INDIA UNION BUDGET 2017 - 18 · INDIA UNION BUDGET 2017 - 18 5 Key Announcements The Macro-economic context •Adverse effects of demonetisation not expected to extend beyond the

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18Presenters

Dinesh KanabarCEO

Ritesh KanodiaPartner

Rakesh DharawatPartner

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INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• Demonetisation of high denomination currency notes

• Constitutional Amendment Bill enabling GST passed

• New Insolvency and Benami Property laws brought into force

• Key tax treaties with Mauritius, Cyprus and Singapore renegotiated –capital gains exemption removed

• Other developments:

⎼ GAAR clarifications issued – provisions come into force on 1 April 2017

⎼ Final Guidelines for POEM framed

⎼ Indirect transfers valuation and reporting rules notified

⎼ Tax rates in respect of undisclosed incomes doubled

⎼ Easwar Committee Report on tax simplification submitted

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The year gone by – Highlights

Key

Announcements

4

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

5

Key Announcements

The Macro-economic context

• Adverse effects of demonetisation not expected to extend beyond the current financial year

• GDP growth projected at 7.2% and 7.7% by IMF for 2017 and 2018 respectively

Agenda : TEC India – Transform, Energise and Clean India

• FIPB to be abolished in 2017-18 - Roadmap for the same to be announced together with further liberalisation of the FDI policy

• Listing and trading of Security Receipts issued by Asset Reconstruction Companies

• Affordable housing to be given infrastructure status (with its accompanying benefits)

• Path breaking reforms in electoral funding – electoral bonds proposed

Direct Tax

Proposals

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INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

For Individuals

• Tax rate reduced from 10% to 5% in respect of incomes between INR 250,000 and INR 500,000 – for Individuals, HUFs and AOP

• Tax rate reduced from 10% to 5% in respect of incomes between INR 300,000 and INR 500,000 – for senior citizens

• Surcharge of 10% of tax introduced for incomes between INR 5 million to INR 10 million

For Companies

• Corporate tax rate reduced to 25% for companies with a turnover of less than INR 500 million (in FY 2015-16)

• No other reduction in MAT and corporate tax rates

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Rates

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• No announcement on scrapping ICDS

• Concessional tax rate of 10% applicable on sale of carbon credits

• Depreciation and deduction not allowed in respect of cash payments in excess of INR 10,000

• Tax deduction in respect of provision for bad and doubtful debts increased to 8.5% for banks

• Rate of ‘presumptive income’ reduced from 8% to 6% on digital payments

• Notional tax on land and building held as stock in trade to be taxed after 1 year of completion

• Cash transactions in excess of INR 300,000 prohibited – penalty leviable

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Business Income

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• MAT / AMT credit allowed to be carried forward for 15 years (from existing 10 years)

• MAT carry forward - FTC in excess of MAT to be ignored

• Rationalisation of MAT in line with treatment under Ind AS (from AY 2017-18)

• No adjustments to amount recorded in OCI forming part of P&L

• Treatment specified for amounts recorded in OCI and forming part of reserves on first time adoption of Ind AS:

⎼ Items reclassified via P&L account to be included for MAT in the year of

reclassification / disposal

⎼ On other items, which are not reclassified via P&L – MAT payable over a period of

five years

• In case of demerger, fair value accounting under Ind AS to be ignored for MAT

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Business Income - MAT

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• Exemption for long term capital gains on sale of listed shares not available for shares acquired after 1 October 2004 without payment of Securities Transaction Tax – Exceptions to be notified

• Joint Development Agreements (JDAs) – relaxation of capital gains on deemed transfer of immovable property in JDAs

⎼ Incidence of capital gains deferred to year of completion

⎼ Stamp duty value of share in project as on date of completion plus any cash

consideration received to be the full value of consideration

⎼ If share in project transferred before completion normal capital gains taxation

will apply in the said year of transfer

• Land and building – change in holding period reduced from 3 years to 2 years for long term eligibility

• Transfer of Masala bonds (rupee denominated) between non-residents not liable to capital gains

10

Capital Gains

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• Base year for computing cost of acquisition and improvement changed from 1981 to 2001

• Gains on transfer of unquoted equity shares to be calculated based on FMV – in case consideration received is lower than FMV

• Conversion of preference shares to equity not liable to tax

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Capital Gains

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• Investments held directly or indirectly by a non-resident in a Category I or a Category II FPI excluded from indirect transfer provisions –retrospective from AY 2012-13

• Clarifications proposed to be issued to exclude offshore redemptions consequent to sale of investments chargeable to tax in India from the ambit of indirect transfer provisions

• Benefit of 5% rate on interest on ECBs and bonds extended to 2020

• Interest on Masala bonds eligible for 5% tax rate retrospectively from AY 2016-17

• Enabling provision for rectification of assessment to grant FTC on payment of disputed tax abroad

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International Tax

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• Where primary adjustment exceeds INR 10 million (funds not been brought into India) - To be treated as advance made to the related party

• Thin cap rules introduced (not applicable to banking and insurance companies)

⎼ Interest paid above 30% of EBITDA not to be allowed as a tax deduction.

⎼ Excess interest paid allowed to be carried forward for 8 years

• Transactions between two domestic related parties outside the scope of SDT provisions except where one of the parties is claiming a profit linked deduction

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Transfer Pricing

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• Scope of profit linked incentives for affordable housing projects expanded

• Restrictions on loss carry forward for start-ups relaxed for change in shareholding due to capital infusions

• Scope of s. 56 (receipts without adequate consideration) expanded to cover all

assesses and all asset classes (including shares of listed entities)

• Time limit for completion of assessments proposed to be reduced in respect of:

⎼ AY 2018-19: to 18 months from 21 months

⎼ AY 2019-20: to 12 months from 21 months

• Rent paid by certain individuals / HUFs exceeding INR 50,000 per month liable to

TDS at 5%

• Refunds cannot be withheld in case of scrutiny assessment without approval of

higher authorities

• Tax deduction in respect of profit from SEZ units to be restricted to Total income of

the taxpayer

14

Incentives & Others

Indirect Tax

Proposals

15

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• Council has finalized its recommendations on almost all issues;

• IT preparedness on track;

• Govt to reach out to trade and industry from 1st April;

• No definitive timeline announced for GO-LIVE date.

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GST

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

• No change in peak rate of Customs, Excise & Service Tax

• Advance Ruling (Customs, Central Excise & Service Tax)

⎼ Common Authority for Advance Rulings for Income Tax, Customs, Central Excise, Service tax. Pending cases to be transferred on the date of assent of Finance Bill, 2017

⎼ Time limit for pronouncement of advance ruling increased from 90 days to 6 months

• Application for Settlement Commission can be made by co-noticees

• Settlement Commission can amend its order within 3 months to rectify any error apparent on record

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Common legislative changes

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

Customs Duty/ Excise duty tariff rate changes/reduction:

• To incentivize domestic value addition ‘Make in India’ (e.g. LNG, parts of LED)

• To address problems of inverted duty structure (e.g. solar tempered glass)

• To provide protection to the domestic industry (e.g. PCBs for mobile)

• To promote cashless transactions and domestic manufacturing of device (POS card reader, micro ATM, Scanner & components)

• To improve ease of doing business and Export Promotion (e.g. Increase in limit of duty free import of inputs for leather/ synthetic footwear)

• Anti-avoidance measure (e.g. silver coins)

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Key Changes – Tariff Rates

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

Customs (legislative changes)

• Ambit of importer/exporter under Customs widened to include beneficial

owner

• Ceiling of 1 day from the day of arrival of vessel/aircraft/vehicle introduced

for filing Bill of Entry in case of imports for home consumption or

warehousing

• Facility of storage of goods in public warehouse extended to goods

imported for warehousing

Key Changes (1/3)

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

CENVAT Credit

• Specific proviso introduced for banks, financial institutions (including

NBFCs) for reversal of credit under Rule 6 after considering value of

interest or discount – Effective 2 February 2017

− Position for the period April 2016 till 2 February 2017?

• Specific approval now required in cases of transfer of CENVAT credit in

relation to merger, demerger, amalgamation etc. under Rule 10

− AC/ DC to provide approval within 3 months (extendable up to 9

months)

Key Changes (2/3)

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

Service tax

• Retrospective amendment to upfront lease payment for leasing (30 years

or more) of industrial plots by State Government corporations /

undertakings – Effective 1 June 2007 to 21 September 2016

⎼ Refund application to be made within six months of the date of Finance Bill

receiving presidential assent

• Rule 2A of Valuation Rules amended to exclude value of land while calculating value of works contract service - Effective from 1 July 2010

⎼ In case where value of land is not identifiable, the value shall be considered as

25%/ 30% as applicable (instead of 40%)

R&D Cess – Repealed from 1 April 2017

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Key Changes (3/3)

INDIA UNION BUDGET

2017 - 18

INDIA UNION BUDGET

2017 - 18

OIDAR services - Effective from 1 December 2016

• Levy of Service tax on OIDAR services provided by a foreign service provider

to an Indian recipient – Definition expanded to include electronic services

such as advertising on the internet, providing cloud services, online supply of

digital content, digital data storage, online gaming etc.

• Onus of payment –

⎼ B2B transactions: Service receiver under RCM

⎼ B2C transactions: Service provider or his agent

Import of Cargo - Effective from 22 January 2017

• Service tax @4.5% on Ocean freight paid for inbound cargo into India where the

service provider and service recipient are both located outside India

⎼ Liability cast upon owner/master of the vessel or person who files IGM or

agent appointed in India to act on behalf of the owner of the vessel

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Pre - Budget: Key changes

QUESTIONS?

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KEY CONTACTS

Dinesh Kanabar (Mumbai)

Chief Executive Officer

[email protected]

Vishal Gada (Ahmedabad)

Partner

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Ajay Rotti (Bengaluru)

Partner

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Disclaimer:

The information and analysis contained herein is intended to provide general guidance. The advice of an expert should be

obtained based on individual circumstances