INDIA BUDGET 2016 - RSM Global images... · INDIA BUDGET 2016 Key Aspects in a Nutshell Let‟s understand the India Budget ... tax was determined pursuant to retrospective amendments,

INDIA BUDGET 2016

Key Aspects in a Nutshell

Let‟s understand the

India Budget

THE POWER OF BEING UNDERSTOOD

Indirect Taxes Other Proposals Contact Us Direct Taxes

INTRODUCTION TO BUDGET 2016

The Hon‟ble Finance Minister presented the Budget 2016 today before the House of Parliament. The emphasis is on „Transform India‟

and as such, the proposals are focused on transformation in Agriculture, Rural, Social, Education, Infrastructure & Investment, Finance,

Governance, Fiscal Discipline and Taxation.

The tax proposals fall under the following 9 categories:

1. Relief to small tax payers

2. Measures to boost growth and employment generation

3. Incentivizing domestic value addition to help Make in India

4. Measures for moving towards a pensioned society

5. Measures for promoting affordable housing

6. Additional resources mobilization for agriculture, rural economy and clean environment

7. Reducing litigation and providing certainty in taxation

8. Simplification and rationalization of taxation

9. Use of technology for creating accountability

The said proposals will be effective after the same receive the assent of the Honorable President of India.

We are pleased to present our publication ‘ Budget 2016 – Key Aspects in a Nutshell ’. The detailed publication would be

circulated separately.

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• There has been no change in personal tax rates and the basic

exemption limit continue to be at Rs.2.50 lacs. However, there is

an increase in surcharge from 12% to 15% for Individuals / HUFs

having taxable income above Rs. 1 crore. This will result in

maximum marginal rate of 35.535% {(30%+15% surcharge

thereon)+3% cess} for financial year 2016-17 as against 34.608%

{(30%+12% surcharge thereon)x3% cess} at present.

• The tax rebate under section 87A has been increased from Rs.

2,000 to Rs. 5,000 for Individuals having income up to Rs. 5 lacs.

• Deduction for additional interest of Rs. 50,000 per annum in case

of first time home buyers where the loans up to Rs. 35 lac

sanctioned in FY 2016-17 and house cost does not exceed Rs.

50 lacs.

• Withdrawal up to 40% of the corpus at the time of retirement to be

tax exempt in the case of National Pension Scheme (NPS) and

the Annuity fund which goes to the legal heir will also be exempt.

• In case of superannuation funds and recognized provident

funds, including EPF, the same norm of 40% of corpus to be

tax exempt will apply in respect of corpus created out of

contributions made on or from 1 April 2016.

• The limit of deduction under section 80GG for rent paid, has

been increased from Rs. 24,000 to Rs. 60,000.


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RELIEF TO SMALL TAX PAYERS





• The limit of turnover for applicability of Presumptive taxation

scheme under section 44AD for specified businesses, increased

from Rs. 1 crore to Rs. 2 crores.

• Presumptive taxation scheme extended to professionals having

gross receipts up to Rs. 50 lacs with profit deemed to be 50%

• The threshold limit of Gross Receipts for applicability of tax audit

in case of professionals increased from Rs. 25 lacs to Rs. 50 lacs.

• The profit linked incentives / deductions to be phased out as

under:

- Accelerated depreciation will be limited to maximum of 40%

from 1 April 2017;

- Benefit of deductions for in-house research would be limited to

150% from 1 April 2017 and 100% from 1 April 2020;

- Benefit of section 10AA to new SEZ units will be available

to those units which commence activity before 31 March

2020;

- Weighted deduction under section 35CCD for skill

development will continue up to 1 April 2020.

• Corporate Tax Rate are continue to be at 30% plus applicable

surcharge plus cess except in the following cases:

- Option to new manufacturing domestic companies

incorporated on or after 1 March 2016 for corporate tax rate

of 25% plus surcharge plus cess provided profit linked

incentives / investment linked deductions / investment

allowance / accelerated depreciation are not claimed.

- Corporate tax rate for relatively smaller domestic

companies with turnover not exceeding Rs. 5 crores (in the

financial year ending 31 March 2015) to be 29% plus

applicable surcharge plus cess.


BOOST EMPLOYMENT AND GROWTH

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• Deduction under section 80JJAA for additional wages is now

available to all the assesses who are subject to tax audit.

• Concessional tax rate of 10% for Indian residents on royalty

income on gross basis from worldwide exploitation of patents

developed and registered in India.

• Complete pass through of income-tax to securitization trusts

including trusts of ARCs. Securitisation trusts required to deduct

tax at source.

• As per Budget Announcements, period for getting benefit of long

term capital gains in case of shares of unlisted companies

proposed to be reduced from 3 years to 2 years.

• Non-banking financial companies shall be eligible for deduction to

the extent of 5% of its income in respect of provision for bad and

doubtful debts.

• Applicability of rules of Place of Effective Management (POEM)

for determining the status of residency of a foreign company

deferred by 1 year.

• General Anti Avoidance Rules (GAAR) to be effective from 1

April 2017.

• Dividend distributed by SPVs out of its income, to the REITs /

InvITs not subjected to DDT.

• New provision (section 35ABA) proposed to be introduced to

provide clarity for amortization of spectrum fees.

• For a foreign company engaged in business of mining of

diamonds, it is proposed that, no income shall be taxed from

the activities confined to display of uncut and unassorted

diamonds in a Special Notified Zone.


BOOST EMPLOYMENT AND GROWTH (Contd…)

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• Any income accruing or arising to a foreign company on account

of storage of crude oil in a facility in India and sale of crude oil

therefrom to any person resident in India shall not be included in

the total income.

• Deduction up to 100% of the profits allowed for 3 out of 5 years

for start-ups setup during April 2016 to March 2019. However,

MAT / AMT will apply in such cases.

• Deduction up to 100% of profits allowed to an undertaking in

housing project for flats upto 30 sq. metres in 4 metro cities and

60 sq. metres in other cities, approved between June 2016 and

March 2019 and completed within 3 years. However, MAT / AMT

will apply in such cases.


BOOST EMPLOYMENT AND GROWTH (Contd…)

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• One time window provided for domestic taxpayers to declare

undisclosed income or such income represented in the form of

any asset by paying tax at 30%, surcharge at 7.5% and

penalty at 7.5%, aggregating to 45% of the undisclosed income.

Declarants will have immunity from prosecution.

• Direct Tax Dispute Resolution Scheme 2016 proposed to be

introduced for tax arrears and specified tax where the assessee

has the option to settle the case by paying tax, interest and

penalty as under:

– where the appeal is pending before the CIT (Appeals), pay tax

arrears along with interest up to date of assessment and no

penalty where tax arrears are less than Rs. 10 lacs whilst

25% penalty where tax arrear exceeds Rs. 10 lacs

– Where appeal is pending before any appellate authorities and

tax was determined pursuant to retrospective amendments,

only tax amount to be paid and immunity from interest, penalty

and prosecution.

• Existing penalty provisions of Section 271(1)(c) is rationalized

and new Section 270A is introduced where it is proposed to

levy a penalty at 50% of taxes payable on the underreporting

of income and at 200% of taxes payable on the misreporting of

income.

• As per Budget announcements, Section 14A read with Rule 8D

proposed to be amended wherein disallowance would be

limited to 1% of the average monthly value of investments

yielding exempt income, but not exceeding actual expenditure

claimed.

• Petitions of the tax payers seeking waiver of interest and

penalty to be disposed off within a year.

• Emphasis placed on using technology for carrying out e-

assessment in case of all assessees in 7 mega cities.


PROVIDING CERTAINTY IN TAXATION

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• As per the Budget announcements, the Assessing Officer to grant

stay of demand once assessee pays 15% of the disputed

demand, while the appeal is pending before CIT (Appeals).

• Higher rate of TDS for non-provision of PAN in case of non-

residents, not to apply where alternative documents are provided

by such non-residents.

• TDS provisions also proposed to be rationalized.

• Government to pay interest at 9% p.a. for delay in giving effect to

Appellate order beyond 90 days.


PROVIDING CERTAINTY IN TAXATION (Contd…)

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• The dividend income of more than Rs. 10 lac per annum would

be liable to tax at 10% of gross amount of dividends in the hands

of Individuals / HUFs / Firms despite the fact that DDT is already

paid by companies declaring such dividends.

• Tax to be deducted at source at 1% on purchase of luxury cars

exceeding value of Rs. 10 lacs and purchase of goods and

services in cash exceeding Rs. 2 lacs.

• Securities Transaction tax in case of „Options‟ increased from

0.017% to 0.05%.

• Equalization levy of 6% proposed on payment (exceeding Rs. 1

lac per annum) made to non-residents not having a permanent

establishment, in respect of online advertising or space for digital

advertising, in case of B2B transactions.

• In addition to existing conditions for availing tax neutral

conversion from Company to LLP, value of total assets as per

books in any preceding 3 years not to exceed Rs. 5 crore.

• Based on OECD Action plan 13 of Base Erosion and Profit

Shifting (BEPS), it is proposed to provide specific reporting

regime in respect of Country by Country reporting (CbC) and

also a standardized master file for all group members of

Multinational Enterprises. Penal implications introduced for

non-compliance.


CERTAIN OTHER SIGNIFICANT TAX PROPOSALS

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Excise Duty Customs

• Effective service tax rate (including Swachh Bharat Cess) to

remain unchanged at 14.5%. However, it is proposed to levy

additional @ 0.5% as Krishi Kalyan Cess w.e.f. 1 June 2016 on

all or any of the taxable services to make effective service tax rate

of 15%.

• Exemption to construction and maintenance in relation to various

projects, contracts etc., which was removed w.e.f. 1 April 2015

has been restored and given retrospective exemption.

• Rate of interest rationalized @ 24% in case of amount collected

but not paid and @ 15% in all other cases, as against the present

rate of 18% to 30%, as the case may be.

• Legal Services provided by a Senior Advocate to an advocate or

partnership firm of advocates made liable to service tax.

• Rationalization of abatement to construction of complex, building

civil structure or part thereof @ 70% as against existing rate of

70% and 75% as the case may be.

• Services provided by Mutual Fund Agent/distributor to mutual

Fund/Asset Management Company to be liable as forward

charge.

• One Person Company whose aggregate value of services

during previous financial year is up to Rs. 50,00, 000 or a

Hindu Undivided Family shall be required to pay service tax as

per the due date as applicable to individual or partnership

firms.

• The limitation period for issuance of show cause notice is

proposed to be increased from 18 months to 30 months.

• Amendment in CENVAT Credit Rules, 2004 particularly

relating to apportionment of credit between exempted and non-

exempted final products/services.

• Amendment in provisions relating to Input Service Distributor

(ISD) including extension of this facility to transfer input

services credit to outsourced manufacturers under certain

circumstances.

Customs


Excise Duty Customs Customs Excise Duty Customs Customs Customs Excise Duty Customs Customs Excise Duty Customs

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Excise Duty Excise Duty Service Tax Excise Duty Customs Others





Excise Duty Customs

• Banking and other financial institution to have an option of

reversing CENVAT credit in respect of exempted services on

actual basis in addition to an option of reversal of 50% of

CENVAT Credit.

• The levy of service tax and excise duty/CVD to be mutually

exclusive on informational technology software.

• It is clarified that point of taxation in case of new levy on services

will be as per Rule 5 of Point of Taxation Rules, 2011 and that

that transactions other than those falling under two scenarios

specified in rule 5 shall be liable to new levy.

• The optional Service Tax rate in case of single premium annuity

policies is being rationalized @ 1.4% of the total premium

charged, where the amount allocated for investment is not

intimated to policy holder.

• Indirect Tax Dispute Resolution Scheme, 2016 is proposed to

be introduced w.e.f. 1 June 2016 for Service Tax, Excise and

Customs assessee who has filed an appeal before

Commissioner (Appeals) and is pending for adjudication as on

1 March 2016.

• Transportation of goods by a vessel from customs station of

clearance in India to place outside India, not to be treated as

exempted services for the purpose of CENVAT Credit Rules.

• It proposed to levy service tax on transportation of goods by a

vessel from outside India up to the customs station in India

w.e.f. 1 June 2016.

Customs


Excise Duty Customs Customs Excise Duty Customs Customs Customs Excise Duty Customs Customs Excise Duty Customs Excise Duty Excise Duty Service Tax Excise Duty Customs Others

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Excise Duty Customs

• No change in general effective rate of Basic Excise Duty („BED‟).

• Infrastructure Cess as duty of excise ranging from 1% to 4% is

being imposed on motor vehicles (depending upon type of motor

vehicle) falling under chapter heading 8703.

• Excise duty of 1% without input tax credit or 12.5% with input tax

credit on articles of jewellery (excluding silver jewellery, other

than studded with diamonds and some other precious stones)

with a higher exemption and eligibility limits of Rs. 6 crores and

Rs. 12 crores respectively.

• Excise duty on ready-made garments with retail price of Rs. 1,000

or more, raised to 2% without CENVAT credit or 12.5% with

CENVAT credit.

• BED on refrigerated containers reduced from 12.5% to 6%.

• Option for revising periodical returns to be provided to central

excise assesses

• Changes in excise duty rates on certain inputs in sectors like

Information technology hardware, capital goods, defense

production, textiles, mineral fuels & mineral oils, chemicals &

petrochemicals, paper, paperboard & newsprint, maintenance

repair and overhauling of aircrafts and ship repair.

• Reduction in number of returns under central excise by an

assessee above a certain threshold from 27 to 13.

• Exemption from excise duty on ready mix concrete

manufactured at construction sites.

• Refined gold bars manufactured from gold dore bar, silver dore

bar, gold ore or concentrate, silver ore or concentrate, copper

ore or concentrate. Prospectively, the excise duty exemption

under the existing area based exemptions on refined gold is

being withdrawn – rate of duty increased from 9% to 9.5%

• For refined silver manufactured from silver ore or concentrate,

silver dore bar, or gold dore bar, the excise duty exemption

under the existing area based exemptions is being withdrawn –

rate of duty to increase from 8% to 8.5%

Customs Excise Duty Customs Customs


Customs Excise Duty Customs Customs Excise Duty Customs

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Customs

• No change in peak rate of Basic Custom Duty (BCD).

• BCD on import of Imitation Jewellery is increased from 10% to

15%.

• Interest rate for delayed payment of Customs duty has been

reduced from 18% p.a. to 15% p.a.

• Import of Printed Circuit Boards (PCBs) of mobile phones and

tablet computers subjected to Customs Duty.

• Special Additional Duty (SAD) to be levied on import of Inputs and

Raw Materials used in manufacture of personal computers and

tablets.

• Self – declaration sufficient for availing duty exemptions to import

goods at concessional rate to be used in manufacture of

excisable goods.

• Baggage rules simplified and rationalized to cover multiple

slabs of duty free allowance for various categories of

passengers.

• Customs baggage declaration to be filed only by passengers

carrying dutiable or prohibited goods.

• CVD increased on Gold dore bars from 8% to 8.75%

• CVD increased on Silver dore from 7% to 7.75%

Excise Duty Customs Customs


Excise Duty Customs Customs

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CENTRAL SALES TAX

Gas transported through a common carrier pipeline or transport or

distribution system and which becomes comingled or fungible,

introduced in the system in one State and taken out from the pipe

line in the other State is deemed to be sold in the inter-state trade.

Excise Duty Customs Excise Duty


Customs Excise Duty Customs Customs Excise Duty Customs Service Tax Excise Duty Customs

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Others





• To facilitate the “Stand Up India Scheme” at least 2 projects per

bank branch to be approved. This will benefit at least 2.5 lac

entrepreneurs

• New health protection scheme will provide health cover up to Rs.

1 lac and in case of senior citizens, an additional top-up package

up to Rs. 30,000 will be provided

• Government to contribute 8.33% for all new employees (where

basic salary does not exceed Rs. 15,000 p.m.) enrolling in EPFO

for the first 3 years of their employment. Budget provision of Rs.

1,000 crore for this scheme

• A comprehensive Code on Resolution of Financial Firms to be

introduced

• Amendments in Companies Act to improve enabling environment

for start-ups

• Comprehensive central legislation to deal with illicit deposit taking

schemes to be introduced

• Reforms in FDI policy in the areas of Insurance and Pension,

Asset Reconstruction Companies („ARC‟), Stock Exchanges.

Further, 100% FDI allowed through FIPB route in marketing of

food products produced and manufactured in India

• Amendments in the SARFAESI Act 2002 to enable the

sponsor of an ARC to hold up to 100% stake in the ARC and

permit non institutional investors to invest in Securitization

Receipts.

• To continue with the ongoing reform programme and ensure

passage of the GST bill and Insolvency and Bankruptcy law.

• New model Shops and Establishments Bill to be circulated to

the state governments

• Passenger road transport segment to be revamped with

reforms

• Department of Investment and Public Asset Management to

oversee disinvestment in public sector

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This publication is general in nature. In this publication, we have endeavored to analyze briefly, certain significant aspects of the Union Budget 2016, presented by the Honourable Finance Minister of India,

Shri. Arun Jaitley on 29 February 2016. The effective dates of budget proposals would vary. It may be noted that nothing contained in this publication should be regarded as our opinion and facts of each

case will need to be analysed to ascertain applicability or otherwise of the topics covered in this publication. Appropriate professional advice should be sought for applicability of legal provisions based on

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29 February 2016

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INDIA BUDGET 2016 - RSM Global images... · INDIA BUDGET 2016 Key Aspects in a Nutshell Let‟s understand the India Budget ... tax was determined pursuant to retrospective amendments,