbursements also taxable under service tax. This is to nullify the Delhi HC Judgement in International Consultants and Technocrats Pvt. Ltd. This inclusion of Lottery agency service nullifies the Judgement of Sikkim HC in Future Gaming Solutions Pvt. Ltd case law
Indirect Tax s Excise, Customs & Service Tax Act & Section 19. Service Tax Composition Scheme Rule 6(7), 6(7B) & 6(7C) 20. Service Tax Section 73(1A) 21. Service Tax Section 73(4A) 22. Service Tax Section 80 Air Travel ticket booking Service tax increased, Domestic Bookings from 0.6% to 0.7% International Bookings from 1.2% to 1.4% Sale and Purchase of foreign exchange, Service tax increased as follows (Rule 6(7B)) Up to INR 100,000, 0.14% of gross amount subject to minimum of INR 35 (Currently 0.12% & INR 30) Amount exceeding INR 100,000 up to INR 10,00,000, 0.07% plus INR 140 (Currently 0.06% & INR 120) Amounts exceeding INR 10,00,000, 0.014% plus INR 770 (Currently 0.012% & INR 660) Lottery distributor or selling agent Earlier slab rates of INR 7,000 & INR 11,000 changed to INR 8,200 & INR 12,800 respectively Authorities empowered to recover tax due without Issue of Notice in case the tax paid falls short of the declared tax as per the ST-3 return Simple penalty of 1% p.m. of tax due when short payments are identified by Audit party has been omitted Discretionary power to Assessing Officers for reduction of Penalty under this section has been omitted Changes carried out only to corresponding with the proposed change in Rate from 12% to 14% ST-3 return need to be filed with utmost care and caution Provides some relief to the Assesse No great impact since this was very rarely used by the Officers
Indirect Tax s Excise, Customs & Service Tax Act & Section 20. Service Tax Facility of Advance Ruling has been extended to all resident firms 21. CENVAT Credit Rules Time limit for availing CENVAT credit has been increased form 6 months to 1 year. This becomes applicable from 1 st March 2015 CENVAT credit on capital goods are allowed even if it is used in the Job workers premises (provided it is returned within 2 years) CENVAT credit on capital goods is allowed even if it is received directly at the Job workers premises For the purpose of Rule 6, Non-excisable goods shall also be treated as Exempted goods Advance ruling benches to be created in major states From 1 st March 2015, CENVAT credit shall be taken for any Invoice raised within the past 1 year Increase in Tax Reversal since denominator is increased Disclaimer: The analysis in this booklet is solely for information purposes. We are not offering it as a legal advice. While best efforts have been made in its preparation, we assume no liabilities of any kind with respect to the accuracy or completeness of the contents, and specifically disclaim from any loss caused, is alleged to have been caused directly or indirectly, by the information contained herein. Readers are advised to take expert opinion prior to acting upon any contents in this presentation. For client service & internal use only.
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