India Budget 2015-16

INDIA BUDGET 2015-16

Progressive

IndIa’s TrysT WITh desTIny

The time has come for India to announce its robust presence in the global community of nations.

The timing cannot be more opportune.

The global economy is struggling with the ravages of a slowdown; India appears to be moving out of one.

Most developed countries are experiencing the problems arising out of an increasingly elderly gentry; India as a nation is becoming progressively younger.

The world is experiencing demand satiation across a number of areas; India is probably the most under-consumed large country in the world.

The result is that this is not an India looking at itself with economic expectation; it is an eternal audience pinning its hope that India may possibly lift the world out of the slowdown.

Which is why the Union Budget 2015 is not just a document for Indian eyes. It is a document that needs to be interpreted by the world.

USD 2tnSize of the

Indian economy

7.4% Projected growth of India’s service sector in FY 2015

7.5% India’s economic growth in

the Oct-Dec, 2014

USD 42bnTotal FDI inflows into India

during 2014

7.4% Projected annual GDP for

the FY 2015

USD 360bnProjected value of total exports

from India during FY 2015

BALM FOR INDIA. HOPE FOR THE WORLD.There is a growing recognition that what is good for India is good for the world.

Because India comprises a sixth of mankind. What would be beneficial for this high proportion would inevitably be good for the wide world.

Because India possesses centuries of entrepreneurial experience, industrial discipline, engineering competence and mineral resources – one of the most extensive value chains anywhere in the world.

Because more than anything, India possesses one of the last great captive home markets that are still relatively under-consumed, providing attractive economies-of-scale and international competitiveness to become a dependable global provider.

The time begins now.

MAKE IN INDIA

OUR PHILOSOPHY

01 Partner Driven Approach: We cater to all our clients with personalised attention and meet their business challenges with ease and finesse.

02 Extraordinary Client Service: Our client-centric approach is built around highly customised services through continuous innovation to deliver value and growth to our clients. We provide support to our clients that they can rely on and encompasses all the requirements to the best of our ability. We believe in ‘total client satisfaction’.

03 Vibrant & Long-lasting Client Relationships: Our client relationships are more than just business partnerships. We Endeavour to understand the client as well as their business and build a vibrant and long-lasting relationship.

04 Trust, Reliability and Transparency: For a relationship to flourish, it must be based on trust, reliability and transparency – values that we hold sacred.

This publication is for private circulation only.

Information in this publication is intended to provide general guidance only. While all reasonable care is taken to ensure fool proof accuracy of content at the time of drafting the document, we accept no responsibility for any errors or for any omissions or for any loss, however caused or sustained, by the person who relies on his interpretation of the document. Readers are advised to seek professional advice before acting on the information provided in this publication.

The cover line, content and analysis provided in the document are the sole property of DH Consultants P. Ltd. No reproduction in part or in whole, is allowed without our prior written approval.

Basics

10

Budget proposals - Direct Taxes

32

Budget proposals - Indirect Taxes

88

Miscellaneous

138

PART 1

PART 2

PART 3

PART 4

CONTENTS

Section 1 Foreword 10

Section 2 Budget Snapshot 12

Section 3 Economic Indicators &Budget Financials

22

T

Section 8 Central Excise 90

Section 9 Customs 110

Section 10 Service ax 120

Section 11 SEBI & Capital Markets 138

Section 12 Tax Rate Structure 144

Section 13 Glossary 152

Section 4 Corporate Taxation 34

Section 5 International Taxation & Transfer Pricing

44

Section 6 Personal Taxation 56

Section 7 Others 62

AGRICULTUREFEEDING INDIA. FEEDING THE WORLD.

India is the second largest agricultural landmass in the world.

Surprisingly, even as India is considered one of the largest producers across a number of crops, it possesses one of the lowest yields.

This sub-optimal utilisation of land is derived from legacy practices and inefficient resource management.

What India needs is a combination of futuristic agriculture technologies, mindset universalisation and the proactive embrace of global best practices.

With the objective of generating more from a finite land resource, utilizing precious land in a sustainable way and raising enough not only to feed the world’s second largest population cluster but also to feed the world at large.

The time is now.

The Economic Survey 2014-15 was tabled in the Indian Parliament on 27 February 2015 and the Union Budget 2015-16 was tabled in Parliament

on 28 February 2015. Both these are more than economic statements; they represent a grand perspective of a robust optimistic India.

As a result, these documents extend beyond the usual economic indicators (gross domestic product, inflation, fiscal deficit, current account deficit, foreign exchange reserves and primarily tax sources) and application of revenues (primarily planned and non-planned expenditures & outlays) that one would expect in them. They clearly indicate that India, at the cusp of emerging from the protracted ‘doom and gloom’, is perched on a long historic journey.

A new directionA number of things have emerged in the first nine months of the leadership of the new Indian government under the stewardship of Hon’ble Prime Minister, Mr. Narendra Modi, which emphasise a long-term vision, quality and conviction. Among the most visible of these signals being sent out comprise transformational initiatives like ‘Make in India’, ‘Skill India’ and ‘Digital India’ on the one hand and ‘Swachh Bharat’ on the other with the objective to energize the economy.

The result is that the new Indian government announced fast-track infrastructure development to match the country’s growth ambition. This manifested in announcements to increase public investments, establish National Investment and Infrastructure Fund (NIIF), float tax-free infrastructure bonds, revisit PPP models for rebalancing risk, replace multiple permissions with a pre-existing regulatory mechanism and also introduce a plug-and-play model for mega infra projects.

Building on a natural advantageIndia brings to the reality of the moment some of the most compelling natural advantages.

The country is among the youngest in the world; more than 54% of its population is below 25 years of age.

This sizable population cluster – probably the largest in any country – needs to be educated and trained towards employability.

In line with the priority, the Indian government intends to launch a National Skill Mission through the Skill Development and Entrepreneurship Ministry. The Mission will consolidate skill initiatives spread across several Ministries resulting in a standardization of procedures and outcomes across 31 Sector Skill Councils.

Besides, the government expects to create a Digital India through an aggressive National Optical Fibre Network Programme running across 750,000 kilometers networking 250,000 villages that is expected to leapfrog rural realities into a modern future.

The result is a ‘ray of hope’, which, considering the protracted slowdown, may now be considered a major sentiment-driver and achievement.

An insightA number of economic commentators seeking ‘big bang’ announcements from the Union Budget may have been disappointed in the short-term but

are convinced that the Union Budget will have a decisive long-term impact.

This impact is likely to be derived from three levels – the implementation of JAM (Jan Dhan, Aadhar and Mobile) leading to Amrut Mahotsav benefits in 2022 (India’s 75th year).

The Amrut Mahotsav in 2022 focuses on the following dynamic objectives:

Housing for all• Basic facilities (including 24-hour power supply)

in each house

• Access to livelihood means for at least one member of each family

• Connecting each of 178,000 unconnected habitats through all-weather roads

• Providing a senior secondary school within 5 km of each child.

• Providing medical services in each village

OverviewWhat we admire about the Union Budget 2015-16 is that for the first time the subjects of Jan Suraksha (universal social security system), public investment, plug-and-play infrastructure, phased corporate tax rate reduction, gold monetization (through sovereign gold bonds and gold coins), restoration of Cultural World Heritage Sites, Green India and a law to curb black money and benami transactions have been articulated.

The Union Budget 2015-16 then is a reflection of the government’s commitment towards change, growth, jobs and social upliftment.

In our opinion, the Union Budget 2015-16 is Progressive, the theme of this review document.

Knowledge Management Team

Mumbai, March 2015

FOREWORDSECTION 1

10 INDIA BUDGET 2015-1611 BASICS BUDGET PROPOSAL

DIRECT TAXESBUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS

SECTION 2

INDIA BUDGET 2015-16

SNAPSHOT



Individual Taxation• No increase in Income-tax basic exemption

limit.

• Increase in Surcharge from 10% to 12%, if the total income exceeds H1 Cr.

• Education Cess on income tax @ 2% and Secondary and Higher Education Cess @ 1 % continued for the financial year 2015-16.

• Investment in Sukanya Samriddhi Account Scheme will be eligible for deduction u/s 80C.

• Limit of deduction u/s 80CCC for contribution to certain pension funds increased from H1,00,000 to H1,50,000.

• For contributions made to National Pension Scheme, deduction upto H50,000 is available over and above the aggregate deductible limit of H1,50,000.

• Limit of deduction u/s 80D for health insurance premium increased from H15,000 to H25,000 (other than senior citizens) and from H20,000 to H30,000 (senior citizens). Deduction of H30,000 is proposed to be allowed for medical expenditure of very senior citizen if there is no health insurance in force.

• Deduction u/s 80DD for medical treatment of dependent with disability proposed to be increased from H50,000 to H75,000. In case of severe disability amount of deduction is proposed to be increased from H1,00,000 to H1,25,000.

• Deduction u/s 80DDB on expenditure on spe-cified diseases for very senior citizens proposed to be increased from H60,000 to H80,000.

• Deduction u/s 80U in case of person with disability increased from H50,000 to H75,000. In

case of severe disability amount of deduction is proposed to be increased from H1,00,000 to H1,25,000.

• Any payment received from an account opened in accordance with ‘Sukanya Samriddhi Account Rules 2014’ proposed to be exempt u/s 10(11A).

• 100% deduction proposed to be allowed u/s 80G for donations made to (i) Swachh Bharat Kosh, (ii) Clean Ganga Fund and (iii) National Fund for Control of Drug Abuse.

• Exemption of Transport Allowance proposed to be increased from H800 pm to H1600 pm.

• TDS @10% on premature withdrawal from Recognised Provident Fund provided the amount of withdrawal is H30,000 or more. Failure to furnish PAN to trustees of EPFS would attract TDS at Maximum Marginal Rate.

• Acceptance or repayment of advance of H20,000 or more in cash for purchase of immovable property proposed to be prohibited.

• Threshold limit for applicability of transfer pricing regulations to specified domestic transactions proposed to be increased from H5 Crs. to H20 Crs.

Corporate Taxation• Corporate tax rate proposed to be reduced from

30% to 25 % over the period of 4 Years.

• Surcharge @7% for income above H1Cr and upto H10 Crs and @12% for income above H10 Crs.

• No change in Surcharge rate for Foreign Companies.

• Surcharge on DDT proposed to be increased from 10% to 12%.

• Sec. 32AD proposed to be inserted to provide additional 15% Investment Allowance on cost of new eligible Plant & Machinery acquired and installed in new unit set up in notified backward area of Andhra Pradesh & Telangana

on or after 01-04-2015 but before 01-04-2020. This allowance would be over & above the existing allowance @15% u/s 32AC. Further, higher additional depreciation u/s 32(1)(iia) also proposed on such assets @ 35% instead of existing rate of 20%.

• Balance 50% additional depreciation u/s 32(i)(iia) on eligible Plant & Machinery, acquired & put to use for less than 180 days in a previous year, proposed to be allowed in the immediately succeeding previous year.

• Benefit of deduction u/s 80JJAA proposed to be extended to all assesses having manufacturing units instead of only to corporate assessee. Further, criteria for employing new regular workmen proposed to be reduced from 100 to 50 for being eligible for deduction.

•Special tax regime specified for certain Category I & Category II Alternate Investment Fund regulated by SEBI allowing pass through status to Investment Funds.

• Share of income of a member of AOP or BOI exempt u/s 86, proposed to be excluded in computing Book Profit u/s 115JB, with a corresponding increase in expenditure related to such income

• Rationalisation of capital gains regime for the sponsors existing at the time of listing of units of REITs and InvITs. Rental income of REITs from their own assets to have pass through facility.

International Taxation and Transfer Pricing• Rate of tax on Royalty and FTS proposed to be

reduced from 25% to 10%.

• Period of applicability of reduced rate of tax of 5% in respect of income of foreign investors (FIIs and QFIs) from corporate bonds and government securities proposed to be extended from 31-05-2015 to 30-06-2017 [Sec. 194LD].

DIRECT TAX – AT A GLANCE



• Sec. 195 to give power to CBDT to capture information on foreign remittances which are claimed to be not chargeable to tax.

•CBDT to notify rules for giving foreign tax credit to Indian Residents u/s 90, 90A & 91.

Other relevant Proposals • Provisions of General Anti Avoidance Rule

(GAAR) introduced vide Finance Act 2012 in Chapter X-A which was applicable from 01-04-2015 have been deferred for 2 more years and would now proposed to apply w.e.f 01-04- 2017. Investments made upto 31-03-2017 are proposed to be protected from the applicability of GAAR.

• Direct Tax Code (DTC) which was to replace the present Act, shall not be enacted as major recommendations have been incorporated in the current Statute.

• Wealth Tax Act, 1957 has been abolished w.e.f FY 2015-16. Particulars and information in relation to assets furnished in Wealth Tax Return shall be incorporated in modified Income tax Return to be notified.

• New comprehensive Law to be enacted in the current session to deal with black money stashed abroad.

• New Benami Transaction (Prohibition) Bill to curb domestic black money also to be introduced.

• Penalty u/s 271(1)(c) is proposed to be imposed for additions made both under Normal provisions & MAT provisions.

General and administrative• It is proposed to provide that interest paid by

a PE or a branch of foreign bank to its HO and

other overseas branches shall be chargeable to tax in India and shall also be liable for TDS.

• CBDT to prescribe rules for the purposes of determination of ‘resident’ status in the case of India seafarer.

•Residency criteria of companies widened by introduction of Place of Effective Management concept.

• In search cases, seized cash proposed to be adjusted against the tax liability computed in the settlement application.

• Share or interest of a foreign company or entity outside India shall be deemed to derive its value substantially from the assets located in India, if on the specified date, value of such assets represents at least fifty per cent of the fair market value of all the assets owned by the company or entity. However, the indirect transfer provisions would not apply if the value of Indian assets does not exceed H10 Crs.

• Indian entity shall be obligated to furnish information relating to the offshore transactions having the effect of directly or indirectly modifying the ownership structure or control of the Indian company or entity. In case of non-compliance, a penalty is proposed to be levied.

• Chartered Accountants who are disqualified to be appointed as an auditor u/s 141(3) of the Companies Act, 2013 shall be not be considered as an “accountant” for the purpose of the IT Act.

•Benefit of non-deduction of tax at source u/s 194C on sums paid to transport contractor on furnishing of PAN, proposed to be restricted to transport contractor owning upto 10 goods carriages.

Central Excise • As a move towards GST, EC and SHEC leviable

on excise duty proposed to be subsumed in BED

•BED increased from 12% to 12.5%

• Changes in duty rates of Petrol and HSD Specific rates revised to subsume EC and

SHEC

Conversion of existing excise duty to the extent of H4 per litre into Road Cess

• Excise duty on leather footwear of RSP > H1000 per pair reduced from 12% to 6%

• Excise Duty increased on: Cement falling under chapter sub-heading

2523 29 from H900/MT to H1000/MT

Sacks and bags, other than for industrial use, from 12% to 15%

Mobile handsets, including cellular phones from 6% to 12.5% (with CENVAT credit)

• Clean Energy Cess on coal increased from H100/MT to H300/MT. Effective rate increased from H100 per/MT to H200/MT

• Excise Duty completely withdrawn from captively consumed intermediate compound coming into existence during the manufacture of Agarbattis;

• Concessional excise duty of 6% extended upto 31 March 2016 on specified goods for use in manufacture of electrically operated vehicles and hybrid vehicles

INDIRECT TAX – AT A GLANCE



Specified components used in manufacture of specified CNC lathe machines and machining centres from 7.5% to 2.5%.

C- Block for Compressor, Over Load Protector (OLP) & Positive thermal co-efficient and Crank Shaft for compressor for use in manufacture of Refrigerator compressors from 7.5% to 5%.

Specified inputs for manufacture of flexible medical video endoscope from 5% to 2.5%.

Active Energy Controller (AEC) for manufacture of Renewable Power System (RPS) Inverters conditionally reduced to 5%

• BCD brought down to zero: Magnetron of upto 1 KW for manufacturing

microwave owens from 5% to NIL

HDPE for manufacture of telecommunication grade optical fibre cables from 7.5% to Nil.

Black Light Unit Module for manufacture of LCD/LED TV panels from 10% to Nil.

Organic LED (OLED) TV panels from 10% to Nil.

Specified Digital Still Image Video Camera capable of recording video and components for use in the manufacture of such cameras is being reduced to Nil.

Evacuated Tubes with three layers of solar selective coating for manufacture of solar water heater and system is being fully exempted.

•SAD exemption in respect of: All goods except populated printed circuit

boards, falling under any Chapter of Customs Tariff, for use in the manufacture of ITA Bound Items.

Inputs for manufacture of LED drivers and MCPCB for LED lights, fixtures and lamps.

•Scheduled rates of Additional Duty of Customs

levied on imported Motor Spirit [Petrol] and High Speed Diesel Oil [commonly known as Road Cess] are being increased from H2 per litre to H6 per litre.

•CVD and SAD are being fully exempted on specified raw materials for use in the manufacture of pacemakers.

•Current duty structure on specified goods for manufacture of Electrically Operated Vehicles and Hybrid motor vehicles BCD- Nil, CVD-6% and SAD – Nil which are presently applicable upto 31.03.2015, are being extended upto 31.03.2016.

•BCD and CVD are fully exempted on artificial heart (left ventricular assist device).

• In case of imports for a Mega Power Project when the status is provisional, condition of executing fixed deposit receipt for a term of 36 months or more has been increased to 66 months.

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

•Penalty provisions under Section 28 of the Customs Act, rationalised as under:

No Penalty and the proceedings would be deemed to be closed if customs duty along with interest is paid within 30 days of receipt of the Show Cause Notice, in cases not involving fraud, collusion, suppression of fact etc.

Penalty reduced from 25% to 15% and the proceedings would be deemed to be closed if customs duty along with interest is paid within 30 days of receipt of the Show Cause Notice, in cases involving fraud, collusion, suppression of fact etc.

The above benefit extended to cases where notice issued but not adjudicated before the Finance Bill 2015 is enacted. The proceedings

• Penalty provisions are being rationalized to encourage compliance and early dispute resolution

Cases not involving extended period of limitation Penalty will be restricted to 10% of Duty

involved

No penalty if duty and interest is paid within 30 days of issuance of notice.

Reduced penalty of 25% of penalty applicable if duty, interest and reduced penalty paid within 30 days of order

Benefit of reduced penalty to be extended to cases where penalty modified in appellate proceedings

Cases involving fraud, collusion, misstatement, suppression, extended period of limitation Penalty will be 100% of duty involved, and

in case where the transactions are recorded by the assessee, for the period from 8th April 2011 till the bill receives the assent of the President, penalty would be 50% of the duty.

Reduced penalty of 15% is applicable if duty, interest and reduced penalty is paid within 30 days of issuance of notice

Reduced penalty of 25% of duty imposed is applicable if duty, interest and reduced penalty is paid within 30 days of order.

Benefit of reduced penalty to be extended to cases where penalty modified in appellate proceedings

•Assessees will be allowed to issue digitally signed invoices and maintain other records electronically

•Proceedings remanded by Court or Tribunal to the Adjudicating Authority for fresh adjudication not to be considered as case eligible for filing application before Settlement Commission

•Excise Duty increased on goods covered under Medicinal and Toilet Preparations Act, 1955 from 12% to 12.5% ad valorem

•Facility provided to a manufacturer and registered dealer and importer &/or port of import to directly dispatch goods from vendor to job worker/customer’s premises

•Penalty prescribed for delay in filing of Annual Financial Information Statement or

Annual Capacity Statement

Return by an EOU

Customs •Peak rate of duty remains unchanged.

•BCD increased on: Iron and steel and articles thereof from 10% to

15%

Bauxite from 10% to 20%.

Motor vehicles used for passenger transport and goods transport from 10% to 40%. However, the effective Basic customs duty on such Vehicles increased from 10% to 20%.

Metallurgical coke from 2.5% to 5%

•BCD reduction on: Sulphuric acid for the manufacture of

fertilizers from 7.5% to 5%

Melting scrap of iron & steel, copper scrap, brass scrap and aluminium scrap from 4% to 2%.

‘Metal parts’ for use in the manufacture of electrical insulators is being reduced from 10% to 7.5%.

Ethylene-Propylene-non-conjugated-Diene Rubber (EPDM), Water blocking tape and Mica glass tape, for use in the manufacture of insulated wires and cables from 10% to 7.5%.

Zeolite, ceria zirconia compounds and cerium compounds for manufacture of washcoats, used in manufacture of catalytic converters, from 7.5% to 5%.



40% from 60%.

Services provided in relation to chit reduced from 30% to NIL.

•Section 67 has been amended to provide that consideration for a taxable service shall include all reimbursable expenditure or cost incurred and charged by the service provider. The provision has now been clearly incorporated in Section 67 due to contrary view taken by courts in some cases.

•Penalty provisions under Section 76 and 78 rationalised as under:

Cases not involving extended period of limitation Penalty will be restricted to 10% of service

tax involved

No penalty if service tax and interest is paid within 30 days of issuance of notice.

Reduced penalty of 25% applicable if service tax, interest and reduced penalty paid within 30 days of order

Benefit of reduced penalty to be extended to cases where in appellate proceedings the penalty is modified

Cases involving extended period of limitation

Penalty will be 100% of Service Tax involved, and in case where the transactions are recorded by the assessee, for the period from 8th April 2011 till the bill receives the assent of the President penalty would be 50% of the Service Tax.

Reduced penalty of 15% is applicable if service tax, interest and reduced penalty is paid within 30 days of issuance of notice

Reduced penalty of 25% is applicable if service tax, interest and reduced penalty is paid within 30 days of order.

Benefit of reduced penalty to be extended to cases where in appellate proceedings the

penalty is modified

• Facility of waiver of penalty under Section 80 if reasonable cause could be shown for failure to pay service tax has been withdrawn.

•Assessee allowed to use digitally signed invoices and maintain electronic records.

Goods and Services Tax (GST)•To revive growth and investment, India needs an

enabling tax policy. Towards this goal, GST to be implemented by next year

CENVAT Credit Rules• Amendment in Rule 4 of CCR along with Rule 11

of CER specifically to permit credit of excise duty paid on inputs and capital goods sent directly to job worker from another manufacturer/dealer or importer subject to conditions.

• Time limit for availing CENVAT credit on inputs and input services extended from present 6 months to 1 year from the date of invoice.

• Requirement of reversal of CENVAT credit in case of return of capital goods from a job worker extended from present 6 months to 2 years.

• Requirement of reversal of CENVAT Credit made applicable to non-excisable goods also apart from the exempted goods and exempted services under Rule 6 of CCR.

• Rule 14 amended enabling revenue to recover/reverse CENVAT Credit without interest incase of credit wrongly taken but not utilised and with interest in case credit wrongly taken and utilised.

• Method of computation of interest has also been prescribed. Penalty in terms of Sec. 76 of Finance Act 1994 invokable in case of credit wrongly taken or utilised without suppression of fact etc. Penalty u/s 78(1) of Finance Act 1994 invokable in similar case with suppression of facts etc.

would be deemed to be concluded, if customs duty, applicable interest and penalty (wherever applicable) is paid within 30 days of the enactment of the Finance Bill. The conclusion of the proceedings would be without prejudice to prosecution proceedings.

In case of improper Import or Export, penalty is leviable equal to 100% of the Customs duty or H5,000/- whichever is higher. The penalty is reduced to 10% of the duty or H5,000/- whichever is higher if duty demanded alongwith applicable interest and penalty is paid within 30 days of the receipt of the order.

Service Tax •Basic Service Tax rate is being increased from

12% to 14% effective from a date to be notified.

•Education Cess and Higher Education Cess abolished and subsumed in the above rate of 14%.

•Provision to levy Swachh Bharat Cess @ 2% or less on value of all or any taxable services from a date to be notified.

•Services made taxable by deleting the following from Negative list or Mega Exemption notification: Admission to entertainment event or access

to amusement facility except for exhibition of cinematographic film, circus, recognized sporting event etc.

Any processes (including intermediate production process) for production or manufacture of alcoholic liquor for human consumption.

Construction, erection, commissioning or installation of original works pertaining to an airport or port.

All services provided by the Government or local authority to a business entity.

Activities undertaken by chit fund foremen

in relation to chit and activities provided by lottery distributors and selling agents in relation to lotteries.

Services provided by a mutual fund agent/distributor to a mutual fund or AMC.

•The reverse charge mechanism is not extended to the following services: Services provided by mutual fund agents/

distributors to AMC/mutual fund.

Services provided by lottery agents to the distributor of lottery.

•Liability of the service recipient (a body corporate) of Manpower supply and security services when received from an individual, HUF, or partnership firm is extended to 100% from 75%.

• Exemption from service tax granted to: All ambulance services.

Life insurance service of Varishtha Pension Bima Yojna.

Services by way of operation of common effluent treatment plant.

Pre-conditioning, pre-cooling, ripening, waxing, retail packing, labelling of fruits and vegetables.

Services by way of exhibition of movie by the exhibitor (theatre owner) to the distributor.

Goods transport agency service provided for transport of export goods from the place of removal to a land customs station.

•Abatements amended: Uniform abatement of 70% for transport by

rail, road and vessel is proposed. Hitherto the quantum of abatement was 70% for rail transport for goods and passengers, 75% for road transport by goods transport agency and 60% for goods transport by vessels.

Air transport of passenger in first/business class (other than economy class) reduced to



SECTION 3

ECONOMIC INDICATORS &

BUDGET FINANCIALS



This Indian Budget 2015, on the foundation of a ‘Boomerang-ing’ Indian Economy is, all set to usher-in a Renaissance-era in India – and be remembered as a the Bridge between the present India and the Transformed-Developed India.

The Economy over the last year (i.e. F.Y. 2014-15) is already providing promising signals. The 2014-15 Economic Survey presented by the Hon’ble Finance Minister focuses on two themes – “Create Opportunity” and “Reduce Vulnerability”.

India has emerged with brighter prospects among the few large economies with propitious economic outlook, amidst the mood of pessimism and uncertainties that engulfs a large number of advanced and emerging economies, today. The economy stands largely relieved of the vulnerabilities associated with an economic slowdown, persistent inflation, elevated fiscal deficit, slackening domestic demand, external account imbalances and oscillating value of the rupee. The growth rate in GDP at constant (2011-

12) market prices in 2012-13 was 5.1 per cent, which increased to 6.9 percent in 2013-14 and it is expected to further increase to 7.4 per cent in 2014-15 (advanced estimates).

Growth rate in Gross Value Added (GVA) at basic prices in agriculture is projected to decline from 3.7 per cent in 2013-14, an exceptionally good year from the point of view of rainfall, to 1.1 per cent in 2014-15, a year with not-so-favourable monsoon. The manufacturing sector registered a growth in GVA at basic prices of 6.2 per cent and 5.3 per cent respectively in 2012-13 and 2013-14, and it is expected to keep up the growth momentum in 2014-15 with a growth rate of 6.8 per cent. There is continued momentum in the services sector with the growth of the sector in 2014-15 expected to be 10.6 per cent, higher than 9.1 per cent recorded in 2013-14.

Key Indicators of Indian economy IndustryThe Index of Industrial Production (IIP) suggests that the industrial sector is recovering slowly with a 2.1 per cent growth in April- December 2014-15 over the 0.1 per cent in the same period last year. The recovery is led by electricity, coal, and cement while manufacturing growth continues to remain tepid. Except the mining sector, all other major industrial sectors have experienced slowdown in growth of credit in 2014-15 as compared to 2013-14. To improve industrial growth, the new government has emphasized on rapidly improving ease of doing business and skill development and launching fresh initiatives like Make in India and Digital India, creating a National Industrial Corridors Authority, streamlining environment and forest clearances and labour reforms. In infrastructure, the focus has been on resolving long-pending issues like pricing of gas, establishing processes and procedures for transparent auction of coal and minerals, and improving power generation and distribution. To overcome critical constraints holding up use of land and natural resources,

action has been taken to remove regulatory uncertainty by passing Ordinances to streamline land acquisition, e-auction of coal blocks for private companies, and auction of iron ore and other new coal mines. During April –December 2014-15 growth in the eight core industries was 4.4 per cent growth. Electricity (9.7 per cent), coal (9.1 per cent), and cement (7.9 per cent) boosted the performance, while natural gas (-5.1 per cent), fertilizers (-1.4 per cent), crude oil (-0.9 per cent), refinery products (0.2 per cent), and steel (1.6 per cent) accounted for moderation in growth.

AgricultureThe agriculture sector registered an annual growth of 3.8 per cent in value added in the decade since 2004-05 on the back of increase in real prices (31 per cent during 2004-05 to 2011-12). According to the new series of national income released by the CSO, at 2011-12 prices the share of agriculture in total GDP is 18 per cent in 2013-14. As against

a growth target of 4 per cent for agriculture and allied sectors in the Twelfth Plan, the growth registered in the first year at 2011-12 prices was 1.2 per cent, 3.7 per cent in 2013-14, and 1.1 per cent in 2014-15.The total food grains production in the country is estimated at 257.07 million tonnes which is the fourth highest quantity of annual foodgrains production in the country. As compared to last year’s production of 265.57 million tonnes, current year’s production of foodgrains is lower by 8.5 million tonnes. This decline has occurred on account of lower production of rice, coarse cereals and pulses due to erratic rainfall conditions during the monsoon season 2014.To improve resilience of the agricultural sector and bolster food security including availability and affordable access, strategy for agriculture has to focus on improving yield and productivity.

ServicesThe services sector accounting for 51.3 per cent of India’s gross value added (GVA) at basic prices (current prices) in 2013-14, grew by 9.1 per cent compared to 6.6 per cent total GVA growth and 6.9 per cent GDP growth at market prices. During 2014-15, the FDI inflows to services grew by 105.8 percent compared to 2.2 per cent growth in overall FDI inflows. In the first half of 2014-15, services exports grew by 3.7 per cent to US$ 75.9 billion and import of services grew by 5.0 per cent to US$ 39.9 billion, resulting in net services growth of only 2.4 per cent. Some available indicators of the different services in India for 2014-15 show reasonably good performance of tourism, telecom, aviation and railways. The IT–business process management (BPM) industry grew by an estimated 12 per cent, reaching US$ 119 billion in 2014-15, while the export market at US $ 98 billion grew by 12.3 per cent and domestic market at US $ 20.9 billion grew by 10 per cent over the previous year. The Software products and services revenues for 2015-16 are projected to grow at 12-14 per cent to reach US $133-136 billion as per NASSCOM. The professional, scientific and technical activities

GDP Growth Rate (%)

2011-12

0

2012-13

5.1

2013-14

6.9

2014-15*

7.4

Index of industrial Production (%)

2011-12

2.9

2012-13

1.1

2013-14

-0.1

2014-15*

2.1

* Estimated

* Estimated



including R&D grew by 14.0 per cent in 2013- 14. However, India’s capacity for innovation has been lower than many countries. Even in quality of scientific research institutions India scores lower than China, Brazil, and South Africa.

InflationThe year 2014-15 (April-December) witnessed a substantial decline in inflation. The Average Wholesale Price Index (WPI) (base year 2004-05 = 100) inflation declined to 3.4% in 2014-15 (April-December) as compared to an average of 6% during 2013-14. The decline was caused by lower food and fuel prices. During the first quarter of 2014-15, WPI headline inflation stood at 5.8% as mainly food and fuel prices were high. In the second and third quarters of 2014-15, WPI inflation declined to 3.9% and 0.5% respectively.

The retail inflation as measured by the Consumer Price Index (CPI) (base year 2010= 100) moderated significantly since the second quarter of 2014-15. It declined to an all time low of 5% in Q3 of 2014-15

after having remained stubbornly sticky at around 9-10% for the last two years. During the third quarter of 2014-15, the CPI food inflation declined considerably due to seasonal softening of food and vegetable prices after the late arrival of monsoon exerted some pressure on vegetable prices during June-August, 2014.

CPI inflation in the fuel and light group registered a consistent decline during 2014-15, touching 3.4% in the third quarter following the sharp decline in International Crude Oil prices. The main factors causing moderation in inflation include both global factors as well as domestic measures. Global factors, namely persistent decline in crude prices and softness in the global prices of tradables, particularly edible oils and even coal, helped moderate headline inflation

Fiscal DeficitOutlining the roadmap for fiscal consolidation, the Budget for 2014-15 envisaged a fiscal deficit target at 4.1 per cent of GDP and sought to

reduce it further to 3 per cent of GDP by 2016-17. Achieving this target is daunting in the backdrop of only a moderate increase in indirect taxes and a large subsidy bill despite significant decline in the subsidies burden in 2014-15, mainly due to lower prices of crude oil in the international market in the second half of 2014-15.

The Budget for 2014-15 sought to contain the fiscal deficit at 5,31,177 crs. (4.1 per cent of GDP) against 5,08,148 crs. (4.5 per cent of GDP) in 2013-14.

The Budget for 2014-15 had indicated that while containing the fiscal deficit at 4.1 per cent of GDP was a daunting challenge given the then macroeconomic conjecture, it outlined the importance of adherence to fiscal consolidation and it accepted the challenge. The fiscal consolidation plan as enunciated in BE 2014-15 entailed an increase in the tax to GDP and non-debt receipts to GDP ratios to 10.6 per cent and 9.8 per cent respectively and a continuance of the low level of total expenditure to GDP ratio at 13.9 per cent

Trade Imports and ExportsOver the last ten years, India’s merchandise trade (on customs basis) increased manifold from US$ 195.1 billion in 2004-05 to US$ 764.6 billion in 2013-14 helping in improving India’s share in global exports and imports from 0.8 per cent and 1.0 per cent respectively in 2004 to 1.7 per cent and 2.5 per cent in 2013.

In 2014-15 (April-January), imports grew by 2.2 per cent to US$ 383.4 billion from US$ 375.3 billion in 2013-14 (April-January). While value of Petroleum, Oil and Lubricants (POL) imports declined by 7.9 per cent in 2014-15 (April-January), as a result of decline in the price of international crude petroleum products. Gold and silver imports grew by 8.0 per cent in 2014-15 (April-January). Non POL and non- gold and silver imports which largely reflect the imports needed for industrial activity grew by 7.8 per cent in 2014-15 (April-January), after registering a decline of 6.9 per cent

in 2013-14.

Foreign Direct Investment

In 2014, FDI policy has been further liberalized. FDI upto 49% through the Government route have been permitted in the Defence industry. Higher FDI has also been allowed on a case to case basis. FDI upto 100% through automatic route has been permitted in construction, operation and maintenance of identified railways transport infrastructure.

Norms related to minimum land area, capitalization and repatriation of funds for FDI in construction, development projects have been further liberalized. During April-November2014, total FDI inflows (including equity inflow, reinvested earnings, and other capital) were US $27.4 billion, while FDI equity inflows were US $ 18.9 billion.

During (April to November) 2014-15, the FDI inflows to services grew by 105.8 per cent compared to 22.2 per cent growth in overall FDI inflows. The

Fiscal Deficit (%)

2011-12 2012-13 2013-14 2014-15*

5.7

4.4

2.7

4.1

2.9

0.8

4.5

3.2

1.8

4.8

3.6

1.8

Gross fiscal deficit (% of GDP)

Revenue Deficit (% of GDP)

Primary Deficit (% of GDP)

Inflation index (%)

2011-12 2012-13 2013-14 2014-15*

8.9

8.4

3.4

6.2

6.0

9.7

7.4

10.4

WPI (%) CPI (%)

Trade Imports and Exports (%)

2011-12 2012-13 2013-14 2014-15*

21.8

32.3 4.0

3.6

4.7

-8.3

-1.8 0.3

Export Growth (US$) [%]

Import Growth (US$) [%]

* Estimated * Estimated

* Estimated



total FDI inflows to the top five services in the first eight months of this year are higher than for the whole of 2013-14 owing to major inflows in telecommunications.

FDI in Real Estate and Housing Sector fell to US$ 703 million in the current fiscal (April – November, 2014). With 100 percent FDI permitted in the Film Sector, India is emerging as the new favourite of international studios.

Exchange RateIn 2013-14, global uncertainty following the May 2013 announcement by the US Fed about its intent to withdraw the quantitative easing led to a bout of

depreciation in the currencies of emerging markets with varying intensities depending upon the external financing requirement as indicated by the levels of CAD. The Rupee-US dollar exchange rate has broadly remained stable during the year due to the huge inflow of FDI and FII in the equity and bond markets. Due to the weak economic outlook in Europe and Japan, the Rupee has appreciated against the Euro and Yen since September 2014 in tandem with cross-currency movements of the Euro and Yen vis-à-vis the US dollar. On the whole, the Rupee has exhibited resilience to global events in view of the strong external-sector outcome.

Exchange Rates of Rupee per Foreign Currency

Particulars

Average exchange rates (H per foreign currency)

US dollar Pound Sterling EuroJapanese Yen (per 100 Yen)

April, 2014 60.36 101.08 83.35 58.86

May, 2014 59.31 99.94 81.49 58.28

June, 2014 59.73 100.98 81.24 58.53

July, 2014 60.06 102.62 81.39 59.07

Aug, 2014 60.90 101.81 81.14 59.17

Sep, 2014 60.86 99.31 78.60 56.77

Oct, 2014 61.34 98.72 77.91 56.87

Nov, 2014 61.70 97.28 76.99 53.05

Dec, 2014 62.75 98.11 77.36 52.60

Jan, 2015 62.23 94.54 72.77 52.54

Expenditure Chart

Central Plan Interest payment Defence Subsidies Other non plan expenditure States’ share of taxes and duties Non plan

assistance of state and UT Plan assistance to state and UT Governments

Receipts Chart

Borrowings and other liabilities Corporation Tax Income Tax Customs Union Excise Duties Service Tax and other taxes Non Tax revenues Non Debt Capital Receipts Draw Down of Cash

Balance

1%

24%

20%

14%

9%

10%

10% 3% 8%

8%18%

4%5% 24%

16%

17%



CREATING THE PATHWAYS OF SUCCESS

India is one of the most under-invested large countries from an infrastructure perspective.

India only invests an average of about 6% of its GDP (estimated at USD 2 trillion) in infrastructure as compared with China’s 11% (estimated GDP of USD 8 trillion).

The time has come to kick-start the Indian economy through sizable infrastructure investments that do two things – increase downstream demand and also catalyse the economy out of increased infrastructure use.

The time starts now.

INFRASTRUCTURE

•The enhancement of the threshold limit of Transport Allowance

• Indirect transfers – deemed income taxable in India – provisions clarified

•NewcomprehensiveLawtobeenactedinthecurrentsessiontoaddressblackmoneystashed abroad.

•BenamiTransaction(Prohibition)Billtocurbdomesticblackmoneytobeintroduced.

•Allowanceofbalance50%AdditionalDepreciationintheimmediatelysucceedingprevious year

•Sums received as advance or otherwise in relation to the transfer of immovable property now covered within the ambit of u/s 269SS & 269T

•Taxation Regime for Real Estate Investment Trust (‘REIT’) and Infrastructure Investment Trust (‘Invit’)

•Corporate tax rate proposed to be reduced from 30% to 25 % over four years

•Modification in the definition of ‘accountant’

• Incentivising industrial development in Andhra Pradesh and Telangana

•Amendment in the provision for deduction for employment of New Workmen

•Contributions made to the Swachh Bharat Kosh and Clean Ganga Fund in pursuance of CSR under section 135(5) of the Companies Act, 2013 not eligible for deduction U/S 80G.

•Levy of interest U/S 234B in other than Settlement Cases

•Modification in the definition of ‘Amount of tax sought to be evaded’

•Deferment of provisions relating to general anti-avoidance rule

•Abolition of Wealth Tax Act, 1957

Practical

Predictable

Proactive

Promising

Progressive

Protective

Prudent

DIRECT TAX



SECTION 4

CORPORATE TAXATION



Sl. No. Particulars Page

4.1 Corporate Income Tax Rates 37

4.2 Deferment of Provisions Relating to General Anti Avoidance Rule 37

4.3 Amendment in the provision for deduction for employment of New Workmen 38

4.4 Incentivising industrial development in the State of Andhra Pradesh & Telangana 38

4.5 Allowance of balance 50% Additional Depreciation in i mmediately succeeding previous year

39

4.6 Prescribed conditions on maintenance of accounts, audit etc to be fulfilled by the approved in house R&D facility

40

4.7 Cost of acquisition and period of holding of capital asset in the hands of resulting company in Demerger

40

4.8 Tax Neutrality on merger of similar schemes of mutual funds 41

4.9 Modification in the definition of “Amount of tax sought to be evaded” 41

4.10 Contribution to schemes eligible for 100% deduction 42

4.11 Clarification on orders to be considered as erroneous and prejudicial to the interest of revenue

42

4.12 Threshold limit for applicability of domestic transfer pricing provisions raised from H5 Crs. to H20 Crs.

43

4.1 Corporate Income Tax Rates [w.e.f AY 2016-17]

No changes have been proposed in the basic Corporate Income Tax Rates. However, surcharge has been increased by 2% for entities having income in excess of H1 Cr. Applicable Corporate income tax rates for AY 2016-17 are summarised as under:

•Hitherto, provisions of GAAR were to come into effect from 01-04-2016. The implementation of GAAR provisions has been reviewed. Concerns have been expressed regarding certain aspects

of GAAR. Further, it has been noted that the Base Erosion and Profit Shifting (BEPS) project under Organisation of Economic Cooperation and Development (OECD) is continuing and

NORMAL TAXSl. No.

Particulars Tax Surcharge

(%)E. Cess

(%)S & H

E. Cess (%)Effective Tax (%)

1Domestic companies (with total income less than H1 cr.)

30 - 2 1 30.90

2Domestic companies (with total income more than H1 cr. but less than H10 cr.)

30 7* 2 1 33.063

3 Other domestic companies 30 12# 2 1 34.608

4Foreign companies (with total income less than H1 cr.)

40 - 2 1 41.20

5Foreign companies (with total income more than H1 cr. but less than H10 cr.)

40 2 2 1 42.02

6 Other foreign companies 40 5 2 1 43.26

* Surcharge has been increased from 5% to 7%. # Surcharge has been increased from 10% to 12%

MINIMUM ALTERNATE TAX (MAT)Sl. No.

ParticularsTax (%)

Surcharge (%)

E. Cess (%)

S & H E. Cess (%)

Effective Tax (%)


18.5 - 2 1 19.055

2Domestic companies (with total income more than H1 cr. but less than H10 cr.)

18.5 7* 2 1 20.389

3 Other domestic companies 18.5 12# 2 1 21.342


18.5 - 2 1 19.055

5Foreign companies(with total income more than H1 Cr. but less than H10 Cr.)

18.5 2 2 1 19.436

6 Other foreign companies 18.5 5 2 1 20.008

* Surcharge has been increased from 5% to 7%. # Surcharge has been increased from 10% to 12%

4.2 Deferment of Provisions Relating To General Anti Avoidance Rule [w.e.f AY 2018-19]



India is an active participant in the project. The report on various aspects of BEPS and recommendations regarding the measures to counter it are awaited. It would, therefore, be proper that GAAR provisions are implemented as part of a comprehensive regime to deal with BEPS and aggressive tax avoidance.

• Accordingly, it is proposed to defer the implementation of GAAR by two years, making it applicable from AY 2018-19. Further, investments made up to 31-03-2017 are proposed to be kept outside the purview of GAAR.

• Deduction u/s 80JJAA is available to Indian companies on additional wages paid to new workmen. In order to encourage employment generation, it is proposed to extend the benefit to all assessee having manufacturing units rather than restricting it to corporate assessee only. It is also proposed to deny deduction to

assessee, which has acquired the factory by way of transfer from any other person or as a result of any “business re-organisation”.

• Further, in order to enable the smaller units to claim this incentive, it is also proposed to extend the benefit to units employing 50 instead of 100 regular workmen.

• Hitherto, vide 2nd proviso to Sec. 32(1)(ii), additional depreciation u/s 32(1)(iia) on eligible P & M acquired and put to use for less than 180 days in the previous year was restricted to 50% of the prescribed rate of 20%.

• It is proposed to provide that the balance additional depreciation of 10% [50% of 20%] on eligible P & M acquired & used for less than 180 days in a previous year shall be allowed in the immediately succeeding previous year.

Comments• The proposed amendment fortifies the view

taken in the case of DCIT –vs.- Cosmo Films Ltd (2012) 13 ITR(Tri) 340 (Del), MITC Rolling Mills P. Ltd. (ITA No. 2789/Mum/2012), Birla Corporation Limited –vs.- DCIT (ITA No. 683 & 581/Kol/2011)(HC). However it also nullifies the decision of Chennai ITAT in the case of Brakes India Ltd. (ITA No. 1069/Mds/2010) wherein a contrary view was taken.

• Additional Investment Allowance [Sec. 32AD] It is proposed to insert Sec. 32AD to allow

additional investment allowance @ 15% of the cost of new eligible plant & machinery acquired and installed by the assessee in an undertaking or enterprise set up in the notified backward areas of Andhra Pradesh and Telangana on or after 01-04-2015 for manufacture or production of any article or thing. Further the eligible plant & machinery needs to be acquired and installed during the period beginning from 01-04-2015 to 31-03-2020.

In order to ensure that the proposed incentive contributes to economic growth of backward areas, it is also proposed to restrict the transfer of plant or machinery for a period of 5 years except in the case of amalgamation or demerger or re-organisation.

Comments• The above investment allowance u/s 32AD is in

addition to the investment allowance specified under the existing provisions of Sec. 32AC if it fulfils the specified conditions of both sections.

• Higher rate of additional depreciation [32(1)(iia)] It is proposed to insert a new proviso [being 1st

Proviso] below Sec. 32(1)(iia) to provide that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing in the notified backward areas of Andhra Pradesh and Telangana on or after 01-04-2015 but before 01-04-2020, additional depreciation u/s 32(1)(iia) shall be admissible @ 35% instead of 20% on eligible new plant & machinery. Further, existing 1st proviso has been renumbered as 2nd proviso.

Comments• The likely scenario of benefits in the form of depreciation, additional depreciation & investment

allowance that would arise on addition of new eligible plant & machinery in new manufacturing units set up in the notified backward areas of Andhra Pradesh and Telangana vis-a-vis the addition of new plant & machinery in units located in other states is depicted as under:

4.3Amendment in the provision for deduction for employment of New Workmen [Sec. 80JJAA] [w.e.f AY 2016-17]

4.5Allowance of balance 50% Additional Depreciation in immediately succeeding previous year [Sec. 32(1)(iia)] [w.e.f AY 2016-17]

4.4Incentivising industrial development in the state of Andhra Pradesh & Telangana [Sec. 32AD & Sec. 32(1)(iia)] [w.e.f AY 2016-17]

Particulars

Notified backward areas of Andhra Pradesh & Telangana

Other states

Year 1 Year 2 onwards Year 1 Year 2 onwards

Investment in plant & machinery 100 100Normal Depreciation 15 15Investment Allowance u/s 32AC 15 15Investment Allowance u/s 32AD 15 -Additional Depreciation u/s 32(1)(iia) 35 20

Depreciation in future years50

(@ 15% p.a.)65

(@ 15% p.a.)Aggregate benefits 80 50 50 65

The above tabulation depicts that 80% of the investment during the specified period in the Notified backward areas of Andhra Pradesh & Telangana would be eligible for deduction in the year of investment itself as against 50% in the other states.

These incentives are allowable only to the new unit set up in the specified area. It is not allowable to any other undertaking even though it has undertaken substantial expansion in the existing undertaking or substantial addition to new plant & machinery in an existing undertaking.



• Presently, there is no express provision in the IT Act for determining the cost of acquisition of capital asset in the hands of resulting company where capital assets are transferred by way of demerger. Such transfer are not regarded as transfers u/s 47(vib) for the purpose of computing capital gain tax. It is proposed to amend Sec. 49(1)(iii)(e) to provide that cost of acquisition of a capital asset acquired by the resulting company shall be the cost for which the demerged company acquired the capital asset,

as increased by the cost of improvement incurred by the demerged company. Consequently, period of holding of such asset in the hands of resulting company will also include the period for which the asset was held by the demerged company.

Comments• The above amendment, seeks to treat ‘demerger’

at par with ‘amalgamation’ with regard to cost of acquisition of capital asset as well as period of holding in the hands of resulting company.

• Hitherto, penalty u/s 271(1)(c) is levied on the amount of tax sought to be evaded by reason of concealment of particular of income or furnishing of inaccurate particulars of income.

• It is proposed to modify the definition of “amount of tax sought to be evaded” provided in Explanation 4 to sub-section (1) of Sec 271 so as to include that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded under the normal provisions and under the provision of Sec. 115JB/115JC. Further, if an item is disallowed both under the

normal provisions and the provisions of Sec. 115JB/115JC, then such amount shall not be considered in computing tax sought to be evaded under provisions of Sec. 115JB/115JC.

Comments• The Delhi HC in the case of CIT –vs.- Nalwa

Sons Investments Ltd (2010) 327 ITR 543 (Del) has held that penalty u/s 271(1)(c) cannot be imposed on the concealment of income under normal provisions, if the total income of the assessee is assessed as per Sec 115JB of the IT Act. The Apex Court has accepted the decision

4.7Cost of acquisition and period of holding of capital asset in the hands of resulting company in demerger [Sec. 49(1)(iii)(e)] [w.e.f AY 2016-17]

4.9Modification in the definition of “Amount of tax sought to be evaded” [Sec.271(1)(c)] [w.e.f AY 2016-17]

• Several Mutual Funds are having different schemes with similar features. SEBI has been encouraging to consolidate these mutual funds to have simpler and fewer numbers of schemes. However, since the process will result in transfer of unit between schemes, such merger/consolidation is treated as ‘transfer’ u/s 2(47) of the IT Act and hence chargeable to Capital Gains tax.

• To facilitate consolidation of different scheme of mutual funds, in the interest of investors, it is proposed to provide tax neutrality to unit holders provided consolidation is of two or more schemes of an equity oriented or two or more schemes of fund other than equity oriented fund.

• Accordingly, it is now proposed to insert a new sub-section (xviii) to Sec. 47 to provide that in case of transfer of unit in a consolidating scheme of mutual fund for new unit in consolidated scheme

of mutual fund, shall not be regarded as transfer and hence not exigible to capital gains tax.

• Further, sub-section (2AD) has been proposed to be inserted in Sec. 49 to provide that cost of the unit of the consolidated scheme of mutual fund received pursuant to transfer exempt u/s 47(xviii), shall be cost of purchase of units in the consolidating scheme of mutual fund.

• Consequential amendment has been proposed in Sec. 2(42A) to provide that period of holding of units in the consolidated scheme of mutual fund also include the period for which the unit was held in the consolidating scheme of mutual fund.

• The process of such consolidation has to be in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the SEBI Act, 1992.

4.8Tax Neutrality on merger of similar Schemes of Mutual Funds [Sec. 47(xviii) & Sec. 49(2AD)] [w.e.f AY 2016-17]

• Sec. 35(2AB) provides for weighted deduction @ 200% to a company engaged in the business of bio-technology or manufacturing or production of articles or things, for the expenditure (not being expenditure incurred on land or building) incurred on in house R&D facility. The company, apart from, entering into an agreement with the DSIR, is required to maintain separate books of accounts and get the same audited for approved R&D facility.

• It is proposed to enlarge the scope of maintenance of accounts and audit thereof by clarifying that both needs to be done in the manner prescribed. Further the audit report shall also be furnished in the prescribed manner.

• It is also proposed that DSIR shall also submit the report in relation to the approval of the said R&D facility to the Principal CCIT or CCIT having jurisdiction over the company claiming the weighted deduction. Similar amendment is also proposed in Sec. 35(2AA).

Comments• The DGIT (Exemptions) does not have jurisdiction

over the assessee company. In order to have a better and meaningful monitoring mechanism for weighted deduction u/s 35(2AB), the facility would now also be monitored by the Principal CCIT or CCIT having jurisdiction over the assessee.

4.6Prescribed conditions on maintenance of accounts, audit etc to be fulfilled by the approved in house R&D facility [Sec. 35(2AB)] [w.e.f AY 2016-17]



of the Delhi HC & dismissed the SLP filed by the Revenue. The proposed amendment nullifies the aforesaid decision of the Apex Court.

• If disallowance u/s 14A r.w.r 8D is made both

under normal provisions and in computing Book Profit, then for the purpose computing the amount of tax sought to be evaded, disallowance made in computing Book profit will be ignored.

• Under the existing provisions of Sec. 80G, contribution made to certain funds and institutions formed for a social purpose of national importance, like the Prime Ministers’ National Relief Fund, National Foundation for Communal Harmony etc are eligible for 100% deduction.

• It is proposed to include the following funds in the list of such eligible institutions:

- National Fund for Control of Drug Abuse [w.e.f

AY 2016-17]

- Swachh Bharat Kosh [w.r.e.f AY 2015-16]

- Clean Ganga Fund [w.r.e.f AY 2015-16] [For resident assessee only]

• If any contribution is made to the Swachh Bharat Kosh & Clean Ganga Fund, in pursuance of CSR u/s 135(5) of the Companies Act, 2013 it will not be eligible for deduction u/s 80G.

• Existing Transfer Pricing Regulations in India vide Sec. 92BA provide that Transfer Pricing Provisions shall apply to “specified domestic transactions” where the aggregate of such transactions in the relevant previous year exceeds a sum of H5 Crs.

• It is proposed to amend Sec. 92BA to enhance the above threshold of H5 Crs. to H20 Crs.

CommentsThis is a welcome move for the small sector enterprises which will reduce the burden of compliances and cost.

• Under the existing provision of Sec. 263, proceedings under that section can be initiated by the CIT if the order passed by the AO is erroneous or prejudicial to the interests of the revenue. The expressions “erroneous or prejudicial to the interest of the revenue” is not been defined in the IT Act.

• It is proposed to insert an Explanation to Sec. 263(1) to provide that order passed by the AO shall be deemed to be erroneous or prejudicial to the interests of Revenue, if the CIT or Principal CIT opines that the same is passed :

- Without making inquiries or verification which should have been made; or

- Allowing any relief without enquiring into the claim; or

- Without following the order, directions or instructions of the Board; or

- Without considering the decision of Jurisdictional HC or SC which is prejudicial to the assessee or any other person.

Comments• The proposed amendment fortifies the following

decisions :

Fab India Overseas Ltd –vs.- CIT (2011) 60 DTR 240 (Del) - The assessee supplied required information regarding commission and general charges to AO in response to a questionnaire and the AO having assessed the assessee at a total income far in excess of the declared income, it cannot be said to be a case of lack of enquiry and, therefore, CIT was not justified in exercising

4.10 Contribution to schemes eligible for 100% deduction [Sec. 80G] [w.e.f AY 2016-17]

4.12Threshold limit for applicability of domestic transfer pricing provisions raised from H5 Crs. to H20 Crs. [Sec.92BA] [w.e.f AY 2016-17]

4.11Clarification on orders to be considered as erroneous and prejudicial to the interest of revenue [Sec.263] [w.e.f 01-06-2015]

power under Sec. 263 on the ground that the AO should have made further enquiries.

Ranbaxy Laboratories Ltd –vs.- CIT (2012) 345 ITR 193 (Del) - CIT was justified in holding the assessment as erroneous and prejudicial to the interest of the revenue as AO has not made any reference to the TPO required by CBDT Instruction No. 3 dated 25-05-2003

CIT –vs.- Himachal Pradesh Financial Coporation

(2008) 8 DTR 161 (HP) -Assessment order was erroneous & prejudicial to the interests of the revenue since the same was passed without considering the CBDT Circular on interest on sticky loans.

Meghalaya Plywood Ltd –vs.- CIT (2007) 210 CTR 144 (Gau) - Assessment order passed on the basis of the decision of jurisdictional HC, cannot be considered as erroneous.



SECTION 5

INTERNATIONAL TAXATION AND

TRANSFER PRICING




5.1 ‘Eligible Fund Manager’ not to constitute ‘Business Connection’ of offshore investment funds – position clarified

47

5.2 Reduction in tax rates of income by way of Royalty or Fees for Technical Services 49

5.3 Indirect Transfers – Deemed income taxable in India – provisions clarified 49

5.4 CBDT to notify rules for giving foreign tax credit to Indian residents 51

5.5 Interest paid by Indian Branch to Foreign Banking companies taxable in India and liable to withholding tax

52

5.6 Concessional tax rate u/s 194LD relating to Income by way of interest on certain securities extended upto 30-06-2017

52

5.7 IT Act and Depository Receipt Scheme, 2014 aligned to extend tax benefits to depository receipts issued against specified securities

53

5.8 Residency Criteria of Companies – widened by introduction of Place Of Effective Management concept

54

5.9 Amendment in MAT provisions for FIIs 54

5.10 Furnishing of information relating to all payments to non-residents 55

5.1“Eligible Fund Manager” not to constitute “Business Connection” of offshore investment funds – position clarified [Sec. 9A and 271FAB] [w.e.f AY 2016-17]

• Presently, in terms of the existing provisions of Sec. 9(1)(i) of the IT Act w.r.t “Business Connection”, an India based fund manager may create a sufficient nexus, and hence a “business connection”, for the concerned offshore Investment Fund even though such fund manager may be an independent person. The presence of the fund manager under certain circumstances may lead to the off-shore Investment Fund being held to be resident in India on the basis of its control and management being in India. Accordingly, income of such offshore Investment Fund from investments made in countries outside India may also get taxed in India.

• Considering the above risks, offshore Investment Funds do not typically retain fund managers based in India, instead many fund managers that manage India focused offshore funds, tend to be based outside India and only have an advisory relationship in India that provide recommendatory services.

• In order to facilitate such fund managers to have their base in India, it has been proposed to insert a Sec. 9A to lay down a specific code for taxability of such Offshore Investment Funds. The new sec. provides that taxability of the income of the Eligible Investment Fund from investment made in India would not be impacted by the fact that its Eligible Fund Manager is based in India. Similarly, for income from investment made outside India, its taxability shall not be in India for the sole reason that its Eligible Fund Manager is based in India.

• Thus the new regime proposes that the Eligible Fund Manager in India of an Eligible Investment Fund shall not constitute a “business connection”

in India of the said fund on fulfilment of specified conditions. Further, an Eligible Investment Fund shall not be said to be resident in India merely because the Eligible Fund Manager undertaking fund management activities is based in India.

• The conditions required to be fulfilled during the relevant year for being an Eligible Investment Fund are:

the fund is not a person resident in India;

the fund is a resident of a country or a specified territory with which an agreement referred to in Sec. 90(1) or 90A(1) has been entered into;

the aggregate participation or investment in the fund, directly or indirectly, by persons being resident in India does not exceed 5% of the corpus of the fund;

the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident;

the fund has a minimum of 25 members who are, directly or indirectly, not connected persons;

any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding 10%;

the aggregate participation interest, directly or indirectly, of 10 or less members along with their connected persons in the fund, shall be less than 50%;

the investment by the fund in an entity shall not exceed 20% of the corpus of the fund;

no investment shall be made by the fund in its associate entity;



the monthly average of the corpus of the fund shall not be less than H100 crs. and if the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than H100 crs. at the end of such previous year;

the fund shall not carry on or control and manage, directly or indirectly, any business in India or from India;

the fund is neither engaged in any activity which constitutes a business connection in India nor has any person acting on its behalf whose activities constitute a business connection in India other than the activities undertaken by the eligible fund manager on its behalf;

the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken on its behalf is not less than the arm’s length price of such activity.

• The conditions required to be fulfilled for being an Eligible Fund Manager are:

the person is not an employee of the Eligible Investment Fund or a connected person of the fund;

the person is registered as a fund manager or investment advisor in accordance with the specified regulations;

the person is acting in the ordinary course of his business as a fund manager;

the person along with his connected persons shall not be entitled, directly or indirectly, to more than 20% of the profits accruing or arising to the eligible investment fund from the transactions carried out by the fund through such fund manager.

• However, this amendment shall not result in

excluding any income from the total income of the Eligible Investment Fund, which would have been so included irrespective of whether the activity of the eligible fund manager constituted the business connection in India of such fund or not.

• It has also been proposed that the Fund shall furnish a statement in a prescribed form regarding fulfilment of above specified conditions to tax authorities within 90 days from the end of the financial year failing which the Fund would be liable to penalty of H5,00,000.

Comments• Several countries including the United Kingdom,

Singapore, Hong Kong, United States, and New Zealand provide for a safe harbour to prevent offshore investment funds from having a taxable presence in their respective jurisdictions.

• Under the newly amended provision of Sec. 6 of the IT Act, a company (including foreign company) shall be considered as resident in India if the place of effective management at any time is in India. This amendment would have an adverse implication on offshore fund having fund manager in India because place of effective management has now been defined as a place where key management and commercial decision necessary for the business of an entity as a whole and in substance are made. The proposed insertion of Sec. 9A provides for a welcome exception.

• By providing clarity on issues relating to business connection and residential status of offshore investment funds, India could benefit immensely since it would provide a sense of comfort for choosing India as the base for investment managers. This would not only develop the immense job opportunity that this sector provides but would also help in developing the related & complimentary talent pool in India.

• As per the existing provisions of Sec. 115A of the IT Act, the Non-Resident taxpayers are liable to pay tax @25% of gross amount of income by way of Royalty and Fees for Technical Services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or the Indian concern after 31-03-1976 and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy, and, which are not effectively connected with PE, if any, of the non-resident in India.

• It is proposed to amend Sec. 115A of the IT Act to reduce the above tax rate of 25% to 10% on the gross amount.

Comments• This amendment is proposed with a view to

obviate the problems faced by small companies and to facilitate the inflow of technology, thus, reducing the rate of tax on royalty and fees for

technical services to 10%.

• Incidentally, vide the Finance Act, 2013, the rates were increased to 25% from 10% to remove the anomaly between the tax rate sec.115A and DTAAs. However, the same is again proposed to be restored to 10%.

• This may prove to be a relief for those non resident taxpayers residing in countries with whom India does not have DTAA as the income from Royalty or fees for technical services arising to them shall be taxable at par with other countries @10% and shall facilitate increased inflow of technology. The reduction of such rate is a well-foresighted move towards the “Make-in-India” perspective.

Recently, the Revenue Authorities have been raising demands on the payers/deductors by taking a view that the rate of tax deduction in case of non-residents, not having PAN should be 25% instead of 20% by applying the provisions of sec. 206AA r.w.s 115A. However, with the proposed amendment, the said issue is being put to rest w.e.f FY 2015-16 onwards.

• Presently, Explanation 5 to Sec. 9(1)(i) of the IT Act provides that any share or interest in a company or an entity registered or incorporated outside India shall be deemed to be situated in India if the share or interest derives its value substantially from the assets located in India. Hence, any transfer of such share/interest in a Foreign Company/ entity results in an indirect transfer of Indian assets. However, the term “value” and “substantially” were not defined

under the IT Act leading to significant subjectivity and uncertainty.

• It is proposed to amend Sec. 9(1)(i) of the IT Act by inserting Explanation 6 to provide that any transfer of interest in 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 (not net off liabilities) exceeds the amount of H10 crs. and

5.2Reduction in tax rates of income by way of Royalty or Fees for technical services [Sec.115A] [w.e.f AY 2016-17]

5.3Indirect transfers – Deemed income taxable in India – provisions clarified [Sec. 9(1),47(viab),47(vicc), 271GA and 285A] [w.e.f AY 2016-17]



represents at least 50% of the fair market value of all the assets (not net of liabilities) owned by such foreign company or entity.

• However, certain exceptions have been carved out vide Explanation 7 and vide amendment in Sec. 47 of the IT Act such as:

• Transfer outside India of share/interest in the foreign company/entity which directly owns the assets situated in India and the transferor (whether individually or along with its AEs), neither holds the management right or control, nor holds voting power or share capital or interest exceeding 5% in such foreign company/entity; or

• Transfer outside India of share/interest in the foreign company/entity which indirectly owns the assets situated in India and the transferor (whether individually or along with its AEs), neither holds the right of management or control in relation to such foreign company/entity, nor holds any right in, or in relation to, such company or entity which would entitle him to the right of management or control in the company or entity that directly owns the assets situated in India, nor holds such percentage of voting power or share capital or interest in such company or entity which results in holding of (either individually or along with associated enterprises) a voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest, as the case may be, of the company or entity that directly owns the assets situated in India.

• Any transfer, 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, if at least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated

foreign company and such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated;

• Any transfer 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, if the shareholders, holding not less than 3/4th in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company and such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated.

• In case where all the assets owned, directly/indirectly, by a company or entity are not located in India, the income of the non-resident transferor, from transfer outside India deemed to accrue or arise in India, shall be only such part of the income as is reasonably attributable to the assets located in India. The relevant rules in this regard shall be prescribed.

• It is proposed to insert Sec. 285A of the IT Act vide which the Indian concern through or in which the Indian assets are held by the foreign company or the entity shall be under obligation 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. If the Indian entity fails to do so, the income-tax authority in terms of newly inserted Sec. 271GA of the IT Act may direct that such Indian concern shall pay, by way of penalty: a sum equal to 2% of the value of the

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

H5,00,000 in any other case.

Comments• The Finance Act, 2012 had retrospectively

amended (w.e.f 01-04-1962) Sec. 9 of the IT Act, by inserting Explanation 5 to sub-sec. (1)(i) to provide for taxability of indirect transfer. The said explanation 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. However the term “value” and “substantially” were not defined under the Act.

• Considering the concerns raised by various stakeholders regarding the scope and impact of the amendments by the Finance Act 2012, an Expert Committee under the Chairmanship of Dr. Parthasarathi Shome was constituted by the Government to go into the various aspects relating to the amendments.

• The Committee, in this context, recommended that for an indirect transfer to be taxable in India, there should be a prescribed monetary threshold and that the value of the foreign assets should derive at least 50% of its value from the

Indian assets. The above amendments seek to rationalise the provisions of the IT Act and has since accepted most of the recommendations of the Committee on this aspect. However, the recommendations of the Committee to provide exemption to a foreign company listed on a recognised stock exchange and whose shares are frequently traded on the stock exchange; and restructuring within the Group (other than amalgamation and demerger) subject to continuity of 100% ownership does not find its way in the proposed amendments.

• It may also be noted that while Sec. 9 of the IT Act was retrospectively amended vide Finance Act, 2012 to provide for taxability of indirect transfer, the above proposed amendments has been made applicable w.e.f. AY 2016-17.

• Incidentally, the Delhi High Court in the recent case of Copal Research Ltd. -vs.- DIT (2014) 270 CTR (Del) 223 has considered the threshold of 50% for determining whether the foreign company’s shares derive their value substantially from the Indian Assets and accordingly it was held that since the threshold was not breached, there was no indirect transfer of Indian Assets.

5.4CBDT to notify rules for giving foreign tax credit to Indian Residents [Sec.295] [w.e.f 01-06-2015]

• Presently, Sec. 91(1) of the IT Act provides for relief to Indian residents in respect of income-tax on the income which is taxed in India as well as in the country with which there is no DTAA. The present mechanism is to provide relief as a deduction from the Indian income-tax of a sum calculated on such doubly taxed income, at the Indian rate of tax or the rate of tax of said country, whichever is lower. In case of countries with which India has entered into an agreement for the purposes of avoidance of double taxation Sec. 90 or 90A of the IT Act, a relief in respect of income-tax on doubly taxed income is available as per the respective DTAAs.

• Presently, the IT Act does not provide the manner for granting credit of such taxes. Accordingly, it is proposed to amend Sec. 295(2) of the IT 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, u/s 90, 90A or 91 of the IT Act, against the income-tax payable under the IT Act.

CommentsDetailed Rules and procedure for grant of relief or deduction of foreign tax credit is a welcome step towards avoidance of future litigations.



5.7IT Act and Depository Receipt Scheme, 2014 aligned to extend tax benefits to depository receipts issued against specified securities [Sec. 115ACA] [w.e.f AY 2016-17]

5.5Interest paid by Indian branch to foreign banking companies taxable in India and liable to withholding tax [Sec. 9] [w.e.f AY 2016-17]

• CBDT vide its Circular No. 740 dated 17-04-1996 had earlier clarified that branch of a foreign company in India is a separate entity for the purpose of taxation under the IT Act and accordingly TDS provisions would apply along with separate taxation of interest paid to head office or other branches of the non-resident, which would be chargeable to tax in India.

• The principle enshrined in the said Circular is now proposed to be incorporated in the IT Act by amending Sec. 9(1) of the IT Act 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. Such interest 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 IT 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 IT Act.

CommentsWhile the principle laid down in the said Circular always existed, the same did not find support of the Indian Judiciary who have time and again held that in terms of the computation mechanism under the DTAA provisions, deduction of interest paid, by Indian branch to Head Office/ Overseas branches, is allowed as deduction and at the same time the said interest paid by the India PE is not chargeable to tax under the provisions of IT Act being income to self. The proposed amendment seeks to nullify decisions in ABN Amro Bank, N.V. -vs.- CIT (2011) 241 CTR 552 (Cal), Bank of America -vs.- JCIT (2014) 149 ITD 145 (Mum.), Deutsche bank AG -vs.- ADIT (2014) 40 CCH 714 (Mum)(ITAT)

5.6Concessional tax rate u/s 194LD relating to income by way of interest on certain securities extended upto 30-06-2017 [Sec.194LD] [w.e.f 01-06-2015]

• Sec. 194LD presently provides lower withholding tax @ 5% in case of interest payable on or after 01-06 -2013 but before 01-06-2015 to FIIs and Qualified Foreign Investors (QFIs) on their investments in government securities and rupee denominated bonds of an Indian Company if the rate of interest does not exceed the rate notified by the Central Government.

• To align the eligibility period u/s 194LC with Sec. 194LD, the bill proposes to amend Sec. 194LD to extend the concessional rate of 5% upto 30-06-2017 also.

CommentsThe amendment shall incentivise and encourage greater long term off-shore investment by FIIs and QFIs in India.

• The Depository Receipts Scheme, 2014 has been notified by the Department of Economic affairs (DEA) vide Notification F.No.9/1/2013–ECB dated 21-10-2014. This scheme replaces “Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through depository receipt mechanism) Scheme, 1993”.

• The current taxation scheme of income arising in respect of depository receipts under the Act is aligned with the earlier scheme which was limited to issue of Depository Receipts (DRs) based on the underlying shares of the company issued for this purpose (i.e. sponsored GDR) or Foreign Currency Convertible Bonds (FCCB) of the issuing company and where the company was either a listed company or was to list simultaneously. Besides, the holder of such DRs was a non-resident only.

• As per the new scheme, Depository Receipts (DRs) can be issued against the securities of listed, unlisted or private or public companies against underlying securities which can be debt instruments, shares or units etc. Further, both the sponsored issues and unsponsored deposits

and acquisitions are permitted. Also, DRs can be freely held and transferred by both residents and non-residents.

• Since the tax benefits under the IT Act were initially intended to be provided in respect of sponsored GDRs and listed companies only, clause (a) of the explanation Sec. 115ACA of the IT Act has been amended in order to continue the tax benefits only in respect of GDR’s against the issue of:- ordinary shares of issuing company, being

a company listed on a recognised stock exchange in India; or

Foreign currency convertible bonds of issuing company.

CommentsThis would align the taxation scheme of income arising in respect of DRs under the IT Act with the earlier scheme which was limited to issue of DRs based on the underlying shares of the company issued for this purpose (i.e. sponsored GDR) or FCCB of the issuing company and where the company was either a listed company or was to list simultaneously.



5.8Residency criteria of companies – widened by introduction of Place of Effective Management concept [Sec. 6] [w.e.f AY 2016-17]

5.9 Amendment in MAT provisions for FIIs [Sec. 115JB] [w.e.f AY 2016-17]

• As per the existing provisions of Sec. 6 of the IT Act, a company is said to be a resident in India in any previous year, if:-

it is an Indian company; or

during that year, the control and management of its affair is situated wholly in India.

• Sec. 6 is proposed to be amended to widen the concept of residency test for companies as under -

it is an Indian company; or

its place of effective management, at any time in that year, is in India.

• POEM shall 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.

Comments• The amendment was primarily to plug the

loophole in case of shell companies which are incorporated outside India but controlled from India where the companies used to avoid becoming a resident in India by simply holding a board meeting outside India.

• Now, with the POEM Concept finding place under the law, if at any time during the previous year, such effective management is in India, such companies would be regarded as

resident in India. The principle of “POEM” is an internationally recognised concept. This concept is also recognised and accepted by Organisation for Economic Co-operation and Development (OECD). The proposed amendment is also in line with the definition of resident as contained in the proposed Direct Taxes Code, 2013.

• Since determination of POEM is a fact dependent exercise, a set of guiding principles to be followed in determination of POEM would be issued in due course for the benefit of the taxpayers as well as tax administration. The ramification could be that those companies would be required to file return of income in India and offer their global income for tax. Other complications like dividend, TDS, etc. may also arise which will require clarification. Business houses would have to revisit their Group Structure to align it with the new test of residency.

• Based on the international precedents and limited jurisprudence available in India, the criteria for determining POEM generally is where the board meetings are usually held, where the Chief Executive Officer & other senior officials usually carry on their activities, where the day to day management of the company is carried on, where the company’s head quarters are located etc.

• Vide Finance Act (No.2), 2014 it was provided that any securities held by FIIs which has invested in such securities in accordance with the regulations made under the SEBI

Act, 1992 would be treated as a capital asset. Consequently, the income arising to a FII from transactions in securities would always be in the nature of capital gains.

• It is now proposed to amend Sec. 115JB of the IT Act to provide that 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, shall be excluded from the chargeability of MAT and the profit corresponding to such income shall be reduced from the 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.

Comments• The Revenue has been issuing notices for

payment of Minimum Alternate Tax in respect of capital gains on sale of shares by FIIs which are exempt under the Treaty provisions. The above controversy has been put to rest by virtue of the above amendment. However, no clarity has been provided w.r.t other foreign companies earning capital gains exempt under the Treaty.

5.10Furnishing of information relating to all payments to non-residents [Sec. 195(6) and 271I] [w.e.f 01-06-2015]

• Presently, Sec. 195(1) of the IT Act provides that any person responsible for paying any interest (other than interest referred to in Sec. 194LB or 194LC or 194LD of the IT Act) or any sum chargeable to tax (not being salary income) to a non-resident, not being a company, or to a foreign company, shall deduct tax at the rates in force. Further, for such remittances which are chargeable to tax, such person is also required to furnish information in the manner prescribed in Sec. 195(6).

• Now, it is proposed to amend the provisions of Sec. 195(6) of the IT Act to widen the scope of furnishing the information so that the person

responsible for paying any sum, whether chargeable to tax or not, shall furnish the information as prescribed.

• It is further proposed to insert Sec. 271I to provide that in case of non-furnishing of information or furnishing of incorrect information u/s 195(6) of the IT Act, a penalty of H1,00,000 shall be levied.

CommentsThe present mechanism of obtaining of information was restricted only to remittances chargeable to tax. However, the same 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.



SECTION 6

PERSONAL TAXATION




6.1 Tax Rates other than Corporate 59

6.2 Deduction under chapter VI-A for Individuals/HUFs 59

6.3 TDS mechanism on withdrawal of accumulated balance from Employees Provident Fund Scheme (EPFS)

61

6.4 Enabling of filing of Form 15G/15H for payment made under life insurance policy 61

6.5 Enhancement of threshold limit of Transport Allowance 61

6.1 Tax rates other than Corporate [w.e.f AY 2016-17]

6.2 Deduction under chapter VI-A for individuals/HUFs [w.e.f AY 2016-17]

For individuals, Hindu Undivided Family, Association of Persons and Body of Individuals

Income Slabs (H) Tax Rates*

0 - 2,50,000@ Nil

2,50,001 – 5,00,000+ 10.30% of income exceeding H2,50,000

5,00,001 – 10,00,000 H25,750 plus 20.60% of income exceeding H5,00,000

10,00,001 –1,00,00,000 H1,28,750 plus 30.90% of income exceeding H10,00,000

1,00,00,001 and above H29,09,750 plus 34.608%# of income exceeding H1,00,00,000

* Tax rates are inclusive of Education Cess and Secondary Higher Education Cess @ 2% and 1% respectively.

# Surcharge has been increased from 10% to 12% in case total income exceeds H1 cr.

@ In case of resident individual of age 60 years or more (Senior Citizen) the basic threshold limit of H3,00,000 remains unchanged.

In case of resident individual of age 80 years or more (Very Senior Citizen) the basic threshold limit of H5,00,000 remains unchanged.

+ Resident individual having total income less than H5,00,000 is eligible to claim Tax Rebate u/s 87A, being lower of tax on total income or H2,000.

Sl. No.

Section Particulars Existing Limit (H) Proposed Limit (H)

1 80CPayment of Life Insurance Premium, etc.

1,50,000 1,50,000

2 80CCC Contribution to certain Pension funds 1,00,000 1,50,000

3A 80CCD(1)Contribution to National Pension scheme (NPS)

10% of salary or GTI (restricted to

H1,00,000)10% of salary or GTI

3B 80CCD(1B) Not Applicable

Additional deduction up

to H50,000 over deduction allowed

u/s 80CCD(1)4 80CCE Aggregate ceiling for Sl. Nos. 1, 2 & 3A 1,50,000 1,50,000

5 80D Health Insurance Premium for Individual/HUF

Please refer table below



Sl. No.

Section Particulars Existing Limit (H) Proposed Limit (H)

6 80DDB

Medical treatment for Specified Disease- Individual 40,000 40,000- Senior Citizen 60,000 60,000- Very Senior Citizen 60,000 80,000

7 80U

Deduction in case of person with disability- Disabled 50,000 75,000- Severely disabled 1,00,000 1,25,000

Notes:a. Deposit made by parent or legal guardian of girl child under Sukanya Samriddhi Account Scheme

eligible for deduction u/s 80C. Corresponding interest income and withdrawal from such account also exempt u/s 10(11A). Proposed amendment to take effect retrospectively w.e.f 01-04-2015.

b. For Sec. 80DDB, instead of prescribed Medical certificate, prescription from the prescribed specialised doctors shall be obtained (whether or not working in Government hospital).

Maximum permissible deduction u/s 80D

Scenario

Under existing provisions As proposed

Self, Spouse & Dependant

Children (family)

Parents (whether

dependant or not)

Total deduction

Self, Spouse & Dependant

Children (family)

Parents (whether

dependant or not)

Total deduction

No one in the family is above 60 years

15,000 15,000 30,000 25,000 25,000 50,000

No one in family is above 60 years & either one of the parents are above 60 years

15,000 20,000 35,000 25,000 30,000 55,000

Atleast one member of family is above 60 years and either one of the parents are above 60 years

20,000 20,000 40,000 30,000 30,000 60,000

Medical expenditure (where at least one member is above the age of 80 years without any health insurance)

NA NA NA 30,000 30,000 60,000

Comments• Clause 2(a) & Clause 2(b) of Sec. 80D prescribes the threshold limit for claiming deduction u/s 80D of

medical insurance premium paid by an individual to keep in force an insurance on the health of the individual, spouse, dependent children and parents at H15,000 each. The Memorandum to Finance Bill specifies that the threshold limit of deduction u/s 80D(2)(a) and 80D(2)(b) shall increase from H15,000 to H25,000. However in the Finance Bill 2015, corresponding amendments has not been proposed in Clause 2(a) & Clause 2(b) of Sec. 80D. It is expected that this anomaly would be rectified while passing the Finance Bill.

6.3TDS mechanism on withdrawal of accumulated balance from Employees Provident Fund Scheme (EPFS) [Sec. 192A] [w.e.f 01-06-2015]

6.4Enabling of filing of Form 15G/15H for payment made under life insurance policy [Sec. 197A] [w.e.f 01-06-2015]

6.5Enhancement of threshold limit of Transport Allowance [Rule 3 of the IT Rules] [w.e.f AY 2016-17]

• Under the existing provision of Sec. 10(12) withdrawal of accumulated balance by an employee from RPF is exempt from tax, provided the employee has rendered continuous service with the employer for more than 5 years except in specified circumstances. In case of pre-mature withdrawal, the exemption is withdrawn and the entire amount is taxable. Rule 10 of the Part A of the Fourth schedule requires trustees of the RPF or the person authorized thereof to deduct tax at the time of making payment to

the employee considering it as income under the head salaries. However, trustee does not generally have details of year wise taxable income of the employee.

• In order to simplify the TDS application on such withdrawal, it is proposed to insert Sec. 192A to provide for fixed rate of TDS @ 10% on withdrawal of H30,000/- or more. Further, in case the payee does not furnish PAN, tax shall be deducted at the maximum marginal rate.

• Finance (No.2) Act, 2014, inserted Sec. 194DA provides for deduction of tax at source @ 2% from payments made under life insurance policy to residents which are chargeable to tax. However, there was no corresponding provision for non deduction of tax in case total taxable income is nil.

• To avoid such anomaly, it is proposed to amend Sec. 197A(1A) & 197A(1C), to provide non deduction of tax at source u/s 194DA, in case where tax on total income is likely to be nil during the previous year, subject to submission of self declaration in Form No.15G and 15H.

• The Budget also took a baby step in hiking the tax-free transport allowance limit of salaried employees from H800 to H1,600 pm. The aforesaid allowance was originally introduced in the Finance Act 1998 w.r.e.f 01-08-1997. Since then, the same has unfortunately remained unchanged. The allowances of many such other limits i.e. medical reimbursements, LTA, HRA in Cities other than Mumbai, Kolkata, Delhi &

Chennai have been left untouched. The hike in the tax-free limit will cut tax by H2,966 in the highest 30% tax bracket. Tax cut will be lower at H1,978 in 20% tax bracket. In the lowest 10% tax bracket (those earning up to H5 lakh), tax cut will be limited to H989, or just H82 pm.

• The proposed amendment will be made in Rule 3 of the IT Rules.



SECTION 7

OTHERS




7.1 Taxation Regime for Real Estate Investment Trust (‘REIT’) and Infrastructure Investment Trust (‘Invit’)

66

7.2 Time Limit to Intimate AO about accumulated fund not applied for Charitable or Religious Purposes

70

7.3 Exemption of income of Swachh Bharat Kosh & Clean Ganga Fund 70

7.4 Mandatory furnishing of ROI by universities and hospitals referred to in Sec. 10 (23C)

70

7.5 Definition of ‘Charitable Purpose’ to include Yoga and rationalisation of scope of advancement of any other object of general public utility

71

7.6 Pass through status for Category – I & Category – II Alternative Investment Funds (‘AIF’)

71

7.7 Abolition of Wealth Tax Act, 1957 72

7.8 Withdrawal of exemption from TDS on payments to transport contractors owning more than ten goods carriage

73

7.9 Assessment of Income of a person other than the person in whose case search is initiated

73


7.10 Provisions relating to Settlement Commission: 73

7.10.1 Widening the scope of filing application before Settlement Commission 74

7.10.2 Rectification Order by Settlement Commission 74

7.10.3 Immunity by Settlement Commission 75

7.10.4 Scope of Abatement of proceedings before Settlement Commission enlarged

75

7.10.5 Bar on subsequent application 75

7.10.6 Application of seized Cash 75

7.10.7 Levy of Interest u/s 234B in Settlement Cases 76

7.11 Levy of Interest u/s 234B in other than settlement cases 76

7.12 Modification in the definition of ‘accountant’ 76

7.13 Sums received as advance or otherwise in relation to transfer of immovable property now covered with the ambit of disallowance u/s 269SS & 269T

77

7.14 Penalty for acceptance of advance or otherwise or repayment thereof for transfer of an immovable property in cash

78

7.15 Enhancement of income limit for decision by Single Member Bench of ITAT 78

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

78

7.17 Procedure for appeal by revenue when an identical question of law is pending before Supreme Court

79

7.18 Rationalisation of provisions relating to deduction of tax at source on interest (other than interest on securities)

79

7.19 Criteria for issuance of notice u/s 148 simplified 81

7.20 No requirement of furnishing of TAN for notified deductors/collectors 81

7.21 Exemption to specified income of Core Settlement Guarantee Fund 82

7.22 Order passed u/s 10(23C) appealable before ITAT 82

7.23 Rationalisation of MAT provisions for members of an AOP 82

7.24 Key features of proposed new Law on Black Money stashed abroad 83

7.25 More Comprehensive Anti-Benami Bill on cards 84



7.1Taxation Regime for Real Estate Investment Trust (‘REIT’) and Infrastructure Investment Trust (‘Invit’) [Sec. 2(13A), 10(23FCA), 111A(1), 115UA[ w.e.f AY 2016-17] and Sec. 194-I & 194-LBA [w.e.f 01-06-2015]

• With an objective to promote and systematize the alternative investment avenues in India’s real estate and infrastructure sector, Securities and Exchange Board of India (SEBI), on 10th August, 2014 had proposed draft regulations relating to two new categories of investment vehicles namely, REIT and InvIT.

• Subsequently, on 26th September, 2014, SEBI notified final regulations on REITs and InvITs. While the final regulations capture certain key amendments, greater clarity has been granted by defining certain important terms in the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 (SEBI REIT Regulations) dated 26 September, 2014.

• As per the SEBI REIT Regulations, parties to the REIT include sponsor, re-designated Sponsor, manager and trustee. These are defined as under:

“Sponsor” has been defined to include a person(s) who set(s) up the REIT and designated as such at the time of application made to SEBI.

“Re-designated Sponsor” has been defined to mean any person who has assumed the responsibilities of the Sponsor.

“Manager” has been defined to cover a company or LLP or body corporate incorporated in India which manages assets and investments of the REIT and undertakes

operational activities of the REIT.

“Trustee” means a person who holds the REIT assets in trust for the benefit of the unit holders, in accordance with these regulations.

• Also, a REIT is permitted to undertake property development activities through an SPV, which is defined to include a company or LLP in which the REIT holds or proposes to hold controlling interest and minimum 50% equity stake, amongst other criteria.

• As regards taxation, while, partial pass through was given for REITs / InvITs in Finance Act 2014, further rationalization of the capital gains tax for REITs / InvITs and pass through status on rental income for REITs has been proposed in Finance Bill, 2015

• Finance Bill 2015 propose to substitute “business trust” to mean a trust registered as an InvIT under Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under SEBI Act, 1992 or REIT under Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under SEBI Act, 1992 and the units of which are required to be listed on recognised stock exchange in accordance with aforesaid regulations.

• In order to rationalise the provision, following proposal are made under the Finance Bill, 2015 which are summarised hereunder:

Sl. No.

Existing Provisions Proposed amendments

SponsorUnit holder of the trust (other than sponsor) & Trust


A Exchange of shares of SPVs with units of the business trust

i. Capital gain will be deferred and taxed at the time of sale of units of the business trust

Not Applicable No Change Not Applicable

B. Sale of listed units of business trust through Initial Offer at the time of listing of business trust on recognised stock exchange

i. Benefit of concessional regime is not available at the time of off loading of units of business trust

Not Applicable Benefit of concessional regime is available at the time of off loading of units of business trust

Parity of tax treatment on off loading of units vis-a-vis offloading of underlying shareholding through an IPO

STT shall be levied on sale of units of business trust on similar lines as in case of unlisted equity shares under an IPO

Long term capital gain will be exempt u/s. 10(38) of IT Act

Short term capital gain will be taxed @15%

Not Applicable

ii. Cost of units of business trust to be considered as cost of shares to the sponsor


iii. Holding period of shares to be included in the holding period of such securities

Not Applicable No Change

C. Sale of listed units of business trust

Long term capital gain will be exempt u/s. 10(38) of IT Act

Short term capital gain will be taxed @15%




Sl. No.




D. Interest and withholding tax thereon

i. Not Applicable Trust Interest received from SPV is not taxable and, no withholding of tax by SPV

Not Applicable Trust No Change

ii. Not Applicable Trust Trust to withhold tax @5% on payments to non-resident unit holder and 10% in case of resident unit holder

Trust Trust to withhold tax @5% on payments to non-resident unit holder and 10% in case of resident unit holder

E. Dividend income

Income distributed by business trust will be exempt

Trust Dividend received from SPV to be exempt

DDT to be paid by SPV and not by Trust

Unit holder of the trust (other than sponsor)

Income distributed by business trust to unit holder will be exempt

No Change Trust No Change

Unit holder of the trust (other than sponsor No Change

F. Disposal of assets by business trust

Not Applicable TrustTaxable as capital gain at applicable rates.

Not Applicable No Change

G. Other Income

Any other income taxable at MMR


Sl. No.




H. Rental income arising to REIT on real estate assets held directly


Business trust, being REIT

Rental income taxed at MMR




No tax in the hands of business trust

REIT to withhold tax @10% in case of resident unit holder and at the rate in force on any sum chargeable to tax in case of non-resident unit holder.

No TDS u/s. 194-I of IT Act w.e.f

01-06-2015 where income is credited or paid to a business trust directly.


Distributed income in the nature of rental income arising on real estate asset owned directly by REIT shall be deemed to be income of unit holder chargeable to tax

Rate in force in relation to an AY for the purpose of TDS u/s. 195, shall be the rate specified in the Finance Act or the rate specified in an agreement u/s. 90(2) between India and Government of any country outside India, whichever is beneficial


No tax in the hands of business trust

REIT to withhold tax @10% in case of resident unit holder and at the rate in force on any sum chargeable to tax in case of non-resident unit holder.

No TDS u/s. 194-I of IT Act w.e.f

01-06-2015 where income is credited or paid to a business trust directly.


Distributed income in the nature of rental income arising on real estate asset owned directly by REIT shall be deemed to be income of unit holder chargeable to tax

Rate in force in relation to an AY for the purpose of TDS u/s. 195, shall be the rate specified in the Finance Act or the rate specified in an agreement u/s. 90(2) between India and Government of any country outside India, whichever is beneficial

Comments• Pass through status is given to the rental income arising to REIT on real estate assets held directly.

• REITs enable investors to channelise their investments into India’s real estate sector and infrastructure sector through a regulated mechanism. REITs and INvITs would also provide liquidity to real estate and infrastructure projects.



7.2Time Limit to Intimate AO about accumulated fund not applied for Charitable or Religious Purposes [Sec. 11] [w.e.f AY 2016-17] 7.5

Definition of ‘Charitable Purpose’ to include Yoga and Rationalisation of scope of advancement of any other object of general public utility [Sec. 2(15)] [w.e.f AY 2016-17]

7.3Exemption of income of Swachh Bharat Kosh & Clean Ganga Fund [Sec. 10(23C)] [w.r.e.f AY 2015-16]

7.6Pass through status for Category – I & Category – II Alternative Investment Funds (‘AIF’)[Sec. 115UB] [w.e.f AY 2016-17]

7.4Mandatory furnishing of ROI by universities and hospitals referred to in Sec. 10 (23C) [Sec. 139(4C)] [w.e.f AY 2016-17]

• Existing provision of Sec. 11(2), does not specify the time limit for furnishing of Form 10 r.w.r. 17 of IT Rules to be filed before the AO informing him about accumulation of fund which has not been applied for charitable purpose. Further the existing provisions allows for such accumulation, subject to conditions specified, for 10 years.

• In order to remove ambiguity regarding the time limit, the proposed amendment specifies that such form shall be filed before due date of filing ROI u/s 139(1). In case of failure to do so, benefit of accumulation would not be available and such income would be taxable at the applicable tax rate as proposed in Sec. 13(9).

• Further, accumulation of funds as per the manner specified is restricted to 5 years.

Comments• Hitherto, time limit for filing of Form 10 was

prescribed under Rule 17. The said Rule provides that such form should be furnished before expiry of time allowed u/s 139(1). As the Rule was not mandatory in nature, the issue was subjected to litigation. Supreme Court in CIT –vs-. Nagpur Hotel Owners’ Association (2001) 247 ITR 201 (SC) held that details have to be furnished before completion of the assessment proceedings and any information supplied subsequent to the completion of assessment cannot be taken into consideration. The proposed amendment nullifies the decision of Supreme Court allowing the assessee to file the details after filing ROI but before completion of assessment.

• Sec. 2(15) defines ‘Charitable purpose’ to include activity in the nature of relief of the poor, education, medical relief and advancement of any other object of general public utility. Proviso to Sec. 2(15), specifies that advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of commercial activity. However, this restriction shall not apply if the aggregate value of the receipts from the activities referred above is H25,00,000/- or less in the previous year.

• In order to promote Yoga which has recently received international recognition too by the UN, it is proposed to include yoga within the ambit of activities in the nature of ‘Charitable Purpose’.

• Further, it has been proposed to provide that advancement of any other object of general public utility as mentioned in the above definition

shall not be charitable purpose unless such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility and 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.

CommentsThe above amendment fortifies the view taken by the Hon’ble Hyderabad ITAT in ACIT –vs.- Divya Yog Mandir Trust (2013) 459 TS (Hyd.) wherein it has been held that yoga can be safely accepted as a system fit into the definition of ‘medical relief’ and providing yoga shivir/camps can be covered in ‘imparting education’.

•Existing provisions of Sec. 10(23C) of the IT Act provide for exemption from tax in respect of income of certain charitable funds or institutions. Considering the importance of “Swachh Bharat Kosh” and “Clean Ganga Fund”, it is proposed to include these funds in the list of eligible entities entitled for exemption u/s 10(23C). •Vide SEBI (AIF) Regulations, 2012, AIFs have been classified into following three categories:-

• Under the existing provisions of Sec. 139, all entities whose income is exempt u/s 10(23C), other than university or educational institution specified in Sec. 10(23C) (iiiab) and hospital or other institution specified in Sec. 10(23C)(iiiac), are mandatorily required to file their return of income.

• It is proposed to amend Sec. 139(4C) to provide that entities covered under Sec. 10(23C) (iiiab) and Sec. 10(23C)(iiiac) shall now be mandatory required to file return of income.

Particulars Category - I Category – II Category – III

Legal form Fund can be set up as a Trust, Company, LLP or any other body corporate

Criteria 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

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

Funds that employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives

Investment Condition

Funds shall invest not more than 25% of the corpus in one Investee Company

Fund shall invest not more than 10% of the corpus in one Investee Company

Tenure Minimum tenure of 3 years No tenure specified



• Vide Finance Act, 2013, Sec. 10(23FB) r.w.s 115U was amended to provide the scope of taxability of income of certain Category I of AIF.

• It is proposed to insert Sec. 115UB to provide specific taxability regime for Category – I & Category – II AIFs as well. The proposals are summarised hereunder:

Particulars Category - I Category – II Category – III

Taxability in hands of AIF

• Income in the nature of profits and gains of business or profession shall be taxable at the applicable rates.

• Other Income such as Capital Gain & Income from Other Sources shall be exempt from tax.

Taxability in hands of Unit holder of AIF

• Income in the nature of profits and gain of business or profession received from AIF shall be exempt.

• Income received in the nature of Capital Gain & Income from Other Sources shall be chargeable to tax

Withholding tax • Income received by AIF would be exempt from TDS requirement.

• TDS @ 10% under newly proposed Sec. 194LBB shall be deducted by AIF at the time of payment of income in the nature of Capital Gain & Income from Other Sources to unit holder

Carry forward and set-off of losses

• Losses shall be allowed to be set off and carried forward to AIF as per provisions of Chapter VI but same cannot be transferred to unit holders

Dividend Income • Provisions of DDT shall not apply to the income paid by AIF to its unit holdersReturn of Income(ROI)

• Mandatory for AIF to file its ROI u/s 139

Applicability • Sec. 115UB shall also apply to Certain category I of AIF which was covered by Sec. 115U

7.7 Abolition of Wealth Tax Act, 1957 [w.e.f AY 2016-17]

7.8Withdrawal of exemption from TDS on payments to Transport contractors owning more than ten goods carriage [Sec.194C(6)] [w.e.f 01-06-2015]

7.9Assessment of Income of a person other than the person in whose case search is initiated [Sec. 153C] [w.e.f 01-06-2015]

7.10 Provisions relating to Settlement Commission

• Under the existing provisions of Wealth tax Act, 1957, wealth-tax @ 1% is levied on an individual or HUF or company, if the net wealth of such person exceeds H30,00,000 on the valuation date i.e. last date of the previous year.

• It is proposed to abolish the Wealth Tax Act, since revenue collection from the same is not commensurate with the high cost of collection.

• The revenue loss on account of such abolition is to be compensated by increase in the existing surcharge rate by 2% to be levied on tax payers earning taxable income exceeding H1 cr.

• Further, to track the wealth held by individuals and entities, it is proposed that information relating to assets which is currently required to be furnished in the wealth-tax return shall be captured by suitably modifying income-tax return form.

Comments• The abolition of wealth tax and substituting the

same with additional surcharge of 2% will result in increase in tax collection from H1,008 cr. to H9,000 cr. Further it will lessen the compliance burden of the tax payers and also administrative burden of the IT Department

• Hitherto, as per sub-section (6) of Sec. 194C amended vide Finance (No. 2) Act, 2009 w.e.f 01-10-2009, no tax was required to be deducted from any sum paid to a transport contractor provided such contractor furnishes his PAN.

• It is proposed to amend sub-section (6) of the Sec. 194C to restrict the benefit of non deduction of tax on payment made to only those transport contractors owning ten or less goods carriage at any time of the previous year and a declaration to this effect is furnished.

CommentsThe IT Department has issued notices to large taxpayers for their alleged failure to deduct tax at source on payments made to transport operator.

The IT Department is of the view that as per the provisions of Sec. 194(6) tax is not required to be deducted on payments made to contractors who owns goods carriage and not on transport operators. Further, the abovementioned benefit is available only to small transporters who move from state to state and is not able to collect the TDS certificate. The Associated Chamber of Commerce has also given a letter to the CBDT seeking its intervention.

The memorandum to the Finance bill has itself stated that the language of the current Sec. 194C(6) does not convey the desired intention of the legislature. Hence the amendment is made to cure the defect and made applicable w.e.f 01-06-2015.

• Existing provisions of Sec. 153C, provides that if during the course of a search, the AO is satisfied that the books of account or document seized or requisitioned “belong to” any person other than the person searched, the books of accounts or documents or assets seized or requisitioned shall be handed over to the AO having jurisdiction over such other person and he shall proceed against such other person.

• It is proposed to substitute the word “belong to”

used in relation to books of account or document seized or requisitioned with the word “pertains or pertain to”. Further the term “relate to” is used for any information contained therein.

CommentsBoth the term “pertain to” & “relate to” are wider in amplitude than the word “belong to” and seeks to encompass within its ambit those cases where photocopy of the original document is seized from a person.



7.10.2 Rectification Order by Settlement Commission [Sec. 245D(6B)] [w.e.f 01-06-2015]

7.10.3 Immunity by Settlement Commission [Sec. 245H] [w.e.f 01-06-2015]

7.10.4Scope of Abatement of proceedings before Settlement Commission enlarged [Sec. 245HA] [w.e.f 01-06-2015]

7.10.5 Bar on subsequent application [Sec. 245K] [w.e.f 01-06-2015]

7.10.6 Application of seized Cash [Sec. 132B] [w.e.f 01-06-2015]

• Under the existing provisions, an assessee may make an application before Settlement Commission (ITSC) in respect of assessment year or years which may be pending before AO on date on which application is made. Presently, where a notice is issued u/s 148, the assessee is eligible to make application to ITSC only for that year and not for other assessment years.

It is proposed to amend clause (i) of the Explanation to Sec. 245A(b) to enable the assessee to approach ITSC even for other assessment years where the return has been filed and notice u/s 148 could have been issued but not been issued on that date.

• Hitherto, assessee can file application in respect of those years for which proceedings have commenced on 1st day of the assessment year and assessment has not been completed by virtue of clause (iv) of Explanation to Sec. 245A(b).

It is proposed to amend the above clause to provide that a proceeding for any assessment year shall be deemed to have been commenced from the date on which the return of income has been furnished u/s 139 or in response to notice u/s 142 and concluded on the date on which the assessment is made or on the expiry of 2 years from the end of relevant assessment year, where no assessment is made.

• Presently, Settlement Commission (ITSC) may amend order passed u/s 245D(4) to rectify its mistake apparent from record within 6 months from the date of order.

• It is now proposed to substitute Sec. 245D(6B) to provide ITSC may rectify its order passed u/s 245D(4) as follows :

(a) Within 6 months from the end of the month in which the order u/s 245D(4) was passed or

(b) Within 6 months from the end of the month in which application for rectification has

been made (before the end of the limitation period of 6 months from the end of the month in which the order u/s 245D(4) was passed ) by the Principal Commissioner or Commissioner or applicant.

Comments• The proposed amendment provides for

additional time where the assessee or Revenue files an application towards the end of limitation period i.e. 6 months from the date of the order passed u/s 245D(4) at present.

• Presently, Settlement Commission on fulfilment of certain conditions can grant immunity from penalty & prosecution. However, there is no requirement to record reasons in writing as to why immunity has been granted.

• It is now proposed that ITSC is to record the reasons in writing while granting immunity from above proceedings.

• The existing provision of Sec. 245HA(1) provides for different situations where abatement of proceedings before Settlement Commission takes place.

• It is proposed to insert clause (iiia) to Sec. 245HA(1) to provide that where an order has been passed by the Settlement Commission u/s 245D(4) without providing the terms of settlement, the same shall abate on the day on which such order u/s 245D (4) was passed.

• Presently, a person can approach ITSC once in a life time. However, such person can again approach ITSC through a related person. This defeat the purpose of restricting the opportunity of approaching the Commission only once.

• It is now proposed to amend Sec. 245K to provide that even the related persons as defined in Sec. 245K, would also not be considered as eligible for filing application.

• It is proposed to amend Sec. 132B allowing the assessee to adjust seized assets against the tax liability arising in settlement application in search cases

7.10.1Widening the scope of filing application before Settlement Commission [Sec. 245A] [w.e.f 01-06-2015]



7.10.7 Levy of Interest u/s 234B in settlement cases [Sec. 234B] [w.e.f 01-06-2015]

• Presently, Sec. 234B(4) specifies that interest levied u/s 234B(1) will be increased or decreased on the basis of the income determined among others, in the order passed by the Settlement Commission u/s 245D(4). However unlike Sec. 234B(3) there is no specific provision in Sec. 234B specifying the period for which the aforesaid interest shall be computed.

• Further the Supreme Court in Brij Lal & Others –vs.- CIT (2010) 194 Taxman 566 (SC) has held that interest u/s 234B is leviable only up to the date order u/s 245D(1) is passed i.e. till date of admission of application and not till the date of order u/s 245D(4).

• In order to remove the anomaly, it is proposed to insert sub-section (2A) to Sec. 234B to clarify the time period for levying interest u/s 234B in settlement cases as below:

When an application is made to ITSC, @1% pm or part thereof on the additional amount of income tax from the 1st day of assessment year to the date of making such application and

On passing of the order u/s 245D(4), @1% pm or part thereof on the incremental tax levied in the order from the 1st day of assessment year to the date on which the order is passed.

7.11Levy of Interest u/s 234B in other than settlement cases [Sec. 234B] [w.e.f 01-06-2015]

7.12 Modification in the definition of ‘accountant’ [Sec. 288] [w.e.f 01-06-2015]

• Vide the existing provision of Sec. 234B(3), interest u/s 234B is computed on the tax on incremental income over the income determined in the intimation u/s 143(1) or order u/s 143(3), for the period from the date of determination of total income u/s 143(1) or on regular assessment to the date of determination of total income u/s 147 or 153A.

• Sec. 234B(3) is proposed to be substituted proposing to compute interest u/s 234B on the tax on incremental income over the income determined in the intimation u/s 143(1) or on regular assessment, for the period from 1st day of assessment year to the date of determination of total income u/s 147 or 153A.

• As per the Explanation to Sec. 288(2), ‘accountant’ means Chartered Accountant within the meaning of Chartered Accountants Act, 1949.

• It is proposed to revise the definition of the term ‘accountant’ as follows:-

a. The expression “accountant” shall mean a Chartered Accountant who holds a valid certificate of practice under the Chartered Accountants Act, 1949.

b. Various provisions of the IT Act (e.g. Sec. 44AB, Sec. 80-IA, Sec 115JB etc.) require an assessee

to obtain audit reports/certificates from an ‘accountant’. In order to ensure that such audit reports/certificates are not influenced, it is proposed that those persons who are not eligible for appointment as an auditor of a company u/s 141(3) of the Companies Act, 2013 shall also not be considered as an “accountant” for the purpose of the IT Act. Amendment on similar lines is proposed for non-company assessee.

• It is also proposed to enlarge scope of disqualifications for persons who are authorised to represent the assessee in I.T. matters. As per the amendments proposed in Sec. 288(4), a person convicted by a court of an offence involving fraud shall not be eligible to act as an authorised representative of the assessee in I.T. cases for a period of 10 years from the date of such conviction.

CommentsAs per Sec. 141(3) of the Companies Act, 2013 following persons shall not be appointed as the auditors of the company:-

(a) a body corporate other than a limited liability

partnership registered under the Limited Liability Partnership Act, 2008

(b) an officer or employee of the company

(c) a person who is a partner, or employee of an officer or employee of the company

(d) a person who, or his relative or partner holds any interest/security in the company, its holding, subsidiary, fellow subsidiary, associate etc or is indebted to them

(e) a person or a firm who has business relationship with the company, its holding, subsidiary, fellow subsidiary, associate etc.

(f) a person whose relative is a director or is in the employment of the company as a director or key managerial personnel

(g) a person who is in full time employment elsewhere

(h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsed from the date of such conviction

7.13Sums received as advance or otherwise in relation to transfer of immovable property now covered with the ambit of disallowance u/s 269SS & 269T [w.e.f 01-06-2015]

• It is proposed to amend Sec. 269SS, to provide that no person shall receive any sum for transfer of immovable property in excess of H20,000 otherwise than by account payee cheque, account payee bank draft or electronic clearing system.

• Similarly it is proposed to amend Sec. 269T to provide that no person shall repay any advance received by it for transfer of immovable property in excess of H20,000 otherwise than by account payee cheque, account payee bank draft or electronic clearing system

Comments• The amendment is proposed to curb generation

of black money arising on transfer of immovable property in cash.

• The proposed amendment seeks to nullify the decision in CIT –vs.- Madhav Enterprises (P) Ltd. (2013) 356 ITR 588 (Guj) wherein it has been held that the provision of Sec. 269T is not applicable in case of repayment of earnest money/advance received for transfer of immovable property.



7.16Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) [w.e.f 01-06-2015]

7.14Penalty for acceptance of advance or otherwise or repayment thereof for transfer of an immovable property in cash [Sec. 271D & 271E] [w.e.f 01-06-2015]

7.15Enhancement of income limit for decision by Single Member Bench of ITAT [Sec. 255] [w.e.f 01-06-2015]

• In Sec. 200A, there is no provision for computing fee payable u/s 234E at the time of processing of TDS/TCS Statement. Sec. 200A is proposed to be amended to compute fee payable u/s 234E at the time of processing of TDS/TCS Statement.

• Sec. 206C is proposed to be amended to provide for furnishing of TCS correction statement. Similar provisions already exist for filing TDS correction statement.

• Presently, intimation generated after processing of TDS statement is subject to rectification u/s 154, appealable u/s 246A and shall be deemed as notice of demand u/s 156 of the Act. In order to bring the processing of TCS statement at par with the processing of TDS statement, it is proposed to insert Sec. 206CB to provide for processing of TCS statements. Consequentially, amendment is also proposed in Sec. 154(1), Sec. 156 & Sec. 246A.

• In order to avoid charging of interest both u/s 220(2) and 206C(7), it is proposed to insert Sec. 220(2C) to provide that no interest shall be charged u/s 220(2) on the same amount of

TCS for the same period if the same is already charged u/s 206C(7). Similar provisions already exist for charging of interest on TDS.

• Presently, Sec. 192 does not provide for any format for reporting of any payment of TDS/TCS made through book entry mechanism by Pay & Accounts Officer or Treasury Officer or Cheque Drawing & Disbursing Officer for giving credit of tax deducted by the office of Government. Sec. 200 & 206C is proposed to be amended to provide that where Tax deduction/Tax collection has been made by government deductor without production of challan, the Pay & Accounts Officer or Treasury Officer or Cheque Drawing & Disbursing Officer shall furnish a prescribed statement within the prescribed time before the IT Authority. Failure to comply with the above provision will attract penalty of H100 per day u/s 272A till the default continues.

• It is proposed to insert sub-section (2D) to Sec. 192 to provide that the person responsible for making the payment shall, for the purposes of estimating income of the assessee or computing

tax deductible u/s 192(1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of

loss) under the provisions of the IT Act in such form and manner as may be prescribed.

• In line with the proposal made in Sec. 269SS & 269T, penalty for violation of the amendments therein are proposed to be covered by making consequential amendment in Sec. 271D & 271E respectively

• In Sec. 255(3), it is proposed to enhance the monetary limit for disposal of cases by a single member bench of ITAT from H5,00,000 to H15,00,000 (being the total income computed by the AO).

7.17Procedure for appeal by Revenue when an identical question of law is pending before Supreme Court [Sec. 158AA] [w.e.f 01-06-2015]

7.18Rationalisation of provisions relating to deduction of tax at source on interest (other than interest on securities) [Sec. 194A] [w.e.f 01-06-2015]

• In line with Sec. 158A wherein an option is given the assessee to file an application before the IT Authorities for disposal of case of the relevant year in accordance with the decision of the High Court & Supreme Court on identical question of law in other years, it is proposed to introduce a Sec. 158AA to give similar option to the Revenue.

• Sec. 158AA proposes that a) in cases where Revenue has filed an appeal or

a reference application before the Supreme Court on a question of law which is identical to the question of law on which appeal is required to be filed before the ITAT in the case of the same assessee, the CIT or principle CIT may direct the AO to file an application before the ITAT stating that an appeal in the relevant case may be filed when the Supreme Court decides the issue in the other case.

b) The application before the ITAT is required to be filed within 60 days from the date of receipt of order of CIT(Appeals).

c) The application shall be filed only when an acceptance is received from the assessee to the effect that the question of law in the other case is identical to the question of law arising in the relevant case.

d) If the Supreme Court in the other case decides the question of law in favour of the Revenue, the CIT or Principle CIT may direct the AO to file an appeal before the ITAT within 60 days from the date on which order of Supreme Court is communicated to the CIT or Principle CIT.

a. Definition of “time deposits” to include “recurring deposits’

• Under the existing provisions, no tax is deductible at source on interest paid or credited on recurring deposits without any threshold limit.

• It is proposed to amend the definition of ‘time deposits’ to include within its scope “recurring deposits” for the purposes of deduction of tax u/s 194A.

b. Tax to be deducted on interest paid or credited on time deposits by cooperative banks to its members

• Sec. 194A(1) r.w. Sec. 194A(3)(i)(b) and 194A(3)(viia)(b) provide for deduction of tax at source by co-operative society engaged in the business of banking on interest paid or credited in excess of H10,000 on time deposits. However, Sec. 194A(3)(v) provide for a general exemption from deduction of tax at source on interest paid or credited by a co-operative society to its members.



• This has led to a dispute as to whether co-operative banks, for which specific provisions for deduction of tax at source on interest paid or credited on time deposits exists as stated above, can take the benefit of exemption provided u/s 194A(3)(v) to all co-operative societies by making their depositors its members.

• To resolve the dispute, it is proposed to amend Sec. 194A(3)(v) to provide that any income paid or credited by a co-operative society other than a co-operative bank to its members will not be subject to TDS u/s 194A(1).

Comments The proposed amendment nullifies the decision

of Gujarat Urban Co-Operative Bank Federation –vs.- UOI (2012) 75 DTR 354 (Guj) and Jalgaon District Central Co-op. Bank -vs.- UOI (2004) 265 ITR 423 (Bom) wherein it has been held that co-operative banks are not required to deduct tax at source on interest paid on time deposits to their members in view of the exemption granted u/s 194A(3)(v).

The proposed amendment also forties the decision of ACIT -vs.- The Belgaum District Central Co-op Bank Ltd. (ITA No.324/Pnj/2013) & Bhagani Nivedita Sahakari bank Ltd -vs.- ACIT (2003) 87 lTD 569 (Pune) wherein it has been held that co-operative banks are required to deduct tax at source on interest paid on time deposits to its members u/s 194A(3)(viia).

c. Threshold limit for non deduction of tax at source on interest paid by banks, co-operative societies and public companies not to be computed branch wise where Core Banking Solution system has been adopted

• Hitherto proviso to Sec. 194A(3)(i) provides that the threshold limit for applicability of TDS provision on interest paid or credited by banks, co-operative societies and public companies shall be computed with reference to each branch of the respective entities.

• It is proposed to insert 2nd Proviso to Sec.

194A(3)(i) to provide that threshold limit of interest for the purpose of deduction of tax at source shall not be computed separately for deposits made in separate branches of a bank, co-operative society or public company where these entities have adopted core banking solutions.

Comments• Most of the banks, co-operative banks and public

companies are computerised and follow core banking solutions for crediting interest. Core banking solutions is a networking of branches which enables customers to operate their accounts and avail banking services from any branch of the bank on core banking solution network regardless of where he maintains his accounts. The customer is no more the customer of the branch. He becomes the customer of the bank.

d. TDS on interest on compensation only at the time of payment

• Sec. 56(2)(viii) & Sec. 145A provides that interest income received on compensation or enhanced compensation shall be deemed to be the income of the year in which the same has been received.

• Sec. 194A(3)(ix) provides for deduction of tax at source on interest paid or credited on compensation awarded by the Motor Accident Claim Tribunal, if the amount exceeds H50,000.

• Since Sec. 145A & Sec. 56 provides for taxability of interest determined on compensation or enhanced compensation on receipt basis and Sec. 194A(3)(ix) provides for deduction of tax at source on interest determined on compensation or enhanced compensation on accrual basis, undue hardship and mismatch is faced by the assessee.

• It is proposed to amend Sec. 194A(3)(ix) to provide for deduction of tax at source only at the time of payment of interest determined on compensation or enhanced compensation, if the amount exceeds H50,000.

7.19 Criteria for issuance of notice u/s 148 simplified [Sec.151] [w.e.f 01-06-2015]

• Sec. 151 which provides for sanction from certain IT Authorities before issuance of notice u/s 148 is proposed to be amended as follows

Sl. No. Exiting Provisions Proposed Amendment

Issuance on Notice u/s 148 within 4 years1 In case where an assessment is made u/s

143(3) or 147, no notice shall be issued by an AO below the rank of ACIT or DCIT, unless approval of JCIT is obtained.

No notice (irrespective of whether assessment is made u/s 143(3) or 147) shall be issued by an AO below the rank of JCIT unless approval of JCIT is obtained.

Issuance on Notice u/s 148 after 4 years2 In case where an assessment is made u/s

143(3) or 147, no notice shall be issued unless prior approval of Principal CCIT or CCIT or Principal CIT or CIT is obtained

No notice (irrespective of whether assessment is made u/s 143(3) or 147) shall be issued unless prior approval of Principal CCIT or CCIT or Principal CIT or CIT is obtained

3 In case, other than cases mentioned in Sl. No. 2 above, no notice shall be issued by an AO below the rank of JCIT unless approval of JCIT is obtained

7.20No requirement of furnishing of TAN for notified deductors /collectors [Sec.203A] [w.e.f 01-06-2015]

• The obtaining of TAN u/s 203A by a deductor creates a compliance burden for those individuals or HUF who are not liable for audit under Sec. 44AB. The quoting of TAN for reporting of transactions on which tax is required to be deducted is a procedural matter and the same result can also be achieved in certain cases by mandating quoting of PAN especially for the transactions which are likely to be one time transaction.

•Similar provisions for quoting of PAN in case of TAN is there in the law in case of tax deduction u/s 194-IA.

• It is proposed to amend the provisions of Sec. 203A of the Act to provide that the requirement of obtaining and quoting of TAN u/s 203A shall not apply to the notified deductor or collector.



7.21Exemption to specified income of Core Settlement Guarantee Fund (SGF) [Sec. 10(23EE)] [w.e.f 01-06-2015]

7.22 Order passed u/s 10(23C) appealable before ITAT [Sec. 253] [w.e.f 01-06-2015]

7.23Rationalisation of MAT provisions for members of an AOP [Sec. 115JB] [w.e.f AY 2016-17]

• It is proposed to insert Sec. 10(23EE) to exempt specified income of the Core SGF set up by the Recognized clearing corporation to guarantee the settlement of trades executed in the stock exchanges.

• Similar exemption provisions are prescribed for income by way of contribution to investor protection fund set up by recognized stock exchanges [Sec. 10(23EA)], Commodity Exchanges [Sec. 10(23EC)] and depositories [Sec. 10(23ED)].

• However, if the income is shared 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 specified person for this purpose is defined to mean any recognized clearing corporation which establishes and maintains the Core SGF and the recognized stock exchange being the shareholder of such clearing corporation.

• Income received by a person on behalf of any university or other education institution existing solely for education purpose or any other purpose on behalf of any hospital or other institution providing medical treatment, existing solely for philanthropic purpose is not liable for tax under sub-clause (vi) & (via) of Sec. 10(23C),if approved by prescribed authority.

• Hitherto, order received from the prescribed authority is not appealable before ITAT. It is proposed to amend Sec. 253(1), to make order passed u/s 10(23C)(vi) or (via) as appealable to the ITAT.

• Presently, a company which is a member of an AOP is not liable to tax in respect of share of the income from such AOP. However, such company is liable to pay MAT on such share of income since there is no specific exclusion u/s 115JB.

• Accordingly, it has been proposed to amend Sec. 115JB of the IT Act 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 Sec. 86 of the Act, should be excluded while computing the MAT liability of the member under 115JB of the Act. 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.

7.24 Key features of proposed new Law on Black Money stashed abroad

• Provisions under IT Act

1. Concealment of income and assets and evasion of tax in relation to foreign assets will be prosecutable with punishment of rigorous imprisonment upto 10 years. Further, this offence will neither be compoundable nor be settled before ITSC.

2. Penalty for concealment of income and assets shall be levied @ of 300% of tax.

3. Non filing of return or filing of return with inadequate disclosure of foreign assets will be liable for prosecution with punishment of rigorous imprisonment up to 7 years.

4. Income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset will be taxable at the maximum marginal rate. Exemptions or deductions which may otherwise be applicable in such cases shall not be allowed.

5. Beneficial owner or beneficiary of foreign assets will be mandatorily required to file return, even if there is no taxable income.

6. Abettors of the above offences, whether individuals, entities, banks or financial institutions will be liable for prosecution and penalty.

7. Date of Opening of foreign account would be mandatorily required to be specified by the assessee in the return of income.

• Under Prevention of Money-laundering Act, 2002

1. The offence of concealment of income or evasion of tax in relation to a foreign asset will be made a predicate offence.

2. This provision would enable the enforcement agencies to attach and confiscate unaccounted assets held abroad and launch prosecution against persons indulging in laundering of black money.

3. The definition of ‘proceeds of crime’ under Prevention of Money Laundering Act, 2002 is being amended to enable attachment and confiscation of equivalent asset in India where the asset located abroad cannot be forfeited.

• Under Foreign Exchange Management Act, 1999

1. If any foreign exchange, foreign security or any immovable property situated outside India is held in contravention to the provisions of this Act, then action may be taken for seizure and eventual confiscation of assets of equivalent value situated in India.

2. These contraventions are also being made liable for levy of penalty and prosecution with punishment of imprisonment up to five years.

Comments• The above amendment seeks to nullify the decision in the case of Hindustan Construction Co. Ltd. -vs.-

DCIT (2013) 140 ITD 642 (Mum), ACIT -vs.- B. Seenaiah & Co. Projects Ltd. (2014) 150 ITD 189 (Hyd) w.r.t applicability of MAT on the share of income earned by an AOP.



7.25 More Comprehensive Anti-Benami Bill on cards

• Benami Transactions (Prohibition) Act, 1988 had been in force since 1988.

• In August 2011, the then Finance Minister Pranab Mukherjee introduced Benami Transactions (Prohibition) Bill 2011.

• The FM in his budget speech has said that a new and more comprehensive Benami Transactions (Prohibition) Bill will be introduced in the current session of the Parliament.

• This law will

enable confiscation of benami property

provide for prosecution and

block major avenue of black money in the form of benami property in real estate.



TECHNOLOGIESEFFICIENCY FOR INDIA. EFFECTIVENESS FOR THE WORLD.

India is one of the oldest civilizations in the world.

Over the last two decades, India has demonstrated that it can leapfrog a number of technology generations to climb to the cutting-edge.

However, the past is never enough to guarantee success in the future.

India needs to kick-start its technology virtuous cycle.

By investing in cutting-edge technologies. By creating world-beating products. By developing proprietary technologies.

From product maker. To thought leader.

The opportunity is here.

•Time limit for taking CENVAT credit on inputs and input services increased from six months to a year.

•Amendment of Settlement Commissions provisions which were redundant

•Retrospective excise duty exemption on rails for manufacture of railways or tramway tracks

•Confirmation that GST will be introduced from 1 April 2016

•Basic customs duty reduction on certain inputs, raw materials, intermediates and components (22 items)

•SAD reduced on the import of certain inputs and raw materials.

• Increase in clean energy cess on coal to ₹ 200 per tonne to finance clean environment initiatives

•Rationalisation in penal provisions under Excise, Custom and Service Tax laws to encourage compliance and early dispute resolution

•Online central Excise and Service Tax registration in two working days.

•Levy of 2% Service Tax on all or any taxable service, the collection (Swachh Bharat Cess) being credited to the Consolidated Funds of India for financing and promoting Swachh Bharat initiatives.

•Abolition of EC & SHEC from Excise and Service Tax, which are being subsumed in GST

•Service Tax exemption from ambulance services provided to patients

•Excise duty on chassis for ambulance reduced from 24% to 12.5%.

Practical

Predictable

Proactive

Promising

Progressive

Protective

Prudent

INDIRECT TAX

88 INDIA BUDGET 2015-1689 BASICS MISCELLANEOUSBASICS BUDGET PROPOSAL


SECTION 8

CENTRAL EXCISE & CENVAT CREDIT




8.1 Pattern of Changes Proposed 94

8.2 General 94

8.3 Changes proposed in the Finance Bill, 2015[Effective from enactment of the Bill]

95

8.3.1 Amendments made in Sec. 11A of CEA (Recovery of duty not paid or short paid)

95

8.3.2 Changes under Penal provisions under Sec. 11AC of CEA 95

8.3.3 Changes related to Settlement Commission 97

8.3.4 Retrospective amendments in respect of Excise duty on value of rails 97

8.3.5 Other Legislative Changes 98


8.4 Central Excise Rules, 2002 98

8.4.1 Introduction of maintaining the daily stock account digitally 98

8.4.2 Authentication of invoice by digital signature 98

8.4.3 Procedures prescribed for raising invoice for direct dispatch of goods to job workers/customers

98

8.4.4 Recovery proceeding extended to penalty 99

8.4.5 Penal provision introduced under Rule 12 of CER 99

8.4.6 Confiscation and penal provision introduced for an importer 99

8.4.7 Amendment in Registration provisions 99

8.4.8 Scope of the definition of ‘export’ clarified for the purpose of rebate 99

8.4.9 Restriction under Rule 12CCC of Excise Rules, 2002 applied to Registered Importers also

99

8.5 Central Excise(Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001

100

8.6 Major changes in Tariff/Effective Duty Rates[Effective from 01-03-2015]

100

8.7 Other Changes [Effective from 01-03-2015]

105

8.8 Various Clarifications under CE 106

8.9 CENVAT Credit Rules [effective from 11-07-2014 unless otherwise specified]

106

8.9.1 Time limit for taking CENVAT Credit on input and input services increased from 6 months to 1 year

106

8.9.2 Specific and express provisions inserted to facilitate manufacturers or output service providers to send inputs or capital goods directly to job worker by amending Rule 4(1) and Rule 4(2) of CCR.

106

8.9.3 Further consequential amendments in Rule 4(5a) of CCR covering inputs and/or capital goods transferred to job worker

107

8.9.4 Scope of reversal of CENVAT Credit under Rule 6 extended to non-excisable goods

107

8.9.5 Changes in the conditions for availment of CENVAT Credit on input services pertaining to partial reverse charge[Effective from 01-04-2015]

107

8.9.6 Recovery of CENVAT Credit wrongly taken but not utilized 107

8.9.7 Amendments to penalty provisions for wrong utilisation of CENVAT Credit[Effective from enactment of the Bill]

108



8.1 Pattern of changes proposed

8.2 General


Proposed changes in CE Act contained in clauses 91 to 102 of Chapter IV of the Bill effective from the date of enactment.

A declaration has been made in respect of Clause 90, 103 & 104 of the Finance Bill, 2015 so that the changes made through these clauses take effect immediately from the midnight of 28th February/1st March 2015. The other clauses would be effective from the date of enactment of Finance Bill, 2015.

Notifications Nos. 5-17/2015-CE all dated 01-03-2015 have been issued, notifying effective rates of duty as well as duty exemptions which have become effective from the date of Notification

Notifications Nos. 03-11/2015-CE (N.T.) all dated 01-03-2015 have been issued, amending CE Rules & CCR have become effective from the date of the notification.

• Standard ad valorem rate of duty of excise is being increased from 12% to 12.5%

• EC & SHEC earlier applicable on all excisable goods is withdrawn and subsumed in the Basic Excise duty rate. Exemption Notification No.14/2015-CE dated 01-03- 2015 & Notification No.15/2015-CE dated 01-03-2015 have been issued for this purpose. Consequently, manufactured excisable goods cleared from the factory or from EOU/EHTP/STP to DTA would not attract EC & SHEC with effect from 01-03-2015. Since the said levies have been subsumed in the basic excise duty rate no EC & SHEC would be payable on CVD also and the exemption

Notification nos. 13/2012-Cus dated 17-03-2012 & 14/2012-Cus dated 17-03-2012 has been rescinded as redundant vide Notification no. 9/2015- Cus dated 01-03-2015.

Comments The exemption from levy of EC & SHEC on

excisable goods is invariable since these levies have been subsumed in basic excise duty. However, there is lack of clarity on the question as to how the Cenvat Balance of EC & SHEC, if any, would be utilised from 01-03-2015 onwards since these balances are not available for adjustment with the basic duty.

8.3.1 Amendments made in Sec. 11A of CEA (Recovery of duty not paid or short paid)• Clause (vi) to Explanation 1 to Sec. 11A has been

inserted to provide that in cases where only interest is to be recovered, the “relevant date” shall be the date of payment of duty to which such interest relates.

• The expression “on the due date” in Clause b(ii) of Explanation - I has been deleted. Hitherto, relevant date was considered to be the due date of return even in a case where the return may have been filed later. With this amendment, the relevant date would shift to the date of filing of return.

• Explanation - 2 to Sec. 11A has been substituted to provide that in cases where the SCN is issued after the presidential assent of the Finance Bill 2015, the amended provisions shall apply.

• A new sub-Sec. 16 has been inserted under Sec. 11A to provide that Sec. 11A shall not apply to cases where the assessee has declared the liability in the returns filed by him, but the admitted tax has not been paid or short paid, then such short/non-payment shall be recovered in the prescribed manner to be notified at later date.

CommentsSec. 11A of CEA provides certain restrictions on the authorities to recover tax beyond 1 year etc. If by virtue of this amendment, the recovery of unpaid tax which has been admitted in the return is taken out of the purview of the said section and recovered through separate prescribed procedure, it is expected that the facilities like limitation by time etc. hitherto available to the assessee would not henceforth be made available. Similar amendments have been proposed under

service tax legislations in Sec. 73 of FA Act, where the recovery of unpaid admitted tax has been taken out of Sec. 73 and it is prescribed that the recovery would be henceforth made in Sec. 87 of FA Act which is invoked for recovery of unpaid confirmed demands through coercive measures like attachment of property, prosecution etc.

Thus, it is expected that similar rules would be prescribed under Central Excise also. It is noted that in the general rule making power given to the government under Sec. 37 of CEA, there is no express enabling provision for initiating recovery proceedings in a particular manner. It is, in this context perhaps that the power has been drawn from the enabling provision in Sec. 11A itself.

8.3.2 Changes in penal provisions under Sec. 11AC of CEAIn the Finance Bill 2015 vide clause 92, the existing Sec. 11AC of the CEA is being substituted by a new set of provisions. At the outset, it must be understood that till the new Sec. 11AC becomes operative, the present provisions does not empower the Government to impose penalty in case of short payment or non-payment of duty or erroneous refund of the duty, if such non-payment etc. has not arisen as a result of collusion, fraud, mis-statement, suppression etc. with the intent to evade to duty. For the first time in the history of Central Excise, penalty is being proposed to be imposed even in a case of non-compliance without intent to evade payment of duty. It is a matter to be examined legally as to whether the Government has the power to impose penalty in a case where the assessee has acted without malafide intentions and has simply lodged a claim for an exemption. It has so far been the precedent position that in a bonafide case no penalty can be imposed where there is no intent to evade



payment duty. In this case reference may be made to the case of Chemphar Drugs Liniments Vs. CCE [1989 (40) E.L.T. 276 (S.C.)] in support of the said proposition.

In the new Sec. 11AC (1)(a), even in a bonafide case, imposition of a mandatory penalty of 10% of the duty involved or `5000 which ever is higher is being proposed. However, to give some relief a proviso has been inserted in the same sub-section to the effect that the penalty would not be payable if the duty involved is paid alongwith interest either before the issue of SCN or within 30 days of the issue of SCN and the proceeding would be deemed to be concluded.

There is a further proposition in the Bill which relates to a bonafide non payment of duty which is suo moto paid by the assessee alongwith interest within 30 days of the receipt of the order, the new Sec. 11AC(1)(b) proposes to impose a penalty of 25% of the penalty confirmed in the Order provided that the penalty is also paid within 30 days of the receipt of the order alongwith the duty and interest. Thus, in this case the bonafide assessee would be liable to pay penalty equal to 2.5% of duty involved and confirmed by the order (25% of 10% of the penalty).

Sec. 11AC(1)(c), (d) and (e) all deal with imposition of penalty in cases involving suppression of fact etc. the following have been proposed through these sub-sections:

11AC(1)(c): As a fundamental provision, if duty is not paid or short paid or erroneously refunded, the assessee is liable to pay penalty to the extent of 100% of the duty involved. However, a proviso has been inserted in the proposed sub-section to the effect that in cases where the details related to such transactions are recorded in the specific records beginning with 08-04-2011 upto the date on which Finance Bill receives the assent of the President the penalty shall be 50% of the duty. This proposition is to cover the existing Sec. 11AC (1)(c) where the assessee is given the option to pay 50%

of the duty provided the transaction is recorded in the specified records as defined in clause (c) of Explanation 1 to Sec. 11A. It may be noted that existing Sec. 11AC(1)(b) read with clause (c) of Explanation 1 to Sec. 11A had been introduced w.e.f 08-04-2011. Hence, the facility under the existing Sec. 11AC(1)(b) has been allowed to continue till the Finance Act, 2015 is enacted and receives the assent of the President. However, this proviso will become redundant once the Finance Bill, 2015 receives the assent of the President. Thus, in this budget the Government proposed to de-recognised the fact that the assessee may have failed to pay the duty but have maintained appropriate records of the transaction in the specified manner and thereby has acted in a bon-fide manner.

11AC(1)(d): If the duty demanded in the notice and the interest payable thereon u/s 11AA is paid within 30 days of the communication of the SCN then the assessee would be liable to pay penalty @ 15% of the duty sought to be imposed subject to the condition that such penalty is also paid alongwith the duty and interest and then such proceeding will be deemed to be concluded.

11AC(1)(e): If the duty confirmed in the order and the interest payable thereon u/s 11AA is paid within 30 days of the communication of the Order then the assessee would be liable to penalty @ 25% of the duty sought to be imposed, subject to the condition that such penalty is also paid alongwith the duty and interest and then such proceeding will be deemed to be concluded.

Sec. 11AC(2) and (3) deals with a situation where the amount of duty involved is modified in the Order passed by the Central Excise Officer u/s 11A(10). In case the Appellate Authority or Court modifies the amount of duty then the amount of penalty payable under 11AC(1)(c) and Interest payable u/s 11AA shall stand modified accordingly and would have to be paid by the assessee. In 11AC(3) it has been provided that where the duty or penalty is increased by the Appellate Authority or Court then

the period of 30 days would be counted from the date of the Order of the Appellate Authority or Court.

Explanation 1 and 2 have been inserted in Sec. 11AC where the following has been clarified:

Clause (1) of Explanation (1) – Cases involving pending proceedings where no SCN has been issued before the enactment would be governed by the amended provision of Sec. 11AC. This Explanation is seeking to impose penalty, which may be higher in certain circumstances for an offence committed prior to the enactment of the section. It is a matter of legal examination as to whether a higher penalty can be imposed for an offence committed earlier when for the same offence lower penalty was prescribed at that point of time. It is a settled position that penalty prevalent at the time when the offence was committed can only be imposed. Reference in this regard may be made to the cases of Elgi Equipments Ltd. vs. Commissioner of Central Excise Coimbatore [2001 (128) E.L.T. 52 (S.C.)] & Lal Mining Engg Works Vs. CCE, Mumbai

Clause (2) of Explanation (1) clarifies that where the Order has not been passed before the date on which Finance Bill, 2015 receives the assent of the President, the assessee will still be eligible to follow proviso to Sec. 11AC(1)(a) or Sec. 11AC(1)(d), as the case maybe, subject to the condition that the duty, interest and reduced penalty is made within 30 days from the date on which the Finance Bill, 2015 receives assent of the President.

Clause (3) of Explanation (1) clarifies that where an Order is passed after the date on which the Finance Bill, 2015 has received assent of the President, then the assessee would be eligible to reduce penalty under Sec. 11AC(1)(b), 11AC(1)(e), as the case may be subject to the condition that payment of penalty is also made within the prescribed time. In this context we can examine two different situation are examined here-in-below:

• The SCN has been issued after the Finance Act, 2015 receives assent of the president and the Order is also passed for obvious reason after the enactment of the Finance Bill, 2015 in that case the application of 11AC(1)(b) and (e) is perfectly in order.

• However, if we consider a situation where the SCN is issued prior to even the Finance Bill, 2015 in that event 11AC would not have been invoked in a bonafide case or without suppression and hence this provision cannot be then applied because 11AC can only be invoked in cases where intention to evade duty is established.

8.3.3 Changes related to Settlement Commission• Proviso to clause (c) of Sec. 31 of the CEA has

been amended to omit the expression “in any appeal or revision”. Prior to the amendment, remand proceedings arising out of appeal and revisions only were not eligible to approach the Settlement Commission. In view of the said amendment, remands by Courts or Appellate Tribunal or any other authority under any proceedings would not be entitled for approaching Settlement Commission. Thus, one can approach the Settlement Commission, if the matter is pending before adjudicating authority and has not been adjudicated.

• Sec. 32B is proposed to be amended so as to enable Vice Chairman or Member of the Settlement Commission to officiate as Chairman in the absence of the Chairman of the Settlement Commission. Prior to the proposed amendment, only one of the Vice Chairman could officiate in the absence of Chairman.

8.3.4 Retrospective amendments in respect of Excise duty on value of rails• The Third Schedule annexed to the Finance

Bill, 2015 amends Notification No. 12/2012-CE dated 17-03-2012 as amended by Notification No. 3/2014 CE dated 03-02-2014. In the Third Schedule, the amendment made on 03-02-2014 has been given retrospective effect from 17-03-



2012. It may be seen that entry in Sl.No. 205A was inserted in 2014 and the value of rails used as inputs were exempted from the levy of excise duty @ 12% subject to the condition that no CENVAT credit was availed on the same.

• In Sec. 102 of the Finance Bill, 2015 the power to make this amendment retrospective has been given and it has also been provided that in view of this amendment, if any refund arises, it would be granted provided the application of refund for the claim is made within six month from the date of on which the Finance Bill, 2015 receives the assent of the President and that refund

claim would be subject to the provisions of Sec. 11B of CEA.

8.3.5 Other Legislative ChangesMinimum penalty u/s 37(4) or u/s 37(5) of the CEA has been increased from H2000/- to H5000/-. Sec. 37(4) or 37 (5) of CEA are invoked in specified situations like removal of excisable goods in contravention etc. for confiscation of goods and imposition of penalty. Prior to the proposed amendment, such penalties were imposable equal to the duty involved on the goods or H2,000 whichever was greater.

8.4 Central Excise Rule, 2002 [Effective from 01-03-2015 unless otherwise specified]

8.4.1 Daily Stock account may be now maintained digitally• Rule 10 of CER is being amended to provide for

issue of digitally signed invoices and preservation of records in electronic form by a manufacturer.

8.4.2 Authentication of invoice by digital signatureNew sub-rules (8) and (9) have been introduced in Rule 11 of CER. Rule has now been amended to allow the manufacturer to authenticate an invoice by using digital signature. Further, where transporter’s copy is digitally signed, the hard copy of the same shall be self attested by the manufacturer.

Corresponding notifications for conditions, safeguards and procedures to be followed by an assessee preserving digitally signed records is expected from CBEC in this regard.

CommentsThis amendment is flowing from Digital India initiative and is a welcome change for the benefit for assesses at large.

Similar procedural amendments have been made in Service Tax Rules.

8.4.3 Procedures prescribed for raising invoice for direct dispatch of goods to job workers/customersIn the Union budget 2015 provisions have been introduced to expressly permit direct movement of goods from the supplier to job worker/job workers. The procedure has been prescribed by inserting a proviso in Rule 11(2) of CER which provides that the invoice issued by the supplier should indicate that manufacturer or the output service provider as the buyer and the job worker as the consignee. Identical proviso has been inserted separately for suppliers who are registered dealer or importer.

Further, in case goods imported under the cover of bill of entry are sent directly to buyer’s premises; importer’s invoice shall specifically mention that the goods are directly sent from place or port of import to the buyer’s premises.

Consequential amendment has been made in Rule

11(7) in order to make the provisions of Rule 11 applicable to a registered importer who issues a CENAVTABLE invoice.

8.4.4 Recovery proceeding extended to penaltyThe power to initiate recovery of duty, declared as payable in the return, and interest as provided in Rule 8(4) of CER has been extended to cover ‘penalty’ imposed u/r 8(3A), which was earlier not included therein.

8.4.5 Penal provision introduced under Rule 12 of CERPenalty of one hundred rupees per day subject to a maximum of twenty thousand rupees for the period of delay has been introduced in case of delay of submission of return or statement prescribed in Rule 12 of CER

8.4.6 Confiscation and penal provision introduced for an importerHitherto, the provisions of confiscation and penalty were not applicable to a registered importer under Rule 25 of CER.

Rule 25 has been amended to apply to the registered importer as well. Further the amount of penalty has been increased from H2,000 to H5,000.

8.4.7 Amendment in Registration provisionsVide Notification No. 7/2015-CE (N.T), amendments to the registration process in Central excise has been made to simplify the registration formalities like mandatory online application, mandatory quoting of PAN etc. to ensure that registration is granted within two working days of the receipt of a duly completed application form.

Similar simpler procedures for de-registration has been proposed in the Notification.

Circular No. F. No. 201/24/2013-CX.6 dated 28-02-2015 in this regard has been issued by CBEC detailing the registration procedures.

8.4.8 Scope of the definition of ‘export’ clarified for the purpose of rebateThe existing provisions of Rule 18 provide for rebate of duty in case of export. The term export has been restricted to mean goods shipped as provision for use on board or supplied to a foreign going aircraft. The term has been now been explicitly clarified to include export of goods outside India as well. [Notification No. 8/2015-Central Excise (N.T.) dated 01-03-2015]

8.4.9 Restriction under Rule 12CCC of Excise Rules, 2002 applied to Registered Importers also [Notification No. 10/2015-Central Excise (N.T.) dated 01-03-2015]Hitherto, where a manufacturer, first stage or second stage dealer, or an exporter including a merchant exporter is prima facie found to be knowingly involved in any of the acts such as removal of goods without the cover of an invoice and without payment of duty, issuing duty of excise invoice without delivery of goods specified in the said invoice etc. the Chief Commissioner of Central Excise may order for withdrawal of facilities or impose the restrictions as specified in this notification. The said restrictions have been now been made applicable to Registered Importers also.



8.5Central Excise(Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 [Effective from 01-03-2015 unless otherwise specified]

8.6 Changes in Tariff / Effective Duty Rates [Effective from 01-03-2015 unless otherwise specified]

8.5.1 Amendment in Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 [Notification No. 09/2015 Central Excise (N.T.) dated 01-03-2015] A manufacturer who intended to receive subject goods for specified use at concessional rate of duty had to earlier execute a general bond with surety or security. Now, the Rule has been amended to

provide that instead of general bond with surety or security, submitting letter of undertaking would be sufficient for manufacturers against whom no show cause notice has been issued alleging willful non-payment or suppression of duty, or where no action is proposed under any notification issued in pursuance of Rule 12CCC of CER or Rule 12AAA of CCR, i.e. manufacturers with clean track record.

Sl. No. Particulars Pre budget Post budget Impact

(A) Changes in Effective Duty Rates

1 Cement other than from Mini cement plant

- Packaged Cement (Trade)12% of (RSP less 30% of abatement)+ H120 per

MT

12.5 % of (RSP less

30% of abatement)+ H125 per

MT

- Packaged Cement (Non Trade meant for institutional / industrial consumer – NFR) & Bulk Cement

12% 12.5%

2 Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured

12% 18%

3 High Speed Diesel 14% + H5 per Litre

14% + H15 per Litre

4 Sacks and Bags (including cones) of polymers, ethylene, poly (vinyl Chloride) and others

12% 18%

5 Sacks and Bags of polymers of ethylene, other than for industrial use

12% 15%

6 Cigarettes, containing tobacco, other than filter cigarettes of length not exceeding 65 mm

H990 per thousand

H1280 per thousand


7 Leather Footwear 12% 6%

8 Wafers for use in the manufacture of Integrated Circuit (IC) modules for smart cards

12% 6%

9 Tablet Computer (provided no credit has been taken in respect of inputs or capital goods used in the manufacture of such goods)

12% 2%

10 Mobile handsets including cellular phones

- Non-availment of Cenvat credit on inputs or capital goods

1% 1% -

- Availing CENVAT credit 6% 12.5%

11 Pig iron SG grade and Ferro-Silicon- Magnesium for manufacture of cast components of wind operated electricity generators

12% NIL

12 Tin alloys for use in the manufacture of Photovoltaic (PV) ribbon (tinned copper interconnect) for manufacture of solar photovoltaic cells or modules

12% NIL

13 Solar water heater and System(provided no credit has been taken in respect of inputs or input service or capital goods used in the manufacture of such goods)

12% NIL

14 Parts for use in the manufacture of solar water heater and system

12% NIL

15 Parts, components or accessories for use in the manufacture of tablet computer, including sub-parts thereof

12% NIL

16 Chassis for use in the manufacture of motor vehicles cleared as ambulance duly fitted with all fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles

24% 12.5%

17 Certain Goods used in the manufacture of pacemaker, namely:- Battery, Titanium, Palladium wire, Eutectic wire, Diodes etc.

12% NIL

18 Ordinary Portland cement H900 per tonne

H1000 per tonne

19 All inputs for use in the manufacture of LED driver or MCPCB for LED lights and fixtures or LED Lamps

12% 6%




20 Condensed Milk put up in unit containers

- Non-availment of Cenvat credit on inputs or input services

12% 2%

- Availing CENVAT credit 12% 6%

(B) Changes in Additional Duty of Excise

1 Petrol H2 per litre H6 per litre

2 High Speed Diesel H2 per litre H6 per litre


5% NIL

(C) Changes in Effective Duty Rates

1 Cement other than from Mini cement plant

- Packaged Cement (Trade)12% of (RSP less 30% of abatement)+ H120 per

MT

12.5 % of (RSP less

30% of abatement)+H125 per

MT

- Packaged Cement (Non Trade meant for institutional / industrial consumer – NFR) & Bulk Cement

12% 12.5%


12% 18%

3 High Speed Diesel 14% + H5 per Litre

14% + H15 per Litre

4 Sacks and Bags (including cones) of polymers, ethylene, poly (vinyl Chloride) and others

12% 18%

5 Sacks and Bags of polymers of ethylene, other than for industrial use

12% 15%

6 Cigarettes, containing tobacco, other than filter cigarettes of length not exceeding 65 mm

H990 per thousand

H1280 per thousand

7 Leather Footwear 12% 6%

8 Wafers for use in the manufacture of Integrated Circuit (IC) modules for smart cards

12% 6%

9 Tablet Computer(provided no credit has been taken in respect of inputs or capital goods used in the manufacture of such goods)

12% 2%


10 Mobile handsets including cellular phones

- Non-availment of Cenvat credit on inputs or capital goods

1% 1% -

- Availing CENVAT credit 6% 12.5%

11 Pig iron SG grade and Ferro-Silicon- Magnesium for manufacture of cast components of wind operated electricity generators

12% NIL

12 Tin alloys for use in the manufacture of Photovoltaic (PV) ribbon (tinned copper interconnect) for manufacture of solar photovoltaic cells or modules

12% NIL

13 Solar water heater and System(provided no credit has been taken in respect of inputs or input service or capital goods used in the manufacture of such goods)

12% NIL

14 Parts for use in the manufacture of solar water heater and system

12% NIL

15 Parts, components or accessories for use in the manufacture of tablet computer, including sub-parts thereof

12% NIL

16 Chassis for use in the manufacture of motor vehicles cleared as ambulance duly fitted with all fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles

24% 12.5%

17 Certain Goods used in the manufacture of pacemaker, namely:- Battery, Titanium, Palladium wire, Eutectic wire, Diodes etc.

12% NIL

18 Ordinary Portland cement H900 per tonne

H1000 per tonne

19 All inputs for use in the manufacture of LED driver or MCPCB for LED lights and fixtures or LED Lamps

12% 6%

20 Condensed Milk put up in unit containers

- Non-availment of Cenvat credit on inputs or input services

12% 2%




- Availing CENVAT credit 12% 6%

(D) Changes in Additional Duty of Excise

1 Petrol H2 per litre H6 per litre

2 High Speed Diesel H2 per litre H6 per litre


5% NIL

8.6.2 Other Changes in Tariff / Effective Duty Rates• Clean Energy Cess The tariff rate of Clean Energy Cess levied on

coal, lignite and peat, is being proposed to be increased from H100 per tonne to H300 per tonne. However the effective rate of Clean Energy Cess is proposed to be increased from H100 per tonne to H200 per tonne.

• Abatement in MRP valuation Abatement from all Footwear reduced to 25%

from 35%

Following goods are being notified under Sec. 4A of the CEA for the purpose of assessment of Central Excise duty with reference to the Retail Sale Price:

• Full exemption from excise duty is being extended to captively consumed intermediate compound coming into existence during the manufacture of Agarbattis.

Sl. No. Particulars Abatement

1 Extracts, essences and concentrates, of tea or mate and preparation with a basis of these extracts, essences or concentrates or with a basis of tea or mates

30%

2 Condensed Milk put up in unit containers 30%

3 LED lights or fixtures 35%

4 All goods specified under chapter 2202 except mineral waters and aerated waters

35%

8.7 Other Changes [Effective from 01-03-2015 unless otherwise specified]

8.7.1 “Resident Firms” – eligible to apply for Advance Ruling defined.Vide Notification No.11/2015-CE (N.T.) dated 01-03-2015], ‘Resident firms’ has been now defined as a class of person for the purposes of Sec. 31 of CEA and the expressions “firm”, “sole proprietorship”, “One person company” and “resident” has been defined.

8.7.2 Conditions for Customs exemption apply to domestic manufactured goods against ICB projectsPresently goods manufactured domestically and supplied against ICB are eligible for full excise duty exemption provided that such goods when imported are exempted from BCD & CVD.

The said condition no. 41 is being amended vide Notification No.12/2015-CE, dated 01-03-2015 so as to provide that if imported goods are eligible for exemption of BCD & CVD subject to certain conditions, then the said conditions shall also apply mutatis mutandis to such goods when manufactured domestically and supplied against ICB for the purposes of availing of the said excise duty exemption.

8.7.3 Extension of tenure of BG for compliance of conditions in case of Ultra Mega Power ProjectsNotification No. 12/2012-CE dated 17-3-2012 provided Nil excise duty on goods for setting up of Ultra Mega Power Project specified in List No.

10 of the said Notification. In case of goods for a Project for which certificate regarding Ultra Mega Power Project status is provisional, the exemption is subject inter alia to condition that the Chief Executive Officer of the Project furnishes a bank guarantee or fixed deposit receipt for a term of 36 months or more.

The above condition No. 42 is being amended vide Notification No.12/2015-CE, dated 01-03-2015 to prescribe furnishing of bank guarantee or fixed deposit receipts for a period of 42 months from 36 months.

8.7.4 Extension of tenure of BG for compliance of conditions in case of Mega Power Project statusNotification No. 12/2012-CE dated 17-3-2012 provided Nil excise duty on goods for setting up of Mega Power Project specified in List No. 11 of the said Notification. In case of goods for a Project for which certificate regarding Mega Power Project status is provisional, the exemption is subject inter alia to condition that the Chief Executive Officer of the Project furnishes a bank guarantee or fixed deposit receipt for a term of 36 months or more.

The above condition no. 43 is being amended vide Notification No.12/2015-CE, dated 01-03-2015 to prescribe for furnishing of bank guarantee or fixed deposit receipts for a period of 66 months from 36 months.



8.8 Various Clarifications under Central Excise

8.8.1 Clarifications relating to Garnishee Notice and Recovery of arrears in instalmentsSec. 11(2) of CEA empowers the Central Excise Officers to issue an order to any other person from whom money is due to such person from whom recovery of arrears is required to be made. Such notice for recovery to other person is generally referred to as Garnishee Notice.

Clarification has been issued by CBEC vide Circular No. 996/3/2015-CX dated 28-02-2015 in relation to the powers of recovery officer to amend or withdraw the Garnishee Notice.

The circular clarifies that on occasions when the assessee comes forward to pay the arrears, the recovery officers have the powers to add, amend, vary or rescind the Garnishee Notice. Further Circular also provides that the Commissioner also has discretionary powers to allow recovery of arrears of taxes, interest and penalty in instalments upto a 24 months.

8.8.2 Clarifications relating to withdrawal of prosecution filed in a courtIt has been clarified vide Circular No. 998/5/2015-

CX dated 28-02-2015 issued by CBEC that where on identical allegation a Noticee has been exonerated in the quasi-judicial proceedings and such order has attained finality, Chief Commissioner shall give direction to the Central Excise Officer in the concerned Commissionerate to file an application through Public Prosecutor requesting the court to allow withdrawal of the prosecution in accordance with law.

These instructions shall mutatis mutandis apply to the prosecution filed under the Finance Act, 1994 and under the Customs Act, 1962.

8.8.3 Clarification issued for ‘place of removal’Clarification has been issued vide Circular No. 999/6/2015-CX dated 28-02-2015 for ‘place of removal’ as follows:

• For manufacturer exporter - Port/ICD/CFS where the goods are handed over for further delivery to the foreign buyer

• Merchant exporter - Factory gate, warehouse or depot of the manufacturer where the goods are handed over to the transporter

8.9 CENVAT Credit Rules [Effective from 01-03-2015 unless otherwise specified]

8.9.1 Extension of time limit for availing CENVAT Credit on input and input services from 6 months to 1 yearTime limit for availing CENVAT credit on input and input services extended from 6 month to 1 year from the date of issue of invoice or prescribed documents under Rule 9(1) of CCR.

8.9.2 Specific and express provisions inserted

to facilitate manufacturers or output service providers to send inputs or capital goods directly to job workerRule 4(1) and Rule 4(2) of CCR has been amended to allow the manufacturer or output service provider to avail CENVAT credit on receipt of inputs/capital goods by the job worker sent directly by the manufacturer.

CommentsThis amendment was necessary since there was a working capital blockage in CENVAT credit till the time it is received from job worker after processing to the manufacturer. With the above amendment, the said blockage has been lifted.

8.9.3 Further consequential amendments in Rule 4(5a) of CCR covering inputs and/or capital goods transferred to job workerRule 4(5a) of CCR has been amended in the following manner:

• Availment of CENVAT Credit would be permissible even if inputs and/or capital goods are sent to a job worker and from there subsequently to another job worker for further processing

• The requirement of reversal of CENVAT credit if capital goods not returned from a job worker within 180 days has been extended to 2 years.

• The period of 180 days/2 years in case of inputs/capital goods, as applicable, shall be computed from the date of receipt of the input and/or capital by the first job worker, in terms of amended provisions of rule 4(5a) of CCR.

8.9.4 Scope of reversal of CENVAT Credit under Rule 6 extended to non-excisable goods• Requirement of CENVAT credit reversal in rule

6 of CCR in respect of clearance of exempted goods has been extended to clearance of non excisable goods also.

• An Explanation has been inserted to define the value of non-excisable goods which shall be the invoice value and where such invoice value is not available value shall be determined by using reasonable means consistent with the principles of valuation under CE Act.

• Thus, CENVAT credit pertaining to inputs or input services used in or in relation the manufacture of non-excisable goods is not allowed

CommentsIt is pertinent to note that the definition of exempted

goods or exempted service has not been amended, thereby restricting the implication of this change to rule 6 of CCR.

8.9.5 Changes in the conditions for availment of CENVAT Credit on input services pertaining to partial reverse charge [Effective from 01-04-2015]• Hitherto in case of partial reverse charge, the

CENVAT credit of input services was allowed on or after the date on which the payment is made of the value of the input service and the service tax paid or payable as indicated in the invoice. However, pursuant to the amendment, the credit is allowed after the payment of the service tax alone and the requirement of payment of the value of service has been done away with.

• Further, in case of partial reverse charge, if the value of input service and the service tax payable thereon was not paid within 3 months from the date of invoice, the manufacturer or service provider was required to reverse the entire CENVAT credit availed in this regard. However, second proviso to Rule 4(7) of the CCR has been amended to provide for reversal of service tax only to the extent paid by the service provider.

8.9.6 Recovery of CENVAT Credit wrongly taken but not utilizedThe amendments made in Rule 14 of CCR vide Notification No. 6/2015 – CE (N.T.) dated 01-03-2015 is in respect of recovery of CENVAT Credit wrongly taken or erroneously refunded.

The erstwhile Rule 14 as it stood prior to the amendment applied only to cases where credit had been taken and utilised wrongly or has been erroneously refunded. In terms of the earlier provisions in such a situation the credit was recoverable alongwith interest and the provision of Sec. 11A and 11AA of the CE Act was applicable in respect of a manufacturer and it was recoverable with interest and the provisions of Sec. 73 and 75 under the Finance Act, 1994 was applicable in output service provider. Hence, in the erstwhile provision, there was no machinery provision to



recover credit purported to be wrongly availed but not utilised.

In the amended provision, the authority have been given powers to recover the credit amount even in the case where the credit has taken wrongly but not utilized but no interest is chargeable for the obvious reason that no prejudice has been caused to the revenue authorities since the amount has remained unutilized. In view thereof in the amended Rule 14(1)(i), the machinery provision of the Sec. 11AA of the CE Act and Sec. 75 of the Finance Act, 1994 has not been invoked. Thus, legally speaking once it is accepted that the purported wrong credit has not been utilized, it cannot be subjected to imposition of interest since in 14(1)(i) the provision for imposition of interest has not been invoked.

The amendment has curved out a separate provision (Rule 14(1)(ii) to cover cases where credit has been wrongly taken and utilized or has been erroneously refunded and in that case the credit so taken and utilized would be recovered alongwith interest from the manufacturer or provider of output service and the provision of Sec. 11A and 11AA of CE Act and Sec. 73 and 75 of the Finance Act, 1994 shall apply mutatis mutandis.

In the amended Rule 14, a new sub-rule (2) has also been introduced which lays down the method of ascertaining as to when credit has been taken and when the utilization occurred. It is provided that in all cases it would be the last day of the month that would be considered as credit taken. The utilization would be ascertained by application of a deeming fiction which has been described as below:

• The opening balance of the month to be utilized first;

• Credit admissible in terms of the CCR taken during the month to be utilized next;

• Credit inadmissible in terms of the CCR taken during the month to be utilized thereafter

The sub-rule (2) of Rule 14 has been made applicable to both Rule 14(1)(i) and (ii). However, Rule 14(2) has two parts to it, the first part is to ascertain when the purported wrong credit is taken and the second is when it is deemed to have been utilized. Since Rule 14(1) applies to a specific situation that credit has been taken but not utilized, the second leg of Rule 14(2) cannot be applied to the situation covered under Rule 14(1)(i). If this interpretation is not taken, then a situation will arise where in the very next month when the wrong credit was availed but not utilized, it would form a part of the opening balance and by applying the second leg of Rule 14 (2), it would be deemed to be utilized. This would give rise to a situation where the Rule 14(1)(i) would be redundant, and it is a settled position of law that an interpretation cannot be taken which renders a provision redundant or otiose. In this regard reference is made is the Hon’ble Supreme Court’s decision in the case of Jagir Singh vs Ranbir Singh and Anr.[(1979) 1 SCC 560] wherein it was held that what cannot be done directly cannot be allowed to be done indirectly as that would be an evasion of statute. It was further held that it is a well known principle of law that the provisions of law cannot be evaded by shift or contrivance and in an indirect or circuitous manner the objects of a statute cannot be defeated.

8.9.7 Amendments to penalty provisions for wrong utilisation of CENVAT Credit [Effective from enactment of the Bill]• Hitherto, as per Rule 15 of the CCR, if any person

takes or utilizes CENVAT credit in respect of input or capital goods or input services, wrongly or in contravention of the provisions of CCR, such person is liable to penalty not exceeding the duty or service tax, as the case may be or H2000/- whichever is greater. Where the CENVAT credit has been taken or utilized by a manufacturer or output service provider for the reasons of fraud etc. Provisions of Sec. 11AC of CEA or Sec. 78 of Finance Act respectively were applicable.

• Rule 15 of the CCR has been suitably amended to align the provisions of penalties pertaining to contravention of the provisions of the CCR, in lines with the amended penal provisions under the central excise and service tax regulations

CommentsThere may be a situation where the assessee is desirous of lodging a claim of CENVAT credit on some input, capital goods or input service which is disputed by the department or the matter is already under dispute in respect of other assessees and avails the credit but does not utilize it and discloses the availment in the return. Once the above amendment becomes effective after the enactment of the Finance Bill, 2015, the assessee would be subject to the following situations:

Cases not involving fraud, collusion, mis-statement, etc. :

• If he reverses the credit before the issuance of Show Cause Notice or within 30 days of issuance of the Notice, no penalty would be imposable on him;

• If he reverses the credit within 30 days of the receipt of the Order, then penalty @ 2.5% would be imposable on him;

• In other cases 10% penalty or H5,000/- (only in case of CE Act) whichever is higher, would be imposable on him;

Cases involving fraud, collusion, mis-statements, etc.:

• If he reverses the credit within 30 days of the receipt of the Show Cause Notice, then penalty @ 15% would be imposable on him;

• If he reverses the credit within 30 days of the receipt of the Order, then penalty @ 25% would be imposable on him;

• If he reverses the credit pertaining to transactions recorded between 08-04-2011 to the assent of the Finance Bill, 2015, then penalty @ 50% would be imposable on him;(only in case of CE Act)

• In any other cases 100% penalty would be imposable on him.

It is needless to say that even if the assessee suo moto reverses the credit, he does not lose the legal recourse otherwise available to him, inorder to contest the denial of credit.



SECTION 9

CUSTOMS






113

9.2.1 Waiver of Penalty under Sec. 28(2). 113

9.2.2 Reduction of Penalty from 25% to 15% u/s 28(5). 113

9.2.3 Conclusion of Proceedings in certain cases 113

9.2.4 Reduction of payment of penalty to 10% or H5000 whichever is higher u/s 112(b)(ii)

113

9.2.5 Reduction of payment of penalty to 10% or H5000 whichever is higher u/s 114(ii)

114

9.2.6 Matters remanded to the adjudicating authority not to be considered as eligible for application before the Settlement Commission.

114

9.2.7 Provisions pertaining to Settlement commission omitted, wherever rendered redundant

114

9.3 Miscellaneous changes[Effective from 01-03-2015]

114

9.3.1 “Resident Firms” – eligible to apply for Advance Ruling defined. 114

9.3.2 Increase in the rate of additional duty of customs/Road Cess 114

9.3.3 Education Cesses in respect of CVD abolished 114

9.4 Major changes in rates of duties of Customs[Effective from 01-03-2015]

115


Proposed changes in the Finance Act contained in clauses 80-88 of Chapter IV of the Bill, effective from the date of enactment.

A declaration has been made in respect of Clause 89 of the Finance Bill, 2015 so that the changes made through this clause take effect immediately from the midnight of 28th February/1st March 2015. The other clauses would be effective from the date of enactment of Finance Bill, 2015.

Notifications Nos. 6-11/2015-Customs all dated 01-03-2015 have been issued, notifying effective rates of duty as well as changes in various Tariff rates which have become effective from the date of Notification

Notifications No. 27/2015-Customs (N.T.) dated 01-03-2015 have been issued, amending Sec. 28E of the Customs Act, 1962 and have become effective from the date of the notification


9.2.1 Waiver of Penalty under Sec. 28(2).Proviso inserted in Sec. 28(2) of the Customs Act, 1962 (Act for short) in terms of which in case a show cause notice has been issued u/s 28(1) of the Act and the proper officer is satisfied that the duty demanded along with the applicable interest has been paid by the noticee, no penalty shall be imposed and the proceedings would be deemed to be closed. Earlier, the facility was available only prior to issuance of the notice in cases, which did not involve fraud, collusion, suppression of fact etc.

9.2.2 Reduction of Penalty from 25% to 15% u/s 28(5).Sec. 28(5) of the Act has been amended requiring the noticee to pay 15% penalty in place of earlier 25% in cases where the noticee suo moto pays the duty demanded along with interest within 30 days of the receipt of the notice. This provision is applicable in cases where duty has not been paid or has been short paid or refund has been erroneously granted by reason of fraud, collusion, suppression of facts etc.

9.2.3 Conclusion of Proceedings in certain casesExplanation – 3 inserted in Sec. 28 of the Act, in terms of which, in cases where a notice has been issued but not adjudicated before the Finance Bill 2015 is enacted, the proceedings would be deemed to be concluded, if the proper officer is satisfied that the noticee has paid the duty, applicable interest and penalty (wherever applicable) within 30 days of the enactment of the Finance Bill. The conclusion of the proceedings would be without prejudice to Sec. 135, 135A and 140 of the Act (relating to prosecution and offenses by companies).

9.2.4 Reduction of payment of penalty to 10% or H5000 whichever is higher u/s 112(b)(ii)Sec. 112(b)(ii) of the Act has been amended to allow noticee to pay penalty @ 10% of the duty or H5,000/- whichever is higher if the duty demanded for improper importation of goods is paid alongwith applicable interest within 30 days of the receipt of the order. Earlier there was no such facility available to the noticee and he had to mandatorily pay 100% penalty in cases where Sec. 112 of the Act was invoked.



9.2.5 Reduction of payment of penalty to 10% or H5000 whichever is higher u/s 114(ii)Sec. 114(ii) of the Act applicable for improper export of goods have been amended to allow noticee to pay penalty @ 10% of the duty or H5000/- whichever is higher if the duty demanded for improper exportation of goods is paid alongwith applicable interest within 30 days of the receipt of the order. Earlier there was no such facility available to the noticee and he had to mandatorily pay 100% penalty in cases where Sec. 114 of the Act was invoked.

9.2.6 Matters remanded to the adjudicating authority not to be considered as eligible for application before the Settlement Commission.Proviso to Sec. 127A(b) of the Act has been

amended to omit the expression “in any appeal or revision” has been removed. Prior to the amendment, remand proceedings arising out of appeal and revisions only would not be eligible to approach the Settlement Commission. In view of the said amendment, remands by Courts or Appellate Tribunal or any other authority under any proceedings would also be covered.

9.2.7 Provisions pertaining to Settlement commission omitted, wherever rendered redundantVarious provisions pertaining to the Settlement Commission viz. Sec. 127B(1A), Sec. 127(6), Sec. 127E, explanation to Sec. 127H and Sec. 127E of the Act, omitted being redundant.

9.3 Miscellaneous Changes[Effective from 01-03-2015]

9.3.1 “Resident Firms” – eligible to apply for Advance Ruling defined.Vide Notification No. 27/2015-Customs (N.T.) dated 01-03-2015 “resident firms” has been defined as a class of person for the purposes of Sec. 28E(c)(iii) of the Act and the expressions “firm”, “sole proprietorship”, “One person company” and “resident” has been defined. Sec. 28(E)(c)(iii) of the Act covers definition for the purposes of Advance Ruling.

9.3.2 Increase in the rate of additional duty of customs/ Road CessVide Notification No. 6/2015-Customs, 7/2015-Customs both dated 01-03-2015, the additional duty leviable on motor spirit/petrol and high speed diesel has been increased to H6 per litre. Earlier the duty was H2/- litre.

9.3.3 Education Cesses in respect of CVD abolishedThe EC and SHEC on CVD were earlier exempted

vide Notifications 13/2012-Cus and 14/2012-Cus dated 17-03-2012. The effect of these Notifications was that the imported goods post 17-03-2012 attracted EC & SHC once on the BCD.

In the Union Budget 2015, EC & SHEC on excise duty for the clearances of excisable goods made w-e-f 01-03-2015 is exempted vide exemption Notification No.14/2015-CE dated 01-03-2015 and Notification No.15/2015-CE dated 01-03-2015. With the exemption of EC and SHEC on clearance of excisable goods, the aforesaid Customs Notifications have been considered redundant and hence have been rescinded vide Notification 9/2015-Cus dated 01-03-2015.

CommentEC and SHEC on BCD as earlier continues. It may be noted Excise Duty and Service tax EC and SHEC have been subsumed as a part of the movement towards GST. As BCD would not be a part of the proposed GST, cess on the same is not being subsumed.

9.4 Major changes in rates of duties of Customs [Effective from 01-03-2015]


(A) BCD

1 Ulexite Ore 2.50% Nil

2 Metallurgical Coke 2.50% 5.00%

3 Butanes 5.00% 2.50%

4 Sulphuric Acid for manufacture of fertilizers 7.50% 5.00%

5 Isoprene 5.00% 2.50%

6 Styrene 2.50% 2.00%

7 Ethylene Dichloride (EDC) 2.50% 2.00%

8 Vinyl Chloride Monomer (VCM) 2.50% 2.00%

9 Anthraquinone 7.50% 2.50%

10 Butyl Acrylate 7.50% 5.00%

11 Water blocking tape for use in the manufacture of insulated wires and cables falling under heading 8544 (except sub-heading 8544 11)

10.00% 7.50%

12 Ethylene – Propylene – non-conjugated diene rubber (EPDM) for use in the manufacture of insulated wires and cables falling under heading 8544 (except sub-heading 8544 11)

10.00% 7.50%

13 Mica glass tape for use in the manufacture of insulated wires and cables falling under heading 8544 (except sub-heading 8544 11)

10.00% 7.50%

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

10.00% 7.50%

15 Unwrought antimony; powders 5.00% 2.50%

16 Antimony waste and scrap 5.00% 2.50%

17 Ceria zirconia compounds for use in manufacture of washcoat for catalytic converters

7.50% 5.00%

18 Cerium compounds for use in manufacture of washcoat for catalytic converters

7.50% 5.00%

19 Zeolite for use in manufacture of washcoat for catalytic converters

7.50% 5.00%




20 The following goods for use in the manufacture of refrigerator compressor falling under tariff item 8414 30 00:-i. C-Block compressorii. Crankshafts

7.50% 5.00%

21 Over Load Protector (OLP) and positive thermal coefficient for use in the manufacture of refrigerator compressor falling under tariff item 8414 30 00.

7.50% 5.00%

22 Evacuated tubes with three layers of solar selective coating for use in the manufacture of solar water heater and system

7.50% Nil

23 Ball screws for use in the manufacture of CNC Lathes (tariff item 8458 11 00, 8458 91 00) or Machining Centres (tariff item 8457 10 10, 8457 10 20)

7.50% 2.50%

24 Linear Motion Guides for use in the manufacture of CNC Lathes (tariff item 8458 11 00, 8458 91 00) or Machining Centres (tariff item 8457 10 10, 8457 10 20)

7.50% 2.50%

25 CNC Systems for use in the manufacture of CNC Lathes (tariff item 8458 11 00, 8458 91 00) or Machining Centres (tariff item 8457 10 10, 8457 10 20)

7.50% 2.50%

26 (a) Parts, components or accessories for use in the manufacture of tablet computer.(b) Sub-parts for use in the manufacture of items mentioned in (a) above.

7.50% Nil

27 Parts and accessories of the machines of heading 8472

7.50% Nil

28 Active Energy Controller(AEC) for use in manufacture of Renewable Power System(RPS) inverters

7.50% 5.00%

29 Digital Still Image Video Cameras capable of recording video with minimum resolution of 800*600 pixels, at minimum 23 frames per second , for atleast 30 minutes in a single sequence, using the maximum storage(including the expanded capacity)

10.00% Nil


30 Parts and components of Digital Still Image Video Cameras capable of recording video with minimum resolution of 800*600 pixels, at minimum 23 frames per second , for atleast 30 minutes in a single sequence, using the maximum storage(including the expanded capacity)

5.00% Nil

31 Organic LED(OLED) TV panels 10.00% Nil

32 Black Light Unit Module for manufacture of LCD and LED TV panels

10.00% Nil

33 Magnetron(upto 1 KW) used for the manufacture of domestic microwave oven

5.00% Nil

34 Motor vehicles:

(a) imported as a Completely Knocked Down(CKD) kit containing all the necessary components, parts or sub-assemblies , for assembling a complete vehicle with engine, gearbox and transmission mechanism not in a pre-assembled condition;

10.00% 10.00% -

(b) In a form other than (a) above. 10.00% 20.00%

35 Electrically operated vehicles whether, imported in a Completely Knocked Down (CKD) kit containing all the necessary components, parts or sub-assemblies, for assembling a complete kit with engine, gear box and transmission mechanism not in a pre-assembled condition, or not

10.00% 10.00% -

36 The following goods for use in the manufacture of Flexible Medical Video Endoscope (heading 9018), namely:- (i) CCD/CMOS Camera Sensor; (ii) Main printed circuit board of CCD/CMOS

Camera Sensor; (iii) Objective Lens for CCD/CMOS Camera

Sensor; (iv) Light Guide/Image Guide optical fiber

bundle; (v) Ultrasound Transducer; (vi) Main printed circuit board of Ultrasound

Transducer.

5.00% 2.50%




37 Artificial Heart(left ventricular assist device) 5.00% Nil

38 High Density Polyethylene(HDPE) for manufacture of telecommunication grade optical fibres or optical fibre cables

7.50% Nil

(B) CVD u/s 3(5), i.e. SAD

1 The following goods for use in the manufacture of pacemakers (tariff item 9021 50 00), namely:-(i) Battery; (ii) Titanium; (iii) Palladium wire; (iv) Eutectic Wire ; (v) Silicone Resins and Silicone Rubbers; (vi) Solder Paste; (vii) Reed Switch; (viii) Diodes; (ix) Transistors; (x) Capacitors; (xi) Controllers; (xii) Coils(steel) ; (xiii) Tubing (silicone).

4.00% Nil

2 All goods(except populated Printed Circuit Boards) for use in the manufacture of ITA bound goods covered by Notification numbers 25/1998, 24/2005, 25/2005 and 21/2012 as amended via Notification No 11/2015.

4.00% Nil

4 Styrene for use in the manufacture of excisable goods

4.00% 2.00%

5 Ethylene Dichloride(EDC) for use in the manufacture of excisable goods

4.00% 2.00%

6 Vinyl chloride Monomer(VCM) for use in the manufacture of excisable goods

4.00% 2.00%

7 Naptha for use in the manufacture of excisable goods

4.00% 2.00%

8 The following goods, namely:-(a) Melting scrap of iron or steel;(b) Stainless steel scrap, for the purpose of

melting.

4.00% 2.00%


9 The following goods, namely:-(a) Copper scrap;(b) Brass scrap.

4.00% 2.00%

10 Aluminium scrap 4.00% 2.00%

11 (a) Parts, components or accessories for use in the manufacture of tablet computer.

(b) Sub-parts for use in the manufacture of items mentioned in (a) above.

4.00% Nil

(C) Export Duty

1 Ilmenite, upgraded(beneficiated ilmenite including ilmenite ground)

5.00% 2.50%



SECTION 10

SERVICE TAX





10.2 Changes proposed in the Bill[Effective from enactment of the Bill or from a date to be notified]

124

10.2.1 Amendments in Sec. 65B of the FA Act 124

10.2.2 Change in the service tax rate - Sec. 66B of the FA, Act 125

10.2.3 Levy of Swachh Bharat Cess – Clause 117 of the Bill read with Para 123 of the Budget Speech

125

10.2.4 Changes in the Negative List – Sec. 66D of the FA Act 125

10.2.5 Other Changes proposed in the Bill 126


10.3 Amendments to Notification No. 25/2012-ST [Mega Exemption Notification] [Effective from 01-04-2015]

129

10.3.1 Insertions in Mega Exemption Notification 129

10.3.2 Deletions in Mega Exemption Notification 130

10.4 Amendments to Notification No. 26/2012-ST [Abatement Notification][Effective from 01-04-2015]

131

10.5 Amendments to Notification No.30/2012-ST [Reverse Charge Mechanism][Effective from 01-03-2015 or 01-04-2015 unless otherwise specified]

132

10.6 Amendments to ST Rules[Effective from 01—3-2015 or from a date to be notified]

133

10.7 Notification 42/2012-S.T. dated 29-06-2012 rescinded [Effective from 01-03-2015]

135

10.8 Exemption to services of a GTA for transport of export goods widened [Effective from 01-04-2015]

135

10.9 Scope of Advance Ruling extended to all specified resident firms [Effective from 01-03-2015]

135




Proposed changes in the FA Act contained in clauses 105–116 of Chapter V of the Bill, effective from the date of enactment or from a date to be notified by the Central Government.

Notification No. 03-09/2015-ST all dated 01-03-

2015 have been issued, amending Mega exemption notification, Abatement notification, Reverse Charge mechanism, ST Rules, and few other notifications.

10.2 Changes proposed by the Bill[Effective from enactment of the Bill or from a date to be notified]

10.2.1 Amendments in Sec. 65B of the FA Act• The under mentioned terms have now been

defined under the FA Act:

“Foreman of chit fund” shall have the same meaning as is assigned to the term “Foreman” in clause (j) of Sec. 2 of the Chit Funds Act, 1982;

“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 there under.

“Lottery distributor or selling agent” means a person appointed or authorised by a State for the purposes of promoting, marketing, selling or facilitating in organising lottery of any kind, in any manner, organised by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998.

• Definition of “Service” in Sec. 65B (44) of FA Act has been amended to specifically cover the following activities under the service tax net

Services provided by a Lottery distributor

or selling agent in relation to promotion/marketing/selling of the lottery

Services provided by a foreman of chit fund for conducting or organising a chit in any manner

Comments At present, the definition of ‘Service’ excludes a

transaction in money or actionable claim [Sec. 65B(44)(a)(iii)]. Disputes arose whether services in relation to ‘chit fund’ or ‘lottery etc’ were exempt from levy of service tax in view of the said exclusion.

The taxability of ‘chit fund’ had been dealt with in the education guide issued in June 2012 wherein it had been specifically clarified that providing services in relation to chit fund is not a transaction only in money and the consideration received for such services shall be chargeable to service tax.

The assessee in the case of Delhi Chit Fund Association vs. UOI [2013 (30) STR 347 (Del)] contended that the activities performed by them is covered in the expression ‘transaction in money or actionable claim’ and hence not exigible to service tax in view of Sec. 65B (44)(a)(iii) of the FA Act. The Hon’ble High Court after

due consideration upheld the contention of the Delhi Chit Fund Association. This decision was further upheld by the Hon’ble Supreme Court by dismissing the SLP filed by the Department against the High Court Order [2014-TIOL-23-SC-ST]. In view of the proposed amendment any activity, including activities carried out by a distributor/selling agent of lottery tickets or by a foreman of chit fund for a consideration in relation to or for facilitation of a transaction in money or actionable claim has now been brought within the tax net.

In view of the decision of the Hon’ble Delhi High Court in the case of Delhi Chit Fund (supra), the clarification in the education guide could not be applied or implemented.

To overcome the divergent legal positions, the above amendment is proposed to validate the intention of the legislature to tax the aforesaid activities carried out by a lottery distributor, foreman of chit fund specifically.

• Definitions of phrases “Amusement facility” & “Entertainment event” is proposed to be deleted from Sec. 65B(9) and Sec. 65B(24) of FA Act, in line with the amendment in the Negative List wherein services by way of admission to entertainment events or access to amusement facilities has been made leviable to service tax.

10.2.2 Change in the service tax rate – Sec. 66B of the FA ActThe Central Government has proposed to enhance the basic service tax rate from 12% to 14% vide amendment of Sec. 66B. The education cess (2%) and secondary and higher education cess (1%) is abolished and subsumed in the above rate of 14% to be effective from a date to be notified by the Government.

10.2.3 Levy of ‘Swachh Bharat Cess’ – Clause 117 of the Bill read with Para 123 of the Budget SpeechIt is proposed to introduce ‘Swachh Bharat Cess’ @ 2% or less, as a service tax, on all or any of the

taxable services. This levy would be on the value of such services from a date to be notified later.

The collection on this account would be credited to the Consolidated Funds of India and used for the purpose of financing and promoting Swachh Bharat initiatives or any related purpose.

The provisions of FA Act with respect to levy and collection of service tax shall mutatis mutandis apply to the levy of Swachh Bharat Cess as well.

CommentsIn Para 123 of his Budget speech, the Hon’ble Finance Minister has indicated that the levy may be @ 2% or less when it is introduced. The levy of Swachh Bharat cess @2% on the value of services may therefore effectively enhance the service tax rate from 12.36% to 16%.

Although the Swachh Bharat Cess is proposed to be collected as Service Tax, there is no clarity a to whether, CENVAT Credit of such levy would be extended in line with education cess to a manufacturer or output service provider. The TRU letter dated 28-02-2015 related to changes in Service Tax is also silent in this regard. However, one view could be that the levy being collected as service tax would be covered in Rule 3(1) (ixb) of CCR, which allows credit of service tax leviable on eligible input service. By extending the said view, it would be also permissible for a manufacturer to avail and utilise the Swachh Cess for payment of his output excise liability.

10.2.4 Changes in the Negative List – Sec. 66D of the FA Act• Levy of service tax on any service received by

a business entity from Government or local authority

Presently, only ‘support services’ [as defined in Sec. 65B (49) of FA Act] provided by Government/ Local authority to business entities are liable to service tax.

The expression ‘support services’ contained in Sec. 66D (a)(iv) of FA Act has been replaced



with ‘any service’. Correspondingly, ‘any service’ provided by Government/local authority would become taxable from a date to be notified. To facilitate all stake holders, the term ‘Government’ has now been defined under Sec. 65B (26A) to mean departments of Central Government, State Government and Union Territory. The tax would have to be paid on 100% reverse charge basis by the business entities. ‘Local Authority’ is already defined in Sec. 65B(31) of FA Act, which would continue to apply. As a consequential amendment, the definition of the term ‘support services’ contained in Sec. 65B (49) of FA Act has been omitted.

• Levy of service tax on job work involving process amounting to manufacture of alcoholic liquor for human consumption

At present, services provided by a job-worker which involves process amounting to manufacture of any goods (as defined in Sec. 65B (40) of FA Act) is exempted in view of the Negative List contained in Sec. 66D.

By this proposed amendment in Sec. 66D(f) of FA Act, the process amounting to manufacture of liquor for human consumption is taken out of the Negative List and brought under the service tax net. This appears to have been done primarily for the reason that liquor for human consumption does not attract central excise duty but is exigible to state excise duty levied under the State Acts. As a consequential amendment, it is proposed to omit the expression ‘alcoholic liquors for human consumption’ from Sec. 65B(40) of FA Act.

In line with the above amendment, corresponding changes have been brought in Entry 30 of Mega Exemption Notification covering job-work arrangements.

• Levy of service tax on admission to an entertainment event or access to amusement facility

At present, Sec. 66D(j) of FA Act excludes consideration charged for admission to entertainment event or access to amusement facility from the ambit of service tax. It is proposed to bring such activity within the tax net by omitting Clause (j) from Sec. 66D.

Accordingly, service tax is proposed to be levied on fees charged for services provided by amusement parks, amusement arcades, water parks and theme parks.

In view thereof, fees for admission to an entertainment event of concerts, pageants, musical performances concerts, award functions and sporting events will be liable to service tax. However by way of a specific entry in Mega Exemption notification, exemption has been provided to events where the fee does not exceed H500 per person. Recognized sporting events where the participants represent any district, state, zone or country shall however continue to be exempted.

• Conducting a chit fund and activities of distribution/selling of lottery not covered under ‘Betting, gambling or lottery’

Please refer to Para 10.2.1(b) above.

10.2.5 Other changes proposed in the Bill• Illustration inserted to explain the principles

of interpretation of specified description of services - Sec. 66 F of FA Act

Sec. 66F (1) prescribes that reference to a main service shall not include reference to any service which is used for providing the main service. To facilitate all stake holders an illustration has now been proposed to be inserted on a situation involving agency services provided by any bank to RBI. Services by RBI is in the Negative List [Sec. 66D(b) of FA Act]. Through the illustration it has been clarified that agency services provided by other banks to RBI would not be exempted from the levy as it is an ‘input service’ for RBI and not a service provided by RBI. The illustration

is proposed to be introduced in this section to exemplify the scope of this provision. This amendment is in the nature of a clarification and hence is likely to apply retrospectively and the principles of interpretation should be accordingly applicable.

• Valuation of taxable services – Sec. 67

Explanation to Sec. 67 of the FA Act has been amended to provide that consideration for a taxable service shall now also include all reimbursable expenditure or cost incurred and charged by the service provider, except in such circumstances, and subject to such conditions as may be prescribed.

The proposed amendment is an attempt to align the FA Act with Rule 5(1) of the Valuation Rules in the back drop of the decision of the Hon’ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd. vs. Union of India [2013 (29) STR 9 (Del.)] wherein it was held that the reimbursements will not be liable to service tax in absence of any machinery provision for valuation in Sec. 67 of the FA Act. The revenue is in challenge against the said order before the Hon’ble Supreme Court and the matter has been admitted.

• Recovery of service tax not levied/ not paid or short levied/ short paid – Sec. 73

Service tax authorities are being empowered to effect recovery without service of notice by invoking the provision of Sec. 87 in cases where the admitted service tax payable as disclosed in the ST-3 return has not been paid by the assessee either in full or in part.

Comment Sec. 87 provides for different coercive measures

for recovery of unpaid dues which includes deduction of money owed to the tax payer, detention of movable or immovable properties belonging to the tax payer etc. Consequential amendment has been made in Rule 6 of ST

Rules by omitting sub-rule 6A.

Sec. 73(4A) providing for reduced penalty if true and complete details of transactions are available on specified records has been omitted.

• Proposed amendments in Penal provisions Sec. 76 & 78 of FA Act.

In the Bill, vide Clause 111, the existing Sec. 76 of the FA Act is proposed to be substituted by a new set of provisions. At the outset, it is necessary to take note that Sec. 76 of FA Act, till the amendment becomes operative, only covers short payment or non-payment of tax due to reasons other than resulting from suppression of facts etc. The present provision seeks to impose penalty amounting to H100/- per day or 1% per month till the failure continues, whichever is higher, subject to a maximum of 50% of the service tax payable.

The proposed substitution of Sec. 76 of FA Act with the new provision is similar to the amendments being sought in Central Excise in Sec. 11AC (1)(a) & Sec. 11AC(1)(b) of the CEA. The amended provision would continue to cover only cases where a notice has been issued. In the new Sec. 76(1) of FA Act, in a bonafide case, imposition of a mandatory penalty not exceeding 10% of the tax involved is being proposed. However, to give relief a proviso (i) has been inserted in the same sub-section to the effect that the penalty would not be payable if the tax involved is paid along-with interest within 30 days of the receipt of SCN. However, there is no clarity as to whether the proceedings would be deemed to be concluded. To continue with the relief, proviso (ii) has been inserted to the effect that penalty of 25% of the penalty imposed under Sec. 76(1) would be payable if the tax along with interest and the said penalty is also paid within 30 days of the receipt of the order. Thus, in this case the bonafide assessee would be liable to pay penalty equal to 2.5% of duty involved and



confirmed by the order (25% of 10% of the penalty), if maximum penalty of 10% has been confirmed.

Proposed Sec. 76(2) of FA deals with a situation where the amount of tax involved in the Order passed by the Central Excise Officer u/s 73(2) of FA is modified in appeal or court proceedings. In case of such modification, the amount of penalty payable under Sec. 76(1) shall also stand modified accordingly and where the duty or penalty is increased by the Appellate Authority or Court then the period of 30 days would be counted from the date of receipt of the Order of the Appellate Authority or Court to claim the benefit of reduced penalty.

In the Bill, vide Clause 112, the existing Sec. 76 of the FA Act is proposed to be substituted by a new set of provisions. Sec. 78 of FA Act covers provisions relating to imposition of 100% penalty in cases where service tax has not been paid or short paid or erroneously refunded in situations involving suppression of fact etc. Sec. 78 is proposed to be substituted with new provisions where 100% penalty is sought to be imposed in case of short payment or non-payment of tax or erroneous refunds involving suppression of fact etc. The proposed Sec. 78(1) is similar to Sec. 76(1) discussed here-in-before. It is proposed that the assessee would have to pay 15% of service tax as penalty, in case the tax demanded is paid along with interest and such penalty, within 30 days of receipt of the notice [proviso (i) of Sec. 78(1)]. To continue with the relief, proviso (ii) has been inserted to the effect that penalty of 25% of the service tax demand confirmed in the order would be payable, if the tax along with interest is also paid within 30 days of the receipt of the order.

Proposed Sec. 78(2) of FA Act deals with a situation where the amount of tax involved in the Order passed by the Central Excise Officer u/s 73(2) of FA Act is modified in appeal or court

proceedings. In case of such modification, the amount of penalty payable under Sec. 78(1) shall also stand modified accordingly and where the duty or penalty is increased by the Appellate Authority or Court then the period of 30 days would be counted from the date of receipt of the Order of the Appellate Authority or Court to claim the benefit of reduced penalty.

• Transitory Provisions - Sec. 78B

This new provision is proposed to introduce transitory provision in relation to the new Sec. 76 & 78 of FA Act and are discussed here-in-below:

Sec. 78B(1) – Cases, involving pending proceedings where no SCN has been issued till the enactment of the Finance Bill 2015, would be governed by the amended provision of Sec. 76 or Sec. 78 of FA Act as enacted. This new provision is seeking to impose penalty, which may be higher in certain circumstances for an offence committed prior to the enactment of the section. It is a matter of legal examination as to whether a higher penalty can be imposed for an offence committed earlier when for the same offence lower penalty was prescribed at that point of time. It is a settled position that penalty prevalent at the time when the offence was committed can only be imposed. Reference in this regard may be made to the cases of Elgi Equipments Ltd. vs. Commissioner of Central Excise Coimbatore [2001 (128) E.L.T. 52 (S.C.)] & Lal Mining Engg Works Vs. CCE, Mumbai

Sec. 78B(2) – Provides that in cases covered under existing Sec. 73(4A) of FA Act (dealing with situations where the non payment or short payments have been noticed during the course of audit/investigation or verification) if notice has not been served or no order has been passed before enactment of the Bill, the penalty leviable shall not exceed 50% of service tax involved.

• Power to waive penalty in certain cases now withdrawn – Sec. 80

At present, Sec. 80 of the FA Act empowers the adjudicating/appellate authority to exercise their judicious discretion and waive penalty imposable u/s 76 & 77 of the FA Act in cases where the tax payer could establish reasonable cause for non-compliance.

There are a plethora of judgments wherein the Hon’ble Tribunals have been pleased to waive penalty in cases holding that the appellants had shown reasonable cause for non compliance. [Atwood Oceanics Pacific Ltd. vs CST, Ahmedabad [2013 (32) STR 756 (Tri-Ahmd)] and Mount Housing & Infrastructure Ltd. vs. CCE &ST, Coimbatore [2014 (35) STR 389 (Tri-Chennai)]].

It is proposed to withdraw the said Sec.80 from the FA Act. With the withdrawal of the said section many bonafide assessees who could otherwise have received the waiver of penalty

will now face hardships. It is however, also a matter of legal examination as to whether penalty can be at all levied in case of non-payment or short payment of tax due to bonafide reason e.g. claiming an exemption or pursuing a reasonable interpretation of the legal provisions.

• Appeals to Appellate Tribunal – Sec. 86

Appeals to the Appellate Tribunal against order of Commissioner (Appeals) in case of service tax export rebate would henceforth lie before Revisional authority set up by the Central Government.

Such case already pending before Tribunal from the date on which the Finance Bill 2012 was enacted till the date on which the Bill is enacted would be transferred to the Revisional Authority in accordance with Sec. 35EE of the CE Act.

10.3Amendments to Notification No. 25/2012-ST [Mega Exemption Notification][Effective from 01-04-2015/from a date to be notified]

Changes made in Mega Exemption Notification No. 25/2012–ST dated 20-06-2012 vide Notification No. 06/2015–ST dated 01-03-2015.

10.3.1 Specific Services exempted by insertion in Mega Exemption Notification:• Entry no. 2 of the Mega Exemption Notification

exempts Health care services provided by a clinical establishment, authorised medical practitioner or para medics. Entry no. 2 has been now split in two parts. Entry No. 2(i) retains the earlier exemption provided to Health Care Services and Entry No. 2(ii) is being introduced to grant exemption to services provided by way of transportation of a patient in an ambulance even by persons other than those specified in Entry no. 2.

CommentsHitherto, all health care services provided by a clinical establishment including the services of transportation of patients in an ambulance were exempt from service tax. With this amendment, the scope of the exemption has been widened to include ambulance services provided by other parties as well.

• Services of life insurance business provided under the “Varishtha Pension Bima Yojna” scheme. (Entry No. 26A)

• Services by operator of Common Effluent Treatment Plant by way of treatment of effluent. (Entry 43)

• Services by way of pre-conditioning, pre-cooling,



ripening, waxing, retail packing, labeling of fruits and vegetables which do not change or alter the essential characteristics of the said fruits or vegetables. (Entry 44)

• Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo. (Entry 45)

• 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. (Entry no. 46)

• Services by way of right to admission to-

exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet.

recognised sporting event.

award function, concert, pageant, musical performance or any sporting event other than a recognized sporting event, where the consideration for admission is not more than H500 per person. [Entry No. 47]

In-line with the above additions, the definitions of ‘national park’, ‘recognised sporting event’, ‘tiger reserve’, ‘trade union’, ‘wildlife sanctuary’ and ‘zoo’ have been incorporated.

10.3.2 Deletions from Mega Exemption Notification:• At present, services provided to the Government,

a local authority or a governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of the following are exempted from service tax:-

a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession.

a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment.

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 Sec. 65B of the said FA Act.

The above exemption has been withdrawn and hence-forth the exemption shall only be limited to the construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of historical monuments, sites of archaeological importance, canals, dams or irrigation works, plants for water supply, water treatment and sewerage treatment. [Entry No. 12]

• Construction, erection, commissioning or installation of original works pertaining to airports and ports will now attract service tax. [Entry No. 14]

• Consideration charged by a performing artist for services in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre brought into the service tax net if such consideration exceeds H1,00,000. Services provided by such artists as a brand ambassador continues to be taxable irrespective of the consideration charged. [Entry No. 16]

• Transportation of tea, coffee, jaggery, sugar, milk products and edible oil by rail or a vessel or by a goods transport agency in a goods carriage were earlier exempt from service tax and have now been brought within the service tax ambit. These services were earlier exempt under Entry No. 20 (i) and 21 (d). The exemption is now limited to transportation of milk, salt and food grains including flours, pulses and rice. It may be noted that the exemption to transportation of agricultural produce granted in Entry 20(h) and

21(a) of the Mega Notification, as it stands today, has been continued.

• Services provided by the following persons shall now attract service tax:

a mutual fund agent/distributor to a mutual fund or AMC shall now attract service tax.

selling or marketing agent of lottery tickets to a distributer or a selling agent. [Entry No. 29]

• Carrying out of any intermediate production process as a job worker in respect of alcoholic

liquor for human consumption now chargeable to service tax. [to come into effect from a date to be notified] [Entry No. 30]

• The exemption to services by way of making telephone calls from (i) departmentally run public telephone, (ii) guaranteed public telephone operating only for local calls and (iii) free telephone at airport and hospital where no bills are being issued has been withdrawn. [Entry No. 32]

10.4 Abatement Notification No. 26/2012-ST[Effective from 01-04-2015]

Changes made in Notification No. 26/2012–ST dated 20-06-2012 vide Notification No. 08/2015–ST dated 01-03-2015.

• Transport of goods/ passengers by rail Hitherto, service tax was payable on 30% of

the value of services of rail transport of goods and passengers (with or without accompanied belongings) without any condition. Now, the abatement shall be available subject to the condition that Cenvat credit on inputs, capital goods and input services, used for providing the taxable services has not been taken under CCR.

• Goods Transport Agency Abatement on “Transportation of goods by

Goods Transport Agency” was 75% which has now been reduced to 70%.

• Services provided in relation to chit Abatement of 30% on “Services provided in

relation to chit” has been withdrawn.

• Transport of goods in a vessel Abatement on “Transportation of goods in a

vessel” was 60% which has now been increased to 70%.

• Transport of passengers by air Hitherto, an abatement of 60% was provided on

taxable services of transport of passengers by air (with or without accompanied belongings). The said abatement continues for economy class travel and in case of other than economy class the abatement has been reduced to 40%.



10.5Amendments in Notification No.30/2012-ST [Reverse Charge Mechanism][Effective from 01-03-2015/01-04-2015/from a date to be notified]

10.5.1 Changes made in Notification No. 30/2012–ST dated 20-06-2012 (Reverse Charge Mechanism) vide Notification No. 07/2015 – ST dated 01-03-2015:

Sl. No. Particulars

Pre Budget Post Budget

% of service tax payable

by the person

providing service


by the person

receiving the service


by the person

providing service


by any person liable

for paying service tax other than the service

provider

1B Services provided by a mutual fund agent/ distributor to a mutual fund/AMC

Exempt vide Mega Exemption Notification No. 25/2012-S.T dated 20-06-2012 [Sl. No. 29 (c)&(d)]

NIL 100

1C Services provided by a selling/marketing agent of lottery tickets to a lottery distributor/ selling agent

Exempt vide Mega Exemption Notification No. 25/2012-S.T dated 20-06-

2012 [Sl. No. 29 (e)]

NIL 100

8 Services provided by way of supply of manpower or security services

25 75 NIL 100

11 Services provided by a person involving an aggregator in any manner [Effective from 01-03-2015]

Not Applicable NIL 100

10.6 Amendments to ST Rules[Effective from 01-03-2015/ 01-04-2015/ from a date to be notified]

Changes made in ST Rules vide Notification No. 05/2015–ST dated 01-03-2015 as under:

• Services provided by a person involving an “aggregator”

An “aggregator” has been defined to mean a person who owns/manages a web based software application and who enables a potential customer to connect by means of the application and a communication device with persons providing service of a particular kind under the brand name or trade name of the aggregator.

Further, the aggregator or his representative whosoever is situated in the taxable territory shall be liable to pay service tax. In the absence of the physical presence of the aggregator or his representative in the taxable territory, the aggregator shall appoint a person in the taxable territory who shall be the person liable to pay the service tax.

• Registration Changes brought in Rule 4 of the ST Rules [Sub-

rule (1A) omitted & sub-rule 9 inserted] by way of an Order No. 1/2015-ST dated 28-02-2015 to specify the procedure for obtaining service tax registration such as steps for on-line filling up of Form ST-1, time limit for submission of documents, nature of documents required to

be submitted, revocation of registration etc. In case of applicants seeking registration for single premises, it has been clarified by the CBEC that the service tax registration shall be granted within 2 days of on-line filing of the ACES form.

Further, the assessee can download the Registration Certificate from the ACES website and such certificate would be accepted as proof of registration. There will be no need for a signed copy.

• Option to maintain e-records & authentication by digital signature

Assesses may opt to authenticate the service invoices/bill/challan issued under Rule 4A/ consignment notes issued under Rule 4B by means of a digital signature. Simultaneously, option of maintaining records in electronic form is provided to the tax payer. The above shall be in accordance with the corresponding notifications issued by the CBEC, if any.

• Upward Revision in the alternate rate for payment of service as provided in Sub-Rules (7), (7A), (7B) & (7C) of Rule 6 in respect of services provided by Air Travel Agents, insurer carrying on life insurance business, money changer, lottery distributor/selling agent are as under:-



Particulars Pre-budget Post-budget

Services of booking of tickets for travel by air provided by an air travel agent

(i) 0.6% of the basic fare in case of domestic bookings

(ii) 1.2% of the basic fare in case of international bookings

(i) 0.7% of the basic fare in case of domestic bookings

(ii) 1.4% of the basic fare in case of international bookings

Services provided by an insurer carrying on life insurance business

3% of the premium charged from policy holders in the first year and 1.5% of the premium charged in the subsequent years

3.5% of the premium charged from policy holders in the first year and 1.75% of the premium charged in the subsequent years

Services of purchase or sale of foreign currency, including money changing

(i) 0.12% of the gross amount of currency exchanged for an amount upto H1,00,000 subject to the minimum amount of H30

(ii) H120 and 0.06% of the gross amount of currency exchanged for an amount exceeding H1,00,000 and upto H10,00,000

(iii) H660 and 0.012% of the gross amount of currency exchanged for an amount exceeding H10,00,000, subject to maximum amount of H6,000

(i) 0.14% of the gross amount of currency exchanged for an amount upto H1,00,000 subject to the minimum amount of H35

(ii) H140 and 0.07% of the gross amount of currency exchanged for an amount exceeding H1,00,000 and upto H10,00,000

(iii) H770 and 0.014% of the gross amount of currency exchanged for an amount exceeding H10,00,000, subject to maximum amount of H7,000

Services of promoting, marketing, organising or in any other manner assisting in organising lottery provided by a distributor or selling agent

(i) Guaranteed price payout is more than 80%:

H7,000 on every H10,00,000 (or part of H10,00,000) of aggregate face value of lottery tickets printed by the organising State for a draw

(ii) Guaranteed price payout is less than 80%:


(i) Guaranteed price payout is more than 80%:


(ii) Guaranteed price payout is less than 80%:


10.7 Notification 42/2012-S.T. dated 29-06-2012 rescinded [Effective from 01-03-2015]

10.8Exemption to services of a GTA for transport of export goods widened[Effective from 01-04-2015]

10.9 Scope of Advance Ruling extended to specified resident firms[Effective from 01-03-2015]

Initially Notification No. 42/2012 – ST dated 29-06-2012 had been issued to exempt the services provided by a commission agent located outside India to an Indian exporter on fulfilment of certain conditions as prescribed in the said Notification.

The exemption being now available in view of Rule 9 read with Rule 2(f) of the POPSR (introduced w.e.f. 01-07-2012), the notification 42/2012 became redundant and has now been rescinded vide Notification No. 03/2015-ST dated 01-03-2015.

Vide Notification No. 04/2015–ST dated 01-03-2015 exemption has been extended to GTA service for transportation of goods to a land customs station also. Such exemption already exists for

transportation of export goods from any container freight station/ inland container depot to the port or the airport from which the goods are to be exported.

Vide Notification No. 9/2015-ST dated 01-03-2015, ‘resident firms’ has been made eligible to apply for Advance Ruling. The expression ‘Firm’ has been defined to include partnership firms, LLP, sole proprietorship and one person company. Earlier, the facility was available only to ‘resident public limited company’ (earlier introduced vide

Notification No. 4/2013-ST dated 01-03-2013 ) and ‘resident private limited company’ (earlier introduced vide Notification No. 15/2014-S.T dated 11-07-2014). The expression ‘resident’ shall have the meaning assigned to it in Clause (42) of Section 2 of the IT Act, 1961 in so far as it applies to a resident firm.



PEOPLEINDIA. THE WORLD’S SECOND LARGEST RESOURCE BASE.

India is not just a country; it is a statement of endless possibilities.

Because the country comprises the second largest population cluster in the world.

Because the country accounts for the largest English-speaking engineering student flow in the world.

Because the country combines a robust democracy with an impartial judiciary. Enhancing international confidence.

Because a number of global investors find in India compelling social realities that can inspire them to invest for the long-term.

The moment is now.

SECTION 11

SEBI & CAPITAL MARKETS



In order to encourage retail participation in OFS, to enable other large shareholders to use the OFS mechanism and expand the universe of companies to use OFS mechanism framework, SEBI issued circular dated 08-08-2014 for modifying OFS framework in the following manner:

11.1.1 The OFS mechanism shall be available to top 200 companies by market capitalization in any of the last four completed quarter

11.1.2 Any non-promoter shareholder of eligible companies holding at least 10% of share capital may also offer shares through the OFS mechanism. Promoters/ promoter group entities of such companies may participate in the OFS to purchase shares from non-promoter shareholder, subject to compliance with applicable provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

11.1.3 Minimum 10% of the offer size shall be reserved for retail investors. Retail investor shall mean an individual investor who places cumulative bids of total value of not more than H2,00,000 aggregated across the exchanges. However, if the cumulative bid value of such investors exceeds H2,00,000 in the retail category the bids shall become ineligible. Individual retail investors shall have the option to bid in the retail category and the general category.

11.1.4 The cut off price shall be determined based on all valid bids and shall be separate for retail category and non-retail category.

11.1.5 Any unutilized portion shall be offered to non-retail category of investor. In case of excess

demand in retail category at the cut-off price, allocation shall be on proportionate basis.

11.1.6 Seller shall announce intention of sale of shares latest by 5 pm on T-2 day (T day being the day of the OFS) to the stock exchange.

11.1.7 In case of disclosure of the floor price, seller shall disclose the floor price latest by 5 pm on T-1 day to the stock exchange.

11.1.8 Seller may offer discount to retail investor. The details of discount and percentage of reservation for retail investors shall be disclosed upfront in the notice of OFS to the exchange.

11.1.9 Discount to retail investors may be offered as follows:

a) Multiple Clearing price for OFS- Retail investors may be allocated shares at

a discount to the cut-off price determined in the retail category, irrespective of the bid price entered by them.

or

Retail investors may be allocated shares at a discount to the bid price entered by them.

b) Single clearing price for OFS Retail investors shall be allocated shares at

a discount to cut off price determined in the retail category.

11.1.10 The discounted price may be below the floor price.

11.1.11 To make it easier for retail investors to participate in OFS, SEBI via its circular dated 01-12-2014 decided that seller may give an option to retail investors to place their bid at cut-off price in addition to placing price bids. In order to do so, following conditions shall be applicable to the OFS:

11.1 Expansion in the framework of offer for sale (“OFS”) through stock exchange mechanism

11.2 Amendments to SEBI (Delisting of Equity Shares) Regulations, 2009

SEBI at its Board meeting on 19-11-2014 had amended Delisting Regulation, 2009. Key amendments are detailed below:

11.2.1 Change in Threshold limits for successful delisting:a) 90% of the total share capital of the company

and

b) Atleast 25% of the number of public shareholders (holding shares in dematerialized mode as on date of Board of Directors meeting approving such delisting proposal) tender their shares in the reverse book building process. In subsequent press release dated 22-01-2015, the above requirement of mandatory participation of 25% of the public shareholders (holding shares in dematerialized mode) has been done away with provided the acquirer and the Merchant banker are able to demonstrate

that they have contacted all the public shareholders about the offer in the manner prescribed.

11.2.2 Determination of Offer Price :SEBI has modified Reverse Book Building process (‘RBB’) for determination of offer price i.e it would be a price at which the shareholding of the promoter, after including the shareholding of the public shareholders who have tendered their shares, reaches the threshold limit of 90%.

11.2.3 Prohibition from making delisting offer:The promoter/ promoter group shall be prohibited from making a delisting offer if any entity belonging to the said group has sold shares of the company during a period of six months prior to the date of the Board meeting which approves the delisting proposal.

a) Where option for cut-off price is given: i) Sellers shall mandatorily announce floor

price latest by 5 pm on T-1 day to stock exchange

ii) Exchanges will decide upon the quantity of shares eligible to be considered as retail bids, based upon the floor price declared by the seller

iii there shall be no indicative price for the retail portion of OFS.

b) Retail investors may enter a price bid or opt for bidding at cut-off price.

c) Margin for bids placed at cut-off price shall be at the floor price and for price bids at the value of the bid.

d) Allocation to retail investors shall be made

based on the cut-off price determined in the non-retail category.

e) Seller may offer discount to retail investors on the said cut off price.

f) Retail bids below the cut-off price shall be rejected. Retail bids at cut-off price shall be allocated on proportionate basis in case of over subscription.

g) Any unsubscribed portion of retail category after allotment shall be eligible for allocation in the non-retail category.

h) In respect of bids in the retail category, clearing corporation shall collect margin to the extent of 100% of order value in cash or cash equivalents. Pay-in and pay-out for retail bids shall take place as per normal secondary market transactions.



11.2.4 Use of Stock Exchange Platform & Appointment of Merchant Banker:a) Stock Exchange platform can be used for offers

made under Delisting, Buyback and Takeover Regulations.

b) Board of Directors of the company will be required to appoint merchant banker.

11.2.5 Failure of attempt to Delisting :Option to the acquirer to delist the shares of the company directly through Delisting Regulations pursuant to triggering Takeover Regulations has been provided. However, if the delisting attempt fails, the acquirer would be required to complete the mandatory open offer process under the takeover Regulations and pay interest @ 10% p.a. for the delayed open offer.

11.2.6 Exemption from RBB process:Companies whose paid up capital does not exceed H10 crs and net worth does not exceed H25 crs as on the last day of the previous financial year are exempted from following the RBB process. The exemption would be available only if (a) there was no trading in the shares of the company in the last one year from the date of the board resolution authorizing the company to go for delisting and (b) trading of shares of the company has not been suspended for any non-compliance during the same period.

11.2.7 TimelinesDelisting timeline has been reduced from 137 calendar days (around 117 working days) to 76 working days.

11.3 Key amendments to SEBI insider trading Regulations, 2014

In a move to align the Insider Trading Regulations in India with international practices and to strengthen the legal and enforcement framework, SEBI had approved to bring new SEBI (Prohibition of Insider Trading) Regulations, 2014 at its Board Meeting on 19-11-2014 with following key features:

11.3.1 Enhanced Definition of “Insider”Definition of ‘Insider’ has been widened to include any person with access to unpublished price sensitive information (‘UPSI’) including persons connected on the basis of contractual, fiduciary or employment relationship. UPSI has been defined as information not generally available and which may impact the price.

11.3.2 Definition of “Connected persons”Immediate relatives would be presumed to be connected persons and onus of establishing

that they did not possess UPSI shall be on such connected persons.

11.3.3 Wider disclosure requirements:Company is now required to disclose UPSI at least 2 days prior to trading by officials. Officials with access to UPSI all-round the year to formulate their pre-determined trading plans and disclose the same to stock exchanges. Clear prohibition on communication of UPSI has been provided except for legitimate purposes, performance of duties or discharge of legal obligations. To facilitate legitimate business transactions, UPSI can be communicated with safeguards.

11.3.4 Prohibition on directors and key management personnel to trade in derivatives of the securities of the company

11.4Inter Governmental agreement with United States of America under Foreign Accounts Tax compliance Act (FATCA)-Registration

SEBI in its circular dated 30-06-2014 and 30-12-2014 (together referred to as “the Circulars”) had laid down the requirement for Indian Financial Institution to get registered with US authorities and obtain a Global Identification Number (GIIN) to avoid potential withholding under Foreign Accounts Tax Compliance Act (FATCA). The Government of India have reached an agreement in substance on the terms of an Inter-Governmental Agreement (IGA) to implement FATCA and India is now treated as having an IGA w.e.f11-04-2014

11.4.1 Time limit applicable to Indian Financial Institution having overseas branches in Model 1 jurisdiction for the purpose of registration and obtaining GIIN was 31-12-2014.

11.4.2 Overseas branches of Indian Financial Institutions in a jurisdiction having IGA 2 agreement or in a jurisdiction that does not have an IGA but permits financial institutions to register and agree

to a Foreign Financial Institution (FFI) agreement, may register with US authorities to avoid potential withholding under FATCA.

11.4.3 Overseas branches of Indian Financial Institutions in a jurisdiction that does not have an IGA and does not permit financial institutions to register and agree to FFI may not register and their overseas branches would eventually be subject to withholding under FATCA.

11.4.4 It is further advised that if registration of the parent is a pre-requisite for a branch to register, such intermediaries may register as indicated in 11.4.1 & 11.4.2.

11.4.5 As per the circular dated 30-12-2014, it was clarified that FFIs who have registered with US authorities but have not obtained a GIIN should indicate to the withholding agents that GIIN is applied for.



SECTION 12

BUDGET PROPOSALS –

DIRECT TAX RATE STRUCTURE



INCOME TAX RATES:For individuals, Hindu Undivided Family, Association of Persons and Body of Individuals


0 - 2,50,000@ Nil

2,50,001 – 5,00,000+ 10.30% of income exceeding H2,50,000

5,00,001 – 10,00,000 H25,750 plus 20.60% of income exceeding H5,00,000

10,00,001 –1,00,00,000 H1,28,750 plus 30.90% of income exceeding H10,00,000


* Tax rates are inclusive of Education Cess and Secondary Higher Education Cess @ 2% and 1% respectively.

# Surcharge has been increased from 10% to 12% in case total income exceeds H1,00,00,000.

@ In case of resident individual of age 60 years or more (Senior Citizen) the basic threshold limit of H3,00,000 remains unchanged.

In case of resident individual of age 80 years or more (Very Senior Citizen) the basic threshold limit of H5,00,000 remains unchanged.

+ Resident individual having total income less than H5,00,000 is eligible to claim Tax Rebate u/s 87A, being lower of tax on total income or H2,000.

For Co-operative Societies


0 -10,000 10.30%

10,001 – 20,000 H1,030 plus 20.60% of income exceeding H10,000

20,001 – 1,00,00,000 H3,090 plus 30.90% of income exceeding H20,000


* The tax rates are inclusive of education cess and secondary higher education cess @ 2% and 1% respectively.

# Surcharge has been increased from 10% to 12% in case total income exceeds H1,00,00,000.

For Local AuthoritiesLocal Authorities are taxable at the rate of 30%. Surcharge has been increased from 10% to 12% where the total income exceeds H1,00,00,000. Education Cess is applicable at the rate of 2%. Secondary and Higher Education Cess is applicable @ 1% on income tax.

For Partnership FirmsPartnership firms are taxable at the rate of 30%. Surcharge has been increased from 10% to 12% where the total income exceeds H1,00,00,000. Education Cess is applicable at the rate of 2%. Secondary and Higher Education Cess is applicable @ 1% on income tax.

Alternate Minimum Tax (AMT)It is applicable on all persons other than companies. In case of Individual, Hindu Undivided Family, Association of Persons and Body of Individuals, it applies only if Adjusted Total Income exceeds H20,00,000. Adjusted Total Income is computed by increasing Total Income by any Deduction claimed under chapter VIA [Sec. 80-IA to Sec. 80RRB (Except Sec. 80P)] and Sec. 10AA.

AMT would be computed at the rate of 18.5% on adjusted total income. Surcharge has been increased from 10% to 12% where the adjusted total income exceeds H1,00,00,000. Education Cess is applicable at the rate of 2%. Secondary and Higher Education Cess is applicable @ 1% on income tax.

For CorporatesSl. No. Particulars Tax (%)

Surcharge (%)

E. Cess (%)

S & H E. Cess (%)

Effective Tax (%)


30 - 2 1 30.90

2Domestic companies (with total income more than H1 cr. but less than H10 crs.)

30 7* 2 1 33.063

3 Other domestic companies 30 12# 2 1 34.608


40 - 2 1 41.20

5Foreign companies (with total income more than H1 cr. but less than or equal to H10 crs.)

40 2 2 1 42.024

6 Other foreign companies 40 5 2 1 43.26

* Surcharge has been increased from 5% to 7%.

# Surcharge has been increased from 10% to 12%.

Minimum Alternate Tax (MAT)Sl. No.

Particulars Tax (%)Surcharge

(%)E. Cess

(%)S & H E. Cess

(%)Effective Tax (%)

1Domestic companies (with total income less than H1 Cr.)

18.5 - 2 1 19.055

2Domestic companies (with total income more than H1 Cr. but less than H10 Cr.)

18.5 7* 2 1 20.389

3 Other domestic companies 18.5 12# 2 1 21.342

4Foreign companies (with total income less than H1 Cr.)

18.5 - 2 1 19.055

5Foreign companies(with total income more than H1 Cr. but less than H10 Cr.)

18.5 2 2 1 19.436

6 Other foreign companies 18.5 5 2 1 20.008

* Surcharge has been increased from 5% to 7%.

# Surcharge has been increased from 10% to 12%.



Securities Transaction Tax (STT)STT is levied on the value of taxable securities transaction as under:

Sl. No.

Particulars Rate Payable by

1 Purchase/Sale of equity shares (delivery based) 0.1%Purchaser /

Seller

2Purchase of units of equity-oriented mutual fund (delivery based)

Nil Purchaser

3Sale of units of equity-oriented mutual fund (delivery based)

0.001% Seller

4Sale of equity shares, units of equity-oriented mutual fund (non-delivery based)

0.025% Seller

5 Sale of an option in securities 0.017% Seller

6 Sale of an option in securities, where option is exercised 0.125% Purchaser

7 Sale of a futures in securities 0.01% Seller

8 Sale of unit of equity oriented fund to the Mutual Fund 0.001% Seller

Commodities Transaction Tax (CTT)CTT is levied on the value of taxable commodities transaction:

Transactions Rate Payable by

Sale of commodity derivative (other than agricultural commodities) entered in a recognised association

0.01% Seller

Wealth Tax (WT)Levy of Wealth tax has been abolished.

Dividend Distribution Tax (DDT)Dividends distributed by an Indian Company are exempt from income tax in the hands of all shareholders. DDT shall be computed on the amount determined after grossing up dividend paid by the rate of tax (excluding surcharge and cess) on such dividend.

Grossing up is required to be done only of the Basic Rate and not of the Effective Rate. The rates of DDT are as below:

1To be increased by surcharge (applicable if any), education cess and secondary and higher education cess

DDT Rates for Companies

Basic Rate Effective Rate*

17.647 20.358

*including surcharge of 12% & Education Cess

DDT Rates for Mutual Fund# (MF) for payments to -

Transactions Basic Rate Effective Rate*

(1) Distribution by MF under an Infrastructure Debt fund scheme to a non-resident

5.263 6.071

(2) To an individual or HUF excluding (1) above

- Resident- Non Resident

33.3342.85

38.44949.432

(3) To any other person excluding (1) & (2) above

- Resident- Non Resident

42.8553.85

49.43262.121

Capital Gains

Short term capital gains tax1

Long term capital gains tax

Sale transactions of securities which attract STT 15% Nil

Sale transactions of securities not attracting STT

Individuals (residents and non-residents)Progressive slab

rates20% with

indexation;

10% without indexation (for

listed securities /zero coupon

bonds)

(3) To any other person excluding (1) & (2) above

Partnerships (resident and non-resident) 30%

Resident companies 30%

Overseas financial organizations specified in Sec. 115AB 40% (corporate)

FIIs 30% 10%

Other foreign companies 40% 20% with indexation;

10% without indexation (for

listed securities/zero coupon

bonds)

Local Authority 30%

Co-operative SocietyAs per

progressive slab rates

* including surcharge of 12% & Education Cess

# Excludes equity oriented funds



SPECIAL RATES FOR NON-RESIDENTS The following incomes in the case of non-resident are taxed at special rates on gross basis:

Nature of Income Rate(1)

Dividend(2) 20%

Interest received on loans given in foreign currency to Indian concern or Government of India

20%

Interest received on infrastructure debt funds referred to in Sec. 10(47)

5%

Interest of the nature and extent referred to in Sec. 194LC and Sec. 194LD

5%

Income received in respect of units purchased in foreign currency

20%

Royalty or technical fees3 10%

Interest on FCCB 10%

1These rates will further be increased by surcharge (applicable if any), education cess and secondary and higher education cess.

2 Other than dividends on which DDT has been paid.

3 Rate decreased from 25% to 10%.



SECTION 13

GLOSSARY



ACIT Assistant Commissioner of Income Tax

AE Associated Enterprise

AIF Alternative Investment Funds

AMT Alternate Minimum Tax

AO Assessing Officer

AOP Association Of Persons

AY Assessment Year

BCD Basic Customs Duty

BILL The Finance Bill, 2015

CBDT The Central Board of Direct Taxes

CIT The Commissioner of Income Tax

CCIT The Chief Commissioner of Income Tax

CBEC Central Board of Excise and Customs

CCR CENVAT Credit Rules, 2004

CE Act Central Excise Act, 1944

CE Rules Central Excise Rules, 2002

CTT Commodity Transaction Tax

CVD Additional Duty of Customs levied under section 3(1) of the Customs Tariff Act, 1975

DCIT Deputy Commissioner of Income Tax

DDT Dividend Distribution Tax

DTA Domestic Tariff Area

DTAA Double Taxation Avoidance Agreement

EOU Export Oriented Unit

FCCB Foreign Currency Convertible Bonds

GAAR General Anti Avoidance Rule

GDR Global Depository Receipts

HUF Hindu Undivided Family

Invit Infrastructure Investment Trust

ITAT The Income Tax Appellate Tribunal

JCIT Joint Commissioner of Income Tax

LLP Limited Liability Partnership

MAT Minimum Alternate Tax

MMR Maximum Marginal Rate

NPS National Pension Scheme

PAN Permanent Account Number

PA Per Annum

PE Permanent Establishment

POEM Place of Effective Management

POPSR Place of Provision of Service Rules, 2012

PY Previous Year

QFI Qualified Institutional Investor

R&D Research and Development

RBI Reserve Bank of India

REIT Real Estate Investment Trust

ROI Return of Income

RPF Regional Provident Fund

Rules The Income Tax Rules, 1962

SAD Special Additional Duty

SEBI The Securities and Exchange Board of India

SCN Show Cause Notice

SPV Special Purpose Vehicle

STT Securities Transaction Tax

ST Rules Service Tax Rules, 1994

TCS Tax Collected at Source

TDS Tax Deducted at Source

TAN Tax Deduction Account Number

The Act Income-Tax Act, 1961

TPO Transfer Pricing Officer

UOI Union of India

VAT Value Added Tax

Corporate Office701, Leela Business Park, Andheri-Kurla Road, Andheri (E), Mumbai - 400 059.

Tel: +91 22 6672 9999 | Fax: +91 22 6672 9777Email : [email protected] | Website : www.dhc.co.in

Ahmedabad703, Venus Atlantis, 100 Ft. Road, Corporate Road, Prahlad Nagar, Ahmedabad - 380 015 Tel: +91 (79) 4032 0441/4032 0442

BengaluruNo. 45, 1st Floor, 2nd Main, Sankey Road, (Above Indian Bank), Lower Palace Orchards, Bengaluru - 560 003. Tel: +91 (80) 6454 2545/6454 2546

Chennai 5B, A Block, 5th Floor, Mena Kampala Arcade, New No 18 & 20, Old No 113/114, Theyagaraya Road, T. Nagar, Chennai - 600 017.Tel: +91 (44) 4213 2024 / 4554 4143Fax: +91 (44) 4354 6876

CoimbatoreShree Shanmugappriya, 2nd Floor, 454, Ponnaiyan Street, Crosscut Road, Gandhipuram, Coimbatore - 641 012.Tel: +91 (422) 2237793 / 2238793Fax: +91 (422) 2233793

HyderabadRaja Pushpa House, 3rd floor, Plot No-34, Silicon Valley, Madhapur, Hyderabad - 500 081.Tel: +91 (40) 42007771/0Fax: +91 (40) 42007772

JaipurManish Mansion, Plot No. 247, 1st Floor Frontier Colony, Near Punjab National Bank, Adarsh Nagar, Raja Park, Jaipur - 302 004.Tel: +91 (141) 2604 743

JamnagarAparna, Behind Jevandeep Hospital, Near Hotel Bansi , Off. Indira Marg, Jamnagar - 361 001. Tel: + (0288) 2665023

Kolkata Constantia, “B” Wing, 7th Floor, 11, Dr. U.N. Brahmachari Street,Kolkata - 700 017.Tel: +91 (33) 4002 1485 Fax: +91 (33) 4002 1478

Devarati, 1st Floor,8, Dr. Rajendra Road, Kolkata - 700 020Tel: +91 (33) 2474 6303Fax: +91 (33) 2476 9341

Usha Kiran Building, Flat No. 4A, 4th Floor, 12A, Camac Street,Kolkata - 700 017.Tel: +91 (33) 3201 6298

Bagrodia Niket, 1st Floor, 19C, Sarat Bose Road, Kolkata - 700 020.Tel: +91 (33) 4025 4900

Mumbai42, Free Press House, 215, Nariman Point, Mumbai-400 021Tel: +91 (22) 6132 6999 Fax: +91 6729 9500 / 501 Fax: +91 (020) 6729 9555(22) 2285 6237

131, Mittal Court, 13th Floor, C Wing, Nariman Point, Mumbai - 400 021.Tel & Fax: +91 (22) 4002 5858

New Delhi3rd Floor, 52-B, Okhla Industrial Estate, New Delhi - 110 020.Tel: +91 (11) 4711 9999Fax: +91 (11) 4711 9998

PuneC-10,Godrej Eternia, Old Mumbai Pune Highway, Wakdewadi, Pune - 411005.Tel: +91 (020)

BASICS BUDGET PROPOSAL DIRECT TAXES

BUDGET PROPOSAL INDIRECT TAXES MISCELLANEOUS154 INDIA BUDGET

2015-16

Notes

A Product

[email protected]

As the world is converging into a single global entity, technology is blurring the lines between geographies, services and solutions. And in this era of a flat, borderless world, DHC is committed to going beyond service, into value addition in the true sense of the word.

• To understanding not just what our clients want, but what their business needs

• To meeting not just immediate requirements, but providing long term solutions

• To being not just reactive to client’s needs but being proactive to solve their future issues

Because at DHC, we believe there’s a thin line between ‘delivering a service’ and ‘delivering value’.

Documents

India Budget 2015-16