INDIA BUDGET 2016
Key Aspects in a Nutshell
Let‟s understand the
India Budget
THE POWER OF BEING UNDERSTOOD
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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.
• 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.
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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.
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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.
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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.
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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.
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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.
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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
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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
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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%
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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%
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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.
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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
specific facts. We are not responsible for any liability arising from any statements or errors contained in this publication.
29 February 2016
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