2/28/2015 KNAV India Budget 2015 Analysis

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BUDGET 2015 Statements on Economy and related policy announcements:

"Banking unbanked....funding the unfunded""From job seekers to job creators""We are a round-the-clock round-the-year government""Less government, more governance""Ease of doing business"

These statements of India's Finance Minister Arun Jaitleyheralds a momentous opportunity for India. This budget has signalled the Government's clear intent to moveforward with fast paced reforms to bring India to its earlier growthrate trajectory of 8-8.5%. Some of the key announcements pertain to continuing on the pathof fiscal consolidation, manufacturing sector revival with a 'Make inIndia' theme, removing the uncertainties pertaining to tax such asretrospective taxation and introducing investor and entrepreneurialfriendly tax and fiscal policies. Skill India and Digital India schemeshave been articulated. In summary, the new government hasrestored macro-economic stability and created the conditions forsustainable poverty elimination, job creation and durable double-digit economic growth. Domestic and international investors areseeing India with renewed interest and hope.

I N THIS I SSUE :

ECONOMY

DIRECT TAX

SERVICE TAX

CENTRAL EXCISE DUTY

ABOUT US

ECONOMY

Economic Indicators: Outlined below are the specific contours of the newGovernment's economic thrust and the roadmap foraccelerating growth, enhancing investment and passing onthe benefit of the growth process to the common man:

The fiscal deficit for FY 2014-2015 is expected to be retained to the target of 4.1% of GDP.The road map for fiscal deficit are 3.9%, 3.5% and 3.0% in FY 2015-16, 2016-17 & 2017-18respectivelyThe Current Account Deficit for this year is expected to be below 1.3% of GDPThe real GDP growth is expected to accelerate to 7.4% making India the fastest growing largeeconomy in the world. GDP growth in 2015-16, projected to be between 8 to 8.5%.The wholesale price index (WPI) turned negative(-0.39%) vis-à-vis 5.05% ON y-o-y basis.The CPI inflation stands at 5.1 %Increased focus on infrastructure outlays for railways, road and irrigation. A NationalInvestment and Infrastructure Fund (NIIF), is to be established with an annual flow of INR

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20,000 Crores to it. Additionally tax free infrastructure bonds shall be issued to fund projects inthese sectorsSkill India and Digital India- the government will launch a National Skills Mission through theSkill Development and Entrepreneurship MinistryGame changing reforms have been embarked upon:

1. Goods and Service Tax (GST) regime will be operational from April 1, 2016;2. Jan Dhan, Aadhar and Mobile (JAM) - for direct benefits transfer in a leakage proof, well-

targeted and cashless manner.

DIRECT TAX

UNACCOUNTED, UNTAXED MONEY The Hon'ble FM has bolstered confidence in the economy byushering in various measures to solve the problem of black money inIndia. Various reformative amendments / changes have beenproposed to curb the issue of unaccounted, untaxed "black" money.

A major breakthrough in this direction has been achieved with respect to the agreement withthe Switzerland authorities to 'share information' and 'assist in investigation.'

It has been proposed to introduce a new law to deal with the black money parked abroad. Keyfeatures of the proposed new law are:

1. Concealment of income and assets and evasion of tax shall attract rigorousimprisonment up to 10 years and penalty at the rate of 300% of the tax shall be levied.

2. Mandatory filling of returns by beneficiaries of foreign assets.3. Non-filling of return or inadequate disclosure of foreign assets shall call for rigorous

imprisonment up to 7 years.

Consequential changes have been proposed to be made in the Prevention of Money LaunderingAct, 2002 ('PMLA') and the Foreign Exchange Management Act, 1999 ('FEMA'):

1. PMLA: The offence of concealment of income or evasion of tax in relation to a foreignasset will be made a 'predicate offence' under the PMLA enabling the authorities toattach and confiscate unaccounted assets held abroad;

2. FEMA: Amendment to effect that if any foreign exchange, foreign security or anyimmovable property situated outside India is held in contravention of the provisions ofthis Act, then action to be taken for confiscation and seizure of assets located in Indiahaving equivalent value. Also liable for levy of penalty and prosecution with punishmentof imprisonment upto 5 years.

Also, a Benami Transactions (Prohibition) Bill is proposed to be introduced to tackle blackmoney transactions in real estate.

In addition to these structural changes, few other changes have been proposed to amend theAct:

1. To amend section 269SS and section 269T to define "specified sum" and "specifiedadvance" respectively.

2. To prohibit acceptance or payment of an advance exceeding Rs. 20,000 or more in casefor any purchase of immovable property.

3. Mandatory quoting of PAN for any purchase or sale exceeding value of Rs.100,000.

Deferment of General Anti Avoidance Rule ("GAAR") GAAR provisions were to come into effect from 01.04.2016. However, several concerns wereexpressed regarding the introduction of GAAR. Also, in light of the developments of Base Erosionand Profit Shifting ("BEPS") project by the OECD, wherein India is an active participant, it isproposed to defer the implementation of provisions of GAAR by two years i.e. to be made applicablefrom Financial Year 2017-18 i.e. Assessments Year 2018-19 and for subsequent years. One very vital amendment proposed by the Finance Bill, 2015 is the prospective application ofGAAR provisions. It has been proposed that investments made upto 31.03.2017 would begrandfathered and therefore protected from the applicability of GAAR provisions. Amendment to the conditions for determining the residency status in respect of Companies As per the existing provisions of Section 6, a Company is said to be resident in India if:

It is an Indian Company; orDuring that year, the control and management of its affairs is situated wholly in India

The aforesaid conditions were rendered practically inapplicable due to two reasons, mentioned below,due to which companies were avoiding to be tax resident in India and consequently paying taxes inIndia:

Whole of the control and management should be situated in India; and

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For the whole year.

Thus, it is proposed to introduce the concept of 'Place of Effective Management ("PoEM"), which isan internationally recognised concept for determination of residence of a company in foreignjurisdiction. This concept is recognised even in most of the tax treaties which India has entered intowith other countries. Infact the concept of PoEM is used as a tie-breaker rule for avoidance of doubletaxation. The principle of PoEM is recognized by OECD as well. The definition the PoEM is a place where key management and commercial decisions that arenecessary for the conduct of the business of an entity as a whole are, in substance made. In view of the above, it is proposed to amend the second condition u/s 6 to include that a companywould be said to be a resident if its 'place of effective management', at any time in that year, is in India. Despite it being an internationally recognised and accepted concept and well recognised guidingprinciples for determination of PoEM, it still remains a fact dependent exercise and hence it isproposed to issue a set of guiding principles to be followed in determination of PoEM for the benefitof all. These amendments will take effect from April 1, 2016 and will accordingly apply in realtion toassessment year 2016-17 and subsequent years. KNAV Comments: We feel that this will create difficulties for a whole of lot of Indian businesseshaving marketing subsidiaries and skeleton operations in overseas jurisdictions. They will have a toughtime establishing that their PoEM is not in India. Such businesses will be well advised to revalidatetheir international structures. Fund Managers in India not to constitute business connection of offshore funds Section 9 deals with cases of income which are deemed to accrue or arise in India. One of theconditions for the income of a non-resident to be deemed to accrue or arise in India is the existenceof a business connection in India. Once such a business connection is established, income attributableto the activities which constitute business connection becomes taxable in India. Even under theDTAA, the source country assumes taxation rights on certain income if there is an existence of aPermanent Establishment in that country. As per section 6, which deals with the residency status in India, in case of a person other than anindividual, the test is dependent upon the location of its 'control and management.' Under the existing provisions, in case of offshore funds, mere presence of the fund manager in Indiamay create sufficient nexus of the said fund with India and may constitute business connection inIndia even though the fund manager is an independent person. Similarly, if any profits arise to thefund from the manager's activities who is located in India, there may be an attribution of profits of thefunds which would be liable to be taxed in India. Therefore, apart from taxation of income received by the fund manager as fees for fund managementactivity, income of off-shore fund from investments made in countries outside India may also gettaxed in India due to such fund management activity undertaken in, and from, India constituting abusiness connection. Further, presence of the fund manager under certain circumstances may lead toan existence of a Permanent Establishment of the off shore fund in India resulting in it being treatedas a tax resident in India on the basis of its control and management being in India. There are a large number of fund managers of Indian origin managing off shore funds. Due to the taxconsequences, such fund managers are not located in India. In order to facilitate the above, a specificregime has been proposed in line with international practices subject to fulfilment of certainconditions by the fund and the fund manager (which have been provided in the Finance Bill, 2015).Accordingly, once the conditions are fulfilled, in the case of an eligible investment fund, the fundmanagement activity carried out through an eligible fund manager acting on behalf of such fund shallnot constitute business connection in India of the said fund. Also, an eligible investment fund shallnot be said to be resident in India merely because the eligible fund manager undertaking fundmanagement activities on its behalf is located in India. In other words, a mere presence of the fundmanager in India will not constitute a Permanent Establishment in India. Lastly, it is also proposed that every eligible investment fund shall, in respect of its activities in aFinancial Year, furnish within ninety days from the end of the Financial Year, a statement in theprescribed form to the prescribed income-tax authority containing information relating to thefulfillment 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. 5lakh shall be leviable on the fund. It is also proposed to clarify that this regime shall not have any impact on taxability of any income ofthe eligible investment fund which would have been chargeable to tax irrespective of whether theactivity 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 determinationof total income in the case of the eligible fund manager. These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to theassessment year 2016-17 and subsequent assessment years. Pass through status to Category-I and Category-II Alternative Investment Funds (AIF)

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Alternate Investment Funds provide an alternate vehicle for facilitating domestic investments. Toincrease the investments from all sources, it is proposed to allow foreign investments in AlternateInvestment Funds (AIF). Such AIF engaged in making investments have been accorded 'pass throughstatus' in certain tax jurisdictions. Thus, to rationalize the taxation of Category-I and Category-II AIFs,it is proposed to provide a special tax regime for taxation of income of such investment fund and theirinvestors. Category I includes AIFs which invest in start-up or early stage ventures or social venturesor SMEs or infrastructure or other sectors or areas which the Government or regulators consider associally or economically desirable. Category II AIFs are funds including private equity funds or debtfunds which do not fall in Category I and III and which do not undertake leverage or borrowing otherthan to meet day-to-day operational requirements. Category III AIFs are funds which employ diverseor complex trading strategies and may employ leverage including through investment in listed orunlisted derivatives. It is applicable to such funds irrespective of whether they are set up as a trust,company, or limited liability partnership firm etc. The salient features of the special tax regime are:

Income received from AIF shall be chargeable to tax in the hands of a unit holder.The income in the nature of profits and gains of business or profession shall be taxable to AIF.Income other than profits and gains of business or profession shall be taxable in the hands ofunit holders.Income in nature of profits and gain of business which is taxed at AIF level shall be exempt inthe hands of unit holder.In case of any income, other than income which is taxable at AIF level, which is payable to aunit holder by AIF, the AIF shall deduct TDS at 10%.If there is a loss at AIF level; either current loss or the loss which remained to be set off, theloss shall not be allowed to be passed through to the unit holders, but would be carried over atAIF to be set off against income.No Dividend Distribution Tax or Tax on Distributed Income shall be applicable to AIF for theincome paid to its unit holders.The income received by the investment fund would be exempt from tax withholding ("TDS")requirements. This would be provided by issue of appropriate notification under the Act.It shall be mandatory for AIF to file return of income.

These amendments will take effect from assessment year 2016-17 and subsequent assessment years. KNAV Comments: To tap the foreign capital/investor for investment in Indian start-up, early stageventures or social ventures, SMEs and infrastructure sectors etc., the government has come out with aspecial taxpayer friendly tax regime for such investment funds. REIT & InvITA special tax regime was put in place vide Finance (No. 2) Act, 2014 in respect of business trusts,which are defined under the Act and also include a REIT & InvIT. The taxation of such REITs andInvITs, SPV, the sponsor and the investors are contained in several different sections of the Act. Under the existing provisions, due to the deferral of capital gains provided to a sponsor, the sponsorwas put at a disadvantageous tax position vis-à-vis the direct listing shares of the SPV. In order tobring parity, the Finance Bill has proposed the following amendments:

It is proposed to give the benefit of concessional tax regime on capital gain arising on transferof shares, subject to levy of Securities Transaction tax (STT), to the sponsor at the time ofoffloading of units of business trust (acquired in exchange of his shareholding in the SPV)through Initial Public Offer at the time of listing of business trust on stock exchange.The above benefit is also proposed to be available to the sponsor at the time of sale of unitsreceived in lieu of shares of SPV subject to levy of STT.

In case of business trusts, being REITs, the income is predominantly in the nature of rental incomewhich arises from assets directly held or held through a SPV. The rental income at the level of SPVgets a pass through status. However, the rental income received by REITs is taxable at REIT anddoesn't get a pass through benefit. It is also proposed to provide a 'pass through status' to the rental income arising to REITs directly i.e.in cases where real estate is directly held by the REIT. It is also proposed as under:

To exempt any income arising to REIT by way of renting or leasing or letting out of real estatedirectly owned by such trust;Any distribution of rental income to a unit holder of such REIT shall be deemed to be incomeof such unit holder;In cases where the rental income is allowed a pass through, the REIT shall effect TDS i.e. 10%when distributed to resident unit holder and 5% in case of distribution to a non-resident unitholder;No deduction of tax at source u/s 194I of the Act where the income in form of rent is creditedor paid to REIT in respect of any real estate assets 'directly' held by REIT.

These amendments will be effective from April 1, 2016 and apply to AY 2016-17 and subsequentAY's. Proposed to abolish levy of Wealth Tax under the "Wealth Tax Act, 1957". In order to tax the high net worth person, it has been proposed to increase the surcharge by additional2% where income exceeds INR 10 Mn. It has also been proposed that information relating to assetswhich is currently required to be furnished in the wealth tax return shall be captured by suitablymodifying income tax return.

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Reduction of Corporate tax Corporate tax rate proposed to be reduced to 25% over the next 4 years. Surcharge The Finance Bill 2015 has proposed to charge surcharge of 2% in case of below assessees whereincome exceeds Rs. 1 Crore.(10 Mn)

Type of taxpayer Surcharge rateNEW OLD

Individual, Firm, AOP, BOI, Artifical Juridical Person,Co-operative societies, local authorities

12% 10%

Domestic Companya) Where income exceeds 1 cr but less than 10 crb) Where income exceeds 10 cr

7%12%

5%10%

There has been no change in the surcharge rates for a foreign company. Indirect transfer provisions The provision relating to indirect transfers in the Act contain several ambiguities. It is proposed toamend the provisions of section 9 of the Act relating to indirect transfer as follows:

The share or interest of a foreign company shall be deemed to derive its value substantiallyfrom the assets (whether tangible or intangible) located in India, if on the specified date, thevalue of Indian assets:

1. exceeds Rs. 10 crore; and2. represents atleast 50 % of the value of all the assets owned by the company.

Value of an asset shall mean the fair market value of such asset without reduction of liabilities,if any, in respect of the asset.

The specified date of valuation shall be the date on which the accounting period of thecompany, as the case may be, ends preceding the date of transfer. However, the date of transfershall be the specified date of valuation, if the book value of the assets of the company on thedate of transfer exceeds by at least 15% of the book value of the assets as on the last balancesheet date preceding the date of transfer.

The manner of determination of fair market value of the Indian assets vis-à-vis global assets ofthe foreign company shall be prescribed in the rules.

The taxation of gains arising on transfer of a share or interest deriving, directly or indirectly, itsvalue substantially from assets located in India will be on proportional basis. The method fordetermination of proportionality are proposed to be provided in the rules.

Exemptions

The exemption shall be available to the transferor of a share or interest in, a foreign entity if theinvestor along with its associated enterprises:

1. neither holds the right of control or management,2. nor holds voting power or share capital or interest exceeding 5% of the

total voting power or total share capital, total voting power or total share capital,

in the foreign company or entity directly holding the Indian assets (direct holding company).

In case the transfer is of shares or interest in a foreign entity which does not hold the Indianassets directly, then the exemption shall be available to the transferor if he, along with itsassociated enterprises,

1. neither holds the right of management or control in relation to such company or theentity,

2. nor holds any rights in such company which would entitle it to either exercise control ormanagement of the direct holding company or entity or entitle it to voting powerexceeding 5% in the direct holding company or entity.

Exemption shall be available in respect of any transfer, subject to certain conditions, in ascheme 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, heldby the amalgamating foreign company to the amalgamated foreign company.

Exemption shall be available in respect of any transfer, subject to certain conditions, in ademerger, of a capital asset, being a share of a foreign company which derives, directly orindirectly, its value substantially from the share or shares of an Indian company, held by thedemerged foreign company to the resulting foreign company.

Reporting

The Indian entity shall be obligated to report in which the Indian assets are held by foreigncompany and furnish information relating to the off-shore transaction having the effect of directlyor indirectly modifying the ownership structure or control of the Indian company. In case of any

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failure penalty shall be levied

1. 2% of value of transaction where such transaction had the effect of directly or indirectlymodifying the ownership structure or control of the Indian company; and

2. a sum of Rs. 5,000 in any other case.

These amendments will take effect from assessment year 2016-17 and subsequent assessment years. KNAV Comments: The budget has provided certainty and clarity in the indirect transfer provisionsthat have hurt the country image as an investment destination. These changes would eliminate thescope for discretionary exercise of power and provide a hassle free structure to thetaxpayers/investors and bring in much needed stability and predictability in the taxation regime. Incentives for the State of Andhra Pradesh and the State of TelanganaIn order to encourage the setting up of industrial undertakings in the backward areas of the State ofAndhra Pradesh and the State of Telangana, it is proposed by the Finance Bill, 2015 to providefollowing Income-tax incentives:

Additional investment allowance

1. The Finance Bill, 2015, has proposed to insert section 32AD to provide an additionalinvestment allowance, over and above existing deduction under section 32AC of the Act,of an amount equal to 15% of the cost of new asset acquired and installed by an assesseebetween April 1, 2015 - March 31, 2020, for the purpose of setting up an undertaking /enterprise for manufacture of article / thing in notified backward areas of such state onor after April 1, 2015;

2. The proposed term "new asset" has been defined as plant and machinery excludingcertain types of plant and machinery as has been provided thereunder.

Additional Depreciation at the rate of 35%1. To promote acquisition and installation of new asset, it has been proposed to allow

higher additional depreciation at an increased rate of 35% u/s 32(1)(iia) of the Act forthe period from April 1, 2015 - April 1, 2020.

2. The eligible plant or machinery for this purpose shall not include the machinery or plantwhich are currently not eligible for additional depreciation as per the existing proviso tosection 32(1)(iia) of the Act.

Allowance of balance 50% additional depreciation The Finance Bill 2015 proposed that the balance 50% of the additional depreciation on new plant ormachinery acquired and used for less than 180 days which has not been allowed in the year ofacquisition and installation of such plant or machinery, shall be allowed in the immediately succeedingprevious year. Clarity on 'source rule' in respect of interest received by the non-resident banking company It is proposed to amend the Act to provide that, in the case of a non-resident, being a person engagedin the business of banking, any interest payable by the Permanent Establishment ('PE') in India ofsuch non-resident to the head office or any PE or any other part of such non-resident outside Indiashall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any incomeattributable to the PE in India. The PE in India shall be deemed to be a person separate andindependent of the non-resident person of which it is a PE and the provisions of the Act relating tocomputation of total income, determination of TDS would apply. Accordingly, the PE in India shall be obligated to deduct TDS on any interest payable to either thehead office or any other branch or PE, etc. of the non-resident outside India. Further, non-deductionwould result in disallowance of interest claimed as expenditure by the PE and it shall also attract levyof interest and penalty in accordance with relevant provisions of the Act. These amendments shall be effective from the assessment year 2016-17 and subsequent assessmentyears. Rationalisation of the provisions of section 115JB

It is proposed to amend the section 115JB so that the share of a member of an AOP on which noincome tax is payable under section 86 of the Act, should be excluded while computing the MATliability of the member under 115JB of the Act. The expenditures, if any, debited to the profit lossaccount, corresponding to such income are also proposed to be added back to the book profit for thepurpose of computation of MAT. Similarly, it is proposed to amend the provisions of section 115JB so that income from transactions insecurities (other than short term capital gains arising on transactions on which securities transactiontax isn't chargeable) arising to a Foreign Institutional Investor, shall be excluded from the chargeabilityof MAT and the profit corresponding to such income shall be reduced from the book profit. Theexpenditures, if any, debited to the profit loss account, corresponding to such income are alsoproposed to be added back to the book profit for the purpose of computation of MAT. These amendments shall be effective from the assessment year 2016-17 and subsequent assessmentyears. Prescribed conditions relating to maintenance of accounts, audit etc to be fulfilled by theapproved in-house R&D facility

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The Finance Bill 2015 has proposed to amend the provisions of section 35(2AB) of the Act to providethat deduction under the said section shall be allowed if the company enters into an agreement withthe prescribed authority for co-operation in such research and development facility and fulfillsprescribed conditions with regard to maintenance and audit of accounts and also furnishes prescribedreports. It is also proposed to enable the prescribed authority to submit its approval report to thePrincipal Chief Commissioner or Chief Commissioner having jurisdiction over the company claimingthe weighted deduction under the said section. This amendment will take effect from April 1, 2016. Rationalisation of definition of 'charitable purpose' under the Act

The Finance Bill, 2015, has proposed to include 'Yoga' as a separate category in the definition of'charitable purpose' u/s 2(15) of the Act.

As regards advancement of any object of general public utility is concerned, it is essential to maintain abalance between the object of preventing business activity in garb of charitable activities and at thesame time protecting those organizations which are undertaking genuine activities. It is therefore proposed to amend the definition of 'charitable purpose' to include advancement of anyother object of general public utility if it involves carrying on of any activity in nature of trade,commerce or business or rendering any service in relation to nature of trade, commerce or businessfor a cess, fee, consideration or retention of income from such activity unless:

1. Such activity is undertaken in the course of actual carrying out of such advancement ofany other object of general public utility.; and

2. The aggregate of such receipts does not exceed 20% of total receipts of the trust carryingon such activities, for the previous year.

The amendment will take effect from April 1, 2016 and will accordingly apply in relation toassessment year 2016-17 and subsequent assessment years. Rationalization of provisions of section 11 relating to accumulation of Income by charitabletrusts and institutions

Under section 11 of the Act, the primary condition for grant of exemption to trust orinstitution in respect of income derived from property held under such trust is that the incomederived from property held under trust should be applied for the charitable purposes inIndia.Only 15% of the income can be accumulated indefinitely by the trust or institution, rest 85% ofincome can only be accumulated for a period not exceeding 5 years subject to the conditionsprescribed in the section.But, due to rise in ambiguity in complying with the conditions within time, it is proposed toamend the Act to provide the due date for filing Form 10 laid down in the conditions.

Form 10 needs to be filed before the due date of filing return of income specified under section 139of the Act for the fund or institution.

In case the Form 10 is not submitted before this date, then the benefit of accumulation wouldnot be available and such income would be taxable at the applicable rate.Further, the benefit of accumulation would also not be available if return of income is notfurnished before the due date of filing return of income.These amendments will take effect from the assessment year 2016-17 and subsequentassessment years.

Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collectionat Source (TCS)

The Finance Bill, 2015 proposes to amend the provisions of section 200A of the Act so as toenable computation of fee payable under section 234E of the Act at the time of processing ofTDS statement under section 200A of the Act.Provisions of section 206C have been proposed to be amended so as to allow the collector tofurnish TCS correction statement.It is proposed by the Finance Bill, 2015 that intimation generated after processing of TCSstatement shall be subject to:

1. rectification under section 154 of the Act;2. appealable under section 246A of the Act; and3. Deemed as notice of demand under section 156 of the Act.

It is proposed to provide that where interest is charged for any period under section 206C (7) ofthe Act on the tax amount specified in the intimation issued under proposed provision, then, nointerest shall be charged under section 220(2) of the Act on the same amount for the sameperiod.

The Finance Bill, 2015 proposes amend the provisions of section 272A of the Act so as toprovide for a penalty of Rs.100/- for each day of default in filing of form 24G by governmentdeductors / collectors during which the default continues subject to the limit of the amountdeductible or collectible in respect of which the statement is to be furnished.It is also proposed to levy a penalty of Rs. one lakh in case of non-furnishing of information orfurnishing of incorrect information under sub-section (6) of section 195(6) of the Act.It is also proposed to amend the provisions of section 273B of the Act to provide that nopenalty shall be imposable under this new provision if it is proved that there was reasonablecause for non-furnishing or incorrect furnishing of information under sub-section (6) of section

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195 of the Act.These amendments will take effect from 1st June, 2015.

Deduction for employment of new workmen

With a view to encourage generation of employment, it is proposed to amend section 80JJA so as toextend the benefit to all assessees having manufacturing units employing in excess of 50 workmen(insteadof 100 regular workmen as per existing provisions)

Settlement commission

The Finance Bill, 2015 proposes to amend section 245A(b)(i) in order to allow assesse toapproach Settlement Commission for other assessment years for which notice under section148 has not been issued to the assessee. Thus, the assesse becomes eligible for proceedings onlyafter he has been given a notice under section 148 for all assessment yearsAlso, it is proposed to amend 245A(b)(iv), wherein the assessment shall be deemed to havecommenced on date of furnishing return of income and deemed to end on date on whichassessment is made or expiry of 2 years from end of relevant assessment year, in case where noassessment is made.Proposition has been made to amend section 245D(6B) of the Act, in order to providesettlement commission amend any order passed by it

1. Within 6 months form the end of month in which order was passed.2. When an application is made by Principal Commissioner or commissioner before expiry

of period of 6 months, within 6 months from the end of month in which the applicationwas received.

Amendments have been proposed to section 245H(1) of the Act, wherein the settlementcommission while granting immunity to any person shall record the reasons in writing forgranting the same.

The provision of section 245K of the Act has been proposed to be amended to provide thatany person related to the person who has already approached settlement commission once, alsocannot approach settlement commission subsequently.

The proposed definition of related person has been provided in the Finance Bill, 2015.

The Finance Bill, 2015 also propose to amend section 132B of the Act to provide asset seizedor requisitioned under section 132 or 132A respectively may also be adjusted against theamount of liability arising on application made before settlement commission under section245C(1) of the Act.Also, it was proposed to amend section 245HA(1) of the Act to provide that when order undersection 245D(4) of the Act has been passed without providing terms of settlement proceedingsbefore the settlement commission, shall lead to abatement of proceedings.These amendments will take effect from June 1, 2015.

Other amendments

Threshold limit for specified domestic transaction raised to INR 200 Mn. from INR 50 Mn.

Proposed that a single member bench of ITAT can dispose of a case wherein the total incomecomputed by the assessee does not exceed 'fifteen lakh rupees.' (INR1.5 Mn.)

It is proposed to amend section 295(2) of the Act to provide that Central Board of DirectTaxes may make rules to provide procedure for granting relief or deduction of tax paid in anycountry but India, under section 90, 90A or 91 of the Act, against income tax payable under theAct.

It is proposed to extend the limitation date from 30th June, 2015 to 30th June, 2017 pertainingto lower withholding tax rate of 5 percent in case of interest paid to FII and QFI.

It is proposed to provide tax neutrality to unit holders upon consolidation of two or moreschemes, being equity oriented or other than equity oriented. It is also proposed that the cost ofacquisition at the time of sale shall be the actual cost of units and holding period shall be theperiod for which the units in consolidating schemes were held by the assessee.

It is proposed to exempt the income of Core Settlement Guarantee Fund established byClearing Corporations as per the SEBI mandate.

Changes have been proposed u/s 271(1)(c) pertaining to the levy of penalty whereby penaltywill now be leviable even if the tax liability of the assessee for the year has been determinedunder provisions of section 115JB or 115JC of the Income Tax Act to avoid larger creditbecoming available to the assessee for set off in the subsequent years.

The Finance Bill, 2015 proposes to amend clause 3 of section 234B of the Act, to provide thatthe period on which interest is to be computed will start from April 1 of the next financial yearand end on the date of determination total income under section 147 or section 153A.

The Finance Bill, 2015 also proposes to insert subsection (2A) wherein an application is madeunder section 245C(1) or wherein an order is received under section 245D(4), the interest shallbe computed at 1% for the period starting from April 1 of such assessment year and ending onthe date of application or date of order, as the case may be.

Personal income tax and exemptions

No change proposed in the slabs as well as the tax rate for individuals. However, the amount of

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income tax computed shall be increased by a surcharge of 12% of the income tax (as against10%) in case of a person having total income exceeding INR 10 Mn.

Proposed to increase the transport allowance exemption from Rs 800 to Rs 1600 per month.

It is proposed that employer shall obtain proof or evidence for purpose determining theestimating income of employee and deduction of TDS under section 192 of the Act.

Investment made under Sukanya Samriddhi Account Scheme to be eligible for deduction u/s80C. Also, interest accruing on such deposits to be exempt from tax.

Proposed to increase the deduction threshold of health insurance premium u/s 80D as under:

Taxpayer is... Deduction limit

NEW OLDIndividual 25,000 15,000Senior Citizen 30,000 20,000

For very senior citizens, the aggregate deduction of INR 30,000 has been allowed in respect ofhealth insurance as well as medical expenditure incurred.

Under section 80DDB of the Act, the assesse is allowed deduction upto INR 40000 or INR60000 (for senior citizens) for the medical treatment of certain chronic or protracted diseases. Ithas been proposed that assesse will be required to obtain a prescription from a specialist doctorfor the purpose of availing this deduction. Further, it has been proposed to provide for a higherlimit of deduction upto INR 80,000 for very senior citizens.

Section 80DD and section 80U of the Act provides deduction of INR 50,000 if a person issuffering from disability and INR 100,000 if the person is suffering severe disability. It has beenproposed to raise the limit of the person suffering from disability from INR 50,000 to INR75,000 and for person suffering from severe disability, the limit has been increased from INR100,000 to INR 125,000.

Section 80CCC i.e. Investment in LIC or other insurer for receiving pension, limit has beenincreased from INR 100,000 to INR 150,000.

Under section 80CCD of the Act, an additional deduction of INR 50,000 for contribution madeunder National Pension Scheme (NPS) has been proposed.

It has been proposed to amend the provisions of section 197A for making the recipients ofpayments referred to in section 194DA also eligible for filing self-declaration in FormNo.15G/15H for non-deduction of tax at source in accordance with the provisions of section197A.

For reporting of tax deducted from payment over a specified threshold made for acquisition ofimmovable property (other than rural agricultural land) from a resident transferor u/s 194-IA ofthe Act, the deductor is not required to obtain and quote TAN and he is allowed to report thetax deducted by quoting his Permanent Account Number (PAN).

Under Section 80G of the Act, it is proposed to provide 100% deduction in respect ofdonations made under:

1. National Fund for Control of Drug Abuse2. Swachh Bharat Kosh3. Clean Ganga Fund

In case of non-resident taxpayers, it has been proposed to reduce the rate of tax on income byway of Royalty and Fees for Technical Services from 25% to 10% under section 115A.

SERVICE TAX

The outlook for the prominent amendments in the ServiceTax provision are presented below:

Goods and Service Tax is proposed to be applicable from April 01, 2016. Service Tax regimewill be subsumed with the GST regime.

Service Tax rate is being increased from 12.36% plus Education Cesses to 14%. The 'EducationCess' and 'Secondary and Higher Education Cess' shall be subsumed in the revised rate ofService Tax. Thus, effective increase in Service Tax rate will be from existing rate of 12.36%(inclusive of cesses) to 14%.

An enabling provision is being made to empower the Central Government to impose a SwachhBharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxableservices with the objective of financing and promoting Swachh Bharat initiatives.

Thus, the total Service Tax rate will go up from 12.36% to 16%.

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Time limit for taking CENVAT credit on inputs and input services increased from 6 months to1 year.

Central Excise / Service tax assesses to be allowed to use digitally signed invoices and maintainrecord electronically.

Broadening of Tax base:

Negative list was introduced in Service Tax law effective July 01, 2012. This Negative list ofservice tax is very important because every activity not covered under this list is chargeable toService Tax.

a. Inclusion in the negative list

1. Exhibition of cinematographic film, circus, dance, or theatrical performances includingdrama or ballet;

2. Recognized sporting events;3. Concerts, pageants, award functions, musical or sporting event not covered by the above

exemption, where the consideration for such admission is up to Rs. 500 per person.

b. Exclusions from negative list:

1. Access to amusement facility providing fun or recreation by means of rides, gamingdevices or bowling alleys in amusement parks, amusement arcades, water parks, themeparks or such other places;

2. Admission to entertainment event of concerts, non-recognized sporting events, pageants,music concerts, award functions, if the amount charged is more than Rs. 500 for right toadmission to such an event;

3. Contract manufacturing /job work for production of potable liquor for a consideration;4. Services provided by the Government or local authority to a business entity from the

negative list.

c. Exemptions are being withdrawn from the following services:

1. Services provided by a mutual fund agent to a mutual fund or assets managementcompany;

2. Distribution services to a mutual fund or AMC;3. Selling or marketing agent of lottery ticket to a distributor.

Proposed service-tax exemption for construction, erection, commissioning or installation oforiginal works pertaining to an airport or port withdrawn.

Service Tax exemptions:

1. Services of pre-conditioning, pre-cooling, ripening etc. of fruits and vegetables.2. Life insurance service provided by way of Varishtha Pension Bima Yojana.3. All ambulance services provided to patients.4. Admission to museum, zoo, national park, wild life sanctuary and tiger reserve.5. Transport of goods for export by road from factory to land customs station.

Service Tax Abatement:

1. At present service tax is payable on 30% of the value of rail transport for goods andpassengers, 25% of the value of goods transport by road provided by a goods transportagency, 40% for goods transport by vessels. In the Union Budget, it is proposedthatservice Tax shall be payable on 30% of the value of such services subject to auniform condition of non-availment of Cenvat Credit on inputs, capital goods and inputservices.

2. Service Tax is payable on 40% of the value of air transport of passenger for economy aswell as higher classes, e.g. business class. The abatement for classes other than economyis being reduced and service tax would be payable on 60% of the value of such higherclasses.

3. Abatement is being withdrawn from chit fund service. They would be entitled to takeCenvat Credit.

Transportation of agricultural produce to remain exempt from Service-tax.

Conclusion: Service Tax regime has been further tightened given the strong services reach contributing to India'sGDP. Amendments to Service Tax need to be better tuned to reflect a "non-harassing" mind-set thatthe Modi's government has been articulating all through.

CUSTOMS & CENTRAL EXCISE DUTY Central Excise Duty: Some of the key changes in the Central Excise Duty structure is presented below:

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Excise duty on rails for manufacture of railway or tram way trackconstruction material exempted retrospectively from March 13,2012 to February 02, 2014.The general rate of central excise duty of 12.36% including thecesses is being rounded off to 12.5%. The ad-valorem rates ofexcise duty lower that 12% and those higher than 12% with a few

exceptions are not being increased.Wafers for use in the manufacture of integrated circuit modules for smart cards from 12% to6%.Inputs for use in the manufacture of LED drivers and MCPCB for LED lights, fixtures andLED lamps from 12% to 6%.Excise duty on Mobiles handsets, including cellular phones from 1% without CENVAT creditor 6% with CENVAT credit to 1% without CENVAT credit or 12.5% with CENVAT credit.Excise duty on tablet computers is being restructured from 12% to 2% without CENVATcredit or 12.5% with CENVAT credit.All goods falling under Chapter sub-heading 2101 20, including iced tea, are being notifiedunder section 4A of the Central Excise Act for the purpose of assessment of Central Exciseduty with reference to the Retail Sale Price with an abatement of 30%.Online central excise and service tax registration to be done in two working days.Excise duty on footwear with leather uppers and having retail price of more than 1000 per pairreduced to 6%.Excise duty on petrol and diesel to the extent of Rs. 4 per litre shall be converted into road cessto fund investment,The Schedule Rates of the Additional Duty of Excise levied on Petrol and High Speed DieselOil is being increased from Rs. 2 per litre to Rs. 8 per litre. The effective rates of the AdditionalDuty of Excise levied on Petrol and High Speed Diesel Oil is being increased from Rs. 2 perlitre to Rs. 6 per litre only.Education Cess and Secondary & Higher Education Cess leviable on excisable goods are beingsubsumed in Basic Excise duty. Consequently, Education Cess and Secondary & HigherEducation Cess leviable on excisable goods are being fully exempted. Education Cess andSecondary & Higher Education Cess levied on imported goods as a duty of customs, however,will continue.

Customs Duty:

Some of the key changes in the Customs Duty structure is presented below:

Basic customs duty on specified components for use in the manufacture of specified CNC lathemachines and machining centres is being reduced from 7.5% to 2.5%, subject to actual usercondition.Basic customs duty on Black Light Unit Module for use in the manufacture of LCD/LED TVpanels is being reduced from 10% to Nil, subject to actual user condition.Basic Customs Dutyon Organic LED (OLED) TV panels is being reduced from 10% to Nil.The tariff rate of Basic customs duty on Commercial Vehicles is being increased from 10% to40%. The effective Basic customs duty on such Vehicles is being increased from 10% to 20%.However, customs duty on such vehicles in Completely Knocked Down (CKD) condition andelectrically operated vehicles including those in CKD condition will continue to be at 10%.Increase in basic custom duty :

1. Metallurgical coke from 2.5 % to 5%;2. Tariff rate on iron and steel and articles increased from 10% to 15%; and,3. Tariff rate on commercial vehicle increased from 10% to 40%.

Basic custom duty on certain inputs, raw materials, intermediates and components in 22 itemsin various categories like chemicals and petrochemicals, reduced to minimise the impact of dutyinversion.All goods, except populated printed circuit boards for use in manufacture of ITA bound items,exempted from SAD (Special Additional Duty).SAD reduced on import of certain inputs and raw materials.

Conclusion:

The government has rationalised a lot of provisions of customs and central excise in line with itsavowed policy of job creation through revival of growth and investment, and promotion of domesticmanufacturing and "Make in India" theme. The administrative and procedural simplification, as wellas rate rationalisation shall lead to clarity and consistency to businesses across sectors. What is nowrequired to be done is a change in mind-set from adversarial and hostile to a tax payer friendly exciseand customs tax regime.

Sincerely, TEAM KNAV

ABOUT US

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D I S C LA IME R

This Budget Synopsis document represents a general overview of tax & economic policy developments and should not be relied uponwithout an independent, professional analysis of how any of these provisions may apply to a specific situation. Any informationcontained in the body of this document was not intended or written to be used, and cannot be used, without obtaining independent,professional advice.

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