India Union Budget 2016 - An Overview | A BDO India Publication

INDIA UNION BUDGET 2016 An Overview

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Analysis of Union Budget 2016/17

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CONTENTS

1. ECONOMIC INDICATORS .................................................................... 1

DIRECT TAX PROPOSALS

2. INCOME TAX ........................................................................... 5

INDIRECT TAX PROPOSALS

3. CUSTOMS .............................................................................39

4. CENTRAL EXCISE ....................................................................54

5. SERVICE TAX ........................................................................65

6. CENVAT CREDIT .....................................................................75

7. MISCELLANEOUS CHANGES ........................................................80

8. REGULATORY UPDATES ....................................................................82

9. GLOSSARY OF TERMS ......................................................................88

ABOUT BDO .........................................................................................90


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FOREWORDThe Finance Bill, 2016 was introduced in the Parliament by the Hon’ble Finance Minister, Mr. Arun Jaitley (his 3rd Budget after BJP Government assumed power at the Centre in May 2014) amid subdued hope. While the new normal in the world economy is turbulence and volatility, India still seems a refuge of stability and outpost of opportunity, despite daunting structural issues in the economy.

Budgets now rarely announce major change in policy direction; economic policy is announced through the year and by different institutions such as Central Bank, financial and industry regulators. To focus on budget as the harbinger of economic trends is to ignore the shift in India’s policy process. Despite this year-round exercise of policy making, Budget provides an annual score-card of economic performance and the efficacy of policy initiatives embarked.

The FM has projected fiscal deficit @ 3.5% of GDP for fiscal year 2016-17 despite additional burden on account of recommendations of 7th Pay Commission and implementation of Defense One Rank One Pension (OROP) which casts a long shadow on prioritization of expenditure. In this background, the FM recounted the achievements; GDP growth is now @ 7.6% (in the previous government, the growth had decelerated to 6.3%), CPI inflation has come down to 5.4% from 9.4%, the current account deficit has declined to USD 14.4 bn from USD 18.4 bn and the exchange reserves are highest ever @ USD 350 bn. However, admittedly, the correlation between India and the world has risen and global economic weakness could impact the economic growth engine in India. Further, lack of private investment still remains the single largest concern. Such investment eludes the economy defines the ability of a country to grow over the long run which is critically determined by twin factors; state capacity and entrepreneurial capacity.

In his Budget speech, the FM embarked on ‘Transform India’ that is built on growth pillars; Agriculture and Farmer’s welfare, Rural Sector, Social sector including health care, Education, Skills and Job creation, Infrastructure and Investment, Financial Sector reforms, Governance and Ease of Doing Business, Fiscal discipline and finally, Tax reforms. For each of the pillars, the FM laid out well-intentioned budgetary provisions for furthering economic growth.

Noteworthy amongst the provisions is the push for irrigation coverage which is currently as low as 46% of cultivable area. Schemes such as ‘Pradhan Mantri Krishi Sinchai Yojana’ and implementation of 89 irrigation projects that would be fast tracked would increase cultivable land under irrigation. This would go a long-way in augmenting depleting water tables across the country.

Infrastructure which is the backbone of all economic activity in the country requires significant attention and to this end, the FM proposed several budgetary allocations. Notably, 3 new initiatives to reinvigorate this sector i.e. arrangement for resolution of disputes in infrastructure related contracts, guidelines for renegotiation of public private partnership (‘PPP’) agreements and a new credit rating system would be set in motion.

The FM has also announced further reforms in FDI policy inter alia 100% FDI in asset reconstruction companies, 49% in insurance and pension sectors, enhancement in limit of investment in Indian stock exchanges etc. to name a few.


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The big casualty in budgetary allocation is of course the recapitalization of banks where the allocation in this budget is INR 250 bn, reeling against mounting NPAs in the banking system whereas the appetite for capitalization is INR 1,800 bn in 4 years. The allocation fell far short on expectation to revive the ailing banking sector.

Insofar as Tax Reforms are concerned, the FM disappointed many in not dropping the Corporate tax rate from present to 30% that was to rest at 25% in a 4-year timeframe beginning this year as promised in last year’s Budget. A 1% rate cut was offered to new manufacturing companies that are set up after March 1, 2016 and small enterprises with a turnover less than INR 50 Mn which was clearly not in line with the expectations. On the other hand, the FM red-flagged exemptions and deductions under the Indian IT Act with nearly all being terminated on April 1, 2020. Also disappointing is introduction of 10% dividend tax on individuals etc. who earn dividend in excess of INR 1 Mn per annum whereas the optimist believed that the FM may in fact dislodge the DDT regime which faces much criticism.

Interestingly, the FM has also taken steps to reduce litigation and to this end, introduced a new dispute resolution scheme in respect of 1st appeal before Appellate Authorities in the background that more than 0.3 Mn appeals are pending locking INR 5,500 bn in such litigation. The offer is to pay tax and interest with a waiver of penalty (in part) for settlement of dispute. However, this premeditates that all appeals filed by taxpayer (who actually file the 1st appeal) are either frivolous or suspect. This is far from truth as more often than not, the Taxpayers are compelled to appeal against high-pitched assessment at the behest of Tax Authorities and therefore, the proposed dispute resolution mechanism may not meet with much success.

Last but not the least, the FM accepted the recommendations of the Tax Administration Reforms Committee that was formed by the last Government and Justice Easwar Committee only in part, unlike popular belief that most of the recommendations would be endorsed by the FM in toto.

With this Budget, many questions still remain not fully answered and would remain a work-in-progress for the next year with the hope that the fear of the unknown i.e. the global economic environment does not unsettle India’s growth engine in the meantime.

Milind S. Kothari Managing Partner

BDO India LLP March, 2016

A BDO India Publication


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1. ECONOMIC INDICATORS

The global macroeconomic landscape is currently chartering a rough and uncertain terrain characterized by weak growth of world output, declining prices of commodities, turbulent financial markets and volatile exchange rates. Even in these trying and uncertain circumstances, India’s growth story has largely remained positive and the economy is expected to be the fastest growing economy in the world.

The growth rate in GDP at constant market prices is projected to increase to 7.6% in 2015-16 from 7.2% in 2014-15. However, the growth projected for March 17, 2016 is expected between 7–7.75%. A cautious forecast from where we were last year, undoubtedly considering the global scenario and certain domestic factors.

One of the reasons for higher expected growth rates is on account of a number of reforms, each incremental but collectively meaningful, that have been enacted. This is helped by a reorientation of government spending toward needed public infrastructure.

Table showing growth in Gross Value Added (GVA) at constant (2011-12) basic prices (%)

Particulars 2014-15 2015-16

Agriculture, forestry & fishing -0.2 1.1

Industry 5.9 7.3

Services 10.3 9.2

GVA at basic prices 7.1 7.3

GDP (at market prices) 7.2 7.6

Growth in the agriculture sector in 2015-16 has continued to be lower than the average of last decade, mainly on account of the second successive year of lower-than-normal monsoon.

The ongoing manufacturing recovery in the current year is aided by robust growth in petroleum refining, automobiles, wearing apparels, chemicals, electrical machinery and wood products and furniture. The other three segments of the industry sector, i.e. electricity, gas, water supply and related utilities, mining and quarrying and construction activities, are witnessing a deceleration in growth.

Being the main driver of the economy, the service sector contributed about 69% of the total growth during 2011-12 to 2015-16; in the process expanding its share in the economy by 4 percentage points from 49% to 53%. Services like trade and repair services, civil aviation and road freight transport services contributed to growth. However, sectors like rail transport, public administration, defense and other services lagged behind. Financing, Insurance, Real Estate and Business Services together are estimated to achieve double-digit growth this year.

Growth in 2015-16 is primarily driven by domestic demand since exports declined by 17.6% and imports declined by 15.5% year-on-year basis.


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Inflation remains under control and has declined to 4.9% (CPI), while WPI was (-) 2.8% in 2015-16. The current account deficit has reduced to 1.3% of the GDP and is likely to be in the low range of 1 – 1.5% of the GDP in the coming year. Lower crude prices have yielded a windfall to the economy keeping a check on inflation, fiscal deficit and so on.

Fiscal deficit for 2015-16 is pegged at 3.9% of the GDP, with the targets of 3.5% and 3.0% for 2016-17 and 2017-18 respectively. However, considering the recommendation of the 7th Pay Commission and outlay due to OROP Scheme, achieving these targets could be challenging.

Future Outlook Country’s macro-economy is stable, founded on the government’s commitment to

fiscal consolidation and low inflation. The deceleration in growth has ended and the economy appears now to be recovering, the external environment is fragile, and challenges in other major economies have made India the near-cynosure of eager investors.

The steady acceleration in services and manufacturing growth in the face of subdued global demand conditions point to the strengthening of domestic demand. India’s services sector remains the major driver of economic growth.

With enduring efforts, low inflation has taken hold and confidence in price stability has improved. However, retail inflation still poses a challenge.

To provide legal certainty and confidence to investors, the ordinances on coal, insurance and land need to be translated into legislation approved by Parliament.

The constitutional amendment bill to GST also needs to be enshrined in legislation. A single GST rate (across States and Products) set at internationally competitive levels with limited exemptions would maximize its pro-growth, pro-compliance and pro-single market creating potential.

Indian Railways could be the next locomotive of growth. Greater public investment in the railways would boost aggregate growth and the competitiveness of Indian manufacturing substantially.

Banking is hobbled by policy, which creates double financial repression, and by structural factors, which impede competition. Banking in India has recently focused on the problem of stressed and restructured assets, the challenges in acquiring the resources to meet the looming Basel III requirements on capital adequacy, including the respective contributions of the government and markets, and the need for governance reforms.

The Prime Minister has made the revival of Indian manufacturing a top priority, reflected in his “Make in India” campaign and slogan. The objective is as laudable as the challenges it faces that are daunting because Indian manufacturing has been stagnant at low levels, especially when compared with East Asian successes

DIRECT TAX PROPOSALS






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2. INCOME TAX

2.1. CORPORATE TAX

2.1.1. Country-by-Country Reporting

At present India is member of G20 forum which focuses on global cooperation on international economic and financial issues. Recently, G20 along with OECD agreed to implement recommendations of the BEPS project.

With a view to align the existing Indian transfer pricing documentation compliance with action plan 13 of the OECD BEPS Project recommendations, the Finance Bill proposes amendment to section 92D of the IT Act, duly facilitating maintenance of documentation/information in respect of the group, the taxpayer belongs to. Further, the Finance Bill proposes to introduce section 286 to the IT Act, requiring the qualifying taxpayer to furnish CbCR with the Indian tax authorities before the due date of filing tax return in India. Necessary forms, templates and filing procedure shall be prescribed by the CBDT.

Qualifying taxpayer includes, Indian taxpayer being part of International group where consolidated group revenue of preceding accounting year exceeds the specified threshold, in its capacity as:

n Parent entity of the International group

n Indian entity (‘constituent entity’) of the International group, where the Parent entity is a tax resident of a country with which India does not have an agreement for Information Exchange

n Indian entity (‘constituent entity’) of the International group, where the Parent entity is a tax resident of a country with which India has an agreement for Information Exchange but fails to obtain the necessary information due to systemic failure

However, in the above case the Indian constituent entity will not be required to furnish CbCR, if the same has been furnished by an alternate reporting entity designated by the International group.

If there are more than one constituent entities in India, CbCR can be filed by the entity designated by the group for this purpose and the relevant tax authority has been intimated accordingly.

While the threshold for consolidated group revenue shall be prescribed at a later date, the FM in his speech indicated that the same shall be at INR equivalent of EUR 750 million.

Taking a cue from the OECD report on action plan 13 of the BEPS



project, the amendment proposes that the CbCR be furnished in the prescribed form containing the following information in respect of entity in each country or territory:

n residential status

n nature and details of main business activity

n revenue

n profit & loss before Income-tax

n amount of Income-tax paid and accrued

n details of capital

n accumulated earnings

n number of employees

n tangible assets other than cash or cash equivalent

n any other information as may be prescribed.

Further to the above, in line with BEPS action plan 13, detailed rules for maintenance of information in master file are likely to be notified.

The Finance Bill also proposes stringent penalties for non-compliance.

The above proposed amendments will be effective from fiscal year 2016-17.

2.2. TAXATION OF NON-RESIDENTS

2.2.1. Deferment of PoEM Based Residency Test in Case of Foreign Company

Finance Act 2015 amended the residency test in case of foreign companies by introducing internationally recognized concept of PoEM. However, with respect to the implementation of PoEM, certain issues especially from the perspective of compliances (such as advance tax payments, set of losses, application of transfer pricing regime, etc.) have arisen. Further, several representations have been made by the various stakeholders to defer the implementation of PoEM.

Keeping in mind the above, in order to provide clarity on implementation of PoEM and to address the concerns raised by various stakeholders, the Finance Bill proposes to defer applicability of PoEM by one year i.e. the same will now be applicable from April 1, 2016. Thus, the erstwhile rule of residency (i.e. test of control and management of affairs is situated wholly in India) in respect of the foreign company would be applicable for the fiscal year 2015-16.

Further, the Finance Bill proposes to empower the Government to notify (subsequently) exception, modification and adaptation to the various provisions relating to compliances in case foreign company is



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said to be resident in India owing to PoEM in India for the first time. Further, it is proposed to provide a transitional mechanism for the foreign company which has not been assessed to tax in India.

2.2.2. Exemption from Furnishing PAN

Presently, at the time of making payment (other than interest on long term bonds) of any sum (which is subject to withholding tax) to a non-resident taxpayer, a higher withholding tax @ 20% has been prescribed, in case such non-resident taxpayer fails to furnish PAN.

In order to reduce the compliance burden, the Finance Bill proposes to exempt non-resident taxpayer from furnishing PAN, subject to fulfillment of conditions which are yet to be prescribed.

The above proposal is a welcome move and the same aligns with the recent judicial precedents wherein it has been held that the higher rate of withholding tax shall not be applicable in view of beneficial provisions of the applicable DTAA.

This amendment would be effective from June 1, 2016.

2.2.3. Clarification on Applicability of MAT to Foreign Companies

Finance Act 2015 provided, in case of foreign companies, the income (other than capital gains arising on transaction in securities; or interest, royalty, or fees for technical services) shall not be included for computing book profit for MAT purpose.

The above amendment was effective from fiscal 2015-16, therefore applicability of MAT to earlier years remained unaddressed.

In view of the recommendations of the A P Shah committee (formed to clarify the applicability of MAT to FIIs / FPIs), press release issued by the Government on September 1, 2015 and with an intent to provide tax certainty to foreign companies, the Finance Bill proposes that MAT shall not be applicable to the following:

n foreign company (being a tax resident of country with which India has entered into DTAA), if such foreign company does not have a permanent establishment in India; or

n other foreign companies, provided such companies is not required to seek registration under any law for time being in force in relation to companies in India.

The above proposal is an important step to banish the demon of retrospective amendments to win confidence of foreign investors.

This amendment would be effective retrospectively from fiscal year 2000-01.



2.3. INDIVIDUAL TAXATION

2.3.1. Tax on Dividend Income

As per the existing provisions DDT is payable by the company declaring dividend and such dividend is exempt from tax in the hands of the shareholder, irrespective of the taxable income of the shareholder. This, according to the FM, distorted the fairness and progressive nature of taxes.

In order to rationalize the tax treatment of dividend income, the Finance Bill proposes to insert a new section 115BBDA under the IT Act. According to the amendment, resident individual/HUF/firms with gross dividend income in excess of INR 1 Mn shall be liable to pay tax @ 11.54% (Tax rate 10%, surcharge 12%, education cess 3%) on such dividend in excess of INR 1 Mn. Further, no deduction / allowance /set off of loss shall be allowed in computing tax on such dividend income.

The proposed amendment would subject dividend income to a harsh triple taxation i.e. corporate tax on profits, DDT on dividends distributed and tax on dividend income in the hands of shareholder.

The above amendment is proposed to be made effective from fiscal year 2016-17.

2.3.2. Taxation of Gifts

As per section 56(2)(vii) of the IT Act, value of any money, immovable property or other property received without consideration or for inadequate consideration in excess of INR 50,000 is treated as ‘Income from other sources’ in the hands of recipient individual or HUF. Further, section 56 of the IT Act provides for exclusion of shares received as a consequence of demerger or amalgamation of a company. However, such benefit is extended only to recipients being a firm or a company.

With a view to bring uniformity in tax treatment, the Finance Bill proposes to amend provisions of section 56(2)(vii) of the IT Act to exclude transactions where shares are received by an individual or HUF under a scheme of demerger or amalgamation.


2.3.3. Taxation of Income from House Property

u Deduction of Interest – Extension of Time Limit Presently, deduction for interest on housing loan could be

claimed under section 24(b) of the IT Act, only in cases where the new property is acquired or completed within 3 years from



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the end of the fiscal year in which capital was borrowed. In view of the fact that housing projects often take longer time for completion, the Finance Bill proposes to extend the time limit to 5 years.

The proposal shall take effect from fiscal year 2016-17.

u Unrealized / Arrears of Rent The Finance Bill proposes to simplify the provisions and bring

uniformity in treatment of unrealized rent and arrears of rent by merging them under a single new section 25A of IT Act. As per the proposed amendments, unrealized / arrears of rent would be taxable in the year in which they are received regardless of whether the taxpayer was the owner of such property or not. Further, standard deduction @ 30% under section 24 of the IT Act would be available for such unrealized / arrears of rent.


2.3.4. Taxation of Non-compete Fees in case of Profession

Section 28 of the IT Act i.e. the charging section of profits and gains of business or profession includes a provision, to deal with the non-compete fees received/receivable in relation to carrying out any business. However, it did not specify anything particularly for amounts received as non-compete fees in connection with profession. Therefore the Finance Bill proposes the following:

n Scope of section 28(va) of the IT Act shall include non-compete fees (recurring in nature) received/receivable in relation to carrying out any profession.

n Transfer of right to carrying on any profession, which is chargeable to tax under the head “Capital gains”, would not be taxable as profits and gains of business or profession.

n Section 55 of the IT Act shall be amended so as to provide that the ‘cost of acquisition’ and ‘cost of improvement’ for working out ‘Capital gains’ on capital receipts arising out of transfer of right to carrying on any profession shall also be taken as ‘nil’

The proposed amendment is intended to override the principle laid down by the Delhi Tribunal judgment in the recent decision in case of Satya Kant Khosla, where it was held that the non-compete fees in relation to profession does not fall within the ambit of section 28(va) of the IT Act, and being a capital receipt is not taxable under the IT Act.

These amendments will take effect from fiscal year 2016-17.



2.3.5. Provident Funds and National Pension Scheme

The Finance Bill proposes to make the following amendments:

ParticularsRecognized

Provident Fund (RPF)

Superannuation Fund (SAF)

National Pension System (NPS)

Contribution No change

Employer contribution in excess of INR 0.15 Mn treated as taxable as perquisite

No change

Withdrawal

Exemption from tax on 40% of the accumulated balance of employee contributions made after April 1, 2016. Under NPS, entire balance received by nominee upon death of taxpayer shall be fully exempt.

PortabilityExemption from tax upon one-time portability to NPS

Exemption from tax upon transfer to NPS

No change

The FM has taken positive measures in bringing parity to the pension / retirement schemes. However, taxation of the remaining 60% of accumulated balances would mean moving them to a (Exempt-Exempt-Tax) EET status from the existing (Exempt-Exempt-Exempt) EEE status, thereby defeating the whole purpose of the RPF and SAF schemes.


2.3.6. Advance Tax The Finance Bill, with effect from June 1, 2016, proposes to amend

the number of installments and due dates for payment of advance tax in the case of individuals, HUFs, firms, etc which has now been aligned with the due dates applicable to corporates.

Due date of installment Amount payable

On or before June 15 At least 15% of the tax

On or before September 15 At least 45% of the tax

On or before December 15 At least 75% of the tax

On or before March 15 100% of the tax

Consequential changes are proposed to be made in the chargeability of interest for deferment of advance tax.



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2.4. WITHHOLDING TAX

2.4.1. Rationalization of Withholding Tax Provisions

The Finance Bill proposes to rationalize the rates and base for withholding tax provisions, the existing threshold limit and the rates of withholding which is as mentioned in below tables:

Table 1: Increase in Threshold Limit (Amount in INR)

Section Heads Existing Threshold

Proposed Threshold

192A Payment of accumulated balance due to an employee 30,000 50,000

194BB Winnings from Horse Race 5,000 10,000

194C Payments to Contractors 75,000* 1,00,000*

194LAPayment of compensation on acquisition of certain Immovable Property

2,00,000 2,50,000

194D Insurance commission 20,000 15,000

194G Commission on sale of lottery tickets 1,000 15,000

194H Commission or brokerage 5,000 15,000

*Aggregate annual limit

Table 2: Revision in Withholding Tax Rates

Section Heads Existing Rate Proposed Rate

194DA Payment in respect of Life Insurance Policy 2% 1%

194EE Payments in respect of NSS Deposits 20% 10%

194D Insurance commission 10% 5%

194G Commission on sale of lottery tickets 10% 5%

194H Commission or brokerage 10% 5%

The said amendments will take effect from June 1, 2016.

2.4.2. Tax Collection at Source on Sale of Motor Vehicles, Goods or Services

In order to reduce the quantum of cash transaction in sale of goods and services, to curb the flow of unaccounted money in trading system and to bring high value transactions within the tax net, the Finance Bill proposes to amend provisions related to tax collection at source.



The Finance Bill proposes to provide that the seller shall collect the tax @ 1% from the purchaser on

n sale of motor vehicle of the value exceeding INR 1 Mn

n sale in cash of any goods (other than bullion and jewellery) or receipt in cash for providing of any services (other than payments on which tax is withheld at source under Chapter XVII-B) exceeding INR 0.2 Mn.

The Finance Bill proposes exemption from provisions of TCS with respect to sale of any goods (other than bullion and jewellery) or services subject to fulfillment of prescribed conditions in specified cases.

The said provisions are proposed to be effective from June 1, 2016

2.5. TAX INCENTIVES FOR START-UPS

The Department of Industrial Policy and Promotion (DIPP) of the Government of India introduced ‘Start-up India Action Plan’ in January 2016. The Scheme prescribed various incentives aimed at giving the necessary fiscal and regulatory support to start-ups. With a view to enable the implementation of the recommendations of the DIPP, the Finance Bill has proposed the following:

u For Start-up Entities The Finance Bill proposes introduction of a new section i.e. Section

80-IAC in the IT Act which shall deal with the tax incentives for start-up entities. As per the said section, 100% of the profits and gains derived by an ‘Eligible Start-up’ can be claimed as a deduction for tax purposes. Further, such deduction would be available for 3 consecutive fiscal years (at the discretion of the start-up) out of a period of 5 years, beginning from the year in which the start-up is incorporated.

For the purpose of this section, an entity shall be considered to be an ‘Eligible Start-up’ if:

n It is incorporated on or after April 1, 2016, but before April 1, 2019

n Annual turnover of such entity does not exceed INR 250 Mn in any of the fiscal years, beginning from April 1, 2016 and ending with March 31, 2021

n Such startup is engaged in working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property

n A certification has been obtained from the Inter-Ministerial Board, setup by the Government for such purpose by such start-up



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u For Investors in Start-ups As per the existing provisions of section 54GB of the IT Act, an exemption

from capital gains is available to individuals and HUFs who have invested such capital gains in MSMEs and such MSMEs have further used such investment in acquiring new assets, as specified in that section. The Finance Bill proposes to extend the exemption benefit under the said section to taxpayers making investment in shares of start-ups.

Accordingly, individuals and HUFs who have derived capital gains from sale of a residential property and have utilised such gains for acquiring shares in an ‘Eligible Start-up’ company shall also be entitled to claim benefit of exemption from capital gains under Section 54GB of the IT Act, provided such investment has been deployed by the ‘Eligible Start-up’ company towards acquiring new assets, as specified therein.

The Finance Bill further proposes to extend the definition of new assets in the case of ‘Eligible Start-up’ companies which are technology driven to cover investments in computer and computer software as eligible investments for the purpose of this section.

u For Investors in Fund of Funds As part of the proposals outlined in the ‘Start-up India Action Plan’, the

DIPP proposes to setup of a Fund of Funds, which would invest in start-ups. The Finance Bill proposes to introduce section 54EE in the IT Act, which shall provide for exemption of upto INR 5 Mn per fiscal year on capital gains arising on transfer of a long term capital asset, where such gains are invested in the units of such Fund of Funds.

The Finance Bill also proposes to withdraw the benefit of such exemption if the taxpayer transfers the units of such Fund of Funds within a period of 3 years from the date of its acquisition and tax the original gains in the year in which such transfer of units takes place.

While the above proposed amendments are largely in line with the recommendations of the DIPP, the Finance Bill fails to address the issue of taxation of excess consideration received on issue of shares over the fair market value by start-up companies. Presently, only investments by venture capital funds are exempted from the provisions of section 56(2)(viib) of the IT Act and it has been proposed in the Start-up Action Plan to extend the same benefit to such investments made in Start-ups.

Further, it needs to be noted that such start-ups have however not been exempted from the provisions of MAT.

These amendments would be effective from fiscal year 2016-17.



2.6. PHASING OUT DEDUCTIONS / EXEMPTIONS

The Finance Bill proposed to phase out with following incentives in the manner as tabulated below:

Table 1: Proposed Phase Out Plan of Incentives (Profit Linked Deductions/Weighted Deduction)

Sr. No.

Section Of The IT Act Current Provision Proposed Provision

1

10AA- Special provision in respect of newly established units in Special economic zones (SEZ)

Profit linked deductions for units in SEZ

No deduction shall be available to units commencing manufacture or production of article or thing or start providing services on or after April 1, 2020

235AC-Expenditure on eligible projects or schemes

Deduction for expenditure incurred by payment of any sum to a public

sector company or a local authority or to an approved association or institution, etc. on certain eligible social development project or a scheme

No deduction shall be available

with effect from April 1, 2017

3

35CCD-Expenditure on skill

development project

Weighted deduction of 150% on any expenditure incurred (not being

expenditure in the nature of cost of any land or building) on any notified skill development project by a company

Deduction shall be restricted to

100% from April 1, 2020



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Sr. No.


4

80IA, 80IAB, and 80IB -

Deduction in respect of profits derived from

a) development, operation and maintenance of an infrastructure facility (80-IA)

(b) development of special economic zone (80-IAB)

(c) production of mineral oil and natural gas [80-IB(9)]

100% profit linked deductions for eligible business carried on by industrial undertakings or enterprises referred in section 80IA, 80IAB, and 80IB

No deduction shall be available if the activity commences on or after April 1, 2020

Table 2: Proposed Phase Out Plan of Incentives (Accelerated Depreciation/Weighted Deduction)

Sr. No.


132 read with rule 5 of IT Rules, 1962- Accelerated Depreciation

Accelerated depreciation under the IT Act is available up to 100% in respect of certain block of assets

To amend the new Appendix IA read with rule 5, depreciation under the IT Act shall be restricted to 40% w.e.f. April 1, 2017.

The new rate is proposed to be made applicable to all the assets (whether old or new) falling in the relevant block of assets



Sr. No.


2

35(1)(ii)- Expenditure

on scientific research

Weighted deduction

to the extent of 175% of any sum paid to

an approved scientific research association

which has the object of undertaking scientific

research. Similar deduction is also available if a sum is paid to an approved university, college or other institution and if such sum is used for scientific research

Weighted deduction shall be restricted to 150% from April 1,2017 to March 31, 2020 and deduction shall be restricted to 100% from April 1, 2020

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35(1)(iia) -

Expenditure on

scientific research

Weighted deduction to the extent of 125% of any sum paid as contribution to an approved scientific research company

Deduction shall be restricted to 100% with effect from April 1, 2017

4

35(1)(iii)- Expenditure


Weighted deduction to the extent of 125% of contribution to an

approved research association or university or college or other institution to be used for research in social science or statistical research

Deduction shall be restricted to 100% with effect from April 1, 2017



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Sr. No.


5

35(2AA)- Expenditure


Weighted deduction to the extent of 200% of any sum paid to a National Laboratory or a university or an Indian Institute of Technology or a specified person for the purpose of approved scientific

research programme

Weighted deduction shall be restricted to 150% with effect from April 1, 2017 to March 31, 2020.

Deduction shall be restricted to 100% from April 1, 2020

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35(2AB)- Expenditure


Weighted deduction of 200% of the expenditure (not being expenditure in the nature of cost of any land or building) incurred by a company, engaged in the business of bio-technology or in the business of manufacture or production of any article or thing except some items appearing in the negative list, on scientific research on approved in-house research and development

Facility

Weighted deduction shall be restricted to 150% from April 1, 2017 to March 31, 2020




Sr. No.


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35AD- Deduction in

respect of specified

business

In case of a cold chain facility, warehousing facility for storage of agricultural produce, affordable housing project, production of fertilizer and hospital, weighted deduction of 150%

of capital expenditure (other than expenditure on land, goodwill and financial assets) is allowed

Deduction shall be restricted to 100% of capital expenditure w.e.f. April 1, 2017

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35CCC- Expenditure

on notified agricultural

extension project

Weighted deduction of 150% of expenditure incurred on notified agricultural extension project


The clarity on proposed phasing out of deductions and incentives would force affected entities to revisit their tax strategies. Such phasing out also clears the way for further reducing the effective rates of taxes as announced during the previous year’s budget.

2.7. PENAL PROVISIONS

2.7.1. Concealment of Income Currently, section 271(1)(c) of the IT Act provides for penalty on account of

concealment of particulars of income or furnishing inaccurate particulars of income. In order to rationalise and bring objectivity, certainty and clarity in the penalty provisions, the Finance Bill proposes to replace section 271 with the newly inserted Section 270A.

This newly inserted section provides for levy of penalty in cases of under-reporting and misreporting of income. The said sections duly provide specific circumstances under which the relevant provisions shall be triggered. The sections also prescribe mechanism for calculating penalties which range from 30% to 200% of tax payable thereon.



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The Finance Bill proposes to amend penal provisions to shield taxpayers from the imposition of penalty for concealment, provided, adequate transfer pricing documentation is maintained and all material facts are duly disclosed.

An attempt has been made to simplify the penal provisions and substantially reduce the discretionary powers of the tax authorities for levy of penalty.

The amendment is proposed to be effective from June 1, 2016.

2.7.2. Immunity from Penalty and Prosecution in Certain Cases With changes in penal provisions, the Finance Bill proposes that a taxpayer

may make an application to the tax officer for seeking immunity from imposition of penalty and initiation of prosecution proceedings.

Prior to making an application, the taxpayer is required to make payment of tax along with interest within time provided in the notice of demand and shall not prefer appeal against the assessment order.

The application is to be made within 1 month from the end of the month in which the impugned order is received.

The tax officer shall pass an order accepting or rejecting such application within a period of 1 month from the end of the month in which such application is received.

It is proposed that order of tax officer under the said section shall be final. It is proposed that no appeal to the Commissioner Appeals or revision by Commissioner shall be admissible against the said order.

The amendment is proposed to be effective from fiscal year 2016–17.

2.8. INCOME DECLARATION SCHEME In order to tap undisclosed income/ assets and encourage taxpayers to disclose

the same, the Finance Bill proposes to introduce the Income Declaration Scheme, 2016. The proposal provides a limited period compliance window from June 1, 2016 till a date notified by the Government to declare undisclosed income. The said disclosure scheme provides a window for all undisclosed income earned and assets owned upto March 31, 2016. The FM in his budget speech indicated the window to be available till September 30, 2016.

The salient features of the said scheme are as under:

n Undisclosed income declared under the scheme shall be taxed at an effective rate of 45%

n The taxpayer making such declaration would be required to pay tax within the period notified by the Government, failing which such undisclosed income would be chargeable to tax as per the normal provisions of the IT Act



n No expenditure/ allowance shall be allowed against such undisclosed income

n In case of undisclosed asset, the fair market value of such undisclosed asset as on June 1, 2016 shall be deemed to be the undisclosed income

n A taxpayer is entitled to make a single declaration only

Where such declaration has been made, the taxpayer shall not be subject to any wealth tax in relation to assets disclosed. Further, the taxpayers making such declaration would be exempt from scrutiny, including reassessments and enquiry and prosecution from the relevant provisions of the IT Act and the Wealth Tax Act, 1957. Immunity will also be provided from Benami Transactions (Prohibition) Act, subject to certain conditions.

The Finance Bill further proposes to bar the following taxpayers to make declaration under this scheme:

n Where assessment, reassessment, search assessment notices have been issued

n Where search/survey has been conducted and time limit to issue notice for the same has not expired

n Where information is received under an agreement with foreign countries regarding such income

n Where the cases are covered under Black Money Act, Special Courts Act, Chapter IX or Chapter XVII of Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, Unlawful Activities (Prevention) Act and Prevention of Corruption Act

n Where an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974, except where such order has been revoked or set aside by the competent authorities

The proposed scheme is akin to the voluntary disclosure that was made under the Black Money law. It appears that the scheme of taxing undisclosed income and assets i.e. to say the manner in which the quantification of such undisclosed income is to be done, the manner in which the tax is to be computed etc. is similar to what was prescribed under the Black Money law. However, it needs to be reckoned that the said disclosure scheme did not yield the desired results for the Government. In light thereof, success of the proposed scheme remains to be seen.



21

2.9. DIRECT TAX DISPUTE RESOLUTION SCHEME

In order to reduce pendency of cases before the First Appellate Authority, the Finance Bill proposes to introduce the Direct Tax Dispute Resolution Scheme. The scheme applies to appeals on any matter pending before the first appellate authority as on February 29, 2016. This scheme also applies to appeals arising on account of retrospective amendments, pending at any stage of litigation as on February 29, 2016, subject to withdrawal of appeals.

The scheme requires the taxpayer to file a declaration before the Commissioner. Based on such declaration, the Commissioner shall determine the tax to be paid.

According to the scheme, appeal in respect of disputed income shall be treated as withdrawn once:

n Taxpayer pays tax and interest up to the date of assessment

n In case the tax liability so determined exceeds INR 1 Mn, the taxpayer pays 25% of minimum exigible penalty

n In case of pending penalty appeal, the tax payer pays 25% of minimum penalty payable along with tax and interest

n Furnishes an undertaking waiving the right to pursue any remedy under any other law or any investment protection agreement entered into by India.

The Scheme does not apply to cases involving search, survey, undisclosed foreign income/assets, information received under DTAA, person notified under Special Courts Act or where prosecution has been initiated before February 29, 2016.

The declaration to be made under the Scheme and other rules for implementing provisions of this Scheme shall be issued through a separate notification.

The proposal will take effect from June 1, 2016 and will apply up to a date to be notified.

2.10. SECTOR SPECIFIC PROPOSALS

2.10.1.Power Sector

Presently, taxpayers engaged in the business of ‘generation and distribution’ of power are allowed additional depreciation @ 20% on cost of new plant of machinery. Such benefit was not available to power transmission companies, who also have to invest significantly in transmission infrastructure. The Finance Bill proposes to extend



the benefit of additional depreciation to taxpayers engaged in the business of ‘transmission of power’.

The proposal will take effect from fiscal year 2016-17.

2.10.2. Real Estate

u Affordable Housing With a view to promote affordable and low cost housing, the

Finance Bill proposes to grant tax incentives to taxpayers engaged in developing and building affordable housing projects. Accordingly, 100% of the profits and gains derived by taxpayers from the eligible projects shall allowed as a deduction. For the purpose of such benefit, the housing project:

n Should be approved by the competent authority before March 31, 2019

n Ought to be completed within a period of 3 years from the date of first approval

n Where such housing project is within an area of 25 kms from municipal limits of metro cities, such project should be on a plot of land of atleast 1000 sq. mtrs. and the size of residential units should be 30 sq. mtrs. or less

n Where such housing projects are the ones not covered under the above, the project should be on a plot of land of alteast 2000 sq. mtrs, and the size of residential units should be 60 sq. mtrs. or less

n Where a residential unit is allotted to an individual, no additional units shall be allotted to such individual or spouse or minor children of such individual

n Must comply with certain other conditions related to utilization of area

The Finance Bill further provides that where the condition of completing the project within 3 years of its approval is not met with, the deduction so claimed earlier shall be taxable in the year in which such period expires.

The benefit of deduction under this section shall not be available to any enterprise executing such housing project as a works contract awarded by any person.

Under the proposed amendments, the conditions to be met by the developers for availing the benefit appear to be challenging from a commercial perspective. Though the Finance Bill recognizes the reality that the period for completing the housing projects may need more than 3 years, as can be inferred by the amendment proposed



23

under section 24(b) of the IT Act, expecting the developers to complete the project within 3 years appears incongruent. Further, having no upper cap on the price at which the units can be sold may defeat the objective of providing housing for all.

This amendment shall be effective from fiscal year 2016-17.

2.10.3.Financial Services

u Non-Banking Financial Companies Presently under existing provisions of section 36(1)(viia)(c)

of the IT Act, deduction in respect of provision for doubtful debts is allowed to public financial institution, state financial corporations and state industrial investment corporations. The Finance Bill proposes to amend section 36 (1) (viia) (c) of the IT Act to provide that any provision for doubtful debts made by a non-banking financial company shall be allowed deduction of an amount not exceeding 5% of total income computed before making any deduction under this clause and chapter VI-A. The expression “non-banking financial companies” shall have the meaning assigned to it in clause (f) of section 45-I of the Reserve Bank of India Act, 1934.

This amendment will take effect from fiscal year 2016-17.

u Business Trustn Exemption from DDT on Distribution Made by SDC to

Business Trust Presently under existing provisions, Business Trust may

hold assets generating rental income through SDC. The income received by SDC and distributed to Business Trust is subject to DDT.

The Finance Bill proposes to insert sub section (7) to section 115-O of the IT Act providing exemption from DDT on distribution made by SDC to Business Trusts out of its current income on or after the specified date. As per the proposed amendment, no DDT shall apply to SDC in case the following conditions are satisfied:

— The exemption from DDT would be only in case where Business Trust either holds 100% of the share capital of the SDC or holds all of the share capital excluding the equity share capital required to be held mandatorily by any other person in accordance with any law for the time being in force or any directions of Government or any regulatory authority, or equity share capital held by any Government or Government body;



— The exemption from DDT would only be in respect of dividends paid of current income after the specified date when the Business Trust acquires specified nominal share capital.

n Exemption of Dividend Income in the Hands of Business Trust The Finance Bill proposes to amend clause (23FC) of section

10 of the IT Act to provide that any income of a Business Trust by way of interest received or receivable from special purpose vehicle or the dividend referred to in sub section (7) of section 115-O of the IT Act shall not be taxable in the hands of Business Trust.

n Exemption of Distributed Income from Business Trust in the Hands of Unit Holders

The Finance Bill proposes to amend subsection (3) to section 115UA of IT Act relating to tax on income of unit holders and Business Trust. As per the proposed amendment any distributed income from Business Trust received by unit holders which is of the same nature as dividend referred to in subsection (7) of section 115-O of the IT Act shall not be taxable in the hands of unit holders.

Further Finance Bill proposes to amend provisions of section 194LBA of the IT Act so that there will be no withholding on dividend referred to in sub section (7) of section 115-O of the IT Act.

This is a welcome move and a much awaited impetus to the Business Trust structure. The proposed amendment accords complete pass through status to the Business Trust with respect to income earned and distributed by SDC holding assets.

This amendment will take effect from June 1, 2016.

u Offshore Funds

Section 9A of the IT Act provides tax relief for certain offshore funds from taxability in India where such funds are managed from India.

The relief is restricted to offshore funds which are resident of a country or specified territory with which DTAA or TIEA is entered into. The Finance Bill proposes to extend this benefit to all offshore funds which are established or incorporated in a country of specified territory to be notified by the Government for this purpose.

While this shall expand the scope of funds to be covered, the strenuous conditions of being a broad based funds and other conditions remain unchanged. This provision remains restrictive as compared to provisions in other overseas financial hubs. Further,



25

there is no clarification on the tax regime for the funds proposed to be set in IFSC, the manager of which is also set up within IFSC.

The Finance Bill further proposes to relax provisions with respect the businesses managed from India as against businesses managed in India.

The above provisions are applicable from fiscal year 2016-17.

u Alternative Investment Funds The current provisions provide for withholding of taxes @ 10% on any

payment made by the AIFs to resident and non-resident investors. The Finance Bill proposes to amend the withholding tax rate on payment made to non-resident investors, where such investors may now avail beneficial DTAA rates. Therefore, payments to be made to non-resident investors shall be subject to withholding tax at the rates in force. Further, it is proposed that such non-resident investors may apply for a Nil or lower withholding tax certificate under section 197 of the IT Act.

This is a welcome move to reduce undue administrative hardship to the non-resident investors. However, such AIFs will have to maintain sufficient documentations supporting the claim of the investors availing DTAA benefits.

The above amendments are effective June 1, 2016.

u Securitisation Trust The current regime for securitisation trust applies to special purpose

vehicles as defined under the SEBI (Public Offer and Listing of Securitised Debt Instruments) Regulations, 2008 or under the guidelines on securitisation of standard assets issued by RBI. The Finance Bill proposes to amend the definition of securitisation trust under section 115TC of the IT Act to include trust set up by securitisation or reconstruction company under The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI).

The proposed amendment widens the coverage to all securitization trusts created under various legislations.

Further, the current regime provides for tax on income distributed by the securitisation trust @ 25% on income distributed to individuals or HUF and 30% on income distributed to any other person. The Finance Bill proposes to restrict the applicability of these provision for income distributed before June 1, 2016.

The Finance Bill proposes to insert a new section 115TCA of the Act, according a pass through status to securitisation trusts as under:

n Income from securitisation trust shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, the investor had the investments made by the securitisation trust been directly made by the investors;



n Income accruing or arising to, or received by the securitisation trust shall deem to accrue or arise in the hands of the investors in that previous year, whether or not paid by the securitisation trust;

n Income accrued or paid by the securitisation trust shall be furnished in a statement to be prescribed, on an annual basis.

Further, the Finance Bill proposes to insert new section 194LBC to provide for withholding of taxes by securitisation trust on any income payable to an investor as under:

n @ 25% if the payee is an individual or HUF resident in India;

n @ 30% if the payee is any other person resident in India; and

n @ rates in force if the payee is a non-resident

It is also proposed that the investors may apply for a lower or nil withholding tax certificate under section 197 of the IT Act with respect to the payment to be received from securitisation trust.

The earlier provisions provided that no income-distribution tax shall be levied on person whose income is not chargeable to tax. However, the proposed new regime does not provide for any such exemption on withholding of taxes. The proposal is a welcome move for banks and other financial institutions investing in security receipts to meet the priority sector lending thresholds. However, low or no tax entities, especially mutual funds will have to resort to section 197 to avoid cash flow issues.

The above provisions shall take effect from June 1, 2016.

u International Financial Services Centre With respect to a unit in IFSC deriving its income solely from convertible

foreign exchange, the Finance Bill proposes the following:

n Income of unit of an IFSC deriving its income solely in convertible foreign exchange shall not be subjected to DDT on dividends declared, distributed or paid, whether interim or otherwise on or after April 1, 2016;

n MAT under section 115JB of the IT Act shall be levied at a concessional rate of 9%

The Finance Bill further proposes that no securities transaction tax shall be levied on transactions in foreign currency in a recognized stock exchange located in an IFSC. Gains on such transaction with respect to a long term capital asset is proposed to be exempt from tax under section 10(38) of the IT Act.



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The proposals provide for exemption of DDT on dividend distributed by unit in IFSC, However, there is no clarity on whether this dividend income shall be taxable in the hands of investors.

The above proposals shall be effective from fiscal year 2016-17.

2.11. OTHER KEY AMENDMENTS

2.11.1. Presumptive Taxationu Amendments Relating to Business The Finance Bill proposes to increase the threshold limit under

the presumptive taxation scheme prescribed in section 44AD of the IT Act to INR 20 Mn.

The Finance Bill further proposes that the eligible taxpayer shall offer income as per the provisions of section 44AD of the IT Act for a period of 5 consecutive fiscal years. In absence thereof, the taxpayer cannot claim benefit under the said scheme for the subsequent 5 fiscal years.

Additionally, the Finance Bill proposes that taxpayers claiming benefit under the presumptive taxation scheme would now be required to deposit advance tax, being 100% of the estimated tax liability, by March 15th of the fiscal year.

This amendment would be effective from fiscal year 2016-17.u Amendments relating to Profession With a view to reduce compliance burden on taxpayers having

income from profession, the Finance Bill proposes to enhance the threshold limit for compulsory audit of accounts under Section 44AB of the IT Act to INR 5 Mn.

Further, the Finance Bill proposes to extend the benefit of presumptive taxation scheme to taxpayers having income from profession. Accordingly, if the gross receipts of the taxpayer from the specified profession do not exceed INR 5 Mn in a fiscal year, then 50% of such gross receipts shall be deemed to be the profits and gains chargeable to tax in the hands of such taxpayer. Taxpayers availing benefit of this presumptive taxation scheme would not be required to maintain books of accounts and get their accounts audited, under the relevant provisions of the IT Act.

This amendment would be effective from fiscal year 2016-17.

2.11.2.Capital Gains

u Definition of Unlisted Securities In order to boost foreign investment in India and to bring FIIs

and private equity investor on same footing, the Finance Act



2012, reduced the capital gains tax rate arising from transfer of unlisted securities from 20% to 10%.

However, in respect of the term ‘securities’, a reference was made to the Securities Contract Regulations Act, 1956 which defined the said term as “shares, scrips, stock, … or other marketable securities of a like nature in or of any incorporated company or other body corporate…”.

In respect of such reference, a controversy arose whether the shares of the private companies which cannot be said to be marketable, therefore fall outside the definition of the term ‘securities’ and accordingly not eligible for the reduced capital gains tax rate.

With an intent to clarify the taxability, the Finance Bill proposes that long term capital gains arising from transfer of capital asset being unlisted securities and shares of a company not being a company in which the public are substantially interested shall be taxed at 10% (without giving benefit of indexation and foreign exchange fluctuation).

Whilst, the above proposal has been effective from fiscal year 2016-17, a view could be adopted that the said proposal being clarificatory in nature and accordingly the same ought to be applied from fiscal year 2012-13.

u Deemed Sale Consideration As per provisions of section 50C of the IT Act stamp duty value

shall be taken as the full value of consideration while computing capital gains on transfer of land or building. Issues cropped on the valuation date for determining stamp duty value.

Accepting the recommendation given by the committee headed by Justice Easwar, the Finance Bill proposes to insert a proviso to section 50C to provide necessary clarity. According to the proposed amendment, the stamp duty value on the date of agreement is to be considered where such date is different from the date of registration.

The above proposal will take effect from fiscal year 2016-17.

u Conversion of Company to LLP Presently, the conversion of a company into LLP is tax neutral

subject to fulfillment of conditions laid down in section 47(xiiib) of the IT Act. The Finance Bill proposes an additional eligibility condition, requiring the total value of assets in any of the preceding 3 fiscal years to not exceed INR 50 Mn.

This proposal will take effect from fiscal year 2016-17.



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2.11.3. Filing of Tax Returns

u Certain Taxpayers Claiming Capital Gain Exemption to File Tax Return

Where a taxpayer claims exemption for long term capital gains by virtue of section 10(38) of the IT Act and income of such taxpayer without giving effect to such exempt gains exceed the maximum amount which is not chargeable to tax, then the taxpayer shall be liable to file return of income for the fiscal year within the due date.

u Belated Tax Returns Earlier, belated return could be furnished before the expiry of

2 years from the end of the relevant fiscal year or before the completion of the assessment, whichever is earlier. The Finance Bill proposes to amend the time limit for filing a belated return. The taxpayer may furnish the return of income before the end of 1 year from the relevant fiscal year or before the completion of the assessment, whichever is earlier.

Earlier a belated return could not be revised. The Finance Bill proposes to amend section 139(5) of the IT Act to provide for revision of a belated tax return within 2 years from the end of the relevant fiscal year or before the completion of the assessment, whichever is earlier.

u Defective Return Tax Return would not be treated defective merely because self-

assessment tax and its corresponding interest have not been paid on or before the date of furnishing of the return.

The above amendments will take effect from fiscal year 2016-17.

2.11.4.Equalisation Levy

In order to tackle some of the direct tax challenges (such as the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction) relating to e-commerce and in light of the suggestions made by the OECD in BEPS project under action plan 1, the Finance Bill proposes to introduce ‘Equalisation Levy’.

The Finance Bill proposes to charge an equalization levy @ 6% on the amount of consideration for specified services (in the nature of online advertisement, provision for digital advertising space or any other facility for the purpose and includes any other notified services) received or receivable by the non-resident taxpayer, not having PE in India from:

n Resident payer carrying business or profession; or



n Non-resident payer having PE in India

The Finance Bill also proposes that the above levy shall not be charged, in the following cases, namely:

n Non-resident taxpayer providing such specified services has PE in India and such services are effectively connected with such PE.

n Aggregate amount of consideration for specified services received or receivable in a fiscal year by the non-resident taxpayer from resident payer (carrying business or profession) or non-resident payer (having PE in India) does not exceed INR 0.1 Mn.

n Specified services being paid by resident payer or PE of the non-resident payer for purpose other than carrying business or profession.

The resident or PE of the non-resident payer is required to deduct the proposed equalisation levy and deposit the same with the Government within the prescribed time limit. Further, for a given fiscal year, the said resident or PE of the non-resident payer is required to furnish prescribed statement within specified time frame to the tax authorities.

The resident or PE of the non-resident payer shall be liable to pay the equalization levy along with interest and penal consequences in case of:

n Non-deduction or short deduction of equalization levy; or

n Failure to deposit the equalization levy so deducted within the prescribed time limit.

The Finance Bill also proposes to levy penalty in respect of non-furnishing of the prescribed statement within specified time frame.

This amendment would be effective from the date of the notification to be issued by the Government.

Further, the Finance Bill proposes to provide that where the resident or PE of the non-resident payer fails to

n deduct the equalisation levy on payments made to the non-resident taxpayer; or

n after deduction fails to pay the same within the due date for filing the tax return, the same shall not be allowed as a deduction in computing the income of such payer for the fiscal year in which the payment was made. The Finance Bill proposes that the said payment shall be allowed as a deduction to the payer in the subsequent fiscal year in which such equalisation levy has been deducted and paid.



31

In case the proposed provisions are enacted in the current form, the issues which are existing under the present withholding taxes regime such as disallowance of the entire sum in case of short deduction, deduction on out of pocket expenses included in the invoices, etc. would also arise in the proposed equalisation levy. Further, unlike the existing withholding tax provisions, there are no provisions in respect of gross up arrangements in the proposed equalisation levy.


The Finance Bill also proposes that the income arising from above specified services and chargeable to equalisation levy shall be exempt from tax in the hands of non-resident taxpayer.

In view of the fact that the above proposed equalisation levy has been introduced by the Finance Bill 2016, one needs to evaluate whether the same is akin to Income-tax covered under applicable DTAAs.


2.11.5. Special Patent Tax Regime

With an aim to promote indigenous R&D and make India a global R&D hub, the Finance Bill proposes to introduce a concessional tax regime for Patents developed and registered in India. Under the proposed scheme, the royalty income generated from a Patent developed and registered in India shall be taxed at a flat rate of 10% (plus applicable surcharge and cess). No deduction is allowable for any expenditure or deduction while computing the tax on such income. The incentive under this scheme is available only to resident taxpayers in whose name the patent is registered under the Indian Patents Act, 1970.

It is further proposed that royalty income from eligible patents and relevant expenditure be excluded while computing MAT liability of the eligible taxpayer.

Patent Box regimes have been criticized, as harmful tax practice leading to shifting of tax profits. Action plan 5 of BEPS recommends limiting benefits under such regimes only to entities carrying out substantial activity, rather than the legal owner of such Patents. While the Memorandum explaining the Budget provisions discusses the anti-abuse measure (nexus approach) discussed under BEPS action plan 5, no corresponding amendment seems to have been proposed in this respect.

The above proposal will take effect from fiscal year 2016-17.



2.11.6. Disallowance under section 14A

While no amendment has been proposed to section 14A, the FM in his budget speech promised to rationalise the formula for computing disallowance in Rule 8D. The FM indicated that the disallowance will be limited to 1% of the average monthly value of investments yielding monthly exempt income, but not exceeding actual expenditure claimed.

While the objective of the change is aimed at reducing litigation, the impact of this proposal can be evaluated once the fine print of Rules is available.

2.11.7. Paperless Assessments

In a recent notification issued by CBDT, service of notice, summons, requisition, order and other communication may be done by email.

The Finance Bill now proposes to amend section 282A(1) of the IT Act, so as to provide that notices and documents required to be issued by tax authorities shall be issued either in paper form or in electronic form in accordance with procedure to be notified.

It is also proposed that communication of data and documents through electronic mode be treated as personal ‘hearing’.

With the aforementioned proposal, the Government plans to use technology with an objective to move towards paperless environment.

The above proposed amendments will take effect from June 1, 2016.

2.11.8. Assessment, Reassessment and Recomputation

The Finance Bill proposes to reduce / set the time limit for assessment, reassessment and re-computation of total income in the following cases:

Sr. No. Particulars Existing time

limitRevised

time limit

1

Completion of assessment under section 143 and section 144 of the IT Act (time limit from end of year in which tax return is filed)

2 years 21 months

2

Completion of reassessment under section 147 of the IT Act (time limit from end of year in which notice is served)

1 year 9 months



33

Sr. No. Particulars Existing time

limitRevised

time limit

3

Completion of fresh assessment in pursuance of an order of ITAT or a revision of order by CIT, setting aside or cancelling an assessment (time limit from end of year in which order is received)

1 year 9 months

4

Giving effect to an order of CIT(A), ITAT, High Court or Supreme Court or revision of an order or an order of the Settlement Commission, in absence of fresh assessment/ reassessment (time limit from end of the month in which order is received/passed)

- 3 months

5

In other cases for giving effect to an order of CIT(A), ITAT, High Court or Supreme Court or revision of an order (time limit from end of the month in which order is received/passed)

- 12 months

6

Period for assessment made on a partner of the firm in consequence of an assessment made on the firm under section 147 of the IT Act (time limit from end of the month in which order of firm is passed)

- 12 months

The period of assessment or reassessment in Sr. No. 1, 2 and 3 above, to be extended by a period of 12 months in case where a reference is made to Transfer Pricing Officer.

This amendment will be effective from June 1, 2016.



2.12. RATES OF INCOME-TAX AT A GLANCE

2.12.1. Individual / HUF / Association of Persons / Body of Individuals

The rates of tax will continue to be the same as those specified for fiscal year 2015-16 which are summarized as under:

Individual

Income Slabs (INR) Age below 60

yrs

Age 60 and above but below 80

yrs

Age 80 yrs and above

HUF / AOP / BOI

Up to 250,000 NIL NIL NIL NIL

250,001 – 300,000 10% NIL NIL 10%

300,001 – 500,000 10% 10% NIL 10%

500,001 – 1,000,000 20% 20% 20% 20%

1,000,001 & above 30% 30% 30% 30%

Finance Bill proposes to increase the maximum amount of rebate available to resident individuals under section 87A of the IT Act from existing INR 2,000 to INR 5,000.

Surcharge shall be levied @ 15%, as against the existing rate of 12% where the taxable income exceeds INR 10 Mn. Further in case of a resident taxpayer, surcharge continues to be @ 12% where the taxable income exceeds INR 10 Mn.

The Education cess and Secondary and Higher education cess shall continue to be levied @ 2% and 1% respectively.

Marginal relief will continue to be allowed in cases where taxable income is more than INR 10 Mn.

2.12.2. Partnership Firm / Limited Liability Partnerships

The rates of income-tax will continue to be the same as those specified for fiscal year 2015-16.

Limit Tax Rate (%)

On the whole of the total income 30%

Surcharge shall be levied @ 12% where the taxable income exceeds INR 10 Mn.

The Education cess and Secondary and Higher education cess shall continue to be levied at the rate of 2% and 1% respectively.



35

Marginal relief will continue to be allowed in cases where taxable income is more than INR 10 Mn.

2.12.3. Company

The rates of income-tax for the fiscal year 2016-17 are proposed as under:

Sr No Particulars

Basic Tax Rate Surcharge

(A) (B)Total

Income <= INR 10 Mn

Total Income > INR 10mn <= INR 100 Mn

Total Income > INR 100

Mn

1.

D o m e s t i c Company

- Normal Tax Rate

- Minimum Alternate Tax

29%

18.5%

30%

18.5%

Nil

Nil

7%

7%

12%

12%

2

F o r e i g n Company

- Normal Tax Rate

40% 40% Nil 2% 5%

(A) Total turnover or gross receipts of the company for the fiscal year 2014-15 does not exceed INR 50 Mn

(B) Total turnover or gross receipts of the company for the fiscal year 2014-15 exceeds INR 50 Mn

In order to provide relief to newly setup domestic companies engaged solely in the business of manufacture or production of article or thing, the Finance Bill proposes to amend the IT Act by way of insertion of new section 115BA, to provide that the income-tax payable in respect of the total income of a domestic company for any fiscal year beginning on or after April 1, 2017 shall be computed @ 25% at the option of the company, if the following conditions are satisfied-

n the company has been setup and registered on or after March 1, 2016;

n the company is engaged in the business of manufacture or production of any article or thing and is not engaged in any other business;

n the company while computing its total income has not claimed any benefit under section 10AA, benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure



on scientific research and any deduction in respect of certain income under Part-C of Chapter-VI-A other than the provisions of section 80JJAA; and

n the option is furnished in the prescribed manner before the due date of furnishing of income.

The Education cess and Secondary and Higher education cess shall continue to be levied at the rate of 2% and 1% respectively on the amount of tax computed inclusive of surcharge(wherever applicable) in all cases.

Marginal relief will continue to be allowed in cases where taxable income is more than INR 10 Mn or INR 100 Mn.

Also, surcharge @12% will be levied on Dividend Distribution Tax.

The above amendments shall take effect from fiscal year 2016-17.

INDIRECT TAX PROPOSALS






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3. CUSTOMS

3.1. LEGISLATIVE CHANGES (to be effective from the date of enactment of Finance Bill, 2016)

3.1.1. New provisions in relation to Special Warehousing and amendments in warehousing procedures

u Special Warehouse The definition of Warehouse has been proposed to include Special

Warehouse under Section 58A of Customs Act in respect of specified goods, which require continued physical control of the Customs Department. The Principal Commissioner of Customs or Commissioner of Customs to be given power to issue such licenses.

u Procedures relating to Warehousen Procedure for licensing, cancellation and suspension has been

revamped by proposing to substitute new section 57 and 58.

n As per the proposed section 57 and 58, the power to license public or private warehouse now vests with the Principal Commissioner of Customs or Commissioner of Customs. As per existing provisions, such power vests with the Assistant Commissioner or Deputy Commissioner of Customs.

u Warehousing Bondn The amount of warehousing bond has been proposed to be

increased from twice to thrice the amount of duty. In addition to the aforesaid bond, importer shall furnish a security as may be prescribed.

n Under the existing provisions, importer undertakes to pay duties, interest, rent and other charges while executing a warehousing bond. As the requirement of rent and other charges is proposed to be omitted, the warehousing bond would not cover such rent and other charges.



u Warehousing Period Existing section 61 has been proposed to be substituted specifying the

period for which the goods can be warehoused as follows:

Cleared byCapital Goods

Other than Capital Goods

Existing Proposed Existing Proposed

100% Export Oriented Undertaking

5 YearsTill the clearance

3 YearsTill the clearance

Electronic Hardware Technology Park unit

1 YearTill the clearance


Software Technology Park unit



Any warehouse wherein manufacture or other operations have been permitted under section 65



Others 1 Year

1 Year (extendable by 1 more year)

1 Year

1 Year (extendable by 1 more year)

u Control over Warehoused Goods Section 62 dealing with control over warehoused goods by the

customs officer is proposed to be deleted. The class of imported goods which requires physical control may be governed by provisions of Special Warehouse under newly proposed section 58A.

u Determination of rent and other charges Section 63 deals with determination of rent and warehouse charges

and prescribes procedures for collection thereof. Finance Bill 2016 proposes to omit this section as the rent and warehouse charges are market driven on account of privatization of services including those by facilities in the public sector.

u Owner’s Right to deal with warehoused goods The proposed section 64 restricts owner’s right while dealing with

warehoused goods to extent of inspection, sorting, showing for sale and any other actions to prevent any damage.



41

u Manufacture and other operation in relation to goods in Warehouse The power to sanction manufacturing operations in warehouse

is proposed to be shifted from Assistant Commissioner / Deputy Commissioner to Principal Commissioner / Commissioner of Customs. The requirement of payment of fees is proposed to be waived.

u Transfer of Warehoused Goods As per proposed amendment, transferee is mandatorily required to

execute a fresh bond along with a security. In such a case, bond executed by transferor shall stand cancelled.

u Custody and removal of warehouse goods Proposed Section 73A identifies the custodian of warehoused goods

and casts responsibility including liability of the warehouse keeper.

u Other Amendments On many instances under warehousing provisions, the word

‘exportation / re-exportation’ has been proposed to be substituted by the word ‘export’ in order to align with the definition of exports as mentioned under section 2(18) of Customs Act.

3.1.2. The concept of Warehousing Station to be omitted

The concept of Warehouse Station has been proposed to be omitted. This would mean elimination of one step in setting up a warehouse. As per proposed amendment, a warehouse could be set up without the requirement of location being declared as warehousing station.

3.1.3. Recovery of Customs Duty (Section 28)n Recovery proceedings are proposed to be initiated for duties not paid

or short paid in addition to not levied or short levied or erroneously refunded whether or not arising on account of any collusion, willful misstatement, fraud etc.

n The period of limitation to issue show cause notice has been proposed to be increased from one year to two years in cases not involving any collusion, willful misstatement, fraud etc.

3.1.4. Deferral of payment of Customs duty introduced for the first timen For the first time, deferral of payment of duty or other charges has

been proposed to be introduced for notified class of importers and exporters.

n Even in case of deferred payment, interest will be applicable at specified rates.— In case of importers, if payment is not made within two days

(excluding holidays) from the due date specified.— In case of exporters, if payment is not made within the due date

specified.



3.1.5. Transit of goods without payment of duty Finance Bill seeks to amend section 53 of Customs Act so as to enable

the CBEC to frame regulations for allowing transit of certain goods and conveyance without payment of duty.

3.1.6. Benefit of advance license under Duty Free Import Authorization (to be granted retrospectively)

Various customs notifications granting exemptions from customs duty to advance license holders or duty free import authorization holders refer to export duty under section 8 of Customs Tariff Act, 1975. Finance Bill, 2016 proposes to retrospectively amend all such notifications to change the reference from section 8 to section 8B pertaining to safeguard duty. With this amendment, importers can now use such authorization for import of goods without payment of safeguard duty.

3.2. AMENDMENTS IN CUSTOMS TARIFF ACT, 1975

3.2.1. Amendment in the First Schedule to the Customs Tariff Act, 1975

A Amendments not affecting rates of duty

1Editorial changes in the Harmonized System of Nomenclature (HSN) in certain chapters are being incorporated in the First Schedules, to be effective from January 01, 2017.

2

To:

a) Amend supplementary notes (e) and (f) Chapter 27 so as to change the reference:

n from IS:1460:2000 to IS:1460:2005 for high speed diesel (HSD) andn from IS:1460 to IS: 15770:2008 for light diesel oil (LDO);

b) Substitute Tariff line 5901 39 10 with description “Warp pile fabrics, uncut” in place of tariff line 5801 37 11 [with description Warp pile fabrics„ epingle” uncut velvet] and 5801 37 19 [with description Warp pile fabrics„ epingle” uncut other];

c) Prescribe separate tariff lines for laboratory created or laboratory grown or manmade or cultured or synthetic diamonds;

d) Delete Tariff line 8525 50 50, relating to Wireless microphone.



43

B Amendments affecting rates of duty

Description of Goods Existing Tariff

Rate

Revised Tariff Rate

Articles of rubber

3 Natural latex rubber made balloons falling under specified headings 10% 20%

Metals

4 Primary aluminium 5% 7.50%

5 Zinc alloys 5% 7.50%

Jewellery

6 Imitation jewellery 10% 15%

Renewable Energy

7 Industrial solar water heater 7.50% 10%

Capital goods and parts thereof

a) On 96 specified tariff lines, the effective rate is being increased 7.50% 10%

b) On remaining 115 tariff lines the effective rate will remain unchanged 7.50% 7.50%

* The amendments involving increase in the duty rates will come into effect immediately owing to a declaration under the Provisional Collection of Taxes Act, 1931.

3.2.2. Amendment in effective rate of Customs Duty for Imports subject to condition as per applicable notification (To be effective from March 1, 2016)

u Aviation Industry

Sr.No. Description of GoodsExisting BCD

RateRevised

BCD Rate

1

Other Aircraft; spacecraft (including satellites) and suborbital and spacecraft launch vehicles except Spacecraft (including satellites) and suborbital and spacecraft launch vehicles

3%-10% Nil



u Chemical and Petrochemicals


RateRevised

BCD Rate

1The following gods for use in the manufacture of Brushless Direct Current (BLDC) motors, namely:

7.50% 2.50%

n Mangnet Resin (Strontium Ferrite compound/before formed, before magnetisation);

n Neodymium magnet (before magnetisation)

2

Medical use fission Molybdenum-99 (Mo-99), if imported by board of radiation and Isotope Technology (BRIT) for use in the manufacture of radio pharmaceuticals.

7.50% Nil

3All goods - Acyclic Hydrocarbons, cyclic hydrocarbons except p-Xylene and Styrene.

5.00% 2.50%

4Capacitor grades polypropylene granules or resins for the manufacture of capacitor grade plastic film

7.50% Nil

5

Electrolysers, membranes and their parts required by caustic soda / potash unit based on membrane cell technology

2.50% Nil

u Electrical Industry


RateRevised

BCD Rate

1

Electric Motors and Generators (Excluding Generating Sets) except AC Generators of an output exceeding 1,37,500 kVA but not exceeding 3,12,500 kVA and of an output exceeding 3,12,500 kVA

- 7.50%



45


RateRevised

BCD Rate

2

Electric Generating sets and Rotary Converters except generating sets of an output not exceeding 75kVA, electric portable generators of an output not exceeding 3.5kVA and Electric rotary converters

- 7.50%

3 Foreign Satellite data on storage media imported by National Remote Sensing - Nil

4 Parts, testing equipment, tools and toolkits for maintenance, repair, and - Nil

u Electronics/ Hardware Industry


RateRevised

BCD Rate

1

(a) Inputs or parts for use in manufacture of charger or adapter of mobile handsets including cellular phones;

(b) Inputs or sub-parts for use in manufacture of parts mentioned at (a)above

- Nil

2

(a) Inputs or parts for use in manufacture of battery of mobile handsets including cellular phones;

(b) Inputs or sub-parts for use in manufacture of parts mentioned at (a) above

- Nil

3

(a) Inputs or parts for use in manufacture of wired headsets of mobile handsets including cellular phones;

- Nil


4(a) Inputs or parts for use in

manufacture of speakers of mobile handsets including cellular phones;

- Nil





RateRevised

BCD Rate

5

(a) Parts, components and accessories for use in manufacture of broadband modem falling under tariff item 8517 62 30;

- Nil

(b) Sub-parts for use in manufacture of items mentioned at (a) above.

6

(a) Parts, components and accessories for use in manufacture of routers falling under tariff item 8517 69 30;

- Nil


7

(a) Parts, components and accessories for use in manufacture of set top boxes for gaining access to internet falling under tariff item 8517 69 60;

- Nil


8

(a) Parts, components and accessories for manufacture of Digital Video Recorder (DVR)/ Network Video Recorder (NVR) falling under tariff item 8581 90 90;

- Nil


9

(a) Parts, components and accessories for use in manufacture of reception apparatus for television but not designed to incorporate a video display falling under tariff item 8528 71 00;

- Nil


10

(a) Parts, components and accessories for use in manufacture of CCTV Camera/ IP camera falling under tariff item 8525 80 20;

- Nil




47


RateRevised

BCD Rate

11

(a) Parts, components and accessories for use in manufacture of lithium-ion batteries (other than batteries of mobile handsets including cellular phones) falling under tariff item 8507 60 00;

- Nil


12 E-Readers Nil 7.5%

13 Raw materials or parts for use in manufacture of e-Readers - 5.00%

14Preform of Silica for the manufacture of telecommunication grade optical fibres or optical fibre cables.

Nil 10%

15

Machinery, electrical equipment, other instruments and their parts [except populated Printed Circuit Boards] for use in fabrication of semiconductor wafer and Liquid Crystal Display (LCD) Machinery, electrical equipment, other instruments and their parts [except populated Printed Circuit Boards] for use in assembly, testing, marking and packaging of semiconductor chips

7.50% Nil

16

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%

u Food Industry


RateRevised

BCD Rate

1 Cashew nuts in shell Nil 5%

2 Denatured ethyl alcohol (ethanol) for use in manufacture of excisable goods. 5.00% 2.50%



u Gems and Jewellery Industry


RateRevised

BCD Rate

1 Gold dore bar, having gold content not exceeding 95% 8% 8.75%

2 Silver dore bar, having silver content not exceeding 95% 7% 7.75%

u Health Industry


RateRevised

BCD Rate

1 Disposable sterilized dialyzer and micro barrier of artificial kidney 7.50% Nil

u Ores and Metals


RateRevised

BCD Rate

1 Aluminium tubes and pipes and pipe fittings 7.50% 10%

2 Brass Scrap 5.00% 2.50%

3 Silica Sands 5.00% 2.50%

4 Coal, whether or not pulverised, but not agglomerated1 10.00% 2.50%

5Briquettes, ovoides and similar solid fuels manufactured from coal, lignite, peat

10.00% 2.50%

6

Coke and semi coke of coal; coal gas; gases other than petroleum gases and other gaseous hydrocarbons; Tar distilled from coal

10.00% 5.00%

7 Oils and other products of the distillation of high temperature coal 10.00% 2.50%

8 Pitch and pitch coke obtained from coal tar or from other mineral tar 10.00% 5.00%

9Aluminium Oxide for use in the manufacture of washcoat for catalytic converters

7.50% 5%

1 Additional Duty of Customs increased to 2% from nil rate



49

u Renewable Energy


RateRevised

BCD Rate

1

Solar tempered glass or solar tempered (anti-reflective coated) glass for use in manufacture of solar cells/panels/modules

10.00% 5%

u Textile Industry


RateRevised

BCD Rate

1

Import of specified fabrics for the manufacture of textile garments for export under chapter 50, 52, 54, 55 or any other chapter

- Nil

2 Specified fibres, filaments/yarns 5.00% 2.50%

u Miscellaneous


RateRevised

BCD Rate

1 Refrigerated containers - 5.00%

2Wood in chips or particles, imported for use in manufacture of paper, paperboard and newsprint

5.00% Nil

3 Pulp of wood for manufacture of goods falling under 9619. 5.00% 2.50%

4

Sanitary towels (pads) and tampons, napkins liners for babies and similar articles, of any material under chapter heading 9619

10.00% 5%

5 Plans drawings and designs Nil 10%

3.2.3. Amendment in Special Additional Duty


RateRevised

BCD Rate

1 Populated Printed Circuit Boards (PCBs) of mobile phones and tablet computer Nil 4%

2 Charger, adapter, battery, wired headsets and speakers of mobile handsets Nil 4%




RateRevised

BCD Rate

3 O-xylene for use in manufacture of phthalic anhydride 4% 2%

4

Machinery, electrical equipment’s, other instruments and their parts [except populated Printed Circuit Boards] for use in fabrication of semiconductor wafer and Liquid Crystal Display (LCD)

4% Nil

5

Machinery, electrical equipment’s, other instruments and their parts [except populated Printed Circuit Boards] for use in assembly, testing, marking and packaging of semiconductor chips

4% Nil

6Populated Printed Circuit Boards (PCBs) for use in manufacture of tablet computers and mobile handsets including cellular phones,

Nil 2%

3.2.4. Amendment in effective rate of Customs Duty for Exports (to be effective from March 1, 2016)


RateRevised

BCD Rate

1 All goods under Chapter Heading 26011121, 26011122, 26011141, 260111 42 10% Nil

2 Bauxite (natural), not calcined 20% 15%

3 Bauxite (natural), calcined 20% 15%

4 Chromium Ores and concentrates, all sorts 30% Nil

3.2.5. Safeguard Duty on imports from China (to be effective from enactment of Finance Bill, 2016)

Section 8C of Customs Tariff Act, 1975 providing power to Central Government to impose specific safeguard duty on imports from People’s Republic of China is proposed to be omitted.



51

3.3. AMENDMENTS BY WAY OF NOTIFICATION

1.3.1. Amendment in Baggage Rules, 1998 (to be effective from April 1, 2016)

n Baggage Rules in relation to used personal effects, travel souvenirs and all articles except mentioned in Annexure I

(Table 1)

Sr.No. Passenger Details Arriving from Baggage Allowances

1

Indian Resident or a foreigner residing in India or tourist of Indian Origin

Countries other than Nepal, Bhutan or Myanmar

Upto INR 50,000

2Tourist of Foreign Origin

Countries other than Nepal, Bhutan or Myanmar

Upto INR 15,000

3

Indian Resident or a foreigner residing in India or tourist of Indian Origin

Nepal, Bhutan or Myanmar

Upto INR 15,000 (in case passenger travelling by land, only used personal effects shall be allowed duty free)

n Annexure I

— Fire arms

— Cartridges of fire arms exceeding 50

— Cigarettes exceeding 100 sticks or cigars exceeding 25 or tobacco exceeding 125 gms

— Alcoholic liquors or wine in excess of two litres

— Gold or silver in any form other than ornaments

— Flat panel (LCD / LED / Plasma) television

n Baggage Rules for Jewellery

Sr. No.

Passenger Residing Abroad Baggage Allowances

1 Gentleman For more than 1 year 20 grams of weight with a cap of INR 50,000

2 Lady For more than 1 year 40 grams of weight with a cap of INR 1,00,000



n Transfer of residence

A person returning to India either on completion of his profession or transfer of his residence shall be allowed baggage to extent as mentioned in the appendix to Rule 6 to Baggage Rules, 2016 wherein the baggage allowance have been increased in comparison to previous rules. This is in addition to the duty free good allowed as per Table 1 above.

n Currency

The import and export of currency under these rules shall be governed by Foreign Exchange Management (Export and Import of Currency) Regulations, 2000 and notifications issued thereunder.

3.3.2. Customs Baggage Declaration Regulations, 2013 (to be effective from April 1, 2016)

n Customs Baggage Declaration Regulations, 2013 is proposed to be made applicable only to passengers coming to India who have anything to declare or are carrying dutiable or prohibited goods.

n Changes proposed to be introduced in Baggage Rules, 1998 are proposed to be incorporated in the Form I for declaration of accompanied baggage.

3.3.3. Amendment in Section 28AA – Interest on delayed payment of Duty (to be effective from April 1, 2016)

The Government of India vide notification no 33/2016 has notified rate of interest as 15% p.a. for delayed payment of duty as against previous rate of 18% p.a.

3.3.4. Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 (to be effective from April 1, 2016) simplified based upon self declarations instead of obtaining permissions from authorities

n New procedure for import of goods is proposed to be introduced vide Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016 (IGCR) replacing erstwhile Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996.



53

n Applicability

— IGCR Rules shall apply to importer manufacturer claiming exemption granted under section 25 of Customs Act for import of goods with a condition that the goods will be used for manufacture of excisable commodity. The relevant exemption notification specifies the requirement of observance of these rules. These Rules shall be applicable even if goods manufactured using the imported goods are not liable to excise duty or exempt from excise duty.



4. CENTRAL EXCISE

4.1. LEGISLATIVE AMENDMENTS

4.1.1. Amendments to Central Excise Act [to be effective from the date of enactment]

u Time limit for issuance of show cause notice (Section 11A) The time limit for issue of show-cause notice in cases not

involving fraud or collusion or willful misstatement or suppression of facts has been extended from 1 year to 2 years from the relevant date.

u Extension in instructive powers of CBEC (Section 37B) The powers of CBEC to issue orders, instructions and directions

to central excise offers have now been extended not only in case of classification or levy of excisable goods but also for the implementation of CE Act.

4.2. OTHER AMENDMENTS

4.2.1. Optional centralized registration provided to manufacturer of Jewellery [to be effective from March 1, 2016]

The said option is subject to condition that the manufacturer maintains centralized billing or accounting system for goods specified above and the manufacturer opts to register the factory/office/premises from wherein the centralized billing or accounting is done and specified records are maintained. Such manufacturer provides the details of all premises (other than those of job workers) from where the specified goods are removed for domestic clearance. Alternatively the manufacture may also opt for separate registrations of all such factories/office/premises.

Also condition of physical verification as applicable during central excise registration process has been done away with in case of such manufacturers. (Notification no. 08/2016 –CE NT)

The above mentioned manufacturers will have to levy excise duty on the transaction value instead of tariff value as was applicable earlier. (Notification no. 07/2016–CE NT)

The purpose of the above amendments is to simplify the cumbersome registration procedures.

Further, rule 8 has been amended to provide the manufacturers as specified above to pay excise duty on a quarterly basis if their turnover does not exceed INR 12 Crores in the preceding financial year.



55

4.2.2. Provisional Assessment [to be effective from March 1, 2016]

The interest calculation on any amount paid under provisional assessment is now required to be calculated from the due date as specified under sub rule (1) of rule 8 of CER till the date of payment. Earlier, due date for calculation of such interest was from first day of the month, succeeding the month for which the amount is determined till the date of payment.

4.2.3. Invoice [to be effective from March 1, 2016]

Proviso to sub rule 8 of Rule 11 of CER has been now amended to delete the self-attestation by the manufacturer on duplicate copy of invoice meant for transport of goods which is digitally signed.

4.2.4. Filing of Annual Return [to be effective from April 1, 2016]

Annual financial Information statement has been substituted by Annual Return. The annual returns can now be revised within one month from the date of submission of annual return. The above provisions shall also be applicable to a 100% Export Oriented Unit.

4.2.5. Revision of returns under Central Excise

The Central excise returns can now be revised by the end of calendar month in which the original return is filed. Also, the relevant date for the purpose of section 11A shall be date of submission of such revised return. The provision of revised return shall also apply to 100% Export Oriented unit.

4.2.6. Amendment in abatement notification for calculation of transaction value [to be effective from March 1, 2016]

Particulars Nature of Amendment

Heading, Sub-

Heading or Tariff item

Description of goods

Percentage of Retail Sale

Price.

After Sr. No. 64 New Entry 7607 All goods 25%

After Sr. No 87 New entry 851762

Wrist wearable devices (commonly known as smart watches)

35%

-Rate of Abatement Changed

Chapter 61,62,63

articles of apparel, not knitted or crocheted, all sorts

60%



Particulars Nature of Amendment

Heading, Sub-

Heading or Tariff item

Description of goods

Percentage of Retail Sale

Price.

Entry no. 56Rate of Abatement Changed

64 All footwear 30%

Entry No. 39 Entry substituted 3401 All goods 30%

Entry no. 40 Entry substituted 3402 All goods 30%

Sr. no. 108 and 109

Amendment in Entry

Any chapter

Parts, components, accessories and assemblies

—

4.2.7. Due date for filing for refund claim notified [to be effective from March 1, 2016]

The due date for filing of refund claims under rule 5 of CCR, 2004 has now been defined as follows:

n In case of manufacturer shall be before the expiry of period specified in section 11B of the CE Act.

n In case of service provider shall be the expiry of one year from the date of Receipt of payment in convertible foreign exchange if provision of service has been completed prior to receipt of such payment or else shall be the date of issue of invoice.

4.2.8. Reduction in rate of Interest in case of delay in payment of excise duty [to be effective from April 1, 2016]

The rate of interest has been decreased from 18% to 15% in case of delay in payment of duty.

4.2.9. Due date for filing of rebate claim notified [to be effective from March 1, 2016]

The due date for filing of rebate claim under rule 18 of CE Rules has now been notified by an amendment to notification no.19/2004 CE-NT thereby specifying the time limit as mentioned under section 11B of CE Act.

Notification no.19/2004 CE-NT has now been amended to substitute “The market price” by “The Indian Market price” under the heading Conditions and limitations”, in paragraph (e) of the notification.



57

4.2.10.Single Registration for two or more premises under Central Excise [to be effective from March 1, 2016]

Single registration is now been allowed for two or more premises of the same factory under the following circumstances

n If the premises of the same factory are located within a close area in jurisdiction of range superintendent.

n Manufacturing process undertaken by premises are interlinked.

n Units are not operating under any of area based exemption notification.

4.2.11.Central Excise(Removal of goods at concessional rate of duty for manufacture of excisable goods rules, 2016) [to be effective from April 2016]

The existing Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2001 are being substituted with the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2016, so as to simplify the rules, including allowing duty exemptions to importer/manufacturer based on self-declaration instead of obtaining permissions from the Central Excise authorities.

For the purpose of above, the concept of “Applicant manufacture” and “Supplier manufacture” have been introduced to mean person intending to receive goods for specified use at concessional rate of duty and a manufacturer who supplies excisable goods at concessional rate of duty to applicant manufacturer respectively.

4.2.12. Amendment to procedure for rebate claim to be filed under rule 18 of CE Rules [to be effective from March 1, 2016]

Now, the rebate claim can be filed on the basis of Chartered Engineers Certificate prepared on the basis of SION Norms as specified by DGFT instead of verification carried out by AC/DC as previously prescribed. The AC/DC may further grant permission for manufacture or processing and export of goods before commencement of export of such goods on basis of such certificate.

4.3. AMENDMENTS IN CENTRAL EXCISE TARIFF ACT, 1985

4.3.1. Amendments in first schedule of CETA

Editorial changes in certain chapters of the first schedule to the CETA have been incorporated w.e.f. January 01, 2017.

4.3.2. Amendment in exemption notification

The area based exemptions in North Eastern and other states available to production of refined gold or silver from gold/silver dore



or any other raw material is withdrawn w.e.f. March 01, 2016 for new units and the existing industrial units undertaking expansion.

The area based exemptions in North Eastern and other states available to production of gold or silver from gold/silver dore or any other raw material is withdrawn w.e.f. 1st March 2016 for the existing industrial units undertaking expansion.

SSI Exemption is made available to the manufacturers of articles of Jewellery with a higher threshold limit upto INR 6 crore in a year provided the clearances in the preceding financial year does not exceed INR 12 crore.

Change in condition for power producers generating power based on municipal and urban waste. They are exempted from the condition of entering into a purchase agreement with the purchaser for a period of not less than ten years from the date of commissioning of the project provided that the producer has entered into a contract for processing of municipal solid waste with the urban local body for a period of not less than ten years from the date of commissioning of project.

4.3.3. Amendment in compounded levy on pan masala/tobacco products

Compounded levy scheme for Pan Masala, Branded manufactured tobacco and Chewing tobacco has been amended to change the rate of duty payable per packing machine per month on sale.

Pan Masala Packing Machines (Capacity Determination and Collection of Duty) Rules, 2008 is amended to provide revised breakup of duty payment for apportionment between Basic Excise Duty, Additional Excise Duty and National Calamity Contingent Duty.

Rule 5 of Chewing Tobacco and Unmanufactured Tobacco, Packing Machines (Capacity Determination and Collection of Duty) Rules, 2010 is amended to determine the quantity deemed to be produced per packing machine per month for Chewing Tobacco.

4.3.4. Miscellaneous changes:

The Seventh Schedule to the Finance Act, 2005 is being amended so as to increase the excise duty across all lengths of non-filter and filter cigarettes as under:

Cigarettes From Rs. Per thousand

To Rs. Per thousand

Non filter not exceeding 65 mm 70 215

Non-filter exceeding 65 mm but not exceeding 70 mm 110 370

Filter not exceeding 65 mm 70 215



59

Cigarettes From Rs. Per thousand

To Rs. Per thousand

Filter exceeding 65 mm but not exceeding 70 mm 70 260

Filter exceeding 70 mm but not exceeding 75 mm 110 370

Other 180 560

Change in effective rate of duty for specified items:

Sr.No. Description of Goods Existing Excise Duty Rate

Revised Excise Duty Rate

Foods Processing

1 Refrigerated containers 12.5% 6%

Fertilizers

2

Micronutrients which are covered under Sr. No. 1(f) of Schedule 1 Part (A) of the Fertilizer Control Order, 1985 and are manufactured by the manufacturers which are registered under FCO, 1985

12.5% 6%

3

Physical mixture of fertilizers manufactured by Co-operative Societies, holding certificate of manufacture for mixture of fertilizers under the Fertiliser Control Order 1985, made out of chemical fertilizers on which duty of excise has been paid and no credit of duty paid on such chemical fertilizers has been taken under rule 3 of the CENVAT Credit Rules, 2004 and which are intended for supply to themembers of such Co-operative Societies

1% AT

Credit or 6% with CENVAT

Credit

Nil

Textiles

4.

Branded readymade garments and made up articles of textiles of retail sale price of Rs.1000 or more

Nil [without CENVAT

credit] or 6%/12.5%

[with CENVAT credit]

2% [without CENVAT credit] or 12.5% [with CENVAT credit]





5

PSF / PFY, manufactured from plastic scrap or plastic waste including waste PET

Bottles

2% [without CENVAT

credit] or 6% [with CENVAT

credit]


Footwear

6 Rubber sheets & resin rubber sheets for soles and heels 12.5% 6%

Metals

7To change excise duty structure on disposable containers made of aluminium foils.

2% [without CENVAT

credit] or 6% [with CENVAT

credit]


Precious metals & Jewellery

8

Refined gold bars manufactured from gold dore bar, silver dore bar, gold ore or concentrate, silver ore or concentrate, copper ore or concentrate.

9% 9.5%

9

Refined silver manufactured from silver ore or concentrate, silver dore bar, or gold dore bar.

8% 8.5%

10 Articles of Jewellery [excluding specified silver jewellery] Nil

1% [without CENVAT credit] Or 12.5% [with CENVAT credit]



61



Renewable Energy

11

Unsaturated Polyester Resin (polyester based infusion resin and hand layup resin), Hardeners/Hardener for adhesive resin, Vinyl Easter Adhesive (VEA) and Epoxy Resin used for manufacture of rotor blades and intermediates, parts and sub parts of rotor blades for wind operated electricity generators

Nil 6%

12

Carbon pultrusion used for manufacture of rotor blades and intermediates, parts and sub-parts of rotor blades for wind operated electricity generators

12.5% 6%

13 Solar lamp 12.5% Nil

Civil Aviation

14

Aviation Turbine Fuel [ATF] other than for supply to Scheduled Commuter Airlines (SCA) from the Regional Connectivity Scheme airports

8% 14%

Maintenance, repair and overhaul [MRO] of aircrafts

15

Tools and tool kits when procured by MROs for maintenance, repair, and overhauling [MRO] of aircraft subject to a certification by the Directorate General of Civil Aviation. Certain speciied conditions for availing exemption have also been changed.

Applicable excise duty Nil

Electronics & IT hardware

16

Charger / adapter, battery and wired headsets / speakers for supply to mobile phone manufacturers as original equipment manufacturer

Nil






17

Inputs, parts and components, subparts for manufacture of charger / adapter, battery and wired headsets / speakers of mobile phone, subject to actual user condition.

12.5%/Nil Nil

18

Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR) / network video recorder (NVR), CCTV camera / IP camera, lithium ion battery [other than those for mobile handsets]

12.5%


19

Parts and components, subparts for manufacture of Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR) / network video recorder (NVR), CCTV camera / IP camera, lithium ion battery [other than those for mobile handsets]

12.5% Nil

Machinery

20

Electric motor, shafts, sleeve, chamber, impeller, washer required for the manufacture of centrifugal pump

12.5% 6%

Automobiles

21 Specified parts of Electric Vehicles and Hybrid Vehicles

6% Upto 31.03.2016

6% Without time limit

Miscellaneous

22 Excise duty on sacks and bags of all plastics 12.5%/15% 15%

23

Unconditionally exempt improved cook stoves including smokeless chulhas for burning wood, agrowaste, cowdung, briquettes, and coal

Nil Nil



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24Disposable sterilized dialyzer and micro barrier of artificial kidney

12.5% Nil

25

Ready Mix Concrete manufactured at the site of construction for use in construction work at such site

2% [without input tax

credit] / 6% [with input tax credit]

Nil

26

Parts of railway or tramway locomotives or rolling stock and railway or tramway track fixtures and fittings, railway safety or traffic control equipment, etc.

12.5% 6%

27

Remnant kerosene, presently available for manufacture of Linear alkyl Benzene [LAB] and heavy alkylate [HA] to N-paraffin.

At present, exemption is restricted to manufacturers of LAB and HA.

14% Nil

28

Clean Energy Cess / Clean Environment Cess on coal, lignite or peat produced or extracted as per traditional and customary rights enjoyed by local tribals without any license or lease in the State of Nagaland

INR 200 per Tonne Nil

29

A battery pack, battery charger, AC or DC Motor, AC/DC Motor Controller, engine, transaxle for HV, power control unit, control ECU for HV, generator, breeak system for recovering, energy monitor and electric compressor.

6% 6%

The exemption is extended for further period.

30 Engine for xEV (hybrid electric vehicle) 12.5% 6%

31 Pan Masala 16% 19%





32

Polyester staple fibre or polyester filament yarn, manufactured from plastic scrap or plastic waste including waste polyethylene terephthalate bottles

6% 12.5%

33

Silver produced or manufactured during the process of zinc or lead smelting starting from the stage of zinc or lead ore or concentrate

8% 8.5%

34

Capital goods and spares thereof, raw materials, parts, material handling equipment and consumables, for repairs of ocean-going vessels by a ship repair unit.

6%/12.5% Nil

35Disposable aluminium foil containers falling under chapter heading 7323 or 7418 or 7615

6% 12.5%

Beverages, Spirits and Vinegar

36 Aerated Water 18% 21%

37 Lemonade 18% 21%

38 Goods falling under chapter heading 22021090 18% 21%

39 Unmafactured Tobacco 55% 64%

40

Cigars and Cheroots, Cigarillos, Cigarillos of Tabacco Substitutes and goods falling under chapter heading 24029090

12.5% or INR 3,375

per thousand whichever is

higher

12.5% or INR 3,755

per thousand whichever is

higher

41 Cigarettes of Tabacco Substitutes

INR 3,375 per thousand

INR 3,755 per thousand

42 Goods falling under chapter heading 24031929

INR 30 per thousand

INR 80 per thousand

43

Chewing Tobacco, Jarda scented tobacco and goods falling under chapter heading 24039990

70% 81%



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5. SERVICE TAX

5.1 NEGATIVE LIST (SECTION 66D) [to be effective from the date to be notified after the Finance Bill receives the assent of the President]

5.1.1 Lottery Distributors and Selling Agents of State Governments

Presently the Explanation 2 to Section 65B (44), by deeming fiction imposes a tax on a lottery distributor. However, this explanation was open to cover even those distributors who were not governed by the Lotteries (Regulation) Act, 1998. Since the contracts contrary to these regulations would be ultra vires to the provisions of Indian Contract Act, 1872, the same has been now amended to reinstate this position.

5.1.2 Services in relation to approved educational courses

Deletion of the specified services from negative list means that the services in relation to pre-school education, higher secondary and equivalent, approved educational course would not form part of the negative list. However, there would still be no tax on these services since the same are exempted by way of amendment in Exemption Notification No. 25/2012-ST by way of new Notification No. 09/2016-ST. This means that all schools and colleges would now have to register and claim the exemption in the return filed. The intention seems to get all educational institutions under the tax net.

5.1.3 Services provided by a stage carriage in relation to transportation of passengers

Currently services provided in a contract carriage for transportation of passengers in air conditioned buses is taxable but services provided in a stage carriage are exempt (whether air conditioned or not). It has now been proposed to tax services in relation to transportation of passengers in air conditioned stage carriage. The services in non air conditioned stage carriage would continue to be exempted vide Notification No 25/2012-ST as amended by Notification No 09/2016-ST.

5.1.4 Services by way of transportation of goods from a place outside India to the customs station in India

u Transportation by aircraft Transportation of goods from a place outside India to the

customs station in India by an aircraft is currently not taxable since the same is included in negative list. As proposed, such transportation would now be excluded from negative list, but would be exempted from payment of tax owing to the amendment in Notification No 25/2012-ST by Notification No 09/2016-ST.



u Transportation by shipping line

Transportation of goods from a place outside India to the customs station in India by shipping line is currently not taxable since the same is included in negative list. It has now been proposed to tax such services. The person liable to pay tax would have to be determined as per the provisions of Section 68. Accordingly in cases where the service provider is a domestic shipping line, the liability would be on such shipping line and in case where the service provider is a foreign shipping line the liability would be on the person making payment of freight to such shipping line.

5.2 DECLARED SERVICES [to be effective from the date to be notified after the Finance Bill receives the assent of the President]

5.2.1 Spectrum services of Government defined as a declared service

Assignment by the Government of right to use the radio frequency spectrum is proposed to be declared as a service under section 66E. The intention of the proposed amendment is to avoid ambiguity in interpretation of such rights as a service vis-à-vis sale of intangible goods. Considering the fact that the services provided by the Government would be taxable in the hands of the recipient, this would cast an onerous responsibility on service providers in the telecom sector. The proposal also envisages transfer within the service providers as also a taxable service. However, this proposition of treating the transfer of such a right as a service would have to stand the test of judicial scrutiny.

5.3 LEGISLATIVE CHANGES

5.3.1 Point of Taxation Rules now prescribed as per Section 67A

The current Section 67A is being proposed to be amended to give reference to the point or the time of taxation to be prescribed. This amendment has been made to remove the ambiguity whereby the Point of Taxation Rules, 2011 defines the point or time of taxation in various scenarios and Section 67A also provides for the point of taxation. In case of an overlap, the section would always prevail over the rules and if the rules have no authority of the section in terms of its applicability, the rules would fail. Hence the proposed amendment sorts to resolve this lacuna.

5.3.2 Time limit for invoking extended period for recovery of service tax [section 73]

Currently, the Central Excise Officer can serve notice for recovery of service tax in cases of service tax not levied / short levied or



67

not paid or short paid or erroneously refunded within a period of eighteen months from the relevant date in cases which do not involve fraud, collusion, misstatement etc. The period of eighteen months is proposed to be increased to thirty months, thereby giving more time to the department for initiating recoveries in normal cases.

5.3.3 Interest rates for delay in payments rationalized [section 75]

The Finance Act, 2014 introduced a new regime of interest rates which were in the range of 18% to 30% based upon the period of delay in payment of taxes. The proposed amendment in the Finance Bill, 2016 now intends to rationalize the usury interest rates to be classified in two parts as under:

n For tax collected and not paid within specified time – 24% p.a.

n In other cases – 15% p.a.

Further, in cases of service providers whose annual taxable turnover is less than INR 60 lakhs, the rate of interest would be 21% and 12% p.a. respectively in the above mentioned circumstances.

5.3.4 Change in rate of interest in case of excess collection of service tax. (Section 73B)

The rate of Interest has been reduced from 18% to 15% in case of excess collection of Service tax.

5.3.5 Non levy of penalty on Directors etc of a company in cases where penal proceedings under section 76 and 78 have been closed (Section 78A) :

In cases where penal proceedings have been concluded against the company, the same would be deemed to be concluded against the directors/management of the company. Currently, there is no such provision for providing relief to directors in situations even when the company is not liable to penalty. Thus, this insertion has brought about respite to the directors/management of the company.

5.3.6 Rationalisation of provisions in relation to prosecution (Section 89, 90 and 91) :

As per the proposed provisions the following amendments have been envisaged –

n Offences in relation to evasion of taxes in cases involving collection of taxes but failure to pay the same, shall be punishable by way of imprisonment if the specified officer has a reason to believe so; provided the amount collected but not paid exceeds INR two crores (currently INR 50 lakh).

n In other cases involving offences relating to evasion of taxes, powers to initiate proceedings for prosecution cannot be invoked



merely on the basis of “reason to believe”. Further imprisonment provisions in such cases can be invoked only if the amount of evasion exceeds INR two crores (currently INR fifty lacs).

5.4 RETROSPECTIVE AMENDMENTS FOR ENABLING REFUNDS/EXEMPTIONS FOR EARLIER PERIOD

5.4.1 Exemption to construction, erection, commissioning etc. of dam, canal or other irrigation works

Services provided in relation to construction, erection, commissioning etc. of dam, canal or other irrigation works to Governmental authority are exempt. The term ‘Governmental Authority’ was amended w.e.f. January 30, 2014 to include any authority / board / body established by Government. The service tax paid on services provided for the period from July 01, 2012 to January 30, 2014 to such Governmental Authorities would be eligible for refund subject to the provisions of unjust enrichment. The said refund shall be applied within 6 months from the date on which the Finance Bill, 2016 receives the assent of the President.

5.4.2 Exemption for services provided to the Government, by way of construction, erection, etc. and original works pertaining to an airport or port

The exemption in relation to services provided in relation to the following was rescinded by Finance Act, 2015 w.e.f March 01, 2015:

n 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:

— 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; or

— 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 section 65 B of the said Act;

n Services by way of construction, erection, commissioning or installation of original works pertaining to an airport or port

The above amendment affected even the ongoing contracts which were entered into prior to March 01, 2015 whether or not



69

the contractors could charge service tax or not, owing to the tender/contract terms. Since most of the service recipients are Government authorities or towards infrastructural projects, the Finance Bill 2016 has rightfully proposed to exempt from service tax all such projects till March 31, 2020.

A provision to claim refund of service tax if already paid on such contracts for the period March 01, 2015 till date has been made. The said refund shall be applied within 6 months from the date on which the Finance Bill, 2016 receives the assent of the President.

5.5 Mega Exemption Notification No 25/2012-ST

5.5.1 Exemptions withdrawn [with effect from April 01, 2016]n Services provided by a senior advocate to a person other than a

person ordinarily carrying out any activity relating to industry, commerce or any other business or profession would now be taxable

n Services provided by an arbitral tribunal to an arbitral tribunal would now be taxable

5.5.2 Exemptions withdrawn [with effect from March 01, 2016]

Services by way of construction, erection, commissioning or installation of original works pertaining to monorail or metro would now be taxable. However where contracts were entered into before March 01, 2016, on which appropriate stamp duty, was paid, shall remain exempt.

5.5.3 Additions to Mega Exemption Notification 25/2012-ST [with effect from March 01, 2016]n Specified educational programs provided by the Indian

Institutes of Management, as per the guidelines of the Central Government, to their students, shall be exempt.

n A civil structure or any other original works pertaining to the ‘In-situ rehabilitation of existing slum dwellers using land as a resource through private participation’ under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana only for existing slum dwellers shall be exempt

n A civil structure or any other original works pertaining to the ‘Beneficiary-led individual house construction / enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana’ shall be exempt

n Services by way of construction, erection, commissioning or installation of original works pertaining to low cost housing up to carpet area of 60 sq.mt has been extended to projects approved



under ‘All (Urban) Mission/Pradhan Mantri Awas Yojana’ and ‘any housing scheme of a State Government’

5.5.4 Additions to mega exemption notification 25/2012-ST [with effect from April 01, 2016]

n Services of assessing bodies empaneled centrally by Directorate General of Training, Ministry of Skill Development and Entrepreneurship by way of assessments under Skill Development Initiative (SDI) Scheme shall be exempt.

n Services provided by training providers (Project implementation agencies) under Deen Dayal Upadhyaya Grameen Kaushalya Yojana under the Ministry of Rural Development by way of offering skill or vocational training courses certified by National Council For Vocational Training shall be exempt.

n Exemption limit of INR 1,00,000 has been increased to INR 1,50,000 for services by an artist by way of a performance in folks or classical art forms of music, dance or theatre.

n Services of general insurance business Niramaya Health Insurance Scheme implemented by Trust constituted under the provisions of the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999).

n Services of life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013 (23 of 2013)

n Services provided by Employees Provident Fund Organisation (EPFO) to persons governed under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)

n Services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India Act, 1999 (41 of 1999)

n Services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 (15 of 1992) by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market

n Services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmers Welfare by way of cold chain knowledge dissemination



71

5.5.5 Additions to mega exemption notification 25/2012-ST [with effect from June 01, 2016]

n Transportation of passengers by stage carriage other than air-conditioned stage carriage shall be exempt

n Services by way of transportation of goods by an aircraft from a place outside India up to the customs station of clearance in India

5.5.6 Exemptions withdrawn [with effect from June 01, 2016]

Exemption to transportation of passengers by ropeway, cable car or aerial tramway stands withdrawn

5.6 CHANGE IN ABATEMENT NOTIFICATION [with effect from April 01,2016]

5.6.1 Transportation of goods/passengers by rail and goods by vessel

Transportation of goods/passenger by rail and goods by vessel claiming abatement are now eligible to claim CENVAT Credit on input services.

Further the effective tax rate for transportation of goods by rail by Indian railways and other than Indian- railways is as follows:

Nature of service provided

Existing Service tax

rate

w.e.f. April 1, 2016 (Including

SBC)

w.e.f June 1, 2016 (post levy of Krishi Kalyan

Cess)

2. Transport of goods by rail 4.35% 4.35% 4.50%

2A. Any transport of goods in containers by rail by any person other than Indian railways

4.35% 5.80% 6.00%



5.6.2 Transport of goods by goods transport agency

The services provided by goods transport agency are bifurcated in to two categories and the effective tax rate against each category is mentioned herein

Nature of service provided Service tax rate

w.e.f. April 1, 2016

(Including SBC)

w.e.f. June 1, 2016 (post levy of Krishi Kalyan

Cess)

7. Services of goods transport agency in relation to transportation of goods other than used household goods

4.35% 4.35% 4.50%

7A. Services of goods transport agency in relation to transportation of used household goods

4.35% 5.8% 6.00%

5.6.3 Services provided by foreman of chit fund in relation to chit The abatement available to services provided by foreman of chit fund

in relation to chit has been reintroduced and the abatement rate is 30% i.e. the effective tax rate would be 10.15% (including SBC).

5.6.4 Transportation of passengers [with effect from June 01, 2015] Transportation of passengers by a stage carriage would be eligible

to claim abatement of 60% i.e. the effective rate of tax would be 5.80% (including SBC). Further no CENVAT credit will be available on claiming the abatement.

5.6.5 Services by a tour operator: The tour operator services have now been bifurcated under two

categories by removing the concept of package tour. The effective rate of tax for the two categories is as under:



(Including SBC)

w.e.f June 1, 2016 (post levy of Krishi Kalyan Cess)

11.1. Services by a tour operator in relation to,-

1.45% 1.45% 1.50%

(i) a tour, only for the purpose of arranging or booking accommodation for any person



73



(Including SBC)

w.e.f June 1, 2016 (post levy of Krishi Kalyan Cess)

11.2. tours other than (i) above 5.8% 4.35% 4.50%

5.6.6 Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer.

The higher abatement rate of 75% available to specified residential unit has been removed. Henceforth, all the construction of residential/commercial units has the uniform abatement rate of 70% i.e. the effective rate of tax is 4.35% (including SBC).

5.6.7 Renting of Motor Cab

In order to claim abatement for services in relation to renting of motor Cab the amount charged shall include the fair market value of all goods (including fuel) and services supplied by the recipient(s).

5.7 POINT OF TAXATION RULES [with effect from March 01, 2016]

n The contradiction between 67A and Point of taxation rules has been done away with by giving specific powers to make rules of Point of Taxation as per section 67A.

n The new levy on services shall be governed by Rule 5 of Point of Taxation Rules.

5.8 SERVICE TAX EXEMPT ON INFORMATION TECHNOLOGY SOFTWARE GIVEN ON A MEDIA [with effect from March 01, 2016]

The Information Technology Software covered under chapter 85 of the Central Excise tariff act (5 of 1986) when recorded on media and when the retail sale price is declared under the provisions of The Legal Metrology Act, 2009 (1 of 2010) or the rules made thereunder shall be exempt from service tax. The exemption is subject to condition that appropriate duties of Excise/Customs have been paid and no amount in excess of the retail sale price has been recovered by the service provider from the customer.

5.9 EXEMPTION OF SERVICES PROVIDED BY BIO INCUBATORS.

Exemption of services provided available to Technology Business Incubator (TBI) or Science And Technology Entrepreneurship Park (STEP) extended to bio-incubators.



5.10 TAXABILITY OF SERVICES PROVIDED BY GOVERNMENT [with effect from April 01, 2016]

The ambit of taxability for the services provided by the government which was restricted to support services has been widened to all the services. The service tax liability is liable to paid under reverse charge mechanism.

5.11 AMENDMENT TO REVERSE CHARGE SCHEME [with effect from April 01, 2016]

5.12.1 Services provided by Mutual Fund Agent or a Distributor. Services provided by a mutual fund or Asset management company

shall not be liable to reverse charge mechanism. This would now be taxable in hands of service provider.

5.12.2 Services provided by Senior Advocate. Services provided by Senior Advocate by way of legal services will not

be liable to service tax under reverse charge mechanism. This would now be taxable in hands of service provider.

5.12 AMENDMENT IN SERVICE TAX RULES 1994 [with effect from April 01, 2016]

5.13.1 Periodicity for one Person Company. The periodicity for payment of service tax shall be quarterly in case

of One Person Company having aggregate value of taxable service of less than or equal to INR 50 lakhs.

5.13.2 Rate of Service tax in case of single premium annuity (Insurance) policies.

The rate of service tax in case of Single premium charged from the policy holders shall be 1.4%

5.13.3 Annual Service tax return. In addition to the half yearly returns it is proposed that an annual

return will have to be filed by November 30, of the succeeding financial year. The annual return can be revised within one month from the date of submission. Further, Late fees Maximum upto INR 20,000 will also be applicable in the following case.



75

6. CENVAT CREDIT

6.1. Amendment to CENVAT Credit Rules, 2004 [To be effective from April 1, 2016]

6.1.1. Definition of Capital Goods amended

The definition of Capital Goods has now been amended to allow the CENVAT credit of the following:

— Wagons specified under sub-heading 860692.

— Equipment or appliances used in an office.

— Goods used outside the factory for pumping of water for captive use within the factory.

6.1.2. Definition of Input amended

Input goods now include the following:

— goods used for pumping of water for captive use

— all capital goods having value up to INR 10,000/ piece

6.1.3. CENVAT Credit of Tools

CENVAT Credit would now also be allowed to the manufacturer in respect of tools falling under Chapter 82 of the CETA in addition to Jigs, fixtures, moulds and dies which were already available.

The above credit would also be available if these goods are directly sent to the premises of another manufacturer/job worker without bringing to the manufacturer’s premises.

6.1.4. CENVAT Credit of Service Tax paid on assignment of right to use any natural resource

Service Tax paid on the above services shall be equally spread over the number of years for which this right is valid and would be allowed to be taken in equal installments every year over the period for which this right is valid.

In case this right is further sub-assigned for a consideration in any financial year then the balance un-availed credit to the extent it does not exceed the output Service tax payable on consideration received on sub assignment shall be allowed in the same financial year.

CENVAT credit in respect of annual/monthly user charges for above assignment of rights shall be allowed as credit in the same financial year in which they are paid.



6.1.5. Rule 6 of CCR revamped

Following are the key changes made in Rule 6:

For the purpose of this rule exempted service would now also include any activity which is not a ‘service’ under Finance Act, 1994. The value of such activities shall be invoice /agreement/contract value. Where such value is not available it would be determined using reasonable principles of valuations contained in Finance Act, 1994.

Option available under earlier Rule 6(2) of CCR to maintain separate records have been omitted.

The term “non-exempted goods”, “non-exempted services”, “exempted goods” and “exempted services” have been specifically defined for purposes of Rule 6(3) and 6(3A)

Rule 6(3) now provides only following 2 options

— Pay 6% of the value of exempted goods or 7% of the value of exempted services provided. Further, under this option now the credit reversal would be capped up to the maximum of total credit available at the end of the period to which the payment relates.

— Pay amount determined under 6(3A).

Rule 6(3A) has been amended in the following manner

— Letter to be filed for exercising option under Rule 6(3A) should now also include description of input and input services.

— CENVAT Credit in respect of input/input services used exclusively in or in relation to manufacture of exempted goods or for provision of exempted services shall be considered to be ineligible credit.

— Full CENVAT Credit would be eligible in respect of inputs and input services use exclusively in or in relation to the manufacture of non exempted goods or for provision of non exempted services.

— Balance credit shall be called as Common CENVAT credit and shall be eligible as per the specified formula. If there is no common credit, there is no further requirement to reverse any CENVAT Credit except as mentioned above.

— For the purpose of calculation of provisional reversal in case of first year of operations, the CENVAT Credit attributable to ineligible common credit shall be deemed to be 50% of the common credit.

— The specified ineligible common credit would have to be reversed on provisional basis as existing in the current Rule and then final



77

reversal has to be made before 30th June of succeeding financial year. The interest rate for any delay in payment of short reversal of CENVAT Credit upon final calculation has been reduced from 24% p.a. to 15% p.a.

— All other procedures have not been changed.

In case the manufacturer/service provider fails to exercise option under Rule 6(3) and follow the procedure under Rule 6(3A), powers now provided to the adjudicating officer to allow the option of proportionate CENVAT Credit reversal, subject to payment of interest.

The existing provisions contained in Rule 6(3) and Rule 6(3A) shall continue to apply for the purposes of F.Y. 2015-16 till June 30, 2016.

A banking company/financial institution/NBFC are currently required to pay amount equal to 50% of the CENVAT Credit availed on inputs and input services in terms of Rule 6(3B). Additionally, now they can also have an option to avail credit in terms of Rule 6(1), Rule 6(2) and Rule 6(3) of CCR.

CENVAT Credit on Capital Goods used exclusively in manufacturing of exempted goods or providing exempted service (except goods/services covered under threshold exemption) would now be allowed after period of two years from the date of commencement of commercial production/provision of services. If these capital goods are received after commencement of commercial production/provision of services, the above two years time limit would be computed from the date of installation of such capital goods.

6.1.6. ISD mechanism amended

Distribution of credit now allowed to be made to the outsourced manufacturing units. Outsourced manufacturing unit means a job worker liable to pay duty under rule 10A of Central Excise valuation Rules on the goods manufactured for the ISD or a manufacturer who manufactures goods bearing the brand name of such ISD under a contract and is liable to pay duty on the value determined under section 4A of CEA.

For purpose of ISD mechanism, turnover of an outsourced manufacturing unit shall be the turnover of goods manufactured by such unit for the particular ISD.

Outsourced manufacturing unit shall maintain separate account for input service credit received from each of the ISD’s and shall use it only for payment of duty on goods manufactured for the particular ISD.



Credit of service tax available with the ISD as on March 31, 2016 shall not be distributed to the outsourced manufacturing units.

It is now specified that provision of Rule 6 of CCR shall not apply to the ISD.

Credit of service tax which is not related to all the units shall now be distributed by ISD only among such units to which it is attributable.

6.1.7. Distribution of credit by warehouse of the manufacturer

The manufacturer would now be allowed to take credit on inputs received under an invoice issued by its warehouse which receives inputs on account of purchase under the cover of excise gate pass.

The procedure applicable under CCR or CE Rules applicable to first stage/second stage dealer would equally be applicable to such warehouse.

6.1.8. Other miscellaneous changes

Invoice issued by service provider for removal as such of inputs/capital goods is now prescribed as eligible document for the purpose of Rule 9 of CCR.

Rule 9A has now been amended wherein manufacturer/output service provider shall submit an annual return for every financial year by 30th November of succeeding year in the specified form. The annual declaration/monthly return as required under earlier Rule 9A is now not required to be filed.

Rule 14(2) of CCR has been omitted wherein for purpose of Rule 14 it was deemed that credit is taken on the last day of the month and utilization was also deemed to have been occurred in the prescribed sequential manner.

6.2. Amendment to CENVAT Credit Rules, 2004 [To be effective from March 1, 2016]

6.2.1. Definition of exempted service amended

Exempted service now also excludes service by way of transportation of goods by a vessel from custom station of clearance in India to a place outside India.

6.2.2. CENVAT Credit for payment of NCCD and Infrastructure cess

CENVAT Credit of eligible duties/taxes

— Would now not be utilized for payment of NCCD leviable under section 136 of Finance Act, 2001 on all specified goods. As allowed earlier the credit of NCCD paid can be utilized for payment of NCCD.



79

— would not be utilized for payment of Infrastructure Cess leviable under Finance Bill, 2016

6.2.3. Capital goods credit available to Jewellers

Manufacturers of jewellery (except specified silver jewellery) shall be allowed to take credit of duty paid on capital goods if its aggregate value of clearances of all excisable goods for home consumption in preceding financial year computed in terms of threshold exemption notification if it did not exceed INR 12 crores.

CENVAT Credit reversal is not required to be done in case of provision of service by way of transportation of goods by a vessel from custom station of clearance in India to a place outside India.



7. MISCELLANEOUS CHANGES

7.1. Krishi Kalyan Cess

The Government vide Chapter VI of the Finance Bill, 2016 has proposed to impose Krishi Kalyan Cess on any or all the taxable services at the rate of 0.5 per cent from 1st June, 2016 for financing and promoting initiatives to improve agriculture or any other related purpose.

It is proposed that credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of this Cess on the output service provided by a service provider.

For Example:

Sr. No. Particulars Amount (INR)

A Value of Services 100.00

B Add: Service Tax @14% (14% on A) 14.00

C Add: Swach Bharat cess @0.5% (0.5% on A) 0.50

D Add: Krishi Kalyan cess @0.5% (0.5% on A) 0.50

Total invoice value 115.00

7.2 Oil Industry Development Cess

The Oil Industry (Development) Act, 1974 is amended so as to reduce the rate of OID Cess, on domestically produced Crude Oil, from Rs. 4500 PMT to 20% ad valorem OID Cess. The amendment in the Act will be effective from the date of assent to the Finance Bill, 2016.

7.3 Clean Environment Cess

n The Clean Energy Cess is being renamed as Clean Environment Cess. Also, the Tenth Schedule to the Finance Act, 2010 dealing with Clean Energy Cess is being amended so as to increase the Scheduled rate of Clean Energy Cess from INR 300 per tonne to INR 400 per tonne on coal, lignite and peat (effective from enactment of Finance Bill).

n The Government has proposed to extend the exemption of all goods produced or extracted as per traditional and customary rights enjoyed by local tribals in the State of Meghalaya and to the State of Nagaland without any license or lease required under any law for the time being in force, from the clean enviroment cess leviable under Section 83 of the said Finance Act vide Notification no.2/2016-Clean Energy Cess dated March 1, 2016.



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7.4. Infrastructure Cess

It has now been proposed to levy an infrastructure cess on specified motors vehicles/cars 1% to 4%. Further exemption is provided from such levy in respect of specified motor vehicles.

No CENVAT credit of this Cess will be available for payment of Central Excise Duty/Service Tax. Further CENVAT credit of no other duties/taxes can be utilized for payment of the Infrastructure Cess payable by the manufacturer.

This will become effective immediately in terms of Provisional Collection of Taxes Act.

7.5. Central Sales Tax Act (effective from date of enactment of Finance Bill)

Under the CST Act, 1956, Section 3 which defines the principles to determine when a sale or purchase of goods takes place in the course of Interstate Trade and Commerce is amended by inserting Explanation 3. It is now provided that where the gas sold or purchased and transported through a common carrier pipeline or any other common transport or distributing system becomes co-mingled and fungible with other gas in the pipeline or systems and such gas is introduced into the pipeline or system in one State and is taken out from the pipeline in another State such sale or purchase of gas shall be deemed to be a movement of goods from one State to another.

7.6. Indirect Tax Dispute Resolution Scheme, 2016

The Scheme provides for settlement of disputes pending before the Commissioner (Appeals) as on March 1, 2016 under Central Excise, Service Tax and Customs Regulations. This dispute resolution shall be available on payment of tax dues along with interest and twenty-five per cent of the penalty imposed by the impugned order. The scheme is applicable to the declarations made up to the 31st day of December, 2016. The benefits under this scheme would be available subject to compliance of the specified conditions. Further the benefits under this scheme would not be available in respect of certain specified cases.



8. REGULATORY UPDATES

Exchange Control Regulations

Key amendments in Foreign Direct Investmentsu Raising the Threshold Limit for Approval by Foreign Investment Promotion Board As per current policy, Foreign Investment Promotion Board (FIPB) considers

proposals having total foreign equity inflow up to INR 30000 million (USD 0.45 billion) and proposals above INR 30000 million (USD 0.45 billion) are placed before Cabinet Committee on Economic Affairs. The threshold limit for FIPB approval is increased to INR 50000 million (USD 0.76 billion).

u Construction sector The following conditions have been removed:

n Minimum floor area of 20,000 sq. m in construction development projects

n Minimum capitalization of USD 5 million to be brought in within the period of 6 months of commencement of business

Foreign investor will be permitted to exit and repatriate foreign investment before the completion of a project (subject to certain exceptions), subject to a lock-in period of three years (calculated with reference to each tranche of foreign investment). The said lock-in shall not apply to transfer of stake from one non-resident to another non-resident or if the project/trunk infrastructure is completed before lock in period.

100% FDI permitted under the automatic route in completed projects for operation and management of townships, malls/ shopping complexes and business centers. It has been clarified that leasing and rental activities will not come under the definition of ’Real Estate Business’.

u Defence Sector FDI is now allowed upto 49% under the automatic route. Cap on Portfolio

Investment and Venture Capital investments had been raised to 49% (earlier 24%), under the automatic route.

u Broadcasting Sector FDI limit in news channel and FM Radio raised to 49% (earlier 26%) under

approval route. 100% foreign investment in non-news channels—or entertainment broadcasters allowed through the automatic route. Foreign investment limit in DTH, digital cable networks and Headend in the Sky services (HITS) raised to 100% (upto 49% under automatic route) to allow foreign strategic investors to look at Indian companies favourably.

u Full Fungibility of Foreign Investment Permitted in Banking- Private Sector Full fungibility of foreign investment in private banking sector permitted.



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Accordingly, FIIs/FPIs/QFIs, can now invest up to sectoral limit of 74%, provided that there is no change in control and management of the investee company.

u Plantation 100% FDI under the automatic route for the plantation sector now permitted

for coffee, rubber, cardamom, palm oil and olive oil. Earlier, FDI in only tea plantations were open for foreign investment.

u Investment by Companies/Trusts/Partnerships Owned and Controlled by NRIs on Non-Repatriation Basis to be treated as Domestic Investment

Non-Resident Indians (NRIs) have special dispensation for investment in certain sectors like construction development and civil aviation sector. Further, investment made by NRIs on non repatriation basis are deemed to be domestic investment and treated at par with the investment made by residents. The special dispensation of NRIs has now been extended to companies, trusts and partnership firms, which are incorporated outside India and are owned and controlled by NRIs. Henceforth, such entities owned and controlled by NRIs will be treated at par with NRIs for investment in India.

u Manufacturing A manufacturer will be permitted to sell its product through wholesale and/or

retail, including through e-commerce without Government approval.

The term ‘Manufacture’ with its grammatical variations, means a change in a non-living physical object or article or thing- (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure.”

u SBRT and Duty Free Shops Mandatory 30% domestic sourcing condition will come into force at the time of

opening of the first store rather than at the time of receipt of FDI. In case of certain high technology segments, these sourcing norms can be relaxed subject to government approval. Selling merchandise through e-commerce permitted. Indian brands also eligible for SBRT. 100% FDI is now permitted under automatic route in Duty Free Shops located and operated in the Customs bonded areas.

u Single entity to carry out Wholesale Trade and SBRT A single entity permitted to undertake both the activities of SBRT and wholesale

with the condition that conditions of FDI policy on wholesale cash and carry and SBRT have to be complied by both the business arms separately.

u Limited Liability Partnerships (LLPs) 100% FDI is now permitted under the automatic route in LLPs operating in sectors/

activities where 100% FDI is allowed, through the automatic route and there are



no FDI-linked performance conditions. Further LLPs having foreign investments are now permitted to undertake downstream investments in other companies/LLPS where 100% FDI is allowed, through the automatic route and there are no FDI linked performance conditions. Downstream investments by LLP shall be subject to the same conditions as applicable to downstream investments by Indian Companies.

u Regional Air Transport Services Regional Air Transport Service is now permitted for foreign investment up to 49%

under automatic route.

u Non-Scheduled Air Transport, Ground Handling Services, Satellites, Credit Information Companies

Foreign Equity caps of certain sectors viz. Nonscheduled Air Transport Service, Ground Handling Services, Satellites- establishment and operation and Credit Information Companies have now been increased from 74% to 100%. Further, sectors other than Satellites- establishment and operation have been placed under the automatic route.

u Relaxations for Companies without Operations Government approval would not be required for foreign investment into an

Indian company which does not have any operations and also does not have any downstream investments, for undertaking activities which are under automatic route and without FDI-linked performance conditions, regardless of the amount or extent of foreign investment.

u Eligibility of partly paid shares and warrants as Capital instruments under FDI Policy

Earlier, prior approval of GOI was required to issue partly paid shares or share warrants. However, these instruments are now recognized as eligible capital instruments for purpose of FDI and hence GOI approval not required any longer.

u Establishment and Transfer of Ownership and Control of Indian Companies Earlier, government approval was required if the Indian company operated in

capped sector. Now, such government approval will be required only if there is a change in ownership/control of an Indian company which operates in sectors/ activities under the approval route. Further, no approval of the Government is required for investment in sectors in the automatic route by way of swap of shares.

u Reporting on the e-biz platform With a view to promote the ease of reporting transactions related to FDI, the RBI,

under the aegis of the e-Biz project of the GOI has mandated online filing w.e.f February 8, 2016, of the following returns with the RBI, viz.

n Advance Remittance Form (ARF) which is used by the companies to report the FDI inflows to RBI;



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n Form FCGPR which a company submits to RBI for reporting the issue of eligible instruments to the overseas investor against the above mentioned FDI inflow; and

n Form FCTRS which is submitted to RBI for transfer of securities between resident and person outside India.

Corporate Law Amendmentsu Private Companies The MCA has rolled out notifications liberalizing applicability of certain provisions

of Cos Act to private companies. These exemptions and relaxations are applicable only to a private Company which is not a subsidiary of public company. The existing compliance requirements and restrictions will continue to apply to a public company and a private company which is a subsidiary of public company.

n No Restrictions On Purchase Of Own Shares

Earlier section 67(1) of the Cos Act imposed restrictions on the companies limited by shares or by guarantee and having a share capital, including a private company, to purchase its own shares unless the consequent reduction of capital is effected and sanctioned under the provisions of the Cos Act.

Now, the said provisions shall not apply to a private limited company provided;

— The company does not have a body corporate as a shareholder; and

— Borrowings of the company from banks, FIs or body corporate do not exceed twice the amount of paid up share capital or INR 500 million, whichever is lower; and

— There shall be no subsisting defaults in repayment of such borrowings at the time of making transaction.

n Applicability Of Sections 43 and 47

— Section 43 of the Cos Act prescribed that a company is allowed to have only two kinds of share capital - equity shares (with or without differential rights to dividend, voting or otherwise) and preference share capital. Further, all companies were required to fulfil certain conditions to be eligible to issue equity shares with differential rights.

— Further, section 47 of the Cos Act provides that the equity shareholders shall be entitled to vote on all resolutions, while preference shareholders are permitted to vote only on resolutions which would affect their rights or are in relation to winding up or reduction of capital of the Company as prescribed under the Cos Act.



— Now, Section 43 and Section 47 of the Cos Act will not apply to a private company if the MOA or the AOA of such private company provides so.

n Loans To Directors And Interested Entities

Cos Act restricts a company to advance any loan directly or indirectly to any of its directors. However, a private company is allowed to advance loan to directors or interested party on satisfying all of the following conditions:

— The company does not have a body corporate as a shareholder; and

— Borrowings of the company from banks, financial institutions or body corporate do not exceed twice the amount of paid up share capital or INR 500 million, whichever is lower; and

— There shall be no subsisting defaults in repayment of such borrowings at the time of making transaction.

n Related Party Transactions

Where a related party is a member of the company, the said related party is entitled to vote on shareholder resolutions wherein contract with such related party is being considered.

n Exemption From Provisions Dealing With Restrictions On Powers Of Board Of Directors

The board of directors of a private company need not obtain shareholder approval on matters relating to sale, lease or disposal of undertaking, corporate borrowing, charge of assets etc.

n Participation Of Directors In Interested Contracts

An interested director is allowed to participate in the board meeting after disclosing his/ her interest in the prescribed form before he/ she participates in the meeting, wherein any contract in which he/she is directly or indirectly interested.

n Acceptance Of Deposits

Private Limited Companies are now exempted from complying with the conditions listed in Section 73 (2) (a) to (e) provided the amount of deposit accepted from members does not exceed 100% of aggregate of paid-up capital and free reserves of the private company and the relevant filings with the RoC has been made.



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n Conduct Of General Meetings

The provisions of Sections 101 to 107 and Section 109 of the Cos Act related to the requirements of convening and conducting of general meetings by companies; such as service of notice of general meeting, explanatory statement, quorum, chairperson of the meetings, appointment of proxies, restriction on voting rights, voting by show of hands and demand for poll shall apply to a private company unless otherwise specified in the respective sections or the AOA of a private limited company.

n Companies Under Audit Scope

Section 141(3)(g) of the Cos Act restricted the number of companies, including private limited companies, for which a person could be statutory auditor, to 20. However, now one-person companies, dormant companies, small companies and private limited companies having paid up share capital of less than INR 1000 million are excluded from the purview of the aforesaid ceiling.

n Appointment Of Managerial Personnel

Private limited companies are not required to obtain approval by resolution at general meeting and Central Government for the appointment of managing director, whole time director or manager.

n Filing Of Board Resolutions

Resolutions passed by the Board of Directors pursuant to section 179(3) are not required to be filed with the RoC.



Abbreviation Meaning

ADC Additional Duty of Customs

AE Associated EnterpriseAED Additional Excise Duty

AIFs Alternate Investment Funds

ALP Arm’s Length PriceAMT Alternate Minimum Tax

APA Advance Pricing Agreement

BCD Basic Customs Duty

BEPS Base Erosion and Profit Shifting

Black Money Law

The Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act, 2015

Bn Billion

Business TrustReal Estate Investment Trust & Infrastructure Investment Trust

CbCR Country-by-Country Reporting

CBDT Central Board of Direct Taxes

CBEC Central Board of Excise and Customs

CE Act Central Excise Act, 1944

CE Rules Central Excise Rules, 2002

Cenvat Central Value Added Tax

CESTATCustoms, Excise and Service Tax Appellate Tribunal

CETA Central Excise Tariff Act, 1985

CETH Central Excise Tariff Heading

CPI Consumer Price Index

9. GLOSSARY OF TERMS


Credit Rules CENVAT Credit Rules, 2004

CSR Corporate Social Responsibility

CST Central Sales TaxCTA Customs Tariff Act, 1975CTH Customs Tariff HeadingCustoms Act Customs Act, 1962CVD Countervailing duty

DDT Dividend Distribution Tax

DTA Domestic Tariff Area

DTAA Double Tax Avoidance Agreement

ECB External Commercial Borrowing

FDI Foreign Direct Investment

FII Foreign Institutional Investor

FM Finance MinisterFMV Fair Market Value

FPI Foreign Portfolio Investor

GAAR General Anti Avoidance Rules

GDP Gross Domestic ProductGST Goods and Services Tax

HSN Harmonized System Nomenclature

HUF Hindu Undivided Family

IFSC International Financial Services Center

INR Indian RupeesIT Act Income Tax Act, 1961

ITAT Income Tax Appellate Tribunal

MAT Minimum Alternate TaxMn MillionMRP Maximum Retail Price

MSME Medium and Small Medium Enterprises



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OECDOrganisation for Economic Co-operation and Development

OROP One Rank One Pension

PAN Permanent Account Number

PE Permanent Establishment

PoEM Place of Effective Management

PPSR Place of Provision of Services Rules, 2012

RBI Reserve Bank of India

SAD Special Additional duty of Customs

SCN Show Cause Notice

SDC Specified Domestic Company


SEBI Securities & Exchange Board of India

SEZ Special Economic Zone

SEZ Act Special Economic Zone Act, 2005

STR Service Tax Rules, 1994

STT Securities Transaction Tax

TIEA Tax Information Exchange Agreements

USD US Dollar

Valuation RulesService Tax (Determination of Value) Rules,2006

VAT Value Added Taxw.e.f. with effect from

w.r.e.f. with retrospective effect from

WPI Wholesale Price Index



THE BDO NETWORKBDO is an international network of accounting, tax and advisory firms which perform professional services under the name of BDO.

The local knowledge of network member firms combined with the international expertise and strength of the network ensures effective and efficient service delivery to clients in every country where BDO is represented.

ABOUT BDO INDIABDO India LLP is the India member firm of BDO; the world’s 5th largest network of Accounting, Tax & Advisory firms, with a presence in 150+ countries and over 64,000 professionals working out of more than 1400 offices worldwide.

BDO India offers Strategic, Operational, Accounting and Tax & Regulatory advisory & assistance for both domestic and international organisations across a range of industries. BDO India is led by more than 45 Partners & Directors with a team of close to 800 professionals operating across strategic cities.

BDO’s global revenues crossed the $7 billion mark in 2014

US$7.30 billionLeading consolidation in the mid tier

11,400 offices in 152 countries and territories

15464,300 highly skilled partners and staff worldwide

64,000+

As at 30 September 2015



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BDO INDIA SERVICE PORTFOLIO

KEY SERVICE USP’SRobust Background & Experience

BDO India takes prides in its service portfolio on the backing of a rich blend of experience and expertise, bringing to fore a work culture that is both client-centric and knowledge driven.

Partner Led Approach

The service teams led by Partners bring focus to client deliveries and related stakeholder communication. Our Partner: Client ratio ensures committed time & resource dedication

One Stop Solution Window

Our wide range of differentiated services, position us as a one-stop solutions platform for meeting diverse client needs

Tailored Solutions Aligned To Global Best Practices

We recognize organization specific business the challenges and aim to develop strategies for functional optimization. BDO India leverages BDO’s network to provide strategic advice that enables clients in harnessing global solutions.


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BDO India Service Portfolio

Key Service USP’s

Robust Background & Experience BDO India takes prides in its service portfolio on the backing of a rich blend of experience and expertise, bringing to fore a work culture that is both client-centric and knowledge driven.

Partner Led Approach The service teams led by Partners bring focus to client deliveries and related stakeholder communication. Our Partner: Client ratio ensures committed time & resource dedication

One Stop Solution Window Our wide range of differentiated services, position us as a one-stop solutions platform for meeting diverse client needs

Tailored Solutions Aligned To Global Best Practices We recognize organization specific business the challenges and aim to develop strategies for functional optimization. BDO India leverages BDO’s network to provide strategic advice that enables clients in harnessing global solutions.



AWARDS AND ACCOLADES

Our tax team is one of the best in India and we have been consistently rated as one of the leading tax firms in India by ‘International Tax Review – the Comprehensive Guide to the World’s Leading Tax Firms’ for the years 2012-2015.

BDO WINS IAB NETWORK OF THE YEAR AWARD BY THE INTERNATIONAL ACCOUNTING BULLETIN (IAB).BDO has witnessed sustained growth and expansion throughout the year: excellent financial performance, with high levels of client satisfaction & employee engagement, all to testify to an outstanding year for our network.

BDO WINS INTERNATIONAL PAYROLL AWARD - 2015“BDO Global Outsourcing proved itself to be one step ahead and truly global in its integration and reach, providing value for money and making a great impression with customers, as strong testimonials prove”

Judging Panel Payroll World Awards, Nov 2015

Payroll World

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