ICBC Budget 2014 highlights

India Union

Budget 2014

Key Highlights

August 2014

Contents Covered

Policy Overview1

Direct Tax proposals2

Transfer Pricing proposals3

Indirect Tax proposals4

Policy Overview

Agenda for the new Government

Managing expectations and addressing the

current economic issues of the country –

Containing inflation and fiscal deficit, reviving

growth, good governance, ease of doing

business; and reducing tax litigation

were high on the agenda of the new

Government.

4© 2014 KPMG India Private Limited, an Indian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Budget 2014 Highlights

The Budget Backdrop

Budget Expectations

Reform-oriented Budget expected in the backdrop of political

stability

Stable tax regime - Action on Manifesto promises

Indicators in the economic survey:

• Slowing growth with the hope of recovery in 2016-17

• Low tax GDP ratio

• High inflation with hope of lower interest rate towards the

end of the year

• Current account deficit under control

• Need for fiscal consolidation

• Monsoon risk and global outlook

45 days of the government

Backdrop of turbulent tax year

High expectations from a majority

government

Bold moves in form of rail price

increases

Determination to reduce subsidies

Stable foreign exchange regime

liberalisation

Buoyant stock market



Key Policy Announcements

Provision of INR 7,060 crores developing ‘one hundred Smart Cities’, as satellite

towns of larger cities and by modernizing the existing mid-sized cities.

Allocation of INR 12,000 crores for National Housing Bank with a view to support

Rural Housing and affordable housing for urban poor

Proposal to add slum development in the list of Corporate Social Responsibility

activities to encourage the private sector to contribute more towards low cost housing

Effective steps to revive SEZs to be taken to help drive industrial production,

economic growth, employment and exports

INR 100 crores allocated for setting up National Industrial Corridor Authority, along

with expediting master planning of several industrial corridor and smart cities

FDI rules for construction development liberalized:

Minimum development area reduced from 50,000 sq mt. to 20,000 sq mt.

Minimum capitalization reduced from USD 10 Mn USD 5 Mn

3 year post completion lock-in

Projects with atleast 30% of total project cost towards low cost affordable housing

exempted from minimum built up area and capitalisation requirements, with the

condition of three year lock-in

Real Estate



Key Policy Announcements

Foreign direct investment infused manufacturing companies allowed to sell their

products through retail [B2C] including e-commerce platforms

Development of 100 smart cities – set to create new demand across the industry

spectrum

Digital India: A pan-India programme to improve access to services through IT

enabled platforms is announced

To promote India as a manufacturing hub, special focus on hardware manufacturing

100% investment-linked tax deduction for capital expenditure of specified nature

allowed for setting-up and operating a semi-conductor water fabrication manufacturing

unit

Technology

Schemes to develop new airports in Tier I and Tier II cities will be launched for

implementation through the Airport Authority of India or the PPP modeAerospace

Direct Tax

Proposals



Tax Efficiency Measures

Advance ruling

extended for resident

tax payers

Advance ruling extended to resident tax

payers

Certainty of tax position to residents

Reduced litigation

Proposed Changes Impact

Advance ruling extended

for resident tax payers

Disallowance of expenditure for non deduction

of WHT

Resident Payee

• Scope expanded to include all payments

• Disallowance restricted to 30%

Non Resident Payee

• Deduction allowed if WHT paid before due

date of return filing

Resident/Non resident payees at par

Reduction in tax liability and improved

cash flows



High level committee to scrutinize fresh

cases arising out of retrospective

amendments

More certainty and assurance to investors



Incentive Measures to Boost Growth




Tax holiday in power sector –

Commencement date for eligibility extended

till 31 March 2017

Give boost to power sector

Indirect positive impact on financial

sector



Taxation of dividends on outbound

investment at 15% retained without any

sunset clause

Promote repatriation of funds to India



Concessional rate of tax of 5% on overseas

borrowings extended to all long term bonds

Promote foreign currency funding and boost

liquidity





Pass through status accorded to REIT/

Infrastructure Investments Funds*

• Promote usage of REIT/Infrastructure

Investment Funds

• Additional funding for infrastructure sector

Incentive Measures to Boost Growth …contd.


*Detailed guidelines in relation to the REIT/Infrastructure Investment Funds are yet to be notified



Additional deduction of 15% to

manufacturing companies which invest

more than USD 4.2 mn (approx) in new

plant and machinery in a year up to 31

March 2017

Promote investment in manufacturing

sector



Resource Mobilization Measures




Dividends to be grossed up for the

calculation of DDTEffective rate of DDT to go up by approx 3%



Holding period for categorization as long

term extended for unlisted shares to

greater than 36 months

Concessional rate of tax not available on

sale of shares within 3 years



CSR expenditure not allowed as an

expense

• Result in additional cash flow

• Need to synergise CSR activities with

specific benefits under the Act



LTCG rate for funds other than equity funds

increased from 10% to 20%

Increased tax liability on disposal of debt

oriented funds

Transfer Pricing

Proposals



Transfer Pricing: Budget Highlights

Introduction of Range concept2

Advance Pricing Agreement (APA) - Introduction of Rollback provisions1

Use of Multiple year data3

Deemed International Transaction - Domestic Transactions with third parties in India 4

Transfer Pricing Officer empowered - Penalty for failure to furnish TP Documentation5



Introduction of APA “Rollback”

APA

(For 5 Future Years)

APA Rollback

(For 4 Previous Years*)

FY 2015-16

FY 2016-17

FY 2017-18

FY 2018-19

FY 2019-20

FY 2011-12

FY 2012-13

FY 2013-14

FY 2014-15

“Rollback” - Application of

negotiated position under an

executed APA to prior years

Proposal to introduce rollback to

maximum 4 previous years

Conditions, procedure and

manner of rollback to be

prescribed

Applicable w.e.f. October 1, 2014

FM also proposed to strengthen the tax administrative set-up for

quick disposal of APAs

* FY 2009-10 and FY 2010-11 may get covered in case APA application was filed for the period covering FY 2013 -14 and onwards



Range Concept and Multiple Year Data

Introduction of “Range concept" for Arm’s Length Price determination – arithmetic mean

to continue where adequate comparables not available

No amendments currently proposed in Finance Bill – Relevant data is under analysis

and appropriate rules will be prescribed subsequently

Proposal to allow use of “Multiple Year Data” – Currently, TPOs have been carrying out

TP audits and adjusting transfer price based on Current Year Data

No amendments proposed in Finance Bill – Necessary legislative amendments

expected subsequently

Range

concept

Multiple

Year

Data

Move to align Indian TP rules to international best practices

Provide flexibility & spread in complying with Arm’s Length Price



Deeming TP Provisions

Proposed to be applied to transactions between an enterprise & an independent person

irrespective of whether such persons are non-resident or not

As per earlier deeming provisions, deemed international transaction could be interpreted

to exist only if the independent person was a non-resident

Transactions with such independent resident person will also now get covered under TP

Regulations – Applicable w.e.f. April 1, 2015 for AY 2015-16 and onwards

Section

92B(2)

ABC Ltd, USA

ABC Ltd, India

XYZ Ltd, UK

XYZ Ltd, IndiaDeemed international transactions

as per proposed amendment



Penalty Provisions

To provide authority to TPOs to levy penalty for failure to furnish information &

documentation under Section 92D – 2% of value of international transactions

Currently, only Assessing Officer or CIT(Appeals) empowered to levy such penalty and

TPO at best can recommend in his order under Section 92CA

Introduced to ensure that taxpayers submit their TP Documentation

within statutory timeline when called for by TPOs

Applicable w.e.f. October 1, 2014

Section

271G

Indirect Tax

Proposals



Indirect Tax

Thrust to boost

domestic

manufacturing,

administrative

reforms and

bridging the trust

deficit

Customs and Excise duties rationalized to promote

indigenous manufacturing in electronics, chemicals and

renewal energy, etc.

High Level Committee proposed to interact with trade &

industry and ascertain areas where clarity required on tax

issues

Tightening of credit and other administrative mechanism



Indirect Tax …contd.

Expansion of Service tax net - Sale of space/ time on media such as

mobile, internet; Radio taxi services; Certain services provided to

educational institutions (e.g. renting, etc.) now liable to tax

Services provided by ‘Intermediary’ of goods (like Commission

agent) – to be taxed based on location of service provider

Fiat Decision overturned - Actual sale price to accepted as

‘Transaction Value’ for Excise duty if no additional consideration

flows directly or indirectly to the seller

Facility of advance ruling extended to resident private limited

companies

Increased in import duty on specified telecommunication products

not covered under the ITA (Information Technology Agreement)



Indirect Tax …contd.

Mandatory pre-deposit for filing appeal (7.5% and 10%, at first and

second appellate level respectively), subject to maximum of INR 100

Million

Steep increase in interest rates for delayed payment of Service tax

ranging from 18 per cent to 30 per cent

Stringent mechanism for recovering input taxes (‘CENVAT credit’) - To

be taken within 6 months of invoice date

Delayed payment of Excise duty beyond 1 month subject to penalty of

1 per cent of unpaid duty per month

Transfer of credit by large taxpayer from one unit to another not

permitted

Commitment to GST reaffirmed, though no concrete road map laid out

&Questions

Answers

Thank you for your kind attention

© 2014 KPMG India Private Limited, an Indian limited liability

company and a member firm of the KPMG network of independent

member firms affiliated with KPMG International Cooperative (“KPMG

International”), a Swiss entity. All rights reserved.

The KPMG name, logo and "cutting through complexity" are

registered trademarks or trademarks of KPMG International

Cooperative ("KPMG International").

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Documents

ICBC Budget 2014 highlights