Union budget 2015-2016

Khandelwal Jain & Co.

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With Best Compliments

KHANDELWAL JAIN & CO.


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For Private Circulation Only

UNION BUDGET 2015-2016

Overview of Significant Proposals


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This is a brief note on the Union Budget 2015-2016 giving the salient features of the significant proposals. We hope you will find it useful.


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Branches :

AURANGABAD

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C O N T E N T S

Sr. No. Particulars Page No.

I. DIRECT TAX PROPOSALS A. Income Tax …………………………………….. 6 B. Wealth Tax …………………………………….. 48 II. INDIRECT TAX PROPOSALS A. Service Tax …………………………………….. 50 B. Central Excise ……………………….…….…….. 63 C. Customs ………........…………………………. 66 III. MISCELLANEOUS PROPOSALS 69 IV. RECENT POLICY ANNOUNCEMENTS

A. Inbound Investments ............................................ 70 B. Outbound Investments .......................................... 75


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I. DIRECT TAX PROPOSALS : A. INCOME TAX 1. Rates of Income Tax for Assessment Year 2016-2017 :

No change is proposed in the basic rates of income tax or in the basic tax exemption limit for individual or HUF or AOP or BOI and resident senior citizen. The Finance Minister in his speech has proposed to reduce the corporate tax rates from present 30% to 25% over the next four years and to remove various tax exemption and incentives available to corporate tax payers. However, Surcharge is proposed to be increased as under : (a) @ 12% on tax payable (present 10% rate) if taxable income exceeds Rs.

1 crore in case of individual / HUF / AOP / BOI / Firms / Co-operative Societies / Local authorities. The proposed 2% additional surcharge is in lieu of the proposed abolition of Wealth Tax.

(b) @ 7% (present 5%) on Domestic Corporate Tax if Total Income exceeds

Rs.1 crore but not above Rs.10 crore. (c) @ 12% (present 10%) on Domestic Corporate Tax if Total Income

exceeds Rs.10 crore. (d) @ 12% (present 10%) on Dividend Distribution Tax / Minimum

Alternate Tax / Tax on Distribution of income for buy back of Shares.

Surcharge in case of foreign companies continues to remain same. ‘Education Cess’ @ 2% and ‘Secondary and Higher Education Cess’ @ 1% on the amount of income-tax and surcharge (wherever applicable) will continue.


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The table below gives the income slabs and rates of income tax applicable to different categories of tax payers.

Income Existing rate for

A.Y. 2015-2016 [Ref. Notes] Proposed rate for

A.Y. 2016-17 [Ref. Notes]

For Individuals (Other than specified in note below), HUF, AOP and BOI

Up to Rs.2,50,000/- NIL

From Rs.2,50,001 to 5,00,000 10.3%

From Rs.5,00,001 to 10,00,000 20.6%

From Rs.10,00,001 to 1 crore 30.9% NO CHANGE

Above Rs. 1 crore 30%+10% SC + 2% EC + 1% SEC = 33.99%

30%+12% SC + 2% EC + 1% SEC = 34.608%

For Local authorities

Upto Rs.1 Crore 30.9% NO CHANGE

Above Rs.1 Crore 33.99% 34.608%

Firms

Upto Rs.1 Crore 30.9% NO CHANGE

Above Rs.1 Crore 33.99% 34.608%

For Co-operative Societies

Upto Rs.10,000 10.3%

From Rs.10,001 to 20,000 20.6%

From Rs.20,000 to 1 Core 30.9% NO CHANGE

Above Rs. 1 Crore 33.99% 34.608% For Domestic Companies Up to Rs.1 crore

30% + 2% EC + 1% SEC = 30.9% NO CHANGE

Above Rs.1 crore < Rs.10 crore 30%+5% SC + 2% EC + 1% SEC = 32.445%

30%+7% SC + 2% EC + 1% SEC = 33.063%

Above Rs.10 crore 30%+10% SC + 2% EC + 1% SEC = 33.99%

30%+12% SC + 2% EC + 1% SEC = 34.608%

For Foreign Companies Up toRs. 1 crore

40% + 2% EC + 1% SEC =41.2%

Above Rs. 1 crore < Rs. 10 crore 40%+2% SC+2%EC+ 1%SEC = 42.024% NO CHANGE

Above Rs. 10 crore 40%+5% SC+2%EC+ 1%SEC = 43.26%


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Income *Existing rate for

A.Y. 2015-16 [Ref. Notes] *Proposed rate for

A.Y. 2016-2017 [Ref. Notes] Dividend Distribution Tax u/s.115-O / 115-R By Domestic Company By Money Market Mutual Fund or Liquid Fund - where Recipient is Individual/HUF - Other Recipients

By other Mutual Funds (debt) - not under IDF Scheme - where Recipient is Individual/HUF - Other Recipients By other Mutual Funds (debt) - under IDF Scheme - where Recipient is Resident Individual/HUF Non-Resident Individual/HUF - Other Resident Recipients - Other Non-Resident Recipients By Equity oriented Fund

19.9941% 37.763% 48.557%

37.763% 48.557% 37.763% 5.9630% 48.557% 5.9630% Nil *Rate after grossing up including surcharge @10% and further increased by cess @3%

20.3576 38.453 49.440

38.453 49.440 38.453 6.0714 49.440 6.0714 Nil *Rate after grossing up including surcharge @12% and further increased by cess @3%

Minimum Alternate Tax (MAT) u/s.115JB - companies Book Profit upto Rs. 1 crore

18.5% + 2% EC + 1% SEC = 19.055%

NO CHANGE

Above Rs.1 crore < Rs. 10 crore - Domestic Companies

18.5% + 5% SC + 2% EC + 1% SEC = 20.00775%

18.5% + 7% SC + 2% EC + 1% SEC = 20.38885%

Above Rs.10 crore – Domestic Companies

18.5% + 10% SC + 2% EC + 1% SEC = 20.9605%

18.5% + 12% SC + 2% EC + 1% SEC = 21.3416%

Above Rs.1 crore < Rs.10 crore – Foreign Companies

18.5% + 2% SC + 2% EC + 1% SEC = 19.4361%

NO CHANGE Above Rs.10 crore – Foreign Companies 18.5% + 5% SC + 2% EC + 1%

SEC = 20.00775% Alternate Minimum Tax (AMI) u/s.115JC - person other than Company

Upto Rs.1 crore 18.5% + 2% EC + 1% SEC = 19.055% NO CHANGE

Above Rs.1 crore 18.5% + 10% SC + 2% EC + 1% SEC = 20.9605%

18.5% + 12% SC + 2% EC + 1% SEC = 21.3416%

Notes :

(i) For Resident individual/HUF the aggregate limit for deduction from

income chargeable to tax under Section 80C continues to remain same upto Rs.1,50,000/- with respect to sum paid or deposited in specified schemes, financial savings etc.

(ii) In the case of a senior citizen, i.e. a resident individual of the age of 60

years but less than 80 years at any time during the previous year, having total income upto Rs.3,00,000/-, would not be required to pay any income tax.


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(iii) In the case of a senior citizen, i.e. a resident individual of the age of 80 years or more at any time during the previous year, having total income upto Rs.5,00,000/-, would not be required to pay any income tax.

(iv) Resident individual whose total income does not exceed Rs.5 lakh shall

continue to be eligible for rebate of Rs.2,000/- in Assessment Year 2016-17.

(v) Exemption for transport allowance to be increased from Rs.800 p.m. to

Rs.1600 p.m.

2. Definition of ‘Charitable Purpose’ widened [Section 2(15)] :

Bill proposes to expand the existing definition of ‘Charitable Purpose’ to include the activity of ‘Yoga’, as a separate category on the lines of education and medical relief, so that it would not be affected by the proviso to Section 2(15).

Existing first & second proviso to S-2(15) excludes from ‘Charitable Purpose’ the activity in nature of ‘advancement of any other object of general public utility’ if consideration received from commercial activities exceeds Rs.25 lakhs in a previous year.

Bill proposes to substitute the said existing first & second proviso to protect the activities undertaken by a genuine organization as part of actual carrying out of the primary purpose of the trust or institution.

Accordingly, Bill has proposed to amend the definition of ‘charitable purpose’ to provide that the 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, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless, -

(i) such activity is undertaken in the course of actual carrying out of such

advancement of any other object of general public utility; and (ii) the aggregate receipts from such activity or activities, during the

previous year, do not exceed twenty percent of the total receipts of the trust or institution undertaking such activity or activities for the previous year.

These amendments will take effect from Assessment Year 2016-17.

3. Place of effective management [POEM] to determine residency status in

case of Companies [Section 6] :

The existing provisions of section 6 clause (3) provides that a company is said to be resident in India in any previous year, if (i) it is an Indian company; or (ii) during that year, the control and management of its affairs is situated wholly in India.


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In order to align the provisions of the Act with the Double Taxation Avoidance Agreements (DTAAs) entered into by India with other countries and also in line with international standards, the Bill proposes to amend the provisions of section 6 so as to provide that a person being a ‘company’ shall be said to be resident in India in any previous year, if-

(i) it is an Indian company; or (ii) its place of effective management, at any time in that year, is in India .

The Bill also proposes to define “place of effective management” to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance made. In due course, a set of guiding principles to be followed in determination of POEM are proposed to be issued for the benefit of the taxpayers as well as tax administration. Accordingly, under the proposed amendment a foreign company would be treated as resident in India if its place of effective management is in India at any time in the previous year. These amendments will take effect from the Assessment Year 2016-17.

4. CBDT to prescribe the manner and procedure for computing period of

stay in India in case of an Indian citizen working on a ship [Section 6] :

Presently in terms of the provisions contained in section 6 read with the Explanation 1(a), an individual being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian ship, is said to be resident in India in any previous year if he, having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to 182 days or more in that year. However, in the case of foreign bound ships where the destination of the voyage is outside India, there is uncertainty with regard to the manner and basis of determination of the period of stay in India for crew members of such ships who are Indian citizens. In view of the above, it is proposed to amend the Act to provide that, in respect of such voyage, the period or periods of stay in India shall be determined in the manner and subject to such conditions as may be prescribed.

This amendment will take effect retrospectively from Assessment Year 2015-16.


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5. Clarifications on indirect transfer provisions [Section 9 read with Section

271GA] :

Section 9 of the Act deals with cases of income which are deemed to accrue or arise in India. Sub-section (1) of the section 9 creates a legal fiction that certain incomes shall be deemed to accrue or arise in India. Clause (i) of said sub-section (1) provides a set of circumstances in which income accruing or arising, directly or indirectly, is taxable in India. The Finance Act, 2012 inserted certain clarificatory amendments in the provisions of section 9. The amendments, inter alia, included insertion of Explanation 5 in section 9(1)(i) w.r.e.f. 1.04.1962, which clarified that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

Considering the concerns raised by various stakeholders regarding the scope and impact of these amendments an Expert Committee was constituted and recommendation given by said committee are proposed to be introduced by way of amendments in the provisions of section 9 relating to indirect transfer, which, inter - alia, include

(i) the share or interest of a foreign company or entity shall be deemed to

derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of Indian assets exceeds the amount of ten crore rupees; and represents at least fifty per cent of the value of all the assets owned by the company or entity.

(ii) value of an asset shall mean the value of such asset determined in

prescribed manner on specified date without reduction of liabilities, if any, in respect of the asset, specified date of valuation shall be the date on which the accounting period of the company or entity as the case maybe, ends preceding the date of transfer.

(iii) the manner of determination of fair market value of the Indian assets

vis-a-vis global assets of the foreign company shall be prescribed in the rules.

(iv) the taxation of gains arising on transfer of a share or interest deriving,

directly or indirectly, its value substantially from assets located in India will be on proportional basis. The method for determination of proportionality are proposed to be provided in the rules.


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(v) the exemption shall be available to the transferor of a share of, or interest in, a foreign entity if he along with its associated enterprises, neither holds the right of control or management, nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital, in the foreign company or entity directly holding the Indian assets (direct holding company).

(vi) in case the transfer is of shares or interest in a foreign entity which does

not hold the Indian assets directly then the exemption shall be available to the transferor if he along with its associated enterprises, neither holds the right of management or control in relation to such company or the entity, nor holds any rights in such company which would entitle it to either exercise control or management of the direct holding company or entity or entitle it to voting power exceeding five percent in the direct holding company or entity.

(vii) exemption shall be available in respect of any transfer, subject to certain

conditions, in a scheme of amalgamation, of a capital asset, being a share of a foreign company which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company. [Insertion of new clause (viab) to section 47]

(viii) exemption shall be available in respect of any transfer, subject to certain

conditions, in a demerger, of a capital asset, being a share of a foreign company which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company. [Insertion of new clause (vicc) to section 47]

(ix) there shall be a reporting obligation u/s 285A on Indian concern through

or in which the Indian assets are held by the foreign company or the entity. The Indian entity shall be obligated to furnish information relating to the off-shore transaction having the effect of directly or indirectly modifying the ownership structure or control of the Indian company or entity. In case of any failure on the part of Indian concern in this regard a penalty shall be leviable. The penalty u/s 271GA is proposed to be:-

(a) a sum equal to two percent of the value of the transaction in respect

of which such failure has taken place in case where such transaction had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern; and

(b) a sum of five hundred thousand rupees in any other case.

These proposed amendments will take effect from Assessment Year 2016-17.


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6. Interest received by Non – Resident Bank from its Branch in India

brought to Tax Net [Section 9(i)(v)] :

Under the existing provisions contained in the Act, there is no clarity in respect of taxability of interest payment by bank branches in India to its foreign head office/ branches. Some of the judicial rulings in this context have held that although under the provisions of the Income-tax law the payment of interest by the branch to head office is non-deductible under domestic law being payment to self, however, such interest is deductible due to computation mechanism provided under the DTAA but it is not taxable in the hands of the Bank being income generated from self. The view expressed in the CBDT circular No.740 dated 17.04.1996 has not found favour in these judicial decisions.

The Special Bench of the ITAT in the case of Sumitomo Mitsui Banking Corporation [136 ITD- 66 TBOM] had mentioned that there are instances of other countries which specifically provide in their domestic law for the taxability of interest paid by a PE to its head office and other branches and had observed the absence of such a specific provision in the Indian Income-tax Act. The Bill now proposes to amend the Act by inserting an Explanation after Section 9(i)(v)(c) to provide 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 non-resident to the head office or any other part of such non-resident 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 and 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 . 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. Further, non-deduction would result in disallowance of interest claimed as expenditure by the PE and may also attract levy of interest and penalty in accordance with relevant provisions of the Act. These amendments will take effect from the Assessment Year 2016-17.


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7. Fund Managers in India not to constitute business connection of offshore

funds [Section 9 & Section 271FAB] :

At present, apart from income received by the fund manager as fees for fund management activity, following income in relation to offshore fund may be taxed in India:

(i) Activities of the offshore funds in India, as it may create sufficient nexus

of the offshore fund with India and may constitute a business connection in India even though the fund manager may be an independent person. Further, offshore fund may be held to be resident in India on the basis of its control and management being in India.

(ii) Similarly, profit from investment activities outside India by offshore

fund may be liable to tax in India due to the location of fund manager in India and attribution of such profits to the activity of the fund manager undertaken on behalf of the offshore fund.

To encourage the location of fund managers of offshore funds in India, certain amendments have been proposed to achieve below mentioned objectives -

(i) the tax liability in respect of income arising to the Fund from

investment in India would be neutral to the fact as to whether the investment is made directly by the fund or through engagement of Fund manager located in India; and

(ii) that income of the fund from the investments outside India would not be

taxable in India solely on the basis that the Fund management activity in respect of such investments have been undertaken through a fund manager located in India.

This specific exception from the general rules for determination of business connection and ‘resident status’ of off-shore funds and fund management activity undertaken on its behalf is subject to specified conditions. It is further proposed u/s 271FAB that every eligible investment fund shall, in respect of its activities in a financial year, furnish within ninety days from the end of the financial year, a statement in the prescribed form to the prescribed income-tax authority containing information relating to the fulfillment of the above conditions or any information or document which may be prescribed. In case of non furnishing of the prescribed information or document or statement, a penalty of Rs. 5 lakh shall be leviable on the fund.


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If the assessee is able to show the existence of reasonable cause for non compliance, then no penalty shall be levied as per the amendment in section 273B. It is also proposed to clarify that this regime shall not have any impact on taxability of any income of the eligible investment fund which would have been chargeable to tax irrespective of whether the activity of the eligible fund manager constituted the business connection in India of such fund or not. Further, the proposed regime shall not have any effect on the scope of total income or determination of total income in the case of the eligible fund manager. These amendments will take effect from the Assessment Year 2016-17.

8. Tax exemption under the Sukanya Samriddhi Account Scheme [Section 10(11A) & Section 80C] :

Bill proposed to insert a new sub section (11A) in Section 10 so as to provide that any payment from an account opened in accordance with Sukanya Samriddhi Account Rules, 2014 being a special Small Savings instrument for the welfare of the girl child shall be exempt from tax. As a result, the interest accruing on deposits in, and withdrawals from any such account would be exempt. Bill also proposes to amend Section 80C to allow the deduction from income to the parent or legal guardian of the girl child for any amount deposited under such account in name of any girl child of such individual. These amendments will take effect retrospectively from Assessment Year 2015-16.

9. 100% deduction for Swachh Bharat Kosh and Clean Ganga Fund

[Section 10(23C)(iiiaa) & (iiiaaa) and Section 80G] :

Considering the importance of Swachh Bharat Kosh and Clean Ganga Fund, Bill proposes to amend section 10(23C) of the Act so as to exempt the income of Swachh Bharat Kosh and Clean Ganga Fund from income-tax. Further Bill proposes to amend section 80G of the Act to provide that donations made by any donor to the Swachh Bharat Kosh and Clean Ganga Fund will be eligible for a deduction of 100% from the total income. However, any sum spent in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013, will not be eligible for deduction from the total income of the donor. These amendments will take effect retrospectively from Assessment Year 2015-16.


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10. Exemption of income of Core Settlement Guarantee Fund (SGF) of the Clearing Corporations [Section 10(23EE)] :

Under the existing provisions of Section 10 (23EA) / 10 (23EC) / 10 (23ED), income by way of contributions made to the Investor Protection Fund set up by recognized stock exchanges in India, or by commodity exchanges in India, or by a depository is exempt from tax. Under the provisions of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (SECC) notified by SEBI, the Clearing Corporations are mandated to establish a fund, called Core Settlement Guarantee Fund (Core SGF) for each segment of each recognized stock exchange to guarantee the settlement of trades executed in respective segments of the exchange. Accordingly, on similar lines, it is proposed to exempt the ‘specified income’ of the Core SGF, setup by a recognized clearing corporation. Bill proposes to define “specified income” to mean:

i) the income by way of contribution received from specified persons; ii) the income by way of penalties imposed by the recognized clearing

corporation and credited to the Core Settlement Guarantee Fund; or iii) the income from investment made by the Fund;

However, where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is shared.

The Bill further proposes to define: a) “recognized clearing corporation” shall have the same meaning as

assigned to it in clause (o) of sub-regulation (1) of regulation 2 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992;

b) “regulations” means the Securities Contracts (Regulation) (Stock

Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992;

c) “Specified person” to mean:

i) Any recognized clearing corporation which establishes and

maintains the Core Settlement Guarantee Fund; and ii) any recognized Stock Exchange being the shareholder in such

recognized Clearing Corporation.

This amendment will take effect from Assessment Year 2016-17.


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11. Rationalisation of provisions of Section 11 relating to accumulation of

Income by charitable trusts and institutions [Section 11] :

Under the existing provisions of section 11 of the Act, a trust or an institution for charitable purposes can claim exemption to the extent of the following:

(a) standard exemption upto 15% for indefinite accumulation (b) actual application of income for charitable purposes (c) balance income (i.e. to the extent of 85%) set apart or accumulated for a

period of 5 years to be applied for charitable purposes.

For the purpose of 85% accumulation, section 11(2) prescribed the following conditions:

(a) trust should submit the prescribed Form 10 to the Assessing Officer in

this regard; (b) in Form 10, trust should specify the purpose and the period for which

income is accumulated not exceeding five years, and (c) the money so accumulated or set apart is invested or deposited in the

specified forms or modes.

However, there was no clarity about the eligibility for exemption in respect of such accumulation if Form 10 is not filed alongwith Return of Income. In order to remove this ambiguity regarding the period within which the assessee is required to file Form 10, and to ensure due compliance of the above conditions within time, the Bill proposes to amend the section 11 and 13 to provide that the said Form 10 shall be filed before the due date of filing return of income specified under section 139(1) of the Act for the fund or institution. In case the Form 10 is not submitted on or before due date, the Bill proposes to deny the benefit of accumulation and to charge to tax such income at the applicable rate. Further, the Bill proposes that benefit of accumulation also shall not be available if Return of Income is not furnished on or before the due date of filing return of income as specified u/s. 139(1). These amendments will supersede the following judicial ruling and CBDT circular:

(a) CIT v. Nagpur Hotel Owners Association 247 ITR 201 (SC) (b) Circular No. 273 [F. No. 180/57/80-IT(A-I)], dated 3-6-1980



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12. Rationalisation of allowance of additional depreciation [Section 32] :

Currently, additional depreciation of 20% allowable u/s.32(1)(iia) of the Act is restricted to 50% when the new plant or machinery acquired and installed by the assessee, is put to use for the purposes of business or profession for a period of less than 180 days in the previous year in terms of proviso to section 32(1). However, there is a controversy as to allowability of balance 50% additional depreciation in the immediate succeeding year. In the following decision the benefit of allowance for balance 50% additional depreciation has been given:

a. ACIT v. SIL Investment Ltd. 54 SOT 54 (Delhi) b. DCIY v. Cosmo Files Ltd. 139 ITD 628 (Delhi) c. MITC Rolling Mills Pvt. Ltd. v. ACIT ITA No. 2789/Mum/2012

In line with the above rulings and to bring clarity in the matter, the Bill now proposes to provide that the balance 50% of the additional depreciation on such new plant or machinery which has not been allowed in the earlier previous year shall be allowed in the immediately succeeding year. This amendment will take effect from Assessment Year 2016-17.

13. Tax incentive for Industrial undertaking set-up in the backward areas of

Andhra Pradesh and the Telangana [Section 32 & Section 32AD] :

In order to encourage the setting up of industrial undertakings in the backward areas of the State of Andhra Pradesh and the State of Telangana, Bill proposes to provide following Income-tax incentives:-

a. Additional Investment Allowance - [Section 32AD] :

The Bill proposes to insert a new section 32AD in the Act to provide for an additional investment allowance of an amount equal to 15% of the cost of new asset acquired and installed by an assessee, if -

(i) he sets up an undertaking or enterprise for manufacture or

production of any article or thing on or after 1st April, 2015 in any notified backward areas in the State of Andhra Pradesh and the State of Telangana; and

(ii) the new assets are acquired and installed for the purposes of the said

undertaking or enterprise during the period beginning from the 1st April, 2015 to 31st March, 2020.


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This deduction shall be available over and above the existing deduction available under section 32AC of the Act. The phrase “new asset” has been defined as plant or machinery but does not include—

(i) any plant or machinery which before its installation by the assessee

was used either within or outside India by any other person; (ii) any plant or machinery installed in any office premises or any

residential accommodation, including accommodation in the nature of a guest house;

(iii) any office appliances including computers or computer software; (iv) any vehicle;

(v) any ship or aircraft; or (vi) any plant or machinery, the whole of the actual cost of which is

allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.

Bill also proposes to provide suitable safeguards for restricting the transfer of such plant or machinery for a period of 5 years. However, this restriction shall not apply to the amalgamating or demerged company or the predecessor in a case of amalgamation or demerger or business reorganisation but shall continue to apply to the amalgamated company or resulting company or successor, as the case may be.

(b) Additional Depreciation at the rate of 35% [Section 32] :

Bill also proposes to amend proviso to section 32(1) to allow higher additional depreciation at the rate of 35% (instead of 20%) in respect of the actual cost of new machinery or plant (other than a ship and aircraft). This depreciation allowance is over and above the deduction allowed for general depreciation under section 32(1)(ii) of the Act. The Bill also proposes to make consequential amendments in the second proviso to section 32(1) of the Act for applying the existing restriction of the allowance to the extent of 50% for assets used for the purpose of business for less than 180 days in the year of acquisition and installation. However, the balance 50% of the allowance is also proposed to be allowed in the immediately succeeding financial year. These amendments will take effect from Assessment Year 2016-17.


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14. Rationalisation of monitoring of approved in-house R&D facility available for weighted deduction [Section 35] :

Existing section 35(2AB) of the Act provides for 200% weighted deduction to a company engaged in the business of biotechnology or manufacturing of goods (except items specified in Schedule-XI) for the expenditure (not being expenditure in the nature of cost of any land or building) incurred on scientific research carried out in an approved in-house research and development facility. In order to have a better and meaningful monitoring mechanism for weighted deduction allowed under section 35 (2AB) of the Act, the Bill proposes to amend the provisions of section 35(2AB) to provide that deduction under the said section shall be allowed if the company enters into an agreement with the prescribed authority for cooperation in such research and development facility and fulfills prescribed conditions with regard to maintenance and audit of accounts and also furnishes prescribed reports to the Principal Chief Commissioner or Chief Commissioner having jurisdiction over the company claiming the weighted deduction under the said section. These amendments will take effect from Assessment Year 2016-17.

15. Tax neutrality on merger of similar schemes of Mutual Funds [Section

47 / Section 49 and Explanation to Section 2(42A)] :

Securities and Exchange Board of India (SEBI) has been encouraging mutual funds to consolidate different schemes having similar features so as to have simple and fewer numbers of schemes. However, under the existing provisions such mergers/consolidations are treated as transfer and capital gains are imposed on unit-holders under the Income-tax Act. In order to facilitate consolidation of such schemes of mutual funds in the interest of the investors and to provide tax neutrality to unit holders, the Bill proposes to provide the following:

(a) to amend section 47 of the Act so as to provide that such consolidation

or merger of mutual fund schemes not to be considered as transfer, provided that the consolidation is of two or more schemes of an equity oriented fund or two or more schemes of a fund other than equity oriented fund; and

(b) to define consolidating scheme as the scheme of a mutual fund which

merges under the process of consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and consolidated scheme as the scheme with which the consolidating scheme merges or which is formed as a result of such merger.


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Consequently, Bill also proposes to amend section 49 and Explanation to section 2(42A) of the Act, so as to provide and that the cost of acquisition of the units of consolidated scheme shall be the cost of units in the consolidating scheme and period of holding of the units of the consolidated scheme shall include the period for which the units in consolidating schemes were held by the assessee. These amendments will take effect from Assessment Year 2016-17.

16. Cost of acquisition of a capital asset in the hands of resulting company

[Section 49] :

The existing provisions of the Act do not have express provisions to determine the cost of acquisition of assets in the course of demerger. It has been proposed that the cost of the asset in the hands of the resulting company should be cost of such asset in the hands of the demerged company as increased by the cost of improvement, if any, incurred by the demerged company. This amendment will not be applicable to depreciable assets.


17. Raising the limit of deduction for Annuity Pension Plan [Section

80CCC]:

Bill proposes to raise the existing limit of deduction allowed to an individual in the computation of his total income in respect of an amount paid or deposited by him to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from a fund set up under a pension scheme from Rs 1 Lakh to Rs 1.5 Lakhs, within the overall limit provided in section 80CCE. This amendment will take effect from Assessment Year 2016-17.

18. Additional deduction for New Pension Fund [Section 80CCD] :

Under the existing provision deduction is allowed for contribution to notify pension scheme. With a view to encourage people to contribute towards New Pension Scheme (NPS), it is proposed to insert a new sub-section (1B) so as to provide for an additional deduction in respect of any amount paid, of upto fifty thousand rupees for contributions made by any individual assessee under the NPS. Thus the aggregate amount of deduction u/s.80CCD has now been increased from Rs.1.5 lakh to Rs.2 lakh. These amendments will take effect from Assessment Year 2016-17.


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19. Increase in limit of deduction for health insurance premium [Section 80 D]:

The Bill proposes to raise the limit of deduction allowed under Section 80D to Individuals and HUF in respect of premium paid for health insurance or preventive health checkup of the assessee or his family, from Rs 15,000/- to Rs 25,000/-. Limit of additional deduction of Rs. 15,000/- is also raised to Rs. 20,000/- in respect of insurance premium paid for health insurance of parents. It is further proposed to raise the limit of deduction for senior citizens in both the cases from Rs 20,000/- to Rs 30,000/-. Further, Bill proposes to provide that any payment made on account of medical expenditure in respect of a very senior citizen, if no payment has been made to keep in force an insurance policy on the health of such person, as does not exceed Rs 30,000/- shall be allowed as deduction under section 80D. The aggregate deduction available to any individual in respect of health insurance premium and the medical expenditure incurred would however be limited to Rs.30,000/-. Similarly, aggregate deduction for health insurance premium and medical expenditure incurred in respect of parents would be limited to Rs.30,000/-. These amendments will take effect from Assessment Year 2016-17.

20. Limit of deduction for persons with disability raised [Section 80DD /

Section 80U] :

The current limit of deduction under section 80DD allowed to a resident individual or HUF is proposed to be raised

(a) from Rs 50,000/- to Rs 75,000/- for disability.

(b) from Rs 1 lakh to Rs 1.25 Lakhs for severe disability.

Similar limit of deduction allowed to a resident individual with disability u/s 80U has been proposed to be raised.


21. Limit of deduction raised in respect of medical treatment [Section

80DDB] :

Under the existing provisions of section 80DDB of the Act, an assessee, resident in India is allowed a deduction of Rs.40,000/- and Rs.60,000/- for senior citizen, being the amount actually paid, for the medical treatment of specified diseases.


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The said deduction is available to an individual for medical expenditure if a certificate in the prescribed form is obtained from a specialist working in a Government hospital and is furnished with the Return of Income. It is proposed to amend section 80DDB so as to provide that the assessee will be required to obtain a prescription form for such treatment from a specialist doctor for the purpose of availing this deduction. Further, it is also proposed to increase the limit of deduction upto Rs.80,000/- in respect of the medical treatment of a “very senior citizen” (i.e. above 80 years). These amendments will take effect from Assessment Year 2016-17.

22. Extension of Deduction for employment of new workmen to smaller

units and to all the assessees [Section 80JJAA] :

The existing provisions contained in section 80JJAA of the Act, inter alia, provide for a deduction to an Indian company, deriving profits from manufacture of goods in a factory, equal to 30% of additional wages paid to new regular workmen, in excess of 100 workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided. Clause (a) of sub-section (2), inter alia, provides that no deduction under sub-section (1) shall be available if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company. With a view to encourage generation of employment, it is proposed to amend the said section so as to extend the benefit to all assessees having manufacturing units (rather than restricting it to corporate assessees only) employing new regular workmen in excess of fifty workmen employed during the previous year. This amendment will take effect from Assessment Year 2016-17.

23. Threshold for Specified Domestic Transaction (SDT) raised to INR 20

crore [Section 92BA] :

In terms of definition of ‘SDT’ under the existing provisions of section 92BA, Transfer Pricing provision are applicable to an assessee where the aggregate of such transactions entered into by the assessee in the previous year exceeds Rs.5 crores.


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In order to address the issue of compliance cost in case of small businesses on account of low threshold of Rs.5 crores the Bill proposes to raise the said threshold for ‘SDT’ to Rs. 20 crore in the previous year, by amending the definition u/s. 92BA.


24. Deferment of provisions relating to General Anti Avoidance Rule

(“GAAR”) [Section 95] :

The existing provisions of the General Anti Avoidance Rule (GAAR) introduced by the Finance Act, 2013 contained in Chapter X-A (consisting of section 95 to 102) and section 144BA of the Act. GAAR provisions were to come into effect from 1.04.2016.

It is proposed that implementation of GAAR be deferred by two years and GAAR provisions be made applicable to the income of the financial year 2017-18 (Assessment Year 2018-19) and subsequent years by amendment of the Act.

Further, investments made up to 31.03.2017 are proposed to be protected from the applicability of GAAR by amendment in the relevant rules in this regard.

25. Tax on Royalty and Fees for Technical Services in case of Non-Residents

reduced to 10% [Section 115A(1)(b)] :

The Bill proposes to reduced the rate of tax on income by way of Royalty and Fees for Technical Services (FTS) received by non-resident from Government or an Indian concern, where the agreement is made after 31.03.1976, and which is not effectively connected with a permanent establishment, if any, of the non-resident in India, from 25% to 10%.


26. Amendment in the definition of “Global Depository Receipt” (GDR)

[Section 115ACA] :

The Bill seeks to amend section 115ACA of the Income-tax Act relating to concessional tax on income from Global Depository Receipts (GDR) purchased in foreign currency or capital gains arising from their transfer.

Clause (a) of the Explanation to the aforesaid section defines the expression “Global Depository Receipts” for the purposes of the section to mean an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to non-resident investors against the issue of ordinary shares or foreign currency convertible bonds of issuing company.


-: 25 :-

It is proposed to amend the definition of “Global Depository Receipts” provided in the said clause to mean an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to investors against the issue of,–

(i) ordinary shares of issuing company, being a company listed on a

recognised stock exchange in India; or (ii) foreign currency convertible bonds of issuing company. Accordingly, under the proposed amendment, the concessional tax treatment will be available only in respect of ADRs / GDRs of companies listed on a recognized stock exchange in India. This amendment will take effect from Assessment Year 2016-17.

27. Member of an AOP not liable to MAT on its share of income in AOP and

Foreign Institutional Investor (FII) also not liable to MAT on Long term capital gain on listed securities [Section 115JB] :

Under the existing provisions of section 115JB;

(a) a company which is a member of an AOP (Association of Persons) is

liable to MAT on its share in the income of AOP. (b) Further, a FII is liable to MAT on capital gain arising on listed securities

on which STT is leviable.

Bill proposes to amend the existing provision of section 115JB so as to provide that the share of a member of an AOP, in the income of the AOP, on which no income tax is payable in accordance with the provisions of section 86 of the Act, shall be excluded while computing the MAT liability of the member under 115JB of the Act by insertion of new clause (iic) in Explanation (1) for reducing such amount credited to P & L a/c from computation of book profit. The expenditures, if any, debited to the profit loss account, corresponding to such income are also proposed to be added back to the book profit for the purpose of computation of MAT by insertion of new clause (fa) in the Explanation. Further, it is proposed that profit corresponding to income from transactions in securities (other than short term capital gains arising on transactions on which securities transaction tax is not chargeable) arising to a FII credited to P & L a/c shall be reduced from the book profit by insertion of new clause (iid) in Explanation 1. The expenditures, if any, debited to the profit loss


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account, corresponding to such income are also proposed to be added back to the book profit for the purpose of computation of MAT by insertion of new clause (fb) in Explanation (1). Accordingly, FII’s shall not be liable to MAT on LTCG on which STT is leviable. These amendments will take effect from Assessment Year 2016-17.

28. Amendment to Specific Taxation Regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust (Invit) [Chapter XII-FA (Sec.115UA) & S 10 (23FCA) & S 10 (38)] : Under the existing provisions tax structure of the REIT’s/ INVIT’s is as follows:

(i) Nature of Income Taxability of REIT’s/

INVIT’s (Business Trust) Taxability of

Investors a) Interest Income Exempt u/s. 10(23FC) Taxable b) Sale of Shares/Debenture

of SPV by the Business Trust

Taxable as LTCG/STCG u/s. 112/111A

Exempt

c) Dividend Income Exempt Exempt d) Other Income Taxable at Maximum

Marginal Rate Exempt

(ii) The listed units of a business trust, when traded on a recognised stock

exchange, would be liable to securities transaction tax (STT), and the long term capital gains shall be exempt and the short term capital gains shall be taxable at the rate of 15%.

(iii) Withholding tax at the rate of 5%. in case of payment of interest

component of income distributed to non-resident unit holders, and at the rate of 10% in respect of payment of interest component of distributed income to a resident unit holder is required to be effected by the trust.

(iv) The dividend received by the trust is subject to dividend distribution tax

at the level of SPV. (v) In case of capital gains arising to the sponsor at the time of exchange of

shares in Special Purpose Vehicle (SPV), being the unlisted company through which income generating assets are held indirectly by the business trusts, with units of the business trust, the taxation of gains is deferred.

The tax on such gains is to be levied at the time of disposal of units by the sponsor.


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For the purpose of computing capital gain, the cost of these units is considered as cost of the shares to the sponsor. The holding period of shares is included in computing the holding period of such units. The deferral of capital gains provided to the sponsor of business trust places such a sponsor at a disadvantageous tax position vis-a-vis direct listing of the shares of the SPV. In case the sponsor holding the shares of the SPV decides to exit through the Initial Public Offer (IPO) route, then the benefit of concessional tax regime relating to capital gains arising on transfer of shares subject to levy of STT is available to him. The tax on short term capital gains (STCG) in such cases is levied @ 15% and the long term capital gain (LTCG) is exempt under section 10(38) of the Act. However, the benefit of concessional regime is not available to the sponsor at the time it offloads units of business trust acquired in exchange of its shareholding in the SPV through Initial offer at the time of listing of business trust on stock exchange.

In order to provide parity, Bill proposes to provide that : (i) the sponsor would get the same tax treatment on offloading of units

under an Initial offer on listing of units as it would have been available had he offloaded the underlying shareholding through an IPO.

(ii) the Finance (No. 2) Act, 2004 be amended to provide that STT shall be

levied on sale of such units of business trust which are acquired in lieu of shares of SPV, under an Initial offer at the time of listing of units of business trust on similar lines as in the case of sale of unlisted equity shares under an IPO.

(iii) the benefit of concessional tax regime of tax @15 % on STCG and

exemption on LTCG under section 10(38) of the Act shall be available to the sponsor on sale of units received in lieu of shares of SPV subject to levy of STT.

Further, in case of a business trust, being REITs, the income is predominantly in the nature of rental income. This rental income arises from the assets held directly by REIT or held by it through an SPV. The rental income received at the level of SPV gets passed through by way of interest or dividend to the REIT, the rental income directly received by the REIT is taxable at REIT level and does not get pass through benefit.

In order to provide pass through to the rental income arising to REIT from real estate property directly held by it, Bill proposes to provide that :-

(i) any income of a business trust, being a real estate investment trust, by

way of renting or leasing or letting out any real estate asset owned directly by such business trust shall be exempt;


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(ii) the distributed income or any part thereof, received by a unit holder from the REIT, which is in the nature of income by way of renting or leasing or letting out any real estate asset owned directly by such REIT, shall be deemed to be income of such unit holder and shall be charged to tax.

(iii) the REIT shall effect TDS on rental income allowed to be passed

through. In case of resident unit holder, tax shall deducted @ 10%, and in case of distribution to non-resident unit holder, the tax shall be deducted at rate in force as applicable for deduction of tax on payment to the non-resident of any sum chargeable to tax .

(iv) no deduction shall be made under section 194-I of the Act where the

income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset held directly by such REIT.


29. Special Tax Regime Relating To Income of Alternative Investment

Funds (AIF) Category I & II [New Chapter XII-FB] [Sec. 115UB & Section 10(23FB)] : The existing provisions of section 10(23FB) and section 115U provide a tax pass through (i.e. income is taxable in the hands of investors instead of VCF/VCC) only to the funds, being set up as a company or a trust, which are registered (i) before 21.05.2012 as a VCF under SEBI (Venture Capital Funds) Regulations, 1996, or (ii) as venture capital fund being one of the sub-categories under category-I Alternative investment fund (AIF) regulated by SEBI (AIF) Regulations, 2012 w.e.f. 21.05.2012. The existing pass through is available only in respect of income which arises to the fund from investment in VCU (Venture Capital Undertaking), being a company which satisfies the conditions provided in SEBI (VCF) Regulations, 1996 or SEBI (AIF) Regulations, 2012 (AIF regulations) .

Under the AIF regulations, various types of AIFs have been classified under three separate categories as Category I, II and III AIFs. a) Category I include AIFs which invest in start-up or early stage ventures

or social ventures or SMEs or infrastructure or other sectors or areas which the Government or regulators consider as socially or economically desirable.

b) Category II AIFs are funds including private equity funds or debt funds

which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements.


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c) Category III AIFs are funds which employ diverse or complex trading

strategies and may employ leverage including through investment in listed or unlisted derivatives. The funds can be set up as a trust, company, limited liability partnership and any other body corporate. Similarly, investment by AIFs can be in entities which can be a company, firm etc.

In order to rationalize the taxation of Category-I and Category-II AIFs (hereafter referred to as investment fund) the Bill proposes to provide a special tax regime. The taxation of income of such investment fund and their investors shall be in accordance with the proposed regime which is applicable to such funds irrespective of whether they are set up as a trust, company, or limited liability firm etc.

The salient features of the special regime are:-

(i) Nature of Income Taxability of

Investment Fund (IF)

Taxability of Investors/Unit Holders

a) Business Income Tax shall be charged at applicable rate if investment fund is a company or a firm, else at maximum marginal rate

Exempt

b) Income other than Business Income

Exempt (a) Taxable in the same manner as if it were the income accruing or arising to, or received by, such person had the investments, made by the investment fund, been made directly by him. (b) The income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as if it had been received by, or had accrued or arisen to, the investment fund.


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(ii) Where any income which is taxable and payable to a unit holder by an investment fund, the fund shall deduct income-tax at the rate of ten per cent.

(iii) If in any year there is a loss at the fund level either current loss or the

loss which remained to be set off, the loss shall not be allowed to be passed through to the investors but would be carried over at fund level to be set off against income of the next year in accordance with the provisions of Chapter VI of the Income-tax Act.

(iv) Provision of Dividend Distribution Tax or Tax on distributed income

shall not apply to the income paid by an investment fund to its unit holders.

(v) The income received by the investment fund would be exempt from

TDS requirement. This would be provided by issue of appropriate notification under section 197A(1F) of the Act subsequently.

(vi) It shall be mandatory for the investment fund to file its return of income.

The investment fund shall also provide to the prescribed income-tax authority and the investors, the details of various components of income, etc. for the purposes of the scheme.

Further, the existing pass through regime is proposed to be continued to apply to VCF/VCC which had been registered under SEBI (VCF) Regulations, 1996. Remaining VCFs, being part of Category-I AIFs, shall be subject to the new pass through regime. These amendments will take effect from the Assessment Year 2016-17.

30. Widening the scope of adjustment of the asset seized/requisitioned under section 132/132A [Section 132B] :

The existing provision contained in section 132B of the Income-tax Act, provides that the asset seized under section 132 or requisitioned under section 132A may be adjusted against the amount of existing liability under the Income-tax Act, the Wealth-tax Act etc. and the amount of liability determined on completion of assessment. However, it is now proposed to amend section 132B of the Income-tax Act to provide that the asset seized under section 132 or requisitioned under section 132A may also be adjusted against the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C. This amendment will take effect from 1st day of June, 2015.


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31. Furnishing of return of income by certain universities and hospitals referred to in section 10 (23C) [Section 139] :

Section 139, inter alia, specifies certain persons which are required to file return of income.

Under the existing provisions of section 139, entities referred to in sub-clauses (iiiab) i.e. Educational University and (iiiac) i.e; Hospitals of clause (23C) of section 10 are not mandatorily required to file their return of income. Income of such university or educational institution, which is wholly or substantially financed by the Government, are exempt from tax.

However, Bill now proposes to amend Section 139 so as to provide such entities to file their return of income mandatorily if the total income of such university, hospital or other institution without giving effect to provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax.


32. Simplification of approval regime for issue of notice for re-assessment [Section 151] :

The present Section 151 of the Act provides for sanction from certain authorities before issue of notice for reassessment of income under section 148. Section 151 specifies different sanctioning authorities based on-

(i) whether scrutiny under sub-section (3) of section 143 or section 147 has been made earlier or not,

(ii) whether notice is proposed to be issued within or after four years from

the end of relevant assessment year, and

(iii) the rank of the Assessing Officer proposing to issue notice.

To bring simplicity, the Bill proposes to substitute the existing provision of section 151 to provide that no notice under section 148 shall be issued by an assessing officer upto four years from the end of relevant assessment year who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice.

Also, no notice shall be issued beyond four years from the end of relevant assessment year without the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.

This amendment will take effect from 1st day of June, 2015.


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33. Assessment of Person other than the person in whose case search has been initiated [Section 153C] :

Under the existing provisions of Section 153C of the Act, where the Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belongs or belong to a person other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person.

Various disputes arose as to the interpretation of the word 'belongs to' in respect of a document. For example, if the document seized from a person is a copy of the original document.

Hence the Bill now proposes to amend the said section 153C so as to extend it to any money, bullion, jewellery or other valuable article or thing belongs to, or any books of account or documents seized or requisitioned pertain to, or any information contained therein, relates to, any person, other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.

This amendment will take effect from the 1st day of June, 2015.

34. Rectification of mistakes in case of processing of Return of Tax Collected

at Source (TCS) [Section 154] : Existing provisions did not provide for processing of TCS filed by the collector. The Bill now proposes to insert a provision in the Act for processing of TCS statement in line with the processing of TDS statement. Consequently, it is proposed to amend S. 154 of the Act so as to provide that any apparent mistake in the intimation generated after processing of TCS statement specifying the amount payable/refundable can be rectified u/s 154 of the Act.

This amendment will take effect from the 1st day of June, 2015.


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35. Notice of Demand in case of processing of TCS [Section 156] : The Bill proposes to provide that any demand raised in the intimation after processing of TCS shall be deemed as notice of Demand u/s 156. The failure to pay the tax specified in the intimation shall attract levy of interest as per the provisions of section 220(2) of the Act.

36. Insertion of new section to direct the procedure for appeal by revenue when an identical question of law is pending before Supreme Court [Section 158AA] : Section 158A of the Income-tax Act provides that during pendency of proceedings in his case for an assessment year, an assessee can submit a claim before the Assessing Officer or any appellate authority that a question of law arising in the instant case for the assessment year under consideration is identical with the question of law already pending in his own case before the High Court or Supreme Court for another assessment year and if the Assessing Officer or any appellate authority agrees to apply the final decision on the question of law in that earlier year to the present year, he will not agitate the same question of law once again for the present year before higher appellate authorities. The Assessing Officer or any appellate authority before whom his case is pending can admit the claim of the assessee and as and when the decision on the question of law becomes final, they will apply the ratio of the decision of the High Court or Supreme Court for that earlier case to the relevant years case also. There is presently no parallel provision for revenue to not file appeal for subsequent years where the Department is in appeal on the same question of law for an earlier year. As a result, appeals are filed by the revenue year after year on the same question of law until it is finally decided by the Supreme Court thus, multiplying litigation. Accordingly, it is proposed to insert a new section 158AA so as to provide that notwithstanding anything contained in this Act, where any question of law arising in the case of an assessee for any assessment year is identical with a question of law arising in his case for another assessment year which is pending before the Supreme Court, in an appeal or in a special leave petition under Article 136 of the Constitution filed by the revenue, against the order of the High Court in favour of the assessee, the Commissioner or Principal Commissioner may, instead of directing the Assessing Officer to appeal to the Appellate Tribunal under sub-section (2) or sub-section (2A) of section 253, direct the Assessing Officer to make an application to the Appellate Tribunal in the prescribed form within sixty days from the date of receipt of order of the Commissioner (Appeals) stating that an appeal on the question of law arising in the relevant case may be filed when the decision on the question of law becomes final in the earlier case.

This amendment will take effect from 1st June, 2015.


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37. Uniformity in evidence / documents to be furnished by employee assessee for Estimation of Taxable Salary u/s.192 [Section 192(2D)] :

The existing provisions contained in section 192(1), for estimation of taxable salary income from which withholding tax has to be deducted, does not prescribe any guidance regarding the nature of evidence/documents to be obtained by the employer.

According, the Bill now proposes to insert sub section (2D) so as to bring uniformity in the evidence/documents to be obtained in the prescribed form and manner from the employee, by the person responsible for paying, for the purposes of estimating income of the assessee for computing tax deductible under section 192(1) of the Act.


38. TDS on pre mature withdrawal from Employees PF [Section 192A] :

Under the existing provision central trustees of EPFs are facing difficulty in obtaining past information for recomputing the tax liability of the years for which the contribution was made for the purpose of TDS on premature withdrawal, owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable. The Bill now proposes to simplify the procedure by providing tax to be deducted at the rate of 10% if the withdrawal payment exceeds Rs.30,000/-.

It is further proposed to provide that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.

Bill also further proposes facilating the employees not having taxable income receiving premature withdrawal by filing self declaration in Form 15G for non-deduction of tax u/s.197A. Similar facility is proposed to be extended to senior citizen employees by Filing Form 15 H. Bill also proposes to provide in case of employees liable to pay tax at higher slab rates (20% or 30%) to make good the short fall in the actual tax liability either by requesting their employer to deduct balance TDS or through Advance tax / Self assessment tax.

These amendments will take effect from 1st June, 2015.


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39. Insertion of new section 192A for deduction of tax from payment of accumulated balance due to an employee :

The Bill proposes to insert a new section 192A so as to provide that the trustees of the Employees’ Provident Fund Scheme, 1952 framed under section 5 of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, or any person authorised under the scheme to make payment of accumulated balance due to employees, shall, in a case where the accumulated balance due to an employee participating in a recognised provident fund is includible in his total income owing to the provisions of rule 8 of Part A of the Fourth Schedule not being applicable, at the time of payment of accumulated balance due to the employee, deduct income-tax thereon at the rate of ten per cent if the withdrawal payment exceeds Rs.30,000/-

It is further proposed to provide that any person entitled to receive any amount on which tax is deductible under this section shall furnish his Permanent Account Number to the person responsible for deducting such tax, failing which tax shall be deducted at the maximum marginal rate.

Bill also further proposes facilating the employees not having taxable income receiving premature withdrawal by filing self declaration in Form 15G for non-deduction of tax u/s.197A. Similar facility is proposed to be extended to senior citizen employees by Filing Form 15 H. Bill also proposes to provide in case of employees liable to pay tax at higher slab rates (20% or 30%) to make good the short fall in the actual tax liability either by requesting their employer to deduct balance TDS or through Advance tax / Self assessment tax.


40. Rationalisation of provisions relating to deduction of tax on interest

(other than interest on securities) [Section 194A] :

(a) Under the existing provisions income credited or paid in respect of time deposits with a banking company or cooperative society or deposits with a public company, for the purpose of deduction of tax u/s. 194A shall be computed with reference to the branch of the banking company or co-operative society or public company, as the case may be.

However, as most of these entities are computerized and follow core banking solutions the Bill proposes to insert a proviso to provide that where such banking company or the co-operative society or the public company has adopted core banking solutions, the computation of interest income for the purpose of deduction of tax should be made with reference to the bank or company and not with reference to branch.


-: 36 :-

The Bill also proposes to amend the definition of ‘time deposits’ so as to provide that for the purposes of said clauses the expression ‘time deposits’ shall include recurring deposits within its scope for the purpose of deduction of tax u/s. 194A of the Act.

(b) The Bill further proposes to amend clause (v) of sub-section (3) so as to provide that the provisions of sub-section (1) of section 194A granting general exemption shall not apply to income credited or paid by a co-operative bank to a member thereof. The Bill also proposes to provide an Explanation below clause (v) of sub-section (3) of aforesaid section 194A to define the expression “co-operative bank”.

(c) The existing provisions of clause (ix) of section 194A(3) of the Act

provides for deduction of tax from interest paid or credited on compensation amount awarded by motor accident claim Tribunal whichever is earlier. Section 145A (b) of the Act provides an exception to method of accounting contained in section 145 of the Act and mandates for taxation of interest on compensation on receipt basis only.

Therefore, the Bill proposes to insert a new clause (ixa) in sub-section (3) of section 194A to provide that deduction of tax under section 194A of the Act from interest payment on the compensation amount awarded by the Motor Accident Claim Tribunal compensation shall be made only at the time of payment, if the amount of such payment or aggregate amount of such payments during a financial year exceeds Rs.50,000/-.


41. Clarification regarding deduction of tax from payments made to

transporters [Section 194C (6)] :

Under the existing provisions contained in sub-section (6) of the section 194C, no deduction shall be made from any sum credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number (PAN), to the person paying or crediting such sum. The intention was to exempt only small transporters as defined in S 44E of the Act.

The Bill proposes to amend sub-section (6) of the said section so as to provide that no deduction shall be made from any sum credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, where such contractor owns ten or less than ten goods carriages at any time during the previous year and furnishes a declaration to that effect along with his (PAN), to the person paying or crediting such sum.



-: 37 :-

42. Extension of eligible period of concessional TDS rate on interest income

on Rupee denominated bonds and Government securities [Section 194LD] :

The Bill proposes to extend the limitation date of the eligibility period for concessional rate of 5% withholding tax on interest payment in respect of investments in rupee denominated bond of Indian Company and Government securities on interest payable from 30th June 2015 to 30th June 2017.


43. Scope of Section 195(6) relating to furnishing of information widen

[Section 195 & Section 271(I)] :

Presently any person making remittance of any sum to any non – resident which are chargeable to tax in India is required to furnish prescribed information in Form 15CA & 15CB. However, obtaining of information only in respect of remittances which the remitter declared as taxable defeats one of the main principles of obtaining information for foreign remittances i.e. to identify the taxable remittances on which tax was deductible but was not deducted.

In view of this, it is proposed to amend the provisions of section 195(6) of the Act to provide that the person responsible for paying any sum, whether chargeable to tax or not, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed. Further for ensuring submission of accurate information in respect of remittance to non-resident, it is proposed to insert a new provision 271(I) in the Act to provide that in case of non-furnishing of information or furnishing of incorrect information, a penalty of Rs. 1 lakh shall be levied.

If the assessee is able to show the existence of reasonable cause for non compliance, then no penalty shall be levied as per the amendment in section 273B.



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44. Filing of Form 15G/15H for enabling payment of accumulated balance in

recognized provident fund /payment made under life insurance policy without TDS [Section 197A] :

The Bill proposes to amend the sub-section (1A) and sub-section (1C) of the section 197 so as to give the reference of section 192A and Section 194DA so as to provide that no TDS is to be made on payment of accumulated balance in a recognized Provident Fund or any sum paid under Life Insurance policy to an individual if he furnishes to the payer a declaration in From 15G/15H stating that the tax on his estimated total income will be NIL.


45. Rationalisation of TDS/TCS reporting by Government deductors /

collectors and levy of penalty for default [Section 200/ 206C & Section 272A] :

Under the existing scheme of payment of TDS and TCS, Government deductors/collectors are allowed to make payment of tax deducted/collected by them without production of challan i.e. through book entry. For generating credit for TDS/TCS paid through book entry by the Government deductors, a system of capturing information from Pay and Accounts Officer or the Treasury Officer or the Cheque Drawing and Disbursing Officer PAO/TO/CDDO has been introduced by amending rule 30 and rule 37CA of the Income-tax Rules, 1962 with effect from 1.4.2010.

The said rules provide that the PAO/TO/CDDO shall file the detail of payment of TDS/TCS made through book entry in the prescribed Form 24G. This system of reporting of payment of TDS/TCS made through book entry has improved the mechanism of reporting of TDS/TCS by the Government deductor to some extent.

However, in the absence of any specific provisions in the Act for enforcing the same, it has been noticed that in a large number of cases, PAO/TO/CDDOs do not file Form 24G in prescribed time.

Delay in furnishing of the Form 24G results into delay in furnishing of the TDS/TCS statement by the DDO. In order to improve the reporting of payment of TDS/TCS made through book entry and to make existing mechanism enforceable, it is proposed that the PAO/TO/CDDO or any other person by whatever name called who is responsible for crediting such sum to the credit of the Central Government, shall furnish within the prescribed time a prescribed statement for the prescribed period to the prescribed income-tax authority or the person authorised by such authority by verifying the same in the prescribed manner and setting forth prescribed particulars.


-: 39 :-

To ensure compliance of this proposed obligation of filing statement, it is proposed to amend the provisions of section 272A of the Act so as to provide for a penalty of Rs.100/- for each day of default during which the default continues subject to the limit of the amount deductible or collectible in respect of which the statement is to be furnished.


46. Provision enabling computation of fee payable under section 234E of the

Act at the time of processing of TDS statement [Section 200 A] :

The existing provisions of section 200A(1) which provides for processing of TDS statement or TCS statement for determining the amount payable or refundable to the deductor/collector does not provide for determination of fee payable u/s. 234E for delay in furnishing such TDS/TCS statement.

The Bill now proposes to amend the said section so as to provide for determination of fee payable u/s.234E at the time of processing TDS / TCS return and to determine the sum payable or refundable after adjusting the fee if any payable by the deductor / collector.

This amendment will take effect from 1st June, 2015

47. Relaxing the requirement of obtaining TAN for certain deductors by

inserting new sub section (3) [Section 203 A] :

The Bill proposes to amend section 203A of the Act so as to provide that the requirement of obtaining and quoting of TAN under section 203A of the Act shall not apply to the notified deductors or collectors by the Central Government. This provision is proposed so as to bring it in alignment with the current provisions wherein the deductor in case of TDS from payment over a prescribed threshold on transfer of immovable property is not require to obtain and quote TAN and is allowed to quote his PAN to report such TDS.



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48. Processing of statements of Tax collected at source [Section 206 CB] :

The existing provisions contained in the Income-tax Act do not provide for processing of TCS statement as specified with respect to the processing of statements of tax deducted at source.

The Bill now proposes to insert a new section 206CB so as to provide for processing of TCS statement in the manner specified there in.


49. Removal of cascading effect of interest under section 220(2) :

The Bill proposes to insert sub-section (2C) in the section 220 so as to provide that notwithstanding anything contained in subsection (2) of section 220, where interest is charged under section 206C(7) on the amount of tax specified in the intimation issued under section 206CB(1) for any period, then, no interest shall be charged under the said subsection (2) on the same amount for the same period.


50. Interest for defaults in payment of advance tax in case of re-assessment

and where additional income is disclosed before the Settlement Commission under section 245C [Section 234 B] :

The existing provisions contained in section 234B(3) of the Income-tax Act provides that where the total income is increased on reassessment under section 147 or section 153A the assessee shall be liable for interest at the rate of 1% on the amount of the increase in total income for the period commencing from date of determination of total income under section 143(1) or on regular assessment and ending on the date of reassessment under section 147or section 153A.

Accordingly, it is proposed to amend sub-section (3) of the said section so as to provide that the period for which the interest is to be computed will begin from the 1st day of April next following the financial year and end on the date of determination of total income under section 147 or section 153A..

The existing provision contained in sub-section (4), inter alia, provide that where on an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub-section (1) or sub-section (3) is increased or reduced, the interest shall be increased or reduced accordingly. However, in case an application is filed before the Settlement Commission under section 245C declaring an additional amount of income-tax, there is no specific provision in section 234B for charging interest on that additional amount.


-: 41 :-

Accordingly, the Bill now proposes to insert a new sub-section (2A) so as to provide that where an application under of section 245C(1) for any assessment year has been made, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional amount of income-tax referred to in that sub-section. Further, where as a result of an order of the Settlement Commission under section 245D(4) for any assessment year, the amount of total income disclosed in the application under sub-section (1) of section 245C is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of such order, on the amount by which the tax on the total income determined on the basis of such order exceeds the tax on the total income disclosed in the application filed under sub-section (1) of section 245C.

These amendments will take effect from 1st day of June, 2015.

51. Rationalisation of Settlement Commission provisions : Proposed amendments vis-a-vis Existing provisions [Sec 245A to Sec 245K]:

Section Particulars Existing provisions Proposed amendments

Clause (i) of Explanation to clause (b) of sec 245A

Issue of notice u/s 148

The assessee becomes eligible to make an application to the settlement commission only after notice under section 148 has been issued for all such assessment years

The assessee can approach the Settlement Commission for all such assessment years even if notice under section 148 for such other assessment years has not been issued.

Clause (iv) of Explanation to clause (b) of sec 245A

Commencement of assessment proceeding

A proceeding for any assessment year, other than those referred to in clause (i) ,(iii),(iiia), shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made.

A proceeding for any assessment year, other than those referred to in clause (i),(iii),(iiia), shall be deemed to have commenced from the date on which a return of income is furnished u/s 139 or 142 and concluded on the date on which the assessment is made or on the expiry of two years from the end of relevant assessment year, in a case where no assessment is made. However return of income has to be furnished mandatorily u/s 139 or 142


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Sub-section (6B) of section 245D

Application for rectification of mistake

Settlement Commission may, at any time within a period of six months from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4).However, there is no provision for additional time where the assessee or the Commissioner files an application for rectification towards the end of the limitation period.

Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed by it ,(a) at any time within a period of six months from the end of month in which the order was passed;(b) on an application made by the Principal Commissioner or Commissioner before the end of period of six months from the end of month in which the order was passed, at any time within a period of six months from the end of month in which such application was made.

Sub-section (1) of section 245H.

Reasons to be recorded in writing for grant of immunity

Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, immunity from prosecution.

Settlement Commission while granting immunity to any person shall record the reasons in writing in the order passed by it.

Sec 245 HA

Abatement of order

The said section provides for abatement of proceedings in different situations.

Where in respect of any application made under section 245C, an order under sub-section (4) of section 245D has been passed without providing the terms of settlement the proceedings before the Settlement Commission shall abate on the day on which such order under sub-section (4) of section 245D was passed.

Sec 245 K

Any person, including any related person, approaching the settlement commission once cannot approach again

In terms of section 245K of the Income-tax Act provides that where an application of a person has been allowed to be proceeded with under sub-

The said section is proposed to be amended so as to provide that, any person related to the person who has already approached the Settlement Commission


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section (1) of section 245D, then such person shall not be subsequently entitled to make an application before Settlement Commission. It further provides that in certain situations the person shall not be entitled to apply for settlement before Settlement Commission. The restriction is presently applicable to a person. Therefore, an individual who has approached the Settlement Commission once can subsequently approach again through an entity controlled by him. This defeats the purpose of restricting the opportunity of approaching the Settlement Commission only once for any person.

once, also cannot approach the Settlement Commission subsequently. Bill also proposes to define the related person.

The above amendments will take effect from 1st June, 2015.

52. TCS collector eligible to file an appeal to CIT(A) under Sec 246 A :

The existing provisions of aforesaid section, inter alia, provide for appeal to be preferred by any assessee or deductor to the Commissioner (Appeals) as against the orders passed under various provisions of the Income-tax Act as specified in sub-section(1.)

The Bill now proposes to amend the said section so as to include the reference of “any collector”, in addition to any assessee or any deductor, in subsection (1) of the said sub-section so as to enable such collector also to prefer an appeal under the said section. The Bill further proposes to amend sub-section (1)(a) of the said section so as to provide that the collector may prefer an appeal to the Commissioner (Appeals) against an intimation issued under section 206CB(1).

These amendments will take effect from 1st day of June, 2015.


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53. Orders passed by the prescribed authority under section 10(23C)(vi)/(via) made appealable before Income-tax Appellate Tribunal [Section 253] :

Under the existing provisions contained under section 10(23C)(vi)/(via), any income received by a university or educational institution or hospital or medical institution is exempt from tax if such hospital or institution is approved by the prescribed authority.

However an order passed by the prescribed authority under section 10(23C)(vi) / (via) is not appealable u/s 253(1).

The Bill now proposes to amend the said section to provide that an assessee aggrieved by the order passed by the prescribed authority may appeal to the Appellate Tribunal.


54. Income-limit raised to Rs 15 Lakhs for cases that may be decided by single

member bench of Income Tax Appellate Tribunal (ITAT) [Section 255] :

The Bill proposes to amend section 255(3) so as to raise the existing threshold limit of assessed income from Rs. 5 lakhs to Rs.15 lakhs for cases that may be decided by a single member bench of ITAT.


55. Revision of order that is erroneous in so far as it is prejudicial to the

interests of revenue [Section 263] :

The existing provisions contained in sub-section (1) of section 263 of the Income-tax Act provides that if the Principal Commissioner or Commissioner considers that any order passed by the assessing officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment.

The interpretation of expression “erroneous in so far as it is prejudicial to the interests of the revenue” has been a contentious one.

In order to provide clarity on the issue it is proposed to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner :-


-: 45 :-

(a) 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.


56. Scope of sections 269SS / 269T and section 271D /271E enlarged to curb

Black Money : The existing provisions contained in section 269SS of the Income-tax Act provide that no person shall take from any person any loan or deposit otherwise than by an account payee cheque or account payee bank draft or online transfer through a bank account, if the amount of such loan or deposit is Rs.20,000/- or more. In case any assessee contravenes the said provisions he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so accepted u/s 271D of the Act. In order to curb generation of black money by way of dealings in cash in immovable property transactions it is proposed to enlarge the scope of said section 269SS so as to provide that no person shall accept from any person any loan or deposit or any sum of money, whether as advance or otherwise, in relation to transfer of an immovable property otherwise than by an account payee cheque or account payee bank draft or by electronic clearing system through a bank account, if the amount of such loan or deposit or such specified sum is Rs.20,000/- or more. Bill also proposes to amend, provisions of section 269T on similar lines in respect of repayment of such advances/deposits.

It is further proposed to make consequential amendments in section 271D/ 271E to levy penalty for failure to comply with the amended provisions of section 269SS/269T. These amendments will take effect from 1st June, 2015.


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57. Amendment in relation to failure to furnish returns, comply with notices, concealment of income, etc [Section 271] :

Under the existing provision contained in section 271 (1) (c) of the Act, penalty for concealment of income or furnishing inaccurate particulars of income is levied on the “amount of tax sought to be evaded”, which has been defined, inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income.

The Delhi High court in case of M/s Nalwa Sons Investments Ltd. V. CIT have held that penalty under section 271(1)(c) cannot be levied in cases where the concealment of income occurs under the income computed under general provisions and the tax is paid under the provisions of section 115JB or 115JC of the Act. The said decision of Delhi High Court has been affirmed by the Supreme Court.

Problems have also arisen in the computation of amount of tax sought to be evaded where the concealment of income or furnishing inaccurate particulars of income occurs in the computation of income under normal provisions of the Act and also under the provisions of section 115JB or 115JC of the Act.

Accordingly, it is proposed to amend section 271(1) (c) of the Act so as to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under the provisions of section 115JB or 115JC.

However, if an amount of concealment of income on any issue is considered both under the general provisions and provisions of section 115JB or 115JC then such amount shall not be considered in computing tax sought to be evaded under provisions of section 115JB or 115JC.

Further, in a case where the provisions of section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under the provisions of section 115JB or 115JC shall be ignored.

These amendments will take effect from 1st April, 2016. 58. Certain accountants not eligible for giving Reports / certificates [Section

288] :

Presently, only an ‘accountant’ defined under section 288(2) of the Act can furnish audit reports and certificates for ensuring correct reporting/computation of taxable income by the tax payers under the Act. Explanation below section 288(2) of the Act defines an ‘accountant’ as a chartered accountant within the meaning of Chartered Accountants Act, 1949 (including a person eligible to be appointed as auditor under section 226(2) of the Companies Act, 1956, of the companies registered under any State).


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The Comptroller and Auditor General of India (C&AG) had reported instances wherein the independence of the Auditor was affected. An auditor who is not independent cannot meaningfully discharge his function of protecting the interests of revenue. To ensure the independence of the auditor, section 141(3) of the Companies Act 2013 has provided a list of certain persons who are not eligible for appointment as auditor.

The Bill now proposes to amend section 288 of the Act to provide that an auditor who is not eligible to be appointed as auditor of a company as per the provisions of sub-section (3) of section 141 of the Companies Act, 2013 shall not be eligible for carrying out any audit or furnishing of any report/certificate under any provisions of the Act in respect of that company.

On similar lines, ineligibility for carrying out any audit or furnishing of any report/certificate under any provisions of the Act in respect of non-company is also proposed to be provided. Accordingly, following persons will be ineligible for carrying out any audit / certification work under the Income Tax:

assessee himself, partner of assessee Firm or member of assessee HUF, Trustee in case of assessee being Trust, relative of aforesaid persons, person indebted to assessee in excess of one hundred thousand rupees,

etc. (this is an inclusive list)

However, the above amendments will not affect the eligibility of the Accountant to act as representative assessee.

Further, new clause (d) has been inserted in section 288(4) whereby if person is convicted by a court for an offence involving fraud, then he shall not be eligible to act as authorized representative for a period of 10 years from the date of such conviction.

Further, after sub-section (7), the following Explanation shall be inserted, namely:-


-: 48 :-

‘Explanation.—For the purposes of this section, “relative” in relation to an individual, means -

(a) spouse of the individual; (b) brother or sister of the individual; (c) brother or sister of the spouse of the individual; (d) any lineal ascendant or descendant of the individual; (e) any lineal ascendant or descendant of the spouse of the individual; (f) spouse of a person referred to in clause (b), clause (c), clause (d) or

clause (e); (g) any lineal descendant of a brother or sister of either the individual or of

the spouse of the individual.’. These amendments will take effect from 1st June, 2015.

59. Amendment in the power of Board to notify rules [Section 295] :

At present, the Act does not provide the manner for granting credit of taxes paid in any country outside India. Sec 295 of the Act gives right to the Board to make rules for the whole or any part of India for carrying out the purposes of this Act. Accordingly, it is proposed to amend section 295 (2) of the Income-tax 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 or specified territory outside India, under section 90, or under section 90A, or under section 91, against the income-tax payable under the Act. This amendment will take effect from 1st day of June, 2015.


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B. WEALTH TAX

Abolition of levy of wealth-tax under Wealth-tax Act, 1957

It is proposed to abolish the levy of wealth tax under the Wealth Tax Act, 1957 with effect from the 1st April, 2016. However an additional surcharge @ 2% on super rich is proposed in lieu of the proposed abolition of Wealth Tax to reduce the compliance burden on the assessee and administrative burden on the Tax department. Further, the Finance Minister in his Budget speech has announced that the information relating to assets which is currently required to be furnished in the Wealth Tax return will be captured by modifying the Income Tax Return Form. This amendment will take effect from the Assessment Year 2016-17.


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II. INDIRECT TAX PROPOSALS A. SERVICE TAX 1. The following changes will be effective from the date to be notified after

enactment of Finance Bill, 2015. Increase in rate of service tax from 12% to 14%. E Cess and SHE Cess

to be subsumed in the revised rate of service tax.

Swachh Bharat Cess Central Government empowered to impose Swachh Bharat Cess on taxable services at the rate of 2% on value of services. Introduction of Swachh Bharat Cess will increase the effective service tax rate to 16%.

2. Following major amendments have been proposed :

Current Provisions Proposed Amendment Applicable w.e.f.

(I) Negative List – Section 66D 1 Services provided by the Government.

Negative List Entry: "66D(a)(iv) – support services, other than services covered under clause (i)to(ii)above provided to business entities" Implication: Presently, services provided by the Government or a local authority, excluding certain services specified under clause (a) of section 66D, were in the Negative List. Service tax was applicable only on the “support service” provided by the Government or local authority to a business entity.

Negative List Entry: "66D(a)(iv) – any services, other than services covered under clause (i)to(ii)above provided to business entities" Implication: Accordingly, as and when this amendment is given effect to, all services provided by the Government or local authority to a business entity, except the services that are specifically exempted, or covered by any other entry in the Negative List, shall be liable to Service Tax. Consequently section 65B(49) has been omitted.

To be notified later


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2 Manufacture or Production of goods

Negative List Entry: "66D(f) – any process amounting to manufacture or production of goods" Implication: The entry in the Negative List that covers service by way of any process amounting to manufacture or production of goods is being pruned to exclude any service by way of carrying out any processes for production or manufacture of alcoholic liquor for human consumption.

Negative List Entry: "66D(f) – services by way of carring out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption " Implication: Consequently, Service Tax shall be levied on contract manufacturing /job work for production of potable liquor for a consideration. In this context, the definition of the term “process amounting to manufacture or production of goods” to exclude intermediate production of alcoholic liquor for human consumption from its ambit. Consequently section 65B(40) has been amended.


3 Betting, gambling or lottery

Negative List Entry: "66D(i) –betting, gambling or lottery "

Negative List Entry: "66D(i) –betting, gambling or lottery " Explanation to 66D(i)- ‘For the purposes of this clause, the expression “betting, gambling or lottery” shall not include the activity specified in explanation 2 to clause (44) of section 65B; Implication: An explanation has been inserted to clarify the intention of the legislature to levy service tax on activities undertaken by distributors or selling agents in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing of lottery of any kind.



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4 Entertainment Events

Negative List Entry: "66D(j) –admission to entertainment events or access to amusement facilities " Implication: Presently, services tax was not applicable to the above services.

Negative List Entry: "66D(j) – Omitted Implication: Service Tax to be levied on service by way of access to amusement facility in amusement farms/arcades waterparks theme parks and service by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts, award functions if the amount charged for admission to such event exceeds Rs. 500. Consequently clauses (9) and (24) of section 65B has been omitted.



(II) Interpretations – Section 65B

1. Government

Interpretation Entry: "65(26A) - Government” – Not defined

Interpretation Entry inserted :

"65(26A) - Government” means the Departments of the Central Government, a State Government and its Departments and a Union territory and its Departments, but shall not include any entity, whether created by a statute or otherwise, the accounts of which are not required to be kept in accordance with article 150 of the Constitution or the rules made hereunder;

Implication: The term “government” till now was not defined in the Act or in any notification. This had given rise to interpretational issues. To address such issues, a definition of the term “government” is being incorporated in the Act.



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2. Service

Interpretation Entry: “65B(44) service …… Explanation 2.–– For the purposes of this clause, transaction in money shall not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination to another form, currency or denomination for which a separate consideration is charged. …..”

Interpretation Entry: “65B(44) service …… Explanation 2. – For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include–– (i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged; (ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out–– (a) 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; (b) by a foreman of chit fund for conducting or organizing a chit in any manner. ….” Implication: An Explanation is being inserted in the definition of “service” to specifically state the intention of the legislature to levy service tax on activities undertaken by chit fund foremen in relation to chit, and distributors or selling agents of lottery in relation to lotteries.


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(III) Withdrawals of Exemptions - Notification No. 25/2012-ST dated 20.06.2012

1 Services provided to the Government etc. by way of construction erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of -

Entry 12: Following was exempt:- (a) a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession; (c) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; (f) a residential complex predominantly meant for self-use or the use of their employees or other persons specified in the Explanation 1 to clause 44 of section 65 B of the said Act;

The said exemption is withdrawn.

1st April 2015

2 Services by the following persons in respective capacities -

Entry 29: Following exempt:- (c) mutual fund agent to a mutual fund or asset management company;. (d) distributor to a mutual fund or asset management company; (e) selling or marketing agent of lottery tickets to a distributer or a selling agent;

The said exemption is withdrawn

1st April 2015

3 Services by way of making telephone calls

Entry 32: Following exempt:- (a) departmentally run public telephone; (b) guaranteed public telephone operating only for local calls; or (c) free telephone at airport and hospital where no bills are being issued;

The said exemption is withdrawn

1st April 2015


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(IV) New Exemptions - Notification No. 25/2012-ST dated 20.06.2012

1.

Entry 43: Services by operator of Common Effluent Treatment Plant by way of treatment of effluent;

1st April 2015

2.

Entry 44: Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables;

1st April 2015

3.

Entry 45: Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo

1st April 2015

4.

Entry 46: Service provided by way of exhibition of movie by an exhibitor to the distributor or an association of persons consisting of the exhibitor as one of its members;

1st April 2015

5.

Entry 47: Services by way of right to admission to,- (i) exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet; (ii) recognised sporting event; (iii) award function, concert, pageant, musical performance or any sporting event other than a recognised sporting event, where the consideration for admission is not more than Rs. 500 per person.”.

Date to be notified by the government

6. Entry 26A after item (c): (d) Varishtha Pension Bima Yojana;

1st April 2015


(V) Rationalization of certain exemptions - Notification No. 25/2012-ST dated 20.06.2012

1. Health Care Services

Entry 2: Following exempt:- Health care services by a clinical establishment, an authorized medical practitioner or para-medics;

The scope is expanded to cover Services provided by way of transportation of a patient in an ambulance

1st April 2015


-: 56 :-

2. Construction Services

Entry 14: Following exempt:- Services by way of construction, erection, commissioning, or installation of original works pertaining to,- (a) an airport, port or railways, including monorail or metro

The scope is reduced by withdrawing exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port.

1st April 2015

3.

Services by a performing artist

Entry 16: Following exempt:- Services by a performing artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre, excluding services provided by such artist as a brand ambassador;

Exemption to services provided by a performing artist in folk or classical art form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount charged is upto Rs 1,00,000 for a performance.

1st April 2015

4. Services by way of transportation by rail or a vessel

Entry 20: Following exempt:- Services by way of transportation by rail or a vessel from one place in India to another of the following goods. (i) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages; or

Exemption to transportation of food stuff by rail, or vessels will be limited to food grains including rice and pulses, flour, milk and salt.

1st April 2015

5. Services provided by a goods transport agency

Entry 21: Following exempt:- Services provided by a goods transport agency, by way of transport in a goods carriage of,- (d) foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt and edible oil, excluding alcoholic beverages;

Exemption to transportation of food stuff by road will be limited to food grains including rice and pulses, flour, milk and salt.

1st April 2015


-: 57 :-

6. Carrying out an intermediate production process as job work in relation to -

Entry 30: Following exempt:- Carrying out an intermediate production process as job work in relation to – (c) any goods on which appropriate duty is payable by the principal manufacturer

The exemption entry now excludes intermediate production of alcoholic liquor for human consumption from its ambit. Thus, Service Tax shall be levied on contract manufacturing /job work for production of potable liquor for a consideration.

Date to be notified by the government.

(VI) Amendments in the Abatement Notification No. 26/2012-ST dated 20.06.2012.

1.

Abatement in respect of services of transport of goods by rail (Sr. No. 2) and Transport of passengers, with or without accompanied belongings by rail (Sr. No. 3) will be subject to a condition that CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

1st April 2015

2.

Currently, taxable portion in respect of Transport of passengers by air, with or without accompanied belongings is currently 60% (i.e. after abatement of 40%) (Sr. No. 5)

Now, it is proposed to increase the taxable portion from 40% to 60% (i.e. by decreasing abatement to 40%) in case of Transport of passengers by air, with or without accompanied belongings in a class other than economy. Taxable portion in case of Transport of passengers by air, with or without accompanied belongings in economy class remains at 40%.

1st April 2015

3. It is proposed to increase the taxable portion from 25% to 30% (i.e. by decreasing abatement to 70%) in case of Services of goods transport agency in relation to transportation of goods. (Sr. No. 7)

1st April 2015

4.

Abatement is being withdrawn from chit fund service. Consequently, Service Tax shall be paid by the chit fund foremen at full consideration received by way of fee, commission or any such amount. (Sr. No. 8)

1st April 2015

5. It is proposed to reduce the taxable portion from 40% to 30% (i.e. by increasing abatement to 70%) in case of Transport of goods in a vessel. (Sr. No. 10)

1st April 2015


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(VII) Changes brought under Reverse Charge Mechanism – Notification No. 30/2012-ST

dated 20.06.2012

1. Services provided or agreed to be provided by a mutual fund agent or distributor, to a mutual fund or asset management company and by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent are brought under the reverse charge mechanism. Thus, Asset Management Company or Mutual Fund will be the person liable to pay 100% of service tax. In respect of subagents of lottery Service Tax shall be paid by the distribution or selling agent of lottery.

1st April 2015

2.

In sub clause (iv) in item (c) the words “by way of support services” have been omitted to give a consequential effect to the amendment carried out in section 66D.

Date to be notified by the government.

3.

A new clause (vi) is being introduced which provides that the taxable services provided or agreed to be provided by a person involving an aggregator in any manner 100% of service tax will be payable by any person liable for paying service tax other than the service provider. Aggregator has been now defined in Clause (aa) of Rule 2 of the Service Tax Rule, 1994 to mean a person, who owns and manages a web based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name of the aggregator. Appropriate amendments have been made in Rule 2(1)(d) of the Service Tax Rules, 1994 as well which defines “person liable for paying service tax”.

1st March 2015

4.

Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. Presently, these are taxed under partial reverse charge mechanism.

1st April 2015


-: 59 :-


(VIII) Other Amendments to Chapter V of the Finance Act, 1994 1. Clause (a) to Explanation to Section 67 – Consideration

The scope of consideration formally was only to include amount payable for the taxable services provided or to be provided

The scope of consideration has been widened to include – (a)any reimbursable expenditure or cost incurred and charged by the service provider, in the course of providing or agreeing to provide a taxable service. (b) amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket in addition to the fee or commission, if any or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets;

Date when Finance Bill receives President's assent

2. Section 73 – Amendment in provisions relating to Recovery of Service Tax

There was no provision in the Act for recovery of service tax self assessed and declared in the return. Sub section (4A) provided for reduced penalty up to a maximum of 25% of Tax amount, if true and complete details of transactions were available on specified records.

A new sub-section (1B) is being inserted to provide that recovery of the service tax amount self-assessed and declared in the return but not paid shall be made under section 87, without service of any notice under sub-section (1) of section 73, and Sub-section (4A) is being omitted.



-: 60 :-

3. Section 76 – Penalty for failure to pay Service Tax

Section 76 provided for penalty whenever there was failure to pay service tax.

Section 76 now provides as under:- In cases not involving fraud or collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of service tax, penalty will apply in the following manner,- (i) penalty not exceeding 10% of service tax amount on issuance of show cause notice u/s.73(1); (ii) no penalty to be paid if service tax and interest is paid within 30 days of issuance of show cause notice under section 73(1); (iii) a reduced penalty equal to 25% of the penalty imposed if the service tax, interest and reduced penalty is paid within 30 days of order passed under section 73(2).


4. Section 78 - Penalty for suppression etc. of value of taxable service

Section 78 provided for penalty whenever there was failure to pay service tax by reason of fraud or collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of service tax.

Section 78 now provides as under:- In cases involving fraud or collusion or willful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of service tax, penalty will apply in the following manner,- (i) penalty equal to 100% of service tax amount on issuance of show cause notice u/s.73(1); (ii) penalty equal to 15% of service tax if service tax, interest and penalty is paid within 30 days of issuance of show cause notice under section 73(1);



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(iii) a reduced penalty equal to 25% of the service tax if the service tax, interest and reduced penalty is paid within 30 days of order passed under section 73(2).

5. New Section 78B is introduced providing transitory provisions.

The section provides as under:- (i) Amended provisions of section 76 and 78 shall apply to cases where either no notice is served, or notice is served under sub-section (1) of section 73 or proviso thereto or in case such a notice is served but no order has been issued under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015; and (ii) In respect of cases covered by sub-section (4A) of section 73, if no notice is served, under proviso to sub-section (1) of section 73 but no order has been passed under sub-section (2) of section 73, before the date of enactment of the Finance Bill, 2015, penalty shall not exceed 50% of the service tax amount.


6.

Section 80 which provided for waiver of penalty where reasonable cause is shown is being omitted. This will mean that penalty has been made mandatory.

7. Section 86 which provided for Appeal to the Appellant Tribunal is being amended to prescribe that matters involving rebate of service tax shall be dealt with in terms of Section 35EE of the Central Excise Act.

(IX) Other Amendments to the Service Tax Rules, 1994

1.

Rule 4 is being amended to provide that the registration granted shall be subject to such conditions, safeguards and procedure as may be specified by an order issued by CBEC.

2.

Rule 4B and 5 are being suitably amended to provide for issuing digitally signed invoices along with the option of presentation of records in electronic form. The conditions and procedure in this regard shall be specified by the CBEC.

3.

Consequent to the upward revision in Service Tax rate, the alternative rates provided under Rule 6(7), 6(7A), 6(7B) and 6(7C) in case of service provided by air travel agent, insurance service, money changing service and service provided by lottery distributor and selling agent have been revised proportionately. (w.e.f. date to be notified by the government)


-: 62 :-

Description of Taxable services Existing Rates Proposed Rates

(a)

services provided by an air travel agent –

(a) domestic bookings (b) international bookings

0.6% of the basic fare 1.2% of the basic fare

0.7% of the basic fare 1.4% of the basic fare

(b)

In cases of insurance service where amount allocated for investment, or savings on behalf of policy holder, is not intimated to the policy holder at the time of providing of service;

(a) First year (b) Subsequent years

3% of the premium 1.50% of the premium

3.50% of the premium 1.75% of the premium

(c) Service tax in relation to purchase or sale of foreign currency, including money changing

(a) 0.12% of the gross amount of currency exchanged for an amount upto Rs.100,000, subject to the minimum amount of Rs.30; and (b) Rs.120 and 0.06% of the gross amount of currency exchanged for an amount exceeding Rs.100,000 and upto Rs.10,00,000; and (c) Rs.660 and 0.012% of the gross amount of currency exchanged for an amount exceeding Rs.10,00,000, subject to maximum amount of Rs.6000.

(a) 0.14% of the gross amount of currency exchanged for an amount upto Rs.100,000, subject to the minimum amount of Rs.35; and (b) Rs.140 and 0.07% of the gross amount of currency exchanged for an amount exceeding Rs.100,000 and upto Rs.10,00,000; and (c) Rs.770 and 0.014% of the gross amount of currency exchanged for an amount exceeding Rs.10,00,000, subject to maximum amount of Rs.7000.

(d) service of promotion, marketing, organizing or in any other manner assisting in organizing lottery

(a) Rs 7000/- on every Rs.10 Lakh (or part of Rs.10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw, if lottery or lottery scheme is one where the guaranteed prize payout is more than 80%. (b) Rs 11000/- on every Rs.10 Lakh (or part of Rs.10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw, if lottery or lottery scheme is one where the guaranteed prize payout is less than 80%.

(a) Rs 8200/- on every Rs.10 Lakh (or part of Rs.10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw, if lottery or lottery scheme is one where the guaranteed prize payout is more than 80%. (b) Rs 12800/- on every Rs.10 Lakh (or part of Rs.10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw, if lottery or lottery scheme is one where the guaranteed prize payout is less than 80%.


-: 63 :-

B. CENTRAL EXCISE

1. Standard ad valorem rate of Central Excise Duty on excisable goods increased from 12% to 12.5% and Education Cess and Secondary and Higher Education Cess are subsumed in the said rate.

Specific rates of Basic Excise Duty on petrol, diesel, cement, cigarettes and other tobacco products (other than biris) have been suitably amended.

The above change in rate will come into effect immediately.

2. Legislative amendments : Following legislative changes are made in the Central Excise Act, 1944 which will be effective from the date on which the Finance Bill, 2015 gets assent of the President of India.

2.1 Amendment in provisions relating to levy and collection of duty : 1. Retail Sale Price (RSP) based assessment – Mechanism for valuation

of following products has been shifted from transaction value based to RSP based :–

a. LED lights or fixtures including LED lamps - with an abatement

of 35%. b. All goods falling under Chapter sub-heading 2101 20, including

iced tea – with an abatement of 30%. c. Goods, such as lemonade and other beverages – with an

abatement of 35%. d. Condensed milk–with an abatement of 30%.

2. Section 11A which provides for recovery of duties is being amended to

remove from its ambit the cases where during the course of any audit, investigation or verification, it is found that any duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded where extended period of time applies but the details relating to the transactions are available in the specified record. From now on assessees cannot take the benefit of reduced rate of penalty. The same will be applicable for show cause notices issued after the date on which the Finance Bill receives the assent of the President.

3. Provisions of section 11A will not apply in those cases where liability of duty not paid or short paid is self-assessed and is reflected in the periodic returns filed as duty payable and that in such cases recovery of duty shall be made in such manner as may be prescribed in the rules. The same will be applicable for show cause notices issued after the date on which the Finance Bill receives the assent of the President.


-: 64 :-

2.2 Changes in Penalty provisions –

a. Penalty provisions pertaining to cases not involving fraud, collusion, etc. introduced as under :

1. Penalty not exceeding 10% of the duty determined or Rs.5000

whichever is higher would be payable. 2. Penalty would not be payable where duty and interest are paid

before issuance of show cause notice or within 30 days of issuance of show cause notice.

3. Reduced penalty at 25% of penalty imposed, provided demanded duty, interest and reduced penalty are paid within 30 days of communication of order.

b. Penalty provisions pertaining to cases involving fraud, collusion, etc.

proposed to be amended as under : 1. Penalty equal to duty determined would be imposed; 2. Reduced penalty @ 15% of the duty demanded, provided that

the duty, interest and penalty are paid within 30 days of communication of notice;

3. Reduced penalty @ 25% of the duty determined, provided duty, interest and reduced penalty are paid within 30 days of communication of order;

3. Full Exemptions from payment of Central Excise Duty

a. Parts, components and accessories to be used in manufacture of tablet computers and sub-parts for use in manufacture of parts, components and accessories of tablet computers.

b. Specified inputs used in manufacture of pacemakers. c. Pig iron SG grade and Ferro-silicon-magnesium for manufacture of

cast components of wind operated electricity generators. d. Round copper wire and tin alloys for use in manufacture of solar PV

ribbons for manufacture of solar photovoltaic cells and modules. e. Parts for use in manufacture of solar water heater and system.


-: 65 :-

4. Rate / Duty Changes : Changes in the Basic Excise Duty on some of the following items :

Sr. No.

Description of Goods Current Rate (till

28.02.2015)

Proposed Rate (from

01.03.2015) 1. Water including mineral water and

aerated water 12% 18%

2. Inputs used in manufacture of LED drivers and MCPCB for LED Lights, fixtures and lamps

12% 6%

3. Mobile Phones 1% without or 6% with CENVAT

1% without or 12.5% with CENVAT

4. Leather footwear of RSP of more than Rs.1000

12% 6%

5. Clean Energy Cess levied on coal, lignite and peat

Rs.100 per tonne

Rs.200 per tone

6. Sacks and bags of polymers of ethylene other than for industrial use

12% 15%

7. Chassis for ambulance 24% 12.5% 8. Cut Tobacco Rs.60 per

kg. Rs.70 per kg.

9. Wafers for manufacture of integrated circuit (IC) modules for smart cards

12% 6%

10. Condensed milk put up in unit containers

Nil 2% without CENVAT or

6% with CENVAT

5. Other Changes :

a. Notification No. 12/2012 – Central Excise dated 17 March 2012 has been retrospectively amended to grant exemption from excise duty to railway or tramway construction material of iron and steel during period 17 March 2012 to2 February 2014, subject to conditions.

b. Concessional excise duty of 6% on specified goods for use in the

manufacture of electrically operated vehicles and hybrid vehicles, presently available upto 31.03.2015, is being extended upto 31.03.2016.


-: 66 :-

C. CUSTOMS Peak rate of Basic Customs Duty (BCD) maintained at 10%. Education cess and secondary and higher education cess continues to be

levied on Customs duty. 1. Legislative amendments - effective from the date of enactment of the

Finance Bill, 2015 :

a. In cases not involving fraud or collusion or willful misstatement or suppression of facts or contravention of any provisions of the Act or Rules with the intent to evade payment of duty, penalty will not be levied and proceedings will be deemed to be concluded if the amount of duty along with interest thereon is paid within thirty days from the date of receipt of notice.

b. Mandatory penalty in cases involving fraud or collusion or willful

misstatement or suppression of facts or contravention of any provisions of the Act or Rules with the intent to evade payment of duty, reduced from 25% to 15% if the duty along with interest is paid within thirty days from the receipt of the notice.

c. In cases where notice for recovery of duties and interest is served and

the order determining duty has not been passed before the date of enactment of the Finance Bill, 2015, proceedings will be deemed to be concluded if the amount of duty along with interest and penalty is paid within thirty days from date of enactment of the Bill.

d. Penalty in respect of improper importation or exportation of goods liable

for confiscation will be as under: - 10% of duty involved or Rs.5000, whichever is higher. - Penalty to be restricted to 25% of such penalty so determined, if the

duty along with interest is paid within thirty days of communication of order.

e. Provisions relating to Settlement Commission not applicable to any

proceeding referred back to adjudicating authority by any court, Appellate Tribunal or any other authority for fresh adjudication.


-: 67 :-

2. Exemptions : a. The following goods have been exempted from BCD :

1) Evacuated tubes with three layers of solar selective coating for use in the manufacture of solar water heater and system subject to actual user condition.

2) Specified digital still image video camera including parts and

components thereof. 3) Panels of OLED TV. 4) Black Light Unit Module used in manufacture of LCD and LED TV

panels, subject to actual user condition. 5) Parts, components or accessories including their sub-parts for use in

the manufacture of tablet computer with actual user condition. 6) Magnetron used in manufacture of domestic microwave oven. 7) Artificial heart. 8) HDPE for use in the manufacture of telecom grade optical fibre cable.

b. The following goods have been exempted from Additional Duty

(Counterveiling Duty -CVD) : 1. Parts, components or accessories including their sub-parts for use in the

manufacture of tablet computer. 2. Artificial heart. 3. Specified inputs used in manufacture of pacemakers subject to actual

user condition. c. Following Exemption withdrawn :

1. CVD and SAD exemption on specified goods imported for use by Security Printing and Minting Corporation of India Limited (SPMCIL) are being withdrawn.


-: 68 :-

3. Rate/Duty Changes :

a. Changes in the Basic rate of Custom Duty on some items :

Sr. No.

Description of Goods Current Rate

Proposed Rate

1. Sulphuric acid for the manufacture of fertilizers

7.5% 5%

2. ‘Metal parts’ for use in the manufacture of electrical insulators

10% 7.50%

3. Specified inputs for use in the manufacture of flexible medical video endoscope

5% 2.50%

4. Commercial Vehicles excluding vehicles in Completely Knocked Down (CKD) condition and electrically operated vehicles of heading 8702 including those in CKD condition will continue to be at 10%.

10% 20%

5. C- Block for Compressor, Over Load Protector (OLP) & Positive thermal co-efficient and Crank Shaft for compressor for use in the manufacture of Refrigerator compressors

7.50% 5%

6. Metallurgical coke 2.5% 5%

4. Tariff Rate Changes :

a. Changes in the Tariff rate of Basic Customs Duty on some items :

Sr. No.

Description of Goods Current Rate

Proposed Rate

1. Bituminous coal 55% 10%

2. Goods falling under all the tariff items of Chapters 72 and 73 that is iron and steel and articles of iron or steel

10% 15%

3. Goods falling under all the tariff items of heading 8702 that is motor vehicles for the transport of ten or more persons, including the driver and 8704 that is motor vehicles for the transport of goods

10% 40%


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III. MISCELLANEOUS PROPOSALS

To implement Goods and Services Tax by April 2016. Proposal to merge commodities regulator with SEBI. To bring a new bankruptcy code. To amend the RBI Act and provide for a Monetary Policy Committee. To set up Public Debt Management Agency. Proposal to introduce a Public Contract Resolution of Disputes Bill. To establish an autonomous bank board bureau to improve management of

public sector banks. To enact comprehensive new laws on black money to curb the generation and

concealment of black money from assets outside India as well as transactions in India. a. A more comprehensive Benami transactions (Prohibition) Bill for black

money from domestic transaction will be introduced. b. Quoting of PAN will be mandatory for any purchase or sale exceeding

the value of Rs.1 Lakh. c. Amendment to the provisions of FEMA for contravention in relation to

foreign assets, will be liable to - Seizure and eventual confiscation of assets of equivalent value

situated in India. - Levy of penalty and imprisonment upto 5 years.

d. Third party reporting entities will be required to furnish information about foreign currency sales and cross border transaction.

Proposal to create a universal social security system for all Indians. To launch a national skills mission soon to enhance employability of rural

youth. To raise visa-on-arrival facility to 150 countries from existing 43 countries. Plans to introduce Direct Tax Regime that is internationally competitive on

rates without exemptions. Plans to set up National Investment Infrastructure Fund. Issuance of tax-free infrastructure bonds for projects in roads, rail and

irrigation projects. Ports in public sector to be encouraged to corporatise under Companies Act. Government to provide Rs 79.4 billion capital infusion to state-run banks. Proposal to do away with different types of foreign investment caps and

replace them with composite caps. To allow foreign investment in alternative investment funds. To launch gold deposit accounts and develop sovereign gold bond and to

introduce gold monetisation scheme to allow depositors to earn interest. To work on Indian-made gold coin to cut imports.


-: 70 :-

IV. RECENT POLICY ANNOUNCEMENTS : A. INBOUND INVESTMENTS : 1. FOREIGN INVESTMENT IN INDIA BY FOREIGN PORTFOLIO

INVESTORS (FPI) :

REINVESTMENT OF COUPONS IN GOVERNMENT SECURITIES

Sixth Bi-Monthly Monetary Policy Statement, 2014-15, issued on February 03, 2015 provides that reinvestment of coupons in Government securities will be enabled even when the existing limits are fully utilised.

These investments shall be kept outside the applicable limit (currently USD 30 billion) for investments by FPIs in government securities.

LOCK-IN PERIOD

Sixth Bi-Monthly Monetary Policy Statement, 2014-15, issued on February 03, 2015 provides that all future investment by FPIs in the debt market in India will be required to be made with a minimum residual maturity of three years.

Further, all future investments against the limits vacated when the current investment runs off either through sale or redemption, shall be required to be made in corporate bonds with a minimum residual maturity of three years.

FPIs shall not be allowed to make any further investment in liquid and money market mutual fund schemes.

There will, however, be no lock-in period and FPIs shall be free to sell the securities (including those that are presently held with less than three years residual maturity) to domestic investors.

2. RECENT DEVELOPMENTS IN OVERSEAS DIRECT INVESTMENT (ODI) : The RBI has now issued an A.P. (DIR Series) Circular No. 1 dated July 3,

2014 whereby the said limit has been restated to 400 per cent of the net worth as per the last audited balance sheet of the Indian entity. However, the same comes with a caveat i.e., any ODI or financial commitment of more than USD 10,00,00,000 in a particular financial year will require prior approval of the RBI, even if such ODI or financial commitment is within the eligible ODI limit of 400 per cent.


-: 71 :-

Currently, Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in favour of domestic / overseas lender is under automatic route. Now additional conditions have been prescribed for charge on such shares as follows (A.P. (DIR Series) Circular No.54 dated December 29, 2014):

i. Complying with the undertaking financial commitment,

ii. Period of charge should co-terminus with the period of end-use,

iii. Utilized only for its core business activities overseas and not for investing back in India,

iv. A certificate from the Statutory Auditors’ of the Indian party, to the effect that the loan / facility availed by the JV / WOS / SDS has not been utilized for direct or indirect investments in India, is to be obtained and kept by the designated AD.

Currently, Creation of charge on the domestic assets in favour of

overseas lenders to the JV / WOS / step down subsidiary requires prior approval of the Reserve Bank. Now the designated AD bank may permit creation of charge under the automatic route subject to the following:

i. Complying with the undertaking financial commitment,

ii. The domestic assets, on which charge is being created, are not

securitized.

iii. Period of charge should co-terminus with the period of end-use,

iv. Utilized only for its core business activities overseas and not for investing back in India,

v. A certificate from the Statutory Auditors’ of the Indian party, to the

effect that the loan / facility availed by the JV / WOS / SDS has not been utilized for direct or indirect investments in India, is to be obtained and kept by the designated AD.

vi. The overseas lender undertakes that, in the event of enforcement of

charge, they shall transfer the domestic assets by way of sale to a resident only.

vii. In case of invocation of charge, the resultant remittance of the proceeds exceeding the prescribed limit of the financial commitment of the Indian party (prevailed at the time of creation of charge) shall require prior approval of the Reserve Bank.


-: 72 :-

3. RECENT DEVELOPMENT IN ECB :

EXTERNAL COMMERCIAL BORROWINGS (ECB) IN INDIAN RUPEES :

(A.P. (DIR Series) Circular No.25 dtd. September 3, 2014) With a view to providing greater flexibility for structuring of ECB

arrangements, it has been decided that recognised non-resident ECB lenders may extend loans in Indian Rupees subject to the following conditions : a. The lender should mobilise Indian Rupees through swaps

undertaken with an AD bank in India.

b. The ECB contract should comply with all other conditions applicable to the automatic and approval routes as the case may be.

c. The all-in-cost of such ECBs should be commensurate with prevailing market conditions.

For the purpose of executing swaps for ECBs denominated in Indian

Rupees, the recognised ECB lender, if it desires, may set up a representative office in India following the prescribed laid down process.

It may be noted that the hedging arrangement for ECBs denominated in Indian Rupees extended by non-resident equity-holders shall continue to be governed by the provisions of AP (DIR Series) Circular No. 63 dated December 29, 2011.

REFINANCING OF ECB AT LOWER ALL-IN-COST –

SIMPLIFICATION OF PROCEDURE : On a review, it has been decided to simplify the procedure by delegating powers to the AD banks to approve even those cases where the Average Maturity Period (AMP) of the fresh ECB is exceeding the residual maturity of the existing ECB under the automatic route subject to the following conditions :

i. Both the existing and fresh ECBs should be in compliance with the applicable guidelines;

ii. All-in-cost of fresh ECB should be less than that of the all-in-cost of existing ECB;

iii. Consent of the existing lender is available;


-: 73 :-

iv. Refinancing is to be undertaken before the maturity of the existing

ECB;

v. Borrower should not be in the default / Caution List of RBI and should not be under the investigation of the Directorate of Enforcement (DoE);

vi. Overseas branches / subsidiaries of Indian banks will not be permitted to extend ECB for refinancing an existing ECB; and

vii. All requirements in respect of reporting arrangements like filing of revised Form 83, etc. are followed.

This facility will be available even in those cases where existing ECBs were raised under the approval route subject to the amount of new ECBs being eligible to be raised under the automatic route.

SECURITY FOR EXTERNAL COMMERCIAL BORROWINGS

(01ST JAN 2015) a) Creation of Charge on immovable assets :

i. Such security shall be subject to provisions contained in the

Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.

ii. The permission should not be construed as a permission to acquire

immovable asset (property) in India, by the overseas lender / security trustee.

iii. In the event of enforcement / invocation of the charge, the

immovable asset / property will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB.

b) Creation of Charge on Movable Assets :

In the event of enforcement / invocation of the charge, the claim of the lender, whether the lender takes over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB. Encumbered movable assets may also be taken out of the country.


-: 74 :-

c) Creation of Charge over Financial Securities :

i. Pledge of shares of the borrowing company held by the promoters

as well as in domestic associate companies of the borrower will be permitted. Pledge on other financial securities, viz. bonds and debentures, Government Securities, Government Savings Certificates, deposit receipts of securities and units of the Unit Trust of India or of any mutual funds, standing in the name of ECB borrower/promoter, will also be permitted.

ii. In addition, security interest over all current and future loan assets

and all current assets including cash and cash equivalents, including Rupee accounts of the borrower with AD Category-I banks in India, standing in the name of the borrower/promoter, can be used as security for ECB. The Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or debt service reserve account.

iii. In case of invocation of pledge, transfer of financial securities shall

be in accordance with the extant FDI/FII policy including provisions relating to sectoral cap and pricing as applicable read with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.


-: 75 :-

B. OUTBOUND INVESTMENTS : 1. (OVERSEAS INVESTMENTS BY ALTERNATIVE INVESTMENT

FUNDS (AIF) : It has been decided to permit an Indian Alternative Investment Fund

(AIF), registered with Securities and Exchange Board of India (SEBI), to invest overseas in terms of the provisions of Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004.

2. RECENT CHANGES IN LIBERALISED REMITTANCE SCHEME :

LIBERALIZED REMITTANCE SCHEME FOR RESIDENT

INDIVIDUALS- CLARIFICATION :

RBI has clarified that the LRS Scheme can also be used for acquisition of immovable property outside India. (A.P. (DIR Series) Circular No.5, July 17, 2014)

It is further clarified that the requirement of post facto reporting to RBI by Authorized Dealer has been withdrawn. (A.P. (DIR Series) Circular No. 19 August 11, 2014)

3. INCREASE IN THE LIMIT FROM USD 75,000 TO USD 125,000 :

As per A.P. (DIR Series) Circular No.138 June 3, 2014, it has now

been decided to enhance the existing limit of USD 75,000 per financial year (April-March) to USD 1,25,000 with immediate effect.

With effect from 5th August 2013, Resident Individuals will be allowed to set-up Joint Venture (JV) / Wholly Owned Subsidiary (WOS) outside India for bonafide business activities outside India within the specified limit of US Dollars.

Earlier banks were required to furnish information on the number of applications received and the total amount remitted under the Liberalised Remittance Scheme (the Scheme), on a monthly basis, in the prescribed format in both hard copy as well as soft copy in Excel format.

As per A. P. (DIR Series) Circular No. 106 dated May 23, 2013, it has been decided, to collect the data in soft form only and to dispense with the submission of hard copies of the monthly statements by the AD banks. (w.e.f. July 01. 2013).


-: 76 :-

4. ROUTING OF FUNDS RAISED ABROAD TO INDIA :

Some Indian companies are accessing overseas market for debt funds through overseas holding / associate / subsidiary / group companies. It has also been reported that such borrowings are raised at rates exceeding the ceiling applicable in terms of extant FEMA regulations and that the funds so raised are routed to the Indian companies which accounts for sole/major operations of the group. Different modalities/structures are resorted to for channeling such funds for Indian operations including investment in rupee bonds floated by the Indian company.

On a review of the matter in light of the existing regulatory framework, it is clarified as under

Indian companies or their AD banks are not allowed to issue any direct or

indirect guarantee or create any contingent liability or offer any security in any form for such borrowings by their overseas holding / associate / subsidiary / group companies except for the purposes explicitly permitted in the relevant Regulations.

Further, funds raised abroad by overseas holding / associate / subsidiary /

group companies of Indian companies with support of the Indian companies or their AD banks as mentioned at (i) above cannot be used in India unless it conforms to the general or specific permission granted under the relevant Regulations.

Indian companies or their AD banks using or establishing structures which

contravene the above shall render themselves liable for penal action as prescribed under FEMA, 1999.

5. NON-RESIDENT GUARANTEE FOR NON-FUND BASED

FACILITIES ENTERED BETWEEN TWO RESIDENT ENTITIES :

(A.P. (DIR Series) Circular No. 56, January 6, 2015) It is clarified that residents subsidiaries of multinational companies can

also hedge their foreign currency exposure through permissible derivative contracts executed with an AD Category – I bank in India on the strength of guarantee of its non-resident group entity. The method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor shall continue to be governed, as hitherto, by the provisions of A.P. (DIR Series) Circular No. 28 dated March 30, 2001.


-: 77 :-

6. RECENT CHANGES IN EXPORT OF CURRENCY (FEB 02, 2015) :

Attention of AD banks is invited to the provisions contained in A.P.(DIR Series) Circular No.42 dated November 28, 2014 in terms of which the 20:80 scheme for import of gold was withdrawn in consultation with the Government. The RBI and the Government has been receiving requests for clarification

on some of the operational aspects of the guidelines on import of gold consequent upon the withdrawal of 20:80 schemes. Accordingly, in consultation with the Government, the following clarifications are issued:

i. The obligation to export under the 20:80 scheme will continue to apply in respect of unutilized gold imported before November 28, 2014, i.e., the date of abolition of the 20:80 scheme.

ii. Nominated banks are now permitted to import gold on consignment basis. All sale of gold domestically will, however, be against upfront payments. Banks are free to grant gold metal loans.

iii. Star and Premier Trading Houses (STH/PTH) can import gold on DP basis as per entitlement without any end use restrictions.

iv. While the import of gold coins and medallions will no longer be prohibited, pending further review, the restrictions on banks in selling gold coins and medallions are not being removed.

7. RISK MANAGEMENT AND INTER BANK DEALINGS :

FOREIGN CURRENCY (FCY) – INR SWAPS :

To permit greater flexibility to the residents borrowing in foreign currency, RBI dispense with condition that, on cancellation of the swap contract, a fresh FCY-INR swap to hedge the underlying may be permitted to re�enter into but only after the expiry of the tenor of the original swap contract. (A.P. (DIR Series) Circular No. 78, February 13, 2015)

8. HEDGING FACILITIES FOR FOREIGN PORTFOLIO INVESTORS

(FPIS) : RBI has permitted FPIs to hedge the coupon receipts arising out of their investments in debt securities in India falling due during the following twelve months subject to the condition that the hedge contracts shall not be eligible for rebooking on cancellation. The contracts can however be rolled over on maturity provided the relative coupon amount is yet to be received. (A.P. (DIR Series) Circular No.28, September 8, 2014)


-: 78 :-

9. RECENT CHANGES IN FDI SECTOR WISE CAP :

(Note: Below is only a summary of the shareholding limit for conditions attached to specific sectors, the sectoral policy may be referred to)

SR. NO SECTOR ACTIVITY

2015 REVISED POLICY FDI PREVIOUS POLICY (2014)

INVESTMENT CAP

APPROVAL ROUTE

INVESTMENT CAP

APPROVAL ROUTE

1.

Agriculture

Agriculture& Animal

Husbandry 100 percent Automatic 100 percent Automatic

2. Tea

Plantation

Tea sector including tea plantations

100 percent Government 100 percent Government

3.

Mining

Mining and Exploration of metal and non

metal ores, coal & lignite, coal

processing plant.

100 percent Automatic 100 percent Automatic

Mining and mineral

separation of titanium bearing

minerals and ores, its value addition and

integrated activities


4. Petroleum & Natural

Gas

Exploration activities of oil and natural gas

fields, infrastructure

related to marketing of

petroleum products and natural gas,

petroleum product pipelines, natural

gas/ pipelines, LNG

Regasification infrastructure


Petroleum refining by PSU,

without any disinvestment or

dilution of domestic equity in the existing PSUs.



-: 79 :-

5. Defence -


Above 49 percent

Cabinet Committee on

Security (CCS) on case to case basis, wherever it is likely to result

in access to modern and ‘state-of-art’ technology in the country.

Above 26 percent

Cabinet Committee on

Security (CCS) on

case to case basis,

wherever it is likely to result in access to

modern and ‘state-of-art’ technology in the country

6. Telecom - 100 percent

Automatic up to 49 percent

100 percent


Government route beyond

49 percent

Government route beyond

49 percent

7. E-commerce Activities

Activity of buying and selling by a

company through the e-commerce

platform


8.

Single Brand

Product Retail

Trading

- 100 percent


100 percent


Government route

beyond 49 percent

Government route

beyond 49 percent

9. Multi Brand

Retail Trading

- 51 percent Government 51 percent Government

10.

Financial Services

1) Asset Reconstruction

Company (ARC)

100 percent of paid-up capital of

ARC (FDI+FII/FP

I)


100 percent of paid-up capital of

ARC (FDI+FII/FP

I)


Government route

beyond 49 percent

Government route

beyond 49 percent

2) Banking- Private Sector

74 percent including

investment by FIIs/FPIs

Automatic up to 49 percent 74 percent

including investment

by FIIs/FPIs


Government route

beyond 49 percent up to

74 percent

Government route

beyond 49 percent up to

74 percent


-: 80 :-

3) Banking-

Public Sector

20% (FDI and

Portfolio Investment)

Government

20% (FDI and

Portfolio Investment)

Government

4) Commodity Exchange

49 percent (FDI + FII/FPI)

[Investment by

Registered FII / FPI

under Portfolio

Investment Scheme

(PIS) will be limited to 23 percent and Investment under FDI Scheme

limited to 26 percent]

Automatic


[Investment by

Registered FII / FPI

under Portfolio

Investment Scheme

(PIS) will be limited to 23 percent and Investment under FDI Scheme

limited to 26 percent]]

Automatic

5) Credit Information

Companies CIC

74 percent (FDI+FII/FP

I) Automatic

74 percent (FDI+FII/FP

I) Automatic

6) Infrastructure Company in the

Securities Market

49 percent (FDI +

FII/RFPI) [FDI limit of 26 per cent and FII/FPI limit of 23 per cent of the paid-up

capital]

Automatic


[FDI limit of 26 per cent and FII/FPI limit of 23 per cent of the paid-up

capital

Automatic

7) Insurance 26 percent

(FDI+FII/FPI+NRI)

Automatic 26 per cent

(FDI+FII/FPI+NRI)

Automatic

11. Power Exchanges -

49 percent FDI+FII/FPI

) Automatic

49 per cent FDI+FII/FPI

) Automatic

12. Pharmaceutical Sector

Greenfield investment 100 percent Automatic 100 per cent Automatic

Brownfield investment 100 percent Government 100 per cent Government

Manufacture of Medical Devices 100 percent Automatic - -


-: 81 :-

10. ISSUE OF EQUITY SHARES UNDER THE FDI SCHEME AGAINST LEGITIMATE DUES : (A.P. (DIR Series) Circular No.31, September 17, 2014)

An Indian company under the automatic route may issue shares/convertible debentures to a person resident outside India against lump-sum technical know-how fee, royalty External Commercial Borrowings (ECBs) (other than import dues deemed as ECB or Trade Credit as per RBI guidelines) and import payables of capital goods by units in Special Economic Zones.

Through this circular RBI permit issue of equity shares against any other funds payable by the investee company, remittance of which does not require prior permission of the Government of India or Reserve Bank of India under FEMA, 1999 or any rules/ regulations framed or directions issued there under, provided that:

i. The equity shares shall be issued in accordance with the extant FDI guidelines on sectoral caps, pricing guidelines etc. as amended by Reserve bank of India, from time to time;

ii. The issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.

11. FDI - PRICING GUIDELINES FOR FDI INSTRUMENTS WITH OPTIONALITY CLAUSES : [A. P. (DIR Series) Circular No. 4 dated July 15, 2014]

Revised pricing guidelines in respect of transfer/issue of shares and for exit from investment in equity shares, CCD and CCPS with or without optionality clauses of listed/unlisted Indian companies

i. Transfer of Shares by Non-resident to Resident :

Price of shares issued / transferred to persons resident outside India shall not be at a price not exceeding :

a. The minimum price at which the transfer of shares can be made from a resident to a non-resident as given in (i) above.

b. A price arrived at as per any internationally accepted pricing methodology on arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker, in case of an unlisted company

ii. Transfer of Compulsorily Convertible Debentures (CCDs) and Compulsorily Convertible Preference Shares (CCPS) by Non-resident to Resident :

The non-resident investor shall be eligible to exit from the investment in CCDs and CCPS of the investee company at a price not exceeding that arrived at as per any internationally accepted pricing methodology on arm’s length basis, duly certified by a Chartered Accountant or a SEBI registered Merchant Banker.

The non-resident investor is not guaranteed any assured exit price at the time of making such investment/agreements and shall exit at the fair price computed as above at the time of exit, subject to lock-in period requirement, as applicable.


-: 82 :-

KHANDELWAL JAIN & CO. H.O.: 6-B, Pil Court, 6th Floor, 111, M. K. Road, Churchgate, Mumbai – 400 020. Tel.: (91-22) 4311 5000 Fax: 4311 5050 Email : [email protected] R.O.: 12-B, Baldota Bhavan, 5th Floor, 117, M. K. Road, Churchgate, Mumbai – 400 020. Tel.: (91-22) 4311 6000 Fax: 4311 6060 Email : [email protected] BRANCHES : Aurangabad : First Floor, City Pride Building, Mondha Naka Signal, Jalna Road, Aurangabad – 431 001. TeI.: (91-240) 233 1967, 235 3372 Fax: 235 4844. E-mail: [email protected] New Delhi : 221, Hans Bhavan, Bahadur Shah Zafar Marg, Near I.T.O. Office, New Delhi – 110 002. Tel.: (91-11) 2337 0091 / 0892 / 8795 Fax: 2337 8794 E-mail: [email protected] Visakhapatnam : Plot No.134, Sector-5, M.V.P. Colony, Visakhapatnam – 530 017. Tel.: (91-891) 2531 184 E-mail : [email protected]