THE UNION BUDGET 2015-16 - lexsite.comlexsite.com/Budget2015_2016/booklet_final_vaish.pdf · Budget at a Glance 3 Direct Tax Proposals Personal Taxation 5 Charitable Trusts 7 Business

THE UNION BUDGET

2015-16

DIRECT & INDIRECT TAX PROPOSALS

ANew Delhi • Mumbai • Gurgaon • Bengaluru

MAKE IN INDIA

VAISH ASSOCIATES, ADVOCATES

NEW DELHI:1st & 11th Floor, Mohan Dev Bldg., 13 Tolstoy Marg, New Delhi - 110001, IndiaPhone: +91-11-4249 2525 • Fax: +91-11-2332 0484 • [email protected]

MUMBAI106, Peninsula Centre (Behind Piramal Chambers - Income Tax Office)Dr. S. S. Rao Road, Parel, Mumbai - 400012, IndiaPhone: +91-22-4213 4101 • Fax: +91-22-4213 4102 • [email protected]

GURGAON803, Tower A, Signature Towers, South City-I, NH-8, Gurgaon - 122001, IndiaPhone: +91-124-454 1000 • Fax: +91-124-454 1010 • [email protected]

BENGALURUUnit No. 305, Prestige Meridian-II, Bldg. No. 30, M.G. Road, Bengaluru - 560095, IndiaPhone: +91-80-4090 3581/88/89 • Fax: +91-80-4090 3584 • [email protected]

www.vaishlaw.com

© Vaish Associates, Advocates 2015

Prepared for the use of clients and professional associates.

The document summarises the proposals made in the Finance Bill, 2015 and key policy announcements and reviews them objectively.

Disclaimer:

While every care has been taken in the preparation of this document to ensure its accuracy at the time of publication, Vaish Associates, Advocates assume no responsibility for any errors which despite all precautions, may be found therein. The material contained in this document does not constitute/ substitute professional advice that may be required before acting on any matter.

CONTENTS

About Vaish Associates Advocates 1

Budget at a Glance 3

Direct Tax Proposals

�Personal Taxation 5

�Charitable Trusts 7

�Business Income 10

�Business Trusts 16

�Alternative Investment Funds 18

�International Taxation 20

�Search, Settlement Commission 40

�Tax Deduction at Source 49

�Miscellaneous Provisions 55

Indirect Tax Proposals

�Customs 63

�Central Excise 70

�Service Tax 82

Key Economic Policy Announcements and Industry Specific Impact 93

Impact of Budget on Capital Market 107

1

ABOUT VAISH ASSOCIATES ADVOCATES

Set up in 1971, the growth of Vaish Associates Advocates is a glowing tribute to its founder Mr. O.P.

Vaish. His visionary leadership, mentoring and hard work helped the firm to emerge as one of the better

known full service law firms in the country. Since its inception, it continues to serve a diverse clientele,

including domestic and overseas corporations, multinational companies and individuals. Presently, the

firm has operations in Delhi, Gurgaon, Mumbai, Bengaluru and associates in almost all the major cities

in India.

With increasing complexity in the modern professional and business environment, Vaish Associates

Advocates is committed to provide high quality, flexible, client focused legal and business advisory

services. Every passing year is memorable to us for its challenges, and the multitude of creative

solutions that we provide to our clients. We are proud to be celebrating 40 years of serving our valued

clients.

With in-depth knowledge and years of experience in almost all areas of laws and regulations, the

professionals at Vaish help create value for any organization in the following areas of practice:

Direct Tax

Income Tax

Transfer Pricing

International Taxation

Indirect Tax

Customs

Central Excise

Service Tax

Central Sales Tax and Value Added Tax (VAT)

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Intellectual Property Rights (IPR)/Information Technology (IT)

Intellectual Property Rights

Information Technology

Corporate practice

Mergers and Acquisitions (M&A) and Business Re-organisation

Foreign Investment

Joint Ventures and Strategic Alliances

Banking & Finance

Capital Markets - Domestic & International Offerings

Regulatory Compliances

Legal Due Diligence

Real Estate and Special Economic Zones (SEZs)

Labour and Employment Laws

Competition/ Anti Trust Laws

Litigation/ Alternate Dispute Resolution

Non-Profit Organisations

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3

BUDGET AT A GLANCE

1. Revenue Receipts 1014724 1189763 1126294 1141575

4. Capital Receipts (5+6+7) 544723 605129 554864 635902

8. Total Receipts (1+4) 1559447 1794892 1681158 1777477

9. Non-Plan Expenditure 1106120 1219892 1213224 1312200

13. Plan Expenditure 453327 575000 467934 465277

16. Total Expenditure (9+13) 1559447 1794892 1681158 1777477

20. Revenue Deficit (17-1) 357048 378348 362486 394472

21. Effective Revenue Deficit (20-18) 227630 210244 230588 283921

22. Fiscal Deficit {16-(1 +5+6)} 502858 531177 512628 555649

23. Primary Deficit (22-11) 128604 104166 101274 99504

(In Crores of ̀ )

Particulars 2013-2014Actuals Budget Revised Budget

Estimates Estimates Estimates

2. Tax Revenue (net to centre) 815854 977258 908463 919842

3. Non-Tax Revenue 198870 212505 217831 221733

5. Recoveries of Loans 12497 10527 10886 10753

6. Other Receipts 29368 63425 31350 69500

7. Borrowings and other liabilities 502858 531177 512628 555649

10. On Revenue Account on which, 1019040 1114609 1121897 1206027

11. Interest Payments 374254 427011 411354 456145

12. On Capital Account 87080 105283 91327 106173

14. On Revenue Account 352732 453503 366883 330020

15. On Capital Account 100595 121497 101051 135257

17. Revenue Expenditure (10+14) 1371772 1568111 1488780 1536047

18. Of Which, Grants for

creation of Capital Assets 129418 168104 131898 110551

19. Capital Expenditure (12+15) 187675 226781 192378 241430

2014-15 2014-2015 2015-16

4

Rupee Comes From

Rupee Goes To

Borrowings & Other Liabilities24P

Non Plan Assistanceto State & UT Govts.

5PPlan Assistanceto State & UT

9P

Central Plan11P

Interest Payment20P

Defence11P

Subsidies10P

Other Non-PlanExpenditure

11P

States’ share oftaxes & duties

23P

Corporation Tax20P

Income Tax14P

Customs9P

Union Excise Duties10P

Service tax & Other taxes9P

Non Tax Revenue10P

Non Debt Capitalreceipts

4P

5

DIRECT TAX PROPOSALS

PERSONAL TAXATION

Abolition of Wealth-tax (w.e.f. 01.04.2016)

Increase in Surcharge (w.e.f. 01.04.2016)

Sukanya Samriddhi Account Scheme --- Tax benefits

[Clauses 7 & 15] (w.r.e.f. 01.04.2015)

Enhancement in the limit of deduction relating to health insurance & medical expenditure

[Clauses 18, 19, 20 & 23] (w.e.f. 01.04.2016)

G Wealth-tax is proposed to be abolished.

G In respect of an individual having total income exceeding Rs.1 crore, the rate of surcharge on

income tax is proposed to be increased from 10% to 12%.

G In exercise of the powers conferred by section 15 of the Government Savings Banks Act, 1873, the

Central Government has notified Sukanya Samriddhi Account Rules, 2014. Under the said

scheme, the amount deposited by the parent/legal guardian in the savings account opened in the

name of girl child (below 10 years of age) was covered within the ambit of section 80C of the Act

vide Notification No. 09/2015 issued by CBDT on 21.01.2015.

G Sub-section (11A) is proposed to be inserted in section 10 of the Act to provide for exemption from

tax in respect of interest earned and withdrawal of sum from the account (which is permissible

only after 18 years of age).

G The deduction allowable to an individual/HUF under section 80D of the Act in respect of payment

of health insurance premium is proposed to be increased from ` 15,000 to 25,000; for senior

citizens it is proposed to be increased from ̀ 20,000 to ̀ 30,000.

G In respect of medical expenditure incurred towards treatment of very senior citizens, who are

above the age of 80 years:

• deduction of ` 30,000 is proposed to be allowed under section 80D of the Act, where any

health insurance policy cannot be availed; and

• limit of ` 60,000 under section 80DDB of the Act is proposed to be enhanced to ` 80,000

where the medical expenditure incurred is on account of specified diseases.

6

G Under section 80DD and 80U of the Act, deduction allowable in respect of expenditure on medical

treatment is proposed to be increased from ` 50,000 to ` 75,000, in respect of a person with

disability and from ̀ 1,00,000 to ̀ 1,25,000 in respect of a person with severe disability.

G The limit of deduction allowable to an individual under section 80CCC of the Act in respect of

payment to pension funds of an insurance company is proposed to be increased from ̀ 1,00,000 to

1,50,000.

G Under the existing provisions of section 80CCD of the Act, in the case of an individual, whether

employed or otherwise, deduction of 10% of salary [or gross total income] is allowed if he has paid

or deposited any amount in a previous year in his account under a notified pension scheme.

Further, the maximum amount of deduction allowable under sub section (1) of this section is

restricted to ̀ 1 lakh.

G It is now proposed to remove the above cap of ̀ 1 lakh. Accordingly, an individual making deposit

in notified pension scheme would now be allowed deduction under sub section (1) of section

80CCD upto 10% of salary [or gross total income], subject, however, to overall maximum limit of

`1.50 lacs as prescribed under section 80CCE of the Act.

G Further, a new sub-section (1B) has been inserted in section 80CCD of the Act, providing for

additional deduction of `50,000 to an individual who will be contributing towards New Pension

System (NPS). This additional deduction of `50,000 would be over and above the limit of

`1,50,000 as prescribed under section 80CCE of the Act.

Enhancement in the limit of deduction relating to contribution to certain pension funds

[Clause 16] (w.e.f. 01.04.2016)

Additional deduction in relation to contribution to pension scheme of Central Government

[Clause 17] (w.e.f. 01.04.2016)

7

CHARITABLE TRUSTS

Definition of Charitable Purpose

[Clause 3] (w.e.f. 01.04.2016)

G Under section11 of the Act, income derived from the property held under trust wholly for

charitable purposes is exempt from tax.

G The expression “charitable purpose” is defined in section 2(15) of the Act to include, inter alia,

relief of the poor, education, medical relief and the advancement of any other object of general

public utility.

G Proviso to section 2(15), which applies to the last limb, i.e., “advancement of any other object of

general public utility”, provides that such object shall not deemed to be charitable purpose, if it

involves:

a) carrying on of any activity in the nature of trade, commerce, or business; or

b) any activity of rendering of any service in relation to trade, commerce or business;

for cess, fee or other consideration, irrespective of the nature of use or application or retention of

income derived from the aforesaid activities.

G The aforesaid proviso is, however, not applicable if aggregate receipts from such activities does

not exceed ̀ 25 lacs.

G In the context of the definition of “charitable purpose”, there is ongoing dispute with regard to

“Yoga” being a charitable purpose or not. The Delhi Bench of the Tribunal in the case of Divya

Yoga Mandir Trust vs. JCIT in ITA No. 387/Del./2013 held that Yoga falls in medical relief as well

as education.

G It is now proposed to amend section 2(15) of the Act to include “Yoga” as a specific category in the

definition of charitable purpose.

G It is further proposed to amend proviso to section 2(15) to provide that carrying on of any activity

in the nature of trade, commerce or business or any activity of rendering any service in relation

thereto shall be treated as charitable if:

a) such activity is undertaken in the course of actual carrying out of advancement of any other

object of general public utility; and

8

b) aggregate receipts from such activity(ies) do not exceed 20% of the total receipts of the trust/

institution during the relevant previous year.

Comments/Observations:

G Even in the context of existing proviso to section 2(15) of the Act, the Courts and various benches

of the Tribunal have held that any transaction/ activity which is incidental or ancillary towards

fulfillment of object of other general public utility will not normally amount to business, trade or

commerce, unless there is some intention to carry on business, trade or commerce on a permanent

basis or with reasonable continuity. Reference in this regard may be made, inter alia, to the

following decisions:

• India Trade Promotion Organization v. Director General of Income-tax (Exemptions): [2015]

53 taxmann.com 404 (Delhi)

• The Institute of Chartered Accountants of India Vs. The Director General of Income Tax

(Exemptions): 347 ITR 99 (Delhi)

• PHD Chamber of Commerce and Industry v. DIT (Exem.): 357 ITR 296 (Del)

• DIT (Exemptions) v. Commerce Teachers Association: 203 Taxman 171 (Del HC),

• Himachal Pradesh Environment Protection and Pollution Control Board Vs. CIT,

Chandigarh: 42 SOT 343(Chd)

G The proposed amendment now gives statutory recognition to the aforesaid principle laid down in

various decisions.

G As a consequence of the aforesaid proposed amendment, various incidental activities undertaken

to sub-serve primary objective of “advancement of any other object of general public utility”

would be regarded as charitable. For example, publication of books/ journals in the course of

advancement of any object of public utility, like propagation of certain beliefs/ faith for the benefit

of mankind, would be regarded as an incidental activity and the benefit of exemption would not be

denied if income from such activity does not exceed 20% of total receipts of the institution.

G Under the provisions of section 11 of the Act, a charitable trust/ institution has to apply 85% of its

income for charitable purposes in India. The balance 15% of income can be accumulated

indefinitely by the trust/ institution to be applied for charitable purposes in the subsequent year(s).

ACCUMULATION OF INCOME

[Clauses 8 and 9] (w.e.f. 01.04.2016)

9

G Section 11(2) permits the charitable trust/ institution to accumulate 85% of the income for a period

not exceeding 5 years, subject to the charitable trust/ institution furnishing to the assessing officer

the purpose(s) of such accumulation in prescribed form No.10.

G It is now proposed to amend sections 11 and 13 of the Act to make it mandatory for the charitable

trust/institutions seeking to accumulate 85% of its income to comply with the following

conditions:

a) Return of income must be filed by the trust/ institutions on or before due date specified in

section 139(1);

b) Statement must be furnished before the assessing officer before the due date of filing return

stating the purpose(s) of accumulation of such income and the period of accumulation shall

not exceed 5 years;

G If the aforesaid conditions are not satisfied, then, benefit of accumulation shall not be available and

such income would be taxable under the provisions of the Act.

Comments/Observations:

G The Supreme Court in the case of CIT v. Nagpur Hotel Owners Association: 247 ITR 201 (SC) held

that intimation of accumulation in Form No.10 can be filed before the assessing officer prior to

completion of assessment.

G In view of specific amendment proposed in section 13 of the Act, it would no longer be permissible

to claim benefit of accumulation by filing declaration during the course of assessment.

G The aforesaid assessment would adversely hurt cases where accumulation/ higher accumulation

becomes permissible due to additions/ disallowances proposed/ made in the assessment. In such

situations, filing of Form 10 for accumulation of income / higher income subsequent to filing of

return under section 139(1) would be of no avail.

10

BUSINESS INCOME

Allowance of balance 50% additional depreciation

[Clause 10] (w.e.f. 01.04.2016)

Incentives for undertakings set up in the States of Andhra Pradesh and Telangana

[Clauses 10 & 11] (w.e.f. 1.4.2016)

G On the lines of allowability of depreciation, second proviso to section 32(1) of the Act, inter alia,

provides that additional depreciation would be restricted to 50% when the new plant or machinery

acquired and installed by the assessee, is put to use for the purposes of business or profession for

180 days or less in the previous year.

G Presently, there exists judicial controversy as to whether balance 50% of additional depreciation

claimed on new plant and machinery put to use for less than 180 days in the previous year would be

allowable in the succeeding assessment year.

G In this context, various benches of the Tribunal have held that balance 50% of additional

depreciation claimed by the assessee would be allowable in the succeeding assessment year.

[Refer DCIT vs Cosmo Films Ltd: 13 ITR (T) 340, Apollo Tyres Ltd vs ACIT: 64 SOT 203, ACIT

vs SIL Investments: 54 SOT 54, MITC Rolling Mills P. Ltd. vs ACIT: ITA No.2789/Mum/2012].

G A contrary view has however been taken by Chennai Bench of the Tribunal in the case of Brakes

India Ltd vs DCIT: 144 ITD 403.

G In order to set at rest the aforesaid controversy and to provide a fillip to investment in new plant and

machinery, it is proposed to insert proviso to the existing provisions of section 32(1)(iia) of the Act

relating to additional depreciation, to provide that the balance 50% of the additional depreciation

on such plant and machinery put to use for less than 180 days in the previous year, which has not

been allowed in the year of acquisition and installation of such plant and machinery, shall be

allowed in the immediately succeeding previous year.

G In order to promote industrialization and economic growth in the States of Andhra Pradesh and

Telangana, it is proposed to insert section 32AD and amend existing section 32(1)(iia) of the Act to

provide for additional tax incentives by way of investment allowance and additional depreciation

respectively on cost of new plant and machinery (hereinafter referred as ‘new assets’) acquired

and installed by undertaking(s) located in notified areas of such States, subject to fulfillment of

certain conditions.

11

A. Additional Investment Allowance under section 32AD

B. Additional depreciation @35% under section 32(1)(iia)

G It is proposed to insert section 32AD in the Act to provide for additional investment allowance of

an amount equal to 15% of cost of new asset(s) acquired and installed by an assessee in the

assessment year in which such new asset(s) is installed, provided -

a) such assessee sets up an undertaking or enterprise for manufacture or production of any

article or thing on or after 1st April, 2015 in any notified backward areas in the States of

Andhra Pradesh or Telangana; and

b) the new assets are acquired and installed during the period beginning from the 1st April, 2015

to 31st March, 2020.

G It is further proposed to restrict transfer of such new asset(s), on which deduction is claimed, for a

period 5 of years from the date of installation, by providing that if the new asset(s) is transferred

before expiry of the aforesaid period of 5 years, deduction claimed and allowed under section

32AD would be deemed as business income of the assessee in the year of transfer.

G It is further proposed to provide that the aforesaid restriction of not transferring the new asset, on

which deduction is claimed, within a period of 5 years from the date of installation, shall not apply

to transfer by way of amalgamation or demerger or re-organization of business referred to in

clause (xiii) or clause (xiiib) or clause (xiv) of section 47 of the Act, but shall continue to apply to

the amalgamated company or resulting company or successor in business, as the case may be.

G Under the existing provisions of section 32(1)(iia) of the Act, where an assessee engaged in the

business of manufacture or production of article or thing acquires and installs any new plant and

machinery after 31.3.2005, such assessee is eligible for additional depreciation @ 20% of the

actual cost of such asset in the year of installation.

G In order to provide additional incentive to new industries being established in the notified areas in

the States of Andhra Pradesh or Telangana, it is proposed to insert proviso to the aforesaid section

to provide that where an assessee sets-up a manufacturing undertaking in such notified area after

1.4.2015, such assessee shall be entitled to additional depreciation @ 35% (instead of 20%

applicable to other businesses) on actual cost of new plant or machinery.

Comments/Observations

G Under the existing provisions of section 32AC of the Act, additional investment allowance @15%

of the actual cost of new assets exceeding `25 crores, acquired and installed upto 31.3.2018 is

12

allowed. The new allowance proposed to be made available under section 32AD to undertakings

located in the notified areas in the States of Andhra Pradesh or Telangana shall be in addition to the

existing deduction available under section 32AC of the Act.

G In view of the aforesaid proposals, additional tax incentives available to assessee(s) establishing

new undertaking and making investment in acquisition and installation of new plant and

machinery in the notified areas in the States of Andhra Pradesh or Telangana after 1.4.2015, are

summarized by way of the following illustration:

S. No. Particulars State of Andhra

Pradesh and

Telangana

Other Areas

Amount (in ̀ Crores)

1. Investment in new plant and machinery after

1.4.2015

30 30

2. Investment allowance under section 32AC

@15%

4.5 4.5

3. Investment allowance under section 32AD

@15%

4.5 -

4. Normal depreciation under section 32(1)(i)

@15%

4.5 4.5

5. Additional depreciation under section

32(1)(iia)

10.5

[@35%]

6

[20%]

Total allowances/ depreciation 24 15

G In addition to the aforementioned investment allowances and depreciation, the assessee shall

continue to claim depreciation on WDV of such new assets (` 15 crores as per the aforesaid

illustration), remaining after reduction of normal and additional depreciation, in the succeeding

assessment years.

13

Deduction for employment of new workmen under section 80JJAA

[Clause 22] (w.e.f. 01.04.2016)

Rationalizing the provisions of section 115JB

[Clause 29] (w.e.f. 01.04.2016)

A. No MAT on share of income received by a company-member from AOP

G Under the existing provisions of section 80JJAA of the Act, deduction is allowed to an Indian

Company, deriving profits from manufacture of goods in a factory. The quantum of deduction

allowed is equal to 30% of additional wages paid to new regular workmen employed by the

assessee in such factory in a previous year, for three assessment years including the assessment

year relevant to the previous year in which such employment is provided.

G With a view to encouraging generation of employment, it is proposed to extend the benefit to all

assessees having manufacturing units rather than restricting the same to corporate assessees only.

G It is further proposed to extend the benefit under the section to units employing 50 workmen

instead of the erstwhile threshold of 100 workmen.

Comments/Observations

G The earlier controversy as to whether the new regular workman should be employed for more than

300 days in the year of employment or whether the condition should be taken to be satisfied where

the workman is employed for more than 300 days, maybe spread over his previous years,

continues.

G Under the existing provisions, controversy arose regarding applicability of MAT provisions on

company’s share in the income of the AOP, although section 86 of the Act clearly provides that no

income-tax is payable on such share. [Refer ACIT vs B Seenaiah & Co Projects Ltd: 150 ITD 189

(Hyd)].

G It is now proposed to amend section 115JB, by inserting clause (iic) in Explanation 1 to that

section, to provide that the amount of income, being share of a company in the income of an AOP

which is exempt from normal tax under section 86, would be excluded from book profit of the

company, if such amount is credited in the profit and loss account, for purpose of computing MAT

liability.

14

G As a necessary corollary, it is also proposed to insert new clause (fa) in the said Explanation to

provide that the amount of expenditure relatable to income, being share in AOP and exempt under

section 86, debited to the profit and loss account, shall be added back to book profit for

computation of MAT.

Comments/ Observations

G The proposed amendment shall put to rest the controversy relating to applicability of MAT

provisions on company’s share of income from AOP. This is a welcome amendment for

companies in the infrastructure sector, where formation of consortiums (AOPs) to execute large

EPC projects is a norm.

G Section 2(14) of the Act was amended by the Finance Act, 2014 to include securities held by FIIs,

in accordance with regulations made under the SEBI Act, 1992 as capital asset, thereby providing

that income from transactions in such securities would be taxable under the head ‘capital gains’,

notwithstanding that securities were held as ‘stock in trade’ by FIIs. Under the existing provisions,

sale of securities listed on stock exchange, on payment of STT, is not subject to capital gains tax.

G It is proposed to amend section 115JB of the Act, by inserting clause (iid) in Explanation 1 to that

section to provide that income from capital gains arising on transactions in securities (other than

short term capital gains arising on transactions on which STT is not chargeable) accruing or

arising to a FII, shall be excluded from book profit, if such amount is credited to the profit and loss

account, for purpose of computing MAT.

G As a necessary corollary, it is also proposed to insert new clause (fb) in the said Explanation to

provide that expenditure, if any, debited to the profit and loss account, corresponding to the

aforesaid income by way of capital gains arising to FIIs shall also be added back to book profit, for

computation of MAT.


G Under the existing provisions, there is an on-going controversy, as to whether foreign companies,

carrying on business in India or having income in India, are subject to provisions of section 115JB

of the Act and are liable to pay MAT on such income, especially those companies who have no

permanent establishment.

B. No MAT on long term capital gains derived by FIIs

15

G In the case of The Timken Company: 326 ITR 193 (AAR), the AAR held that provisions of MAT

cannot be applied to a foreign company, which does not have any presence or Permanent

Establishment in India.

G However, AAR in the case reported as P No. 14 of 1997: 234 ITR 335 (AAR) and in the case of

Castleton Investment Ltd: 348 ITR 537 (AAR), upheld applicability of MAT on foreign

companies. SLP against the decision of the AAR in the case of Castleton (supra) was admitted by

the Supreme Court vide order dated 7.5.2013.

G In the aforesaid background, the proposed amendment, by providing for exclusion of income by

way of capital gains from computation of MAT under section 115JB of the Act, without first

addressing the controversy regarding applicability of MAT provisions on foreign companies/

FIIs, further complicates the existing scenario and may lead to an adverse inference being drawn

by Revenue that the intention of the Legislature was always to apply MAT provisions to foreign

companies.

16

BUSINESS TRUSTS

Taxation Regime for Business Trusts

[Clauses 3, 7, 26, 31, 44 and 45] (w.e.f. 01.04. 2016)

G The Finance (No.2) Act, 2014 had amended the Income tax Act to put in place a special taxation

regime providing for the manner in which the income is to be taxed in the hands of Real Estate

investment Trust (REIT) or an Infrastructure Investment Trust (InviT), registered under

regulations framed by Securities and Exchange Board of India (SEBI) in this regard, and the

taxability of distributed income (by such trusts) in the hands of the unit holders.

Existing Provisions:

G Under the extant tax regime for the business trusts and their investors, it is, inter alia, provided that:

• the rental income received directly by business trust, being REITs, arising from the assets

held directly by REIT or held through an SPV is to be taxed at REIT level and does not get pass

through benefit.

• the sponsor is not entitled to long-term capital gains tax exemption on sale of units, received

by them from the business trust in lieu of the shares of an SPV transferred to the trust, through

Initial offer at the time of listing of business trust on stock exchange. A sponsor transferring its

holding in the SPV to REIT would be liable to pay capital gains on the entire gains arising at

the time of selling of the units of the trust at stock exchange; unlike, in the case of other unit

holders, who could avail of the tax exemption on sale of REIT units (held for more than 12

months) on the stock exchange.

Taxability in the hands of Business Trusts

G In order to provide pass through status to REIT to its full extent, it is proposed to provide that:

(i) any income of a business trust, being REIT, by way of renting or leasing or letting out any real

estate asset owned directly by such business trust shall be exempt [refer section 10(23FCA)];

(ii) the distributed rental income or any part thereof, received by a unit holder from the REIT,

shall be deemed to be income of such unit holder and shall be charged to tax [refer section

115UB];

(iii) in case of resident unit holder, tax shall deducted @ 10%, and in case of distribution to non-

resident unit holder, the tax shall be deducted at rate in force as applicable for deduction of tax

on payment to the non-resident of any sum chargeable to tax [refer section 194LBB and

section 194LBA respectively];

17

(iv) no deduction shall be made under section 194-I where the income by way of rent is credited or

paid to a business trust, being REIT, in respect of any real estate asset held directly by such

REIT.

Taxability in the hands of the Sponsor

G In order to mitigate the disadvantageous tax position in the hands of sponsors vis-à-vis direct

listing of the shares of the SPV, it is proposed that -

(i) the second proviso to section 10(38) be deleted to entitle the sponsor to long term capital gain

exemption benefit on offloading of units under an Initial offer on listing of units at the stock

exchange.

(ii) the Finance (No. 2) Act, 2004 be amended to provide that STT shall be levied on sale of such

units of business trust which are acquired in lieu of shares of SPV, under an Initial offer at the

time of listing of units of business trust on similar lines as in the case of sale of unlisted equity

shares under an IPO.

(iii) the second proviso to section 111A be deleted so that the benefit of concessional tax regime

of tax @15 % on STCG shall be available to the sponsor on sale of units received in lieu of

shares of SPV subject to levy of STT.

18

ALTERNATIVE INVESTMENT FUNDS

Pass through status to Category –I and Category –II Alternative Investment Funds

[Clauses 3, 7, 30, 32, 34 & 46] (w.e.f 01.04.2016)

G The existing provisions of section 10(23FB) read with section 115U of the Act provide a tax pass

through status to income arising from investment in Venture Capital Undertaking (VCU) by a

Venture Capital Fund (VCF) (as a sub category of Category 1 Alternative Investment Fund (AIF)

under SEBI (AIF) Regulations 2012 (AIF Regulations) and Venture Capital Fund (VCF)

registered under erstwhile SEBI (VCF) Regulations 1996 (VCF Regulations).

It is proposed to clarify that the existing manner of taxation shall apply only to existing VCF

registered under erstwhile VCF Regulations and shall not include Category I AIF and Category II

AIF registered under AIF Regulations, which shall be separately dealt with as per the new tax

regime.

G New section 115UB is proposed to be inserted to provide that any fund established or incorporated

in India in the form of a trust or a company, or a limited liability partnership and which is registered

as a Category I or a Category II AIF under the SEBI (Alternative Investment Funds) Regulations,

2012 (referred to as ‘Investment Fund’) shall have pass through status in relation to income from

investments, other than income chargeable under the head “Profits and gains from business or

profession”. The key feature of the aforesaid provision are as under:

(i) All income earned by the Investment Fund (except business income) would be taxable on

pass through basis in the hands of the investors as if the investor(s) has made the investment

directly into the investee companies and not through the Investment Fund. Additionally, the

income in the hands of the investors shall be deemed to be of the same nature as in the hands

of the Investment Fund;

(ii) Any business income earned by the Investment Fund would be taxable at the fund level. Such

business income would be tax exempt in the hands of the investors;

(iii) Income received by the Investment Fund shall not be subject to withholding tax. However,

the Investment Fund shall deduct tax at 10% on all income (except business income) payable

to investors at the time of credit or payment, whichever is earlier;

(iv) The Investment Fund, if a company, shall not be liable to dividend distribution tax on

distribution made to the investors;

19

(v) Any loss at Investment Fund level, either current loss or brought forward loss, shall not be

allowed pass through status and would be carried forward at Fund level and be available

to/for set-off against income of the Investment Fund as per relevant provisions;

(vi) Investment Fund would mandatorily be required to file its return of income and also furnish

details of components of income, etc. in the prescribed form to the investors and the Income

tax department.


G By introduction of this regime the Government has addressed the concerns of the Private Equity

sector by according pass through status in line with international practices. This should provide an

impetus to investments targeted by such AIF’s and increase the pace of foreign capital in the PE

sector whilst boosting investor confidence.

G Obligation to withhold tax may however, discourage foreign funds from investing in AIF’s as any

capital gains which may otherwise be exempt under the relevant tax treaty, will now be subject to

10 per cent withholding tax.

20

INTERNATIONAL TAXATION

Indirect Transfer of Assets

[Clauses 5, 13, 14, 72, 75 & 76] (w.e.f. 01.04.2016)

G Section 9 of Act, inter alia, deems income accruing or arising directly or indirectly through or from

the transfer of a capital asset situated in India.

G The Supreme Court had, in the case of Vodafone International Holdings BV: 341 ITR 1 held that

transfer of shares in a non-resident company by one non-resident to another, would not be covered

within the ambit of the aforesaid section, notwithstanding the fact that the value of the shares in the

non-resident company is derived from underlying assets in India.

G In order to overcome the aforesaid judgment, the Finance Act, 2012 inter alia, inserted Explanation

5 in section 9(1)(i) with retrospective effect from 1.04.1962 which clarified that an asset or capital

asset, being any share or interest in a company or entity registered or incorporated outside India

shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its

value substantially from the assets located in India.

G Concerns were raised by various stakeholders on the scope and impact of the indirect transfer

provisions. Accordingly, the Prime Minister constituted an Expert Committee to examine

implications of retrospective amendments relating to indirect transfer of assets. Based on the

consultation and representations received from various stakeholders, the Expert Committee

submitted its report in October 2012. The recommendations of the Expert Committee were

considered and in order to give effect to these recommendations, the Finance Bill, 2015, has

proposed the following amendments in section 9 of the Act:

Threshold test for substantial value:

G Explanation 6 in section 9(1)(i) is proposed to be inserted to provide that share or interest in a

foreign entity shall be deemed to derive its value substantially from the assets (whether tangible or

intangible) located in India, if, on the specified date, the value of such assets:

(I) exceeds the amount of ̀ 10 crore; and

(ii) represents at least 50% of the value of all the assets owned by the foreign entity

21

G “Value of an asset” refers to the fair market value of the assets without reducing the liabilities as on

the last day of the accounting period of the entity preceding the transfer. However, if the book

value of assets has increased by 15% or more from such date till the date of transfer, the date of

transfer would be the valuation date. The manner of determination of fair market value of the

assets has not been prescribed in the Finance Bill and will be provided for in the rules.

Taxation of capital gains

G Explanation 7 in section 9(1)(i) is proposed to be inserted to provide that if all the assets owned,

directly or indirectly, by a company are not located in India, the income of the non-resident

transferor, from transfer outside India of a share or interest in such company, deemed to accrue or

arise in India, shall be only such part of the income as is reasonably attributable to assets located in

India and determined in such manner as may be prescribed.

The aforesaid has been explained by way of the following diagram:

B Ltd

A Ltd X Ltd

D Ltd C Ltd E Ltd

B Ltd

A Ltd X Ltd USA

Cayman

Islands

India Australia Singapore

100%

USD 100

million

100% 100% 100%

USD 55 million USD 25 million USD 20 million

22

If shares of B Ltd are transferred by A Ltd to X Ltd, then, provisions of indirect transfer will apply

since assets held by B Ltd derive their value substantially from the assets located in India and

value of such assets (i) exceeds the amount of Rs. 10 crores; and (ii) represents at least 50% of the

value of all the assets owned by B Ltd. However, since all the assets owned by B ltd are not located

in India (25% in Australia and 20% in Singapore), income from transfer of shares of B Ltd deemed

to accrue or arise in India, shall be only such part of the income as is reasonably attributable to

assets located in India (55%) and determined in such manner as may be prescribed.

Exemption from provisions of indirect transfer

G Income shall not be deemed to accrue or arise to a non-resident from transfer outside India of any

share or interest in a foreign entity if:

• The transferor of share or interest in foreign entity along with associated enterprises (AEs)

does not hold

– Right of control or management; and

– Voting power or share capital or interest exceeding 5% in the foreign entity directly

holding the Indian assets

• The foreign entity whose shares or interest is transferred, holds Indian assets indirectly and

transferor along with AEs, does not hold:

– Right of management or control in relation to such company or the entity; and

– Any rights in such company which would entitle it to either exercise control or

management or voting rights exceeding 5% in the direct holding company or entity

holding Indian asset.

A Ltd B Ltd

C Ltd

D Ltd

1% 2%

No right of control

or management

Direct holding – Indirect transfer provisions

not applicable upon transfer of shares of C Ltd Indirect holding – Indirect transfer

provisions applicable upon transfer of C Ltd

USA

Cayman

Islands

India

A Ltd B Ltd

C Ltd

D Ltd

E Ltd

50% 50%

100%

100%

Right of control or

management

23

G Section 47 of the Act is proposed to be amended to provide for exemption from tax on capital gains

in respect of :

• any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign

company, referred to in sub-section (1) of section 9, which derives, directly or indirectly, its

value substantially from the share or shares of an Indian company, held by the amalgamating

foreign company to the amalgamated foreign company, if:

– at least 25% of the shareholders of the amalgamating foreign company continue to

remain shareholders of the amalgamated foreign company; and

– such transfer does not attract tax on capital gains in the country in which the

amalgamating company is incorporated

• any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in

sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from

the share or shares of an Indian company, held by the demerged foreign company to the

resulting foreign company, if:

– shareholders, holding atleast 75% in value of the shares of the demerged foreign

company, continue to remain shareholders of the resulting foreign company; and

– such transfer does not attract tax on capital gains in the country in which the demerged

foreign company is incorporated:

Reporting requirement for the Indian entity

G The Indian entity (in which assets are held by the foreign entity) is required to furnish information

on the offshore transfer which has the effect of directly or indirectly modifying the ownership

structure or control of the Indian entity. In case of failure by the Indian entity to furnish such

information, penalty @ 2% of the value of overseas transfer or Rs. 5 lakhs, whichever is higher,

shall be levied.

The form or manner in which such information is to be furnished has not been prescribed in the

Finance Bill and will be provided for in the rules.


G The manner of determination of fair market value of the assets for computing the threshold for

substantial value has not been prescribed in the Finance Bill and is to be provided for in the rules.

G No exemption has been provided to portfolio investors since holding more than 5% share capital or

interest could trigger applicability of indirect transfer provisions. It may be pointed out that the

24

Expert Committee had recommended 26% holding limit of share capital or interest. Further, no

exemption has been provided for listed companies, as was recommended by the Committee.

G It is also pertinent to note that it may be practically difficult for the Indian entity to furnish

information in case of an indirect transfer of shares or interest, especially in case of listed

companies. Moreover, in portfolio investment structures, the Indian entity may not be privy to the

change in shareholding at the investor level.

G Further, there is no minimum threshold beyond which such information is required to be furnished.

In other words, the Indian entity is required to furnish information on the offshore transfer even if

one share is transferred.

G Another important issue that may arise is the potential double taxation in case of multi-layered

structures.

G Further, there are no provisions for grand fathering of investment/transfers made in the past and

there looms ambiguity as to the tax treatment on transactions undertaken between 2012 and 2015.

In the present form, litigation on various issues relating to the indirect transfer provisions cannot

be ruled out for the foreseeable future.

G While these proposed amendments may provide some relief to investors, however, a number of

recommendations of the Committee do not appear to have been accepted by the Government. A

comparative analysis of the recommendations of the Expert Committee and amendments

proposed by the Finance Bill, 2015 is as under:

Recommendations of the Expert Committee Amendments proposed by the Finance Bill,

2015

Indirect transfer provisions should apply prospectively

The provisions relating to taxation of indirect

transfer are not clarificatory in nature and

should be applied prospectively.

The Government should avoid anything which

comes as a surprise or unexpected to the

taxpayers. Various countries (such as Brazil,

Greece, Mexico, Mozambique, Paraguay, Peru,

Venezuela, Romania, Russia, Slovenia and

Sweden) have explicitly banned retroactive

taxation.

Although the Hon’ble Finance Minister in his

Budget speech has acknowledged that

“retrospective tax provisions adversely impact

the stability and predictability of the taxation

regime and resort to such provisions shall be

avoided”, however, Finance Bill, 2015 has not

clarified that provisions relating to taxation of

indirect transfer would apply prospectively.

25

Meaning of phrase ‘share or interest in a company or entity’

It should be specified that the phrase ‘the share

or interest in a company or entity registered or

incorporated outside India’ means and includes

only such share or interest which results in

participation in ownership, capital, control or

management.

Finance Bill, 2015 has proposed to give effect to

the recommendation only partly by providing

that income shall not be deemed to accrue or arise

to a non-resident from transfer, outside India, of

any share or interest in, a foreign entity if the

transferor of share or interest in foreign entity,

along with AEs does not hold (i) right of control

or management and (ii) voting power or share

capital or interest exceeding 5% in the foreign

entity directly holding the Indian asset.

Meaning of ‘substantially’

A capital asset being any share or interest in a

foreign entity shall be deemed to be situated in

India, if the share or interest derives, directly or

indirectly, its value from the assets located in

India being more than 50% of the global assets of

such entity.

Finance Bill, 2015 has proposed to provide that

share or interest in a foreign entity shall be

deemed to derive its value substantially from the

assets (whether tangible or intangible) located in

India, if, on the specified date, the value of such

assets.

(i) exceeds the amount of ̀ 10 crores; and

(ii) represents at least 50% of the value of all the

assets owned by the foreign entity.

Meaning of phrase ‘directly or indirectly’

The phrase ‘directly or indirectly’ may be

clarified to represent ‘look through’ approach. It

implies that, for determination of value of a

share of a foreign company, all intermediaries

between the foreign company and assets in India

may be ignored.

Finance Bill, 2015 has not provided the manner

in which the value of a share of the foreign

entity is to be computed.

26

Meaning of phrase ‘value’ and point of time for valuation

The Committee was of the opinion that taking

value at any time preceding 12 months is an

onerous compliance burden on the taxpayer and

taking value as on last balance sheet date may

not reflect the actual value on the date of

transfer, and thus may provide scope for

manipulation

Accordingly, it may be clarified that

(i) the value refers to fair market value as may

be prescribed;

(ii) the value is to be ascertained based on net

assets after taking into account liabilities

as well;

(iii) for determination of value, both tangible

assets as well as intangible assets are to be

considered; and

(iv) the value is to be determined at the time of

the last balance sheet date of the foreign

company with appropriate adjustments

made for significant disposal/acquisition,

if any, between the last balance sheet date

and the date of transfer.

The Finance Bill has proposed to define “value

of an asset” to mean the fair market value of the

assets without reducing liabilities as on the last

day of the accounting period of the entity

preceding the transfer. However, if the book

value of assets has increased by 15% or more

from such date till the date of transfer, the date of

transfer would be the valuation date.

Meaning of phrase ‘capital asset situated in India’

The intention while amending Section 9(1)(i) of

the Act was to tax capital gains arising on

transfer of a ‘capital asset’ having underlying

assets in India. However, the Explanation does

not restrict its scope to ‘capital asset’ but extends

the scope to any other assets also by using the

phrase ‘an asset or capital asset situated in

India’. Accordingly, the phrase ‘an asset or’ in

Explanation 5 to Section 9(1)(i) of the Act may

be omitted.

The Finance Bill, 2015, has not proposed any

such change.

27

Minority shareholders

The Committee analysed that the amended

Section 9(1)(i) of the Act is so wide that even

transfer of a single share of a foreign company

having substantial assets in India would be

taxable in India and it would lead to undue

hardship to minority shareholders since transfer

of small shareholdings do not result in transfer of

controlling interest in Indian assets.

Accordingly, the Committee recommended that

indirect transfer provisions should not apply –

(i) where the foreign entity is immediate

holding company of the voting power or

share capital of the transferor along with its

AEs in such company or entity does not

exceed 26% of the total voting power or

share capital of the company or entity

during the preceding 12 months, or

(ii) In other cases, where the voting power or

share capital of the transferor in such entity

along with its AE during the preceding 12

months does not exceed 26% of the total

voting power or share capital of the

immediate holding company having

underlying assets in India.

Finance Bill, 2015 has proposed to partially

give effect to the recommendation by providing

that indirect transfer provisions shall not apply

if the transferor of share or interest in foreign

entity, along with AEs does not hold (i) right of

control or management and (ii) voting power

or share capital or interest exceeding 5% in

the foreign entity directly holding the Indian

asset.

Concern of listed foreign company

The Committee recommends that exemption

may be provided to a foreign company listed on

recognised stock exchange and its shares are

frequently traded on the stock exchange. The

terms ‘frequently traded’ and recognised stock

exchange may be defined as in the SEBI

guidelines and RBI regulations on overseas

investments by residents respectively.


such change in this regard.

28

Tax neutrality in case of amalgamation/demerger

Transfer of shares or interest in a foreign entity

under a scheme of amalgamation/demerger

may be exempted from taxation provided such

transfer is not taxable in the jurisdiction where

such company is resident.

The Finance Bill, 2015, has only partly given

effect to the said recommendation.

Foreign Institutional Investors

A clarificatory Circular may be issued that the

investments made by FII as per regulation of the

SEBI are subject to tax in India in the hands of

FII. Further taxation of non-resident investors

investing, directly or indirectly, in FII may lead

to double taxation.



Interest and penalty not to be levied

The Committee recommends that in all cases

where demand is raised on account of

retrospective amendment under section 9(1)(i)

of the Act then, no interest under section 234A,

234B, 234C and 201(1A) of the Act be charged

so that there is no hardship caused to the

taxpayer

Further, in such cases, no penalty should be

levied under section 271(1)(c) (for concealment

of income) and 271C (for failure to deduct tax at

source) of the Act.



29

Taxation on proportionate basis

The Committee recommends that a threshold of

50 percent of underlying assets in India should be

adopted for taxation of capital gains on indirect

transfer, together with a proportional basis of

taxation of the same.

The Finance Bill, 2015, has proposed to give

effect to this recommendation.

Cascading effect on dividend taxation

The Committee examined that besides capital

gains being taxed under Section 9(1)(i) of the

Act, dividend received in respect of shares may

also be treated from a source situated in India

and consequently taxable in India. In case of a

multi-tier structure, it may lead to a cascading

effect. Accordingly, dividend paid by a foreign

company shall not be deemed to accrue or arise

in India under section 9(1)(i) of the Act.

The Hon’ble Finance Minister has in the Budget

speech clarified that “concerns regarding

applicability of indirect transfer provisions to

dividends paid by foreign companies to their

shareholders shall be addressed by CBDT

through a clarificatory circular”.

G It is pertinent to point out that the Delhi High Court in the case of DIT vs. Copal Research Ltd.,

Mauritius: 226 Taxman 226, upheld the ruling of the AAR and endorsed the recommendations of

the Expert Committee to tax the gains from sale of shares of the foreign company, only if the same

derived more than 50% of its value from the assets situated in India.

The Delhi High court had interpreted the term ‘substantially’ used in Explanation 5 to Section

9(1)(i) of the Act based on the following:

• The object of Explanation 5 was not to extend the scope of Section 9(1)(i) of the Act to income

which had no territorial nexus with India, but to tax income that has nexus with India,

irrespective of whether the same was reflected in a sale of an asset situated outside India.

Thus, Explanation 5 cannot be viewed to provide recourse to Section 9(1)(i) for taxing

income which arises from transfer of assets overseas and which do not derive bulk of their

value from assets in India.

• The draft report submitted by the Expert Committee also recommended that the term

‘substantially’ used in Explanation 5 should be defined as a threshold of 50% of the total

value derived from assets of the company.

30

G The UN Model Double Taxation Convention and the OECD Model Tax Convention would have a

persuasive value in interpreting the term ‘substantially’ in a reasonable manner and in its

contextual perspective. The UN and the OECD Model provide that the taxation rights in case of

sale of shares are ceded to the country where the underlying assets are situated only if more than 50

percent of the value of such shares is derived from such property.

Accordingly, the High Court held that the term “substantially” occurring in Explanation 5 would

necessarily have to be read as synonymous to “principally”, “mainly” or at least “majority”.

G Under the Act, any income paid to non-residents by way of royalty/ fees for technical services

(FTS) which is not effectively connected with a Permanent Establishment in India is taxed @ 25%

on gross basis.

G In order to reduce the hardship faced by small entities due to high rate of tax and to facilitate

technology inflow to small businesses at low costs, it is proposed to reduce the rate of tax on

royalty and FTS payments made to non-residents to 10%.

G The Act provides relief in respect of income which is doubly taxed in India as well as in another

jurisdiction by way of credit in respect of foreign taxes paid on income which is taxed in India. The

Finance Bill, 2015, proposes to amend the Act to empower the CBDT to prescribe rules regarding

the procedure for granting FTC under the Act.

G It is pertinent to note that the Tax Administration Reform Commission has also recommended that

CBDT should introduce Rules to provide the manner of claiming FTC and timing for claim of

FTC.

G Under the existing provisions of section 9(1)(v) read with section 2(28A) of the Act, interest paid

to a non-resident is taxable in India if it is in respect of moneys borrowed or debt incurred and used

for purpose of business or profession carried on in India.

Reduction in the rate of tax on income by way of royalty and fee for technical services payable to

non-residents

[Clause 27] (w.e.f. 01.04.2016)

CBDT to notify rules for claiming foreign tax credit (FTC)

[Clause 78] (w.e.f. 01.06.2015)

Source rule in respect of interest paid by branch of foreign bank to head office

[Clause 5] (w.e.f. 01.04.2016)

31

G Further, income of a non-resident from business activity is taxable in India if it has a business

connection in India, in accordance with the provisions contained in section 9(1)(i) and only so

much of such income is taxable in India as is attributable to such business connection.

G Similarly, under the Tax Treaties income from business activity in the case of a non-resident shall

be taxable only if such non-resident has a Permanent Establishment in India and only so much of

such income is taxable which is attributable to the Permanent Establishment.

G The Tax Treaties further provide that for the purpose of computation of income attributable to tax

in India, the Permanent Establishment shall be deemed to be an independent enterprise with

certain restrictions regarding allowability of expense paid to head office by the Permanent

Establishment. The said principle has also been upheld by the Supreme Court in the case of

Morgan Stanley & Co. Inc: 292 ITR 416.

G The CBDT had vide Circular No. 740 dated 17.04.1996 clarified that branch of a foreign company

in India is a separate entity for the purpose of taxation under the Act and that interest paid by an

Indian branch to its head office is taxable in India and is be subject to withholding tax. However,

Calcutta High Court in the case of ABN Amro Bank NV: 343 ITR 81 and Special Bench of the

Tribunal in the case of Sumitomo Mitsui Banking Corporation: 136 ITD 66, held that such

payment is deductible while computing taxable income of the Indian branch as per the relevant

Tax Treaty but is not taxable in the hands of the head office being payment to self. TDS payments

were held not applicable to such payments.

G In order to prevent base erosion and future disputes, the Finance Bill 2015 proposes to add

Explanation to section 9(1)(v) to provide that any interest payable by a Permanent Establishment

to its head office or any other foreign Permanent Establishment or constituent of such head office

would be chargeable to tax in India under the Act, which would be further subject to withholding

tax implications.

G For purpose of this provision, Permanent Establishment is defined to include a fixed place of

business through which the business of the foreign entity is wholly or partly conducted. Further,

since such interest income has been made taxable in India under the Act, the Explanation also

elaborates that the Indian Permanent Establishment would be deemed to be ‘separate and

independent’ person to whom the provisions of the Act shall apply.

32


G The Special Bench of the Tribunal in the case of Sumitomo Mitsui Banking Corporation (supra)

held that interest payments by a Permanent Establishment to its head office would not be taxable

in India under the Act. However, the Tribunal also held that even if such payments were taxable

under the Act, specific provision would be required to be made in Article 11 of Tax Treaty (dealing

with interest payments) for such payments to be taxable in India. Such specific provision would be

required since there would be no differentiation between a Permanent Establishment and its head

office from the perspective of a Tax Treaty for the purposes of Article 11.

G Accordingly, unless Tax Treaties entered into by India are modified to include a specific provision

allowing India to tax interest payments from an Indian Permanent Establishment to its head office

(such as Article 14(3) of the India-US tax treaty), such interest should not be taxable in India,

making the proposed provision largely redundant. However, the proposed amendment may lead to

protracted litigation.

G Under the existing provisions of section 6 of the Act, a company can be said to be resident in India

in any previous year, if (i) it is an Indian company; or (ii) during that year, the control and

management of its affairs is situated wholly in India.

G Accordingly, unless the whole of control and management is situated in India, a company cannot

be treated as a resident for the purposes of the Act. The said condition can be easily circumvented

by companies by holding a board meeting outside India which facilitates creation of shell

companies which are incorporated outside but controlled from India.

G Most of the Tax Treaties entered into by India recognize the concept of 'Place of Effective

Management' (‘POEM’) as a tie-breaker rule for determination of residence of a company for

avoidance of double taxation. The OECD Model Tax Convention defines POEM to mean the

place where key management and commercial decisions that are necessary for the conduct of the

entity's business as a whole, are, in substance, made.

G Accordingly, to align the provisions of the Act with the Tax Treaties and to discourage creation of

shell companies outside India which are controlled and managed from India, the Finance Bill,

2015 has proposed to amend the provisions of section 6 of the Act to provide that a person being a

company shall be said to be resident in India in any previous year, if-

Amendment to the conditions for determining residential status in respect of companies

[Clause 4] (w.e.f. 01.04.2016)

33

(i) it is an Indian company; or

(ii) its place of effective management, at any time in that year, is in India

G POEM is proposed to be defined to mean a place where key management and commercial

decisions that are necessary for the conduct of the business of an entity as a whole are, in substance

made.

G Guiding principles to be followed in determination of POEM would be issued by the CBDT during

the year.


G Though the amendment proposed by Finance Bill, 2015 is based on international tax

commentaries and standards, however, the deviation proposed which is similar to the provisions

of DTC 2010, is that a company shall be said to be resident in India if POEM exists in India at any

time during the financial year. In other words, it may be possible that a foreign company may be

considered “resident” and taxable on a global basis in 2 or more countries at a given time, viz, (i)

India, where a part of the POEM exists, (ii) the OECD country with substantial POEM and (iii) the

country of incorporation if it does not recognize the country of management.

G For example, if all the shareholders of a foreign company are Indian residents, majority directors

are Indian residents, then, the company may now be considered Indian resident under the

aforesaid amendment proposed by the Finance Bill 2015. In such a case, worldwide profits of the

foreign company would be taxable in India.

The aforesaid amendments would impact a number of structures, especially outbound

investment structures of Indian companies.

G The proposed amendment would nullify the impact of the decision of the Bombay High Court in

the case of Narottam & Pereira Ltd. vs. CIT: 23 ITR 454 and several other decisions, wherein it

was held that in case of a foreign company, even if the slightest control and management is

exercised from outside India it would not fall within the ambit of section 6(3)(ii) and the company

would be treated as a non-resident. The Department had to establish that the control and

management of its affairs is situated wholly in India, for the company to be treated as resident in

India.

G The proposed amendment has not provided any clarity on the following issues that may arise while

determining POEM:

34

G What would constitute the place where “key management decisions are in substance made”, i.e.,

whether the residential status of directors will be looked at or location of board meetings or any

other criteria needs to be looked at?

G Whether shareholder’s functions exercised by the parent in relation to its foreign subsidiaries

would trigger the provisions of POEM?

G What should be the composition of the board of directors, i.e., whether the Indian parent company

and the foreign company can have common board of directors?

G Minimum number of board meetings to be held outside India for conclusively determining that the

key management and commercial decisions are taken outside India?

It is imperative that the guiding principles to be issued by the CBDT should provide clarity in

determination of POEM, otherwise protracted litigation on this issue would ensue.

G A comparison of the meaning of the term POEM under the Model Tax Convention, DTC 2010 and

Finance Bill, 2015 is tabulated below:

Model Tax Convention DTC 2010 Finance Bill, 2015

Under OECD model and UN

model, tie breaker test for

resolution of treaty residency

for non individuals as provided

in Article 4(3) is as under:

“Where by reason of the

provisions of paragraph 1 a

person other than an individual

is a resident of both Contracting

States, then it shall be deemed to

be a resident only of the State in

which its place of effective

management is situated.”

OECD Commentary

The OECD Commentary on

Article 4(3) provides that the

DTC 2010 provides that a

company shall be resident in

India in any financial year, if –

• It is an Indian company, or

• Its place of effective

management, at any time

in the year, is in India”

The term POEM defined under

DTC 2010 has following two

limbs:

(i) the place where the board

of directors of the

company or its executive

directors, as the case may

be, make their decisions;

or

50%;

(iv) The fund cannot

invest more than

twenty per cent of its

corpus in any entity;

(v) No investment shall

be made by the fund

in its associate entity;

(vi) The monthly average

of the corpus of the

fund shall not be less

than one hundred

crore rupees and if the

f u n d h a s b e e n

e s t a b l i s h e d o r

35

place of effective management

is the place where:

• key management and

commercial decisions that

are necessary for the

conduct of the entity’s

business as a whole are in

substance made.

• All relevant facts and

circumstances must be

examined to determine

the place of effective

management.

• An entity may have more

t h a n o n e p l a c e o f

management, but it can

have only one place of

effective management at

any one time.

India’s reservations

India is of the view that the

place where the main and

substantial activity of the entity

is carried on is also to be taken

into account when determining

t h e p l a c e o f e f f e c t i v e

management.

UN Commentary

UN Commentary on Article

4(3) provides that when

establishing the “place of

e ffec t ive management” ,

(ii) in a case where the board

of directors routinely

incorporated in the

previous year, the

36

circumstances which may, inter

alia, be taken into account are:

• t h e p l a c e w h e r e a

company is actually

managed and controlled,

• the place where the

decision-making at the

highest level on the

i m p o r t a n t p o l i c i e s

e s s e n t i a l f o r t h e

management o f the

company takes place,

• the place that plays a

leading par t in the

m a n a g e m e n t o f a

c o m p a n y f r o m a n

economic and functional

point of view and the

place where the most

important accounting

books are kept.

Professor Klaus Vogel’s

Double Taxation Convention

Professor Klaus Vogel is of the

view that:

• What is decisive is not the

p l a c e w h e r e t h e

management directives

take effects but rather the

place where they are

given.

37

• T h e c e n t r e o f

management activities of

a company generally is

the place at which the

person authorized to

represent the company

carries on his business

managing activities.

• A place from which a

bus ines s i s mere ly

supervised would not

qualify as POEM

• If the commercial and the

non-commercial side of a

business are managed at

different places, the

location of commercial

management will be

POEM.

• If POEM cannot be

d e t e r m i n e d b y t h e

application of these

c r i t e r i a , t h e t o p

manager ’s p lace of

residence will regularly

determine the residence

of the company.

38

(i) The person is not an employee or a connected person of the fund;

(ii) The person is registered as a fund manager or investment advisor in accordance with the

‘specified regulations’;

(iii) The person is acting in the ordinary course of business as a fund manager;

(iv) The person along with his connected persons shall not be entitled, directly or indirectly, to

more than twenty per cent of the profits accruing or arising to the fund from the transactions

carried out by the fund through such fund manager.

G Further, from a disclosure perspective, the fund will be required to furnish prescribed information

in prescribed form indicating the satisfaction of the aforementioned eligibility criteria, within

ninety days from the end of the relevant financial year. Failure to furnish such information shall

entail penalty of INR 500,000, on the offshore fund.

G These provisions will not have any impact on the taxability of any income of the eligible

investment fund which would have been chargeable to tax irrespective of whether the activity of

the eligible fund manager constituted business connection in India of such fund or not.

G These provisions will not have any effect on the scope of the total income or determination of total

income in case of eligible fund manager.


G Introduction of above provisions would encourage offshore funds to appoint India-based fund

managers, which would help the economy.

G These provisions also address the long standing demand to relax Permanent Establishment rules

for foreign funds thereby eliminating the need for sham structures and encouraging such funds to

have a simpler set-up with more certainty on taxes.

G However, the stringent eligibility conditions might disqualify several funds from benefitting from

the relaxation.

SEARCH

39

Assessment in case of Search - Proceedings U/S 153C

[Clause 36] (w.e.f. 01.06.2015)

G Section 153C provides for assessment of income of a person other than the searched person on the

basis of any asset/ books of account found during the course of search.

G In terms of the aforesaid section, proceedings can be initiated in respect of a person other than the

searched person, if the assessing officer of the searched person is satisfied that the following

assets/ books found during search “belongs” to such other person:

a) any money, bullion, jewellery or other valuable article or thing; or

b) books of accounts or documents.

G In the context of the aforesaid provisions, the Courts and Tribunal have held that the expression

“belongs” to refers to ownership of the asset/ books and not mere possession thereof

G The Delhi High Court in the case of Pepsico India Holdings (P) Ltd. vs. Asstt. CIT: 270 CTR 467.

(Del) held that for initiation of proceedings under section 153C of the Act, it must be established

that the documents found do not belong to the searched person and belongs to some other person.

The Court held that finding of photocopies in the possession of a searched person does not

necessarily mean and imply that the same “belong” to the person who holds the originals. The

Court further held that the expression “belongs to” is different from the expressions “relates to” or

“refers to”.

G It is now proposed to amend section 153C of the Act to provide that proceedings can be initiated in

respect of a person other than the searched person, if the assessing officer of the searched person is

satisfied that:

a) any money, bullion, jewellery or other valuable article or thing “belongs” to such other

person: or

b) any books of accounts or documents pertains or pertain to, or any information contained

therein, relates to, such other person.


40

G The expression “pertains or pertain to, or any information contained therein, relates to” is very

wide and may result in arbitrary reopening of proceedings under section 153C since the assessing

officer may refer the seized documents to the assessing officer of some other person merely on the

pretext that the document found during the course of search contains some information relating to

such other person.

G Under Chapter XIX-A of the Act, during the pendency of assessment/ reassessment proceedings,

application can be filed by the assessee before the Income Tax Settlement Commission

(“Settlement Commission”/ “ITSC”) for settlement of its “case”.

G The expression “case” is defined in section 245A(b) of the Act to mean proceeding for assessment/

reassessment in respect of any one or more assessment year, which may be pending before the

assessing officer.

G Accordingly, application can, presently, be filed during the pendency of the following assessment

proceedings before the assessing officer:

a) Regular assessment;

b) Assessment/ reassessment proceedings under section 147;

c) Proceedings pursuant to search under sections 153A/ 153C;

d) Fresh assessment proceedings pursuant to set aside order passed by Tribunal/ CIT

G As per clause (i) of Explanation to section 245A, assessment/ reassessment proceedings under

section 147 are deemed to be initiated on the date of issuance of notice under section 148 of the

Act. Therefore, issuance of notice under section 148 of the Act for any particular assessment year

is necessary for an assessee to approach ITSC.

G Further, as per clause (iv) of Explanation to Section 245A, regular assessment is deemed to be

pending from the 1st day of the assessment year till the date on which the assessment is made.

SETTLEMENT COMMISSION

Scope of Settlement Application

[Clause 57] (w.e.f. 01.06.2015)

41

G It is now proposed to amend clause (i) of Explanation to section 245A to expand the scope of filing

settlement application by providing that if notice is issued under section 148 for any assessment

year (referred as “principal assessment year”), then, the assessee can file settlement application

not only for that “principal assessment year” but also for any other assessment year for which

notice is not issued. However, such application can be filed for any other assessment year only if

the following conditions are satisfied:

42

a) Notice for such other assessment year, though not issued, could have been issued on such

date. Meaning thereby that issuance of notice for such assessment year should not barred by

limitation; and

b) Return of income has been furnished for such other assessment year under section 139 or in

response to notice under section 142.

G It is also proposed to amend clause (iv) of Explanation to Section 245A to provide that regular

assessment shall be deemed to have commenced from the date on which return is furnished under

section 139 or in response to the notice under section 142 and shall be concluded on the following

dates:

a) where assessment is made, on the date of completion of assessment;

b) where no assessment is made, on expiry of two years from the end of the relevant assessment

year.


G In the absence of any restriction in the proposed amendment, once proceedings are initiated under

147/148 in respect of any assessment year on any particular issue, then, the assessee can file

settlement application for other assessment year(s) for which notices could be issued (though not

actually issued) even in respect of other issues and not necessarily qua issue(s) on which

reassessment proceedings are initiated.

G For example:

• Notice under section 148 issued in January, 2016 on “Issue A” for assessment year 2015-16;

• In January, 2016, notice under section 148 could be issued for assessment years 2009-10 to

2014-15;

• After issuance of notice in January, 2016, assessee may file settlement applications even

covering assessment years 2009-10 to 2014-15 for declaring additional income on any

issue(s) and not necessarily confined to “Issue A”.

G In terms of section 245C, payment of tax and interest on the additional income disclosed before the

Settlement Commission is a condition precedent for filing a valid application.

Adjustment of Seized Cash/ Assets

[Clause 33] (w.e.f. 01.06.2015)

43

G Adjustment of cash/ assets seized during the course of search or requisition under section 132A for

payment of such additional tax on the income disclosed before the Settlement Commission is

always a subject matter of dispute.

G It is now proposed to amend section 132B to enable adjustment of seized assets, including cash,

against the additional tax liability arising on account of filing of application before the Settlement

Commission.

G In terms of sub-section (6B) of section 245D, Settlement Commission can rectify any final order

passed under sub-section (4) within six months from the date of said order. There is no provision

for passing such rectification order beyond the period of six months from the date of passing the

final order under sub-section (4) of section 245D of the Act.

G In context of the aforesaid provision, the Special Bench of the Settlement Commission in the

case of G.M. Foods [WB/ Durgapur/ 2012-13/ 52-IT] vide order dated 12.11.2014, following the

decision of the Supreme Court in the case of Sree Ayyanar Spinning & Weaving Mills Ltd V.

CIT: 301 ITR 434 [rendered in the context of section 254(2)] held that once rectification

application is filed before the Settlement Commission within 6 months, then the Commission is

legally bound to pass order under section 245D(6B) of the Act.

G It is now proposed to amend aforesaid sub-section (6B) of section 245D to provide that where

rectification application is filed by the Commissioner or the applicant (assessee) within six

months from the date of the final order, then, the Settlement Commission may pass rectification

order within 6 months from the end of the month in which such application is made.

G In terms of section 245H(1), Settlement Commission has powers to grant immunity from penalty

and prosecution under the provisions of the Act, subject to such conditions as it may think fit to

impose, provided the following conditions are satisfied:

a) The applicant has co-operated with the Settlement Commission in the settlement proceedings;

and

b) The applicant has made full and true disclosure of his income and also the manner in which

Rectification by Settlement Commission

[Clause 58] (w.e.f. 01.06.2015)

Immunity from Prosecution

[Clause 59] (w.e.f. 01.06.2015)

44

such income is derived.

G Having regard to the fact that proceedings before the Settlement Commission is in the nature of

statutory arbitration for settlement of pending assessment(s) and is not strictly in the nature of

regular assessment, Settlement Commission is not required to record reasons for grant of

immunity from prosecution [refer Jyotendra Sinhji Vs. S.I. Tripathi and others: 201 ITR 621

(SC)].

G Therefore, so long as the Settlement Commission is satisfied that the applicant has co-operated in

the settlement proceedings and has made full and true disclosure of his income, the Settlement

Commission may grant immunity from prosecution to the applicant, subject to such conditions as

it may think fit.

G It is now proposed to amend sub-section (1) of section 245H to provide that the Settlement

Commission shall record reasons in writing in the final order while granting immunity to any

person.

G Section 245HA contains provisions for abatement of proceedings before the Settlement

Commission, inter alia, in the following situations:

a) If the settlement application is not admitted under section 245D(1);

b) If the settlement application is not allowed to be further proceeded with under section

245D(2C);

c) If the final order under section 245D(4) is not passed within 18 months from the end of the

month in which settlement application is filed.

G Section 245D(6) of the Act mandates that final order passed under section 245D(4) must provide

for the terms of settlement including any demand by way of tax, penalty or interest and also the

manner of making payment of any sum due.

G It is now proposed to amend the aforesaid section 245HA to provide that where the final order

passed under section 245D(4) is passed without providing the terms of settlement, the proceedings

before the Settlement Commission shall abate on the date on which such order was passed.

Abatement of Settlement Proceedings

[Clause 60] (w.e.f. 01.06.2015)

45


G The proposed amendment appears to be arbitrary inasmuch as on account of the final order not

containing terms of settlement, the settlement proceedings shall abate and shall revert to the

assessing officer, for no fault of the applicant.

G It is pertinent to note that the result of abatement of settlement proceedings are calamitous

inasmuch as the applicant would not only be deprived of the process of settlement of its pending

assessment(s) through the process of statutory arbitration but would be deprived of extraordinary

benefits that can only be made available by the Settlement Commission, like immunity from

penalty and prosecution.

G Presently under section 245K, once settlement application is admitted by the Settlement

Commission under section 245D(1), such applicant is not entitled to file another application

before the Settlement Commission. Meaning thereby, settlement of case by the Settlement

Commission is only one time opportunity and there is complete prohibition in filing second/

subsequent application.

G It is now proposed to amend section 245K to extend the prohibition/ bar of filing of settlement

application even to a person related to the person who has already approached the Settlement

Commission.

G As per the proposed amendment, related person shall include the following:

S. No. Applicant before ITSC Related person falling in prohibited category

(a) Individual • Any company or firm or AOP or BOI in which such person

(i.e., individual) is, at any time, entitled to more than 50%

of the voting rights/ profits; or

• any HUF in which such individual is a Karta

(b) Company Any individual who holds more than 50% shares/ voting rights

in such company at any time before the date of application

(c) Firm or AOP or BOI Any individual who is entitled to more than 50% of the profits at

any time before the date of application

Extension of Bar on repeated Settlement Application

[Clause 61] (w.e.f. 01.06.2015)

46

(d) HUF Karta of HUF


G The expression “at any time” in the proposed amendment is very wide and would even cover

persons who may have held the prescribed percentage of shares in the profits/ voting rights at any

time prior to the filing of the settlement application, but may subsequently cease to be related

person.

G To elucidate, Mr. A holds 75% share in a company, say M/s. ABC (P) Ltd, upto 31st March, 2015

and transfers his entire shareholding to Mr. B in the financial year 2015-16. Subsequently, post-

transfer of shareholding, settlement application is filed by the new management of M/s. ABC Pvt.

Ltd., for settling the case of the Company. In such a situation, Mr. A would be barred from filing the

settlement application in his case, even though Mr. A had ceased to exercise control over the

company on the date of filing the settlement application by the company.

G Presently mode and manner of computation of interest under section 234B on the tax on the

additional income declared and subsequently settled before/ by the Settlement Commission is

subject to extensive litigation and dispute.

G The Constitution Bench of the Supreme Court in the case of Brij Lal v. CIT: 328 ITR 477 held

that settlement application is akin to filing of return. The Court further held that interest under

Computation of Interest u/s 234B

[Clause 56] (w.e.f. 01.06.2015)

section 234B is payable upto the date of admission of the settlement application under section

245D(1) of the Act.

G Further, as per the preponderance of judicial opinion with regard to manner of computation of

interest under section 234B of the Act, interest on the tax due on additional income disclosed in

the settlement application is payable at the prescribed rate for the following period:

(i) Where intimation had already been issued under section 143(1), from the date of such

intimation till the date of filing the settlement application [refer section 234B(3)];

(ii) Where assessment had already been made earlier, from the date of order of assessment till

47

the date of filing of settlement application [refer section 234B(3)];

(iii) In other cases, from the 1st day of April of the relevant assessment year till the filing of the

settlement application [refer section 234B(1)].

G Further, applying the decision of the Supreme Court in the case of Brij Lal (supra), various

Benches of the Settlement Commission held that interest under section 234B is payable upto

the stage of admission under section 245D(1) of the Act on the income disclosed in the

settlement application. It was, accordingly, held that interest under section 234B is not payable

on the addition(s) made by the Settlement Commission while passing the final order.

G A contrary view was, however, recently taken by the Special Bench of the Settlement

Commission in the case of G.M. Foods [WB/ Durgapur/ 2012-13/ 52-IT], wherein the

Commission vide order dated 12.11.2014 held that interest is payable on the additions made by

the Settlement Commission in the final order, albeit, upto the date of passing of the admission

order under section 245D(1) of the Act.

G However, recently the Calcutta High Court in the case of G.M. Foods v. ITSC: WP No. 44 of

2015 vide order dated 2.02.2015 held that the consequential order passed by the Settlement

Commission following the decision of the Special Bench in the case of G.M. Foods (supra)

directing imposition of interest on the additions made in the final order, was contrary to the

decision of the Constitution Bench of the Supreme Court in the case of Brij Lal (supra).

G It is now proposed to amend section 234B of the Act to specifically provide the mode and

manner of computing interest under that section in case of application filed before the

Settlement Commission. As per the proposed amendment, simple interest @ 1% per month

shall be payable under section 234B in respect of tax due as under:

a) on the additional income disclosed before the Settlement Commission- from 1st April of

the relevant assessment year till the date of filing of settlement application;

b) On additions made by the Settlement Commission in the final order passed under section

245D(4)- from 1st April of the relevant assessment year till the date of such final order.

TAX DEDUCTION AT SOURCE

TDS mechanism for Employees Provident Fund Scheme

[Clauses 41 and 49] (w.e.f. 01.06.2015)

48

G The Provident Fund established under EPF & MP Act, 1952 (EPFS) or Provident Funds exempted

under section 17 of said Act (Private PF Schemes) and recognized under IT Act are termed as

Recognized Provident Fund (RPF), provisions whereof are contained in Schedule IV A of the Act.

G Under the existing provisions, the trustees of the RPF are required to deduct tax at source while

making payment of non exempt accumulated balance under Rule 10, by re-computing the tax

liability of the years for which the contribution was made as if it were an unrecognized Provident

Fund considering the same as “Salaries”.

G At times, the trustees of EPFS do not have access to and/ or easily get information regarding year

wise amount of taxable income and tax payable for computing tax liability.

G It is proposed to insert new section 192A to provide that the trustees of EPFS shall be liable to

deduct tax at source @10% at time of payment of accumulated balance to employees exceeding ̀

30,000/- from EPFS. Tax however, is required to be deducted at maximum marginal rate where

such employees fails to furnish PAN to EPFS.

G Simultaneous amendment has been made in section 197A to provide that the employee can give

declaration in Form No.15G/15H that his total income including premature withdrawal from

EPFS does not exceed the maximum amount not chargeable to tax.


G The amendment seeks to simplify the method of computing the amount chargeable to tax by

substituting the same with flat rate of 10% on premature tax withdrawal from EPFS. However,

private PF schemes are required to compute the tax liability as provided in Rule 9 of Schedule IV-

A of the Act.

G Section 194LD of the Act provides for concessional rate of tax withholding @5% on interest

payable to FIIs and QFIs on the investments made in Government securities and rupee

denominated corporate bonds.

Extension of eligible period of concessional tax rate under section 194LD

[Clause 47] (w.e.f. 01.06.2015)

49

G The sunset for concessional tax on interest payable on investments is proposed to be extended by

two years which will now be available in respect of interest payable upto 30.06.2017.

G Section 194DA (inserted by Finance (No.2) Act, 2014) provides for deduction of tax at source

@2% on life insurance policy payments not exempted under section 10(10D) of the Act, where the

payment exceeds ̀ 1,00,000/-.

G Section 197A provides that tax shall not be deducted, if the recipient of certain payments on which

tax is deductible furnishes to payer a self-declaration in prescribed Form No. 15G/15H declaring

that tax on his estimated income for year would be NIL.

G In order to enable such resident recipients whose tax payable on total income including payment

made under life insurance is NIL, the existing provisions of 197A are proposed to be amended to

make such recipient eligible to file self declaration in Form 15G/15H for non deduction of tax at

source.


G Inspite of high threshold amount of ` 1,00,000/- provided for deducting tax at source there were

cases where recipients were not liable to pay any tax even after including non exempt payment

received under life insurance. The amendment seeks to reduce compliance burden of such

residents having taxable income below the taxable limit.

G New sub section (2A) is proposed to be inserted in section 200 to provide that in case of

government deductors, where tax deducted has been paid without production of challan, a

statement in prescribed manner shall be furnished.

G Consequential amendment is made in section 272A to provide for penalty of ` 100/- for each day

during which the default continues, subject to limit of amount deductible.

G Section 234E was inserted by Finance Act, 2012 to provide for levy of fee for late furnishing of

TDS/TCS statement. Section 200A inserted vide Finance Act, 2009 which provides for processing

of TDS statements for determining the amount payable or refundable to the deductor does not,

Enabling of filing Form 15G/15H for payment under life insurance policy

[Clause 49] (w.e.f. 01.06.2015)

Filing and Processing of Statements under sections 200 and 200A

[Clauses 50, 51, 74] (w.e.f. 01.06.2015)

50

however, provide for determination of fee under section 234E while processing TDS statements.

G In order to ensure effective deterrence against delay in furnishing TDS/TCS statement, it is

proposed to amend section 200A to enable computation of fee payable under section 234E at time

of processing of TDS statement.

G New sub section (2D) is proposed to be inserted in section 192 of the Act to provide that the

employer while estimating the income of the employee or computing tax deductible under section

192(1) of the Act, shall obtain evidence or proof of particulars of the prescribed claim (including

the claim for set off of loss) in the prescribed form and manner.


G The Supreme Court in the case of Larsen And Toubro Limited : 313 ITR 1, held that in the absence

of any statutory obligation under the Act requiring the employer under section 192 to collect and

examine the supporting evidence to the declaration/claim submitted by an employee, there was no

default in deducting tax at source. The aforesaid amendment seeks to nullify the impact of the

aforesaid decision.

G The prescribed format is yet to be notified by CBDT.

G Under existing provisions, the person responsible for remitting any payment to a non-resident,

which is chargeable to tax, is required to submit the information in Form 15CA and 15CB

prescribed under the Rules.

G It is proposed to amend the aforesaid section to provide that person responsible for making

payment to a non-resident whether chargeable to tax or not, shall furnish information in the

prescribed form and manner.

G In order to ensure submission of accurate information, a new section 271I is proposed to be

inserted in order to levy penalty of ̀ 1,00,000/- for failure to furnish information or for furnishing

inaccurate information under section 195 of the Act. Section 273B has been amended to provide

that no penalty shall be imposable if there was reasonable cause for non furnishing/inaccurate

furnishing of information under section 195.

Tax deduction at source under section 192

[Clause 40] (w.e.f. 01.06.2015)

Furnishing of information under section 195

[Clause 48] (w.e.f. 01.06.2015)

51


G The aforesaid amendments are made with intent to identify such remittances on which tax was

deductible but was not deducted and to ensure submission of accurate information.

G Under existing provisions of section 194A(3)(v), interest payment by a co-operative society to a

member thereof or any other co-operative society is exempt from deduction of tax at source.

G It is proposed to amend aforesaid clause (v) to provide that exemption provided from deduction of

tax at source from payment of interest to members by a co-operative society shall not apply to

payment of interest on time deposits by co-operative banks to its members.

G Under existing provisions, the definition of “time deposits” excludes recurring deposit from its

scope and thus payment of interest on such deposits by banking company or co-operative bank is

not subject to TDS.

G Since recurring deposits are also made for fixed tenure, it is proposed to include recurring deposits

within meaning of time deposits subject to threshold limit of ̀ 10,000/- for non deduction of tax at

source.

G It is proposed to amend section 194A(ix) to provide that deduction of tax at source from interest

payment on compensation amount awarded by the Motor Accidents Claim Tribunal shall be made

only at time of payment, if such payment exceeds Rs. 50,000 as against the existing provision

applicable for deducting tax even at time of crediting of such income.


G There has been ongoing dispute as to whether the general exemption provided under clause (v)

from making tax deduction from payment of interest by all co-operative societies to its members

would be applicable even to cooperative banks while making payment of interest on time deposits

to members of different categories. [While in the case of Bagalkot District Central Co-operative

Bank v. JCIT:TS-392-2014 (Bang); Ozer Merchant Cooperative Bank: ITA No. 1588/PN/2012

and CBDT vide Circular No. 9 dated 11.09.2002, it has been held that a member of a co-operative

bank shall receive interest on both time deposits and deposits other than time deposits with such

co-operative bank without TDS by virtue of the exemption granted under section 194A(3)(v),

contrary view has been held in The Belgaum Industrial Cooperative Bank Ltd. JCIT: ITA No.

Tax deduction at source on interest under section 194A

[Clause 42] (w.e.f. 01.06.2015)

52

358/PNJ/2014 (Panaji); Bhagani Nivedita Shah Bank Ltd. v. ACIT: 87 ITD 569 (Pune);

Bailhongal Urban Coop Bank Ltd. v. JCIT: 85/PNJ/2013 dated 28.08.2013].

G In order to settle the ongoing controversy, the aforesaid amendment in clause (v) is made in order to

clarify beyond doubt that specific provisions mandating deduction of tax from payment of interest

on time deposits by co-operative banks to its members under 194A(3)(i)(b) would override the

general exemption which would be applicable only where the co-operative bank makes payment

of interest on time deposit to a depositor, being co-operative society.

G The amendment in clause (ix) is made to bring said section in line with the existing provisions of

section 145A and 56, providing for taxability of income received on compensation/enhanced

compensation in the year of receipt and to remove hardship of deducting tax on such interest on

accrual basis.

G Under existing provisions of section 194C(6), no tax is liable to be deducted from sum

credited/paid to contractors during course of business of plying, hiring or leasing goods carriage

on furnishing of PAN to payer.

G It is proposed to amend sub section (6) to provide that relaxation from non deduction would be

applicable only in respect of transport charges credited/paid to such contractor engaged in

business of plying, hiring or leasing goods carriages owning ten or less goods carriages at any time

during previous year and furnishes declaration along with PAN.

Comments / Observations

G The aforesaid amendment seeks to withhold the benefit given by Finance (No.2) Act, 2009 to all

transporters irrespective of their size and to exempt only small transport operators from purview

of TDS.

G Under existing provisions of section 206C, a person is required to collect tax on certain specified

receipts at specified rates and to file quarterly TCS statement containing details of collection of tax

by prescribed due date.

G In order to bring the provisions of section 206C in line with existing provisions of filing and

processing of TDS statement, it is proposed to insert new sub section (3B) in section 206C to allow

TDS on payments made to transporters under section 194C

[Clause 43] (w.e.f. 01.06.2015)

Rationalisation of provisions relating to TCS

[Clauses 37, 38, 53, 54, 55, 62, 73, 75,] (w.e.f. 01.06.2015)

53

the collector to furnish TCS correction statement.

G New sub section (3A) is proposed to be inserted in section 206C to provide that in case of

Government collectors, where tax has been collected without production of challan, a statement in

prescribed manner shall be furnished.

G Consequential amendment is made in section 272A to provide for penalty of Rs. 100/- for each day

during which the default continues, subject to limit of amount collectible.

G New section 206CB is proposed to be inserted to provide, interalia for:

• processing of TCS statements after computation of fee payable under section 234E;

• generation of intimation which shall be rectifiable under section 154, appealable under

section 246A and deemed as notice of demand under section 156;

G Consequential amendment is proposed in section 220 to provide that where interest is charged for

any period under section 206C on the amount specified in the intimation, no interest shall be

charged under section 220 for the same period.


G The aforesaid amendment seeks to bring parity between the TDS and TCS provisions and to ensure

compliance in filing statements.

G The surcharge in the case of domestic companies is proposed to be increased from 5% to 7%,

where the total income of the company exceeds Rs one crore but is less than Rs ten crores. In case

of domestic companies having total income in excess of Rs ten crores, surcharge is proposed to be

increased to 12% from 10%.

G Section 92BA defines certain domestic transactions, which are subject to Transfer Pricing

provisions contained in Chapter-X of the Income-tax Act, if the aggregate value of such

transactions exceeds Rs. 5 crores. It is proposed to increase the threshold limit of applicability of

transfer pricing regulations to specified domestic transactions from ̀ 5 crores to ̀ 20 crores.

MISCELLANEOUS PROVISIONS

Increase in Surcharge on domestic companies (w.e.f. 01.04.2016)

Threshold in respect of Specified Domestic Transactions for TP purpose

[Clause 24] (w.e.f. 01.04.2016)

54

Comments / Observations:

G The aforesaid is a welcome amendment, which would avoid onerous compliance burden under the

Transfer Pricing regulations on many small and medium enterprises.

G GAAR provisions were introduced in the Income-tax Act by the Finance Act, 2012 by way of

Chapter-X-A, consisting of sections 95 to 102, which was initially to apply from 01-04-2014.

However, by the Finance Act, 2013 the application of the aforesaid provisions was deferred to 01-

04-2016.

G It is now proposed to further defer the introduction of GAAR provisions by another two years, the

same would now be applicable from financial year 2017-18 (i.e. assessment year 2018-19).

G It is also now provided that investments made upto 31.03.2017 shall not be subject to GAAR.

Comments / Observations:

G The aforesaid amendment is welcome as it would allow sufficient time to both the taxpayer and the

tax administrator to gear up for the new law. Further the proposed amendment imparts certainty as

Deferment of General Anti Avoidance Rule (GAAR)

[Clause 25] (w.e.f. 01.04.2015)

55

regards the prospective operation of the GAAR provisions as it excludes investments made until

31.03.2017 from its purview.

G Section 151 of the Act provides for sanction from certain authorities before issue of notice for

reassessment of income under section 148. The language of the present provision is open to

various interpretations and has led to avoidable litigation.

• Adani Ports and Special Economic Zones Ltd vs DCIT (Gujarat High Court in Special Civil

Application No 17184/2012)

• CIT vs SPL’s Siddhartha Ltd (Delhi High Court in ITA No 836/2011).

G In order to simplify the provision relating to obtaining approval for issuance of notice under

section 148 of the Act, it is proposed to amend Section 151 to provide that no notice under section

148 of the Act shall be issued by an assessing officer below the rank of the Joint Commissioner

unless, on the basis of reasons recorded by the assessing officer, the Joint Commissioner is

satisfied that it is a fit case for the issue of notice.

G The proposed section further provides that no notice under section 148 of the Act shall be issued

after the expiry of four years from the end of relevant assessment year unless, on the basis of

reasons recorded by the assessing officer, the Principal Chief Commissioner or Chief

Commissioner or Principal Commissioner or Commissioner is satisfied that it is a fit case for the

issue of notice.

G The existing provisions contained in sub-section (1) of section 263 of the Act provides that if the

Principal Commissioner or Commissioner considers that any order passed by the assessing officer

is erroneous in so far as it is prejudicial to the interests of the Revenue, he may modify or cancel the

assessment made by the assessing officer.

G The meaning and scope of the expression “erroneous in so far as it is prejudicial to the interests of

the revenue” has been open to interpretation. Whether orders passed by the assessing officer

without enquiry or without adequate enquiry can be said to be erroneous or not has been a subject

matter of dispute and litigation:

Simplification of approval regime for issue of notice for re-assessment

[Clause 35] (w.e.f. 01.06.2015)

Clarification in respect of revision of order prejudicial to revenue

[Clause 65] (w.e.f. 01.06.2015)

56

• CIT vs Gabriel India Ltd (1993) 203 ITR 108 (Bom)

• CIT vs Sunbeam Auto Ltd (2011) 332 ITR 167 (Delhi)

• CIT vs DLF Ltd. (ITA No. 236/2010)

• CIT vs Escorts Ltd. 338 ITR 435 (Delhi)

• Bisakha Sales Pvt Ltd vs CIT (ITA No 1493/Kol/2013)

• Star Griha Pvt Ltd vs CIT (ITA No 1244/Kil/2013)

• Sesa Goa Limited vs CIT (ITA No 48/PNJ/2012)

G In order to impart certainty and clarity on the issue, it is proposed to provide that an order passed by

the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of

the revenue, if, in the opinion of the Principal Commissioner or Commissioner:

a) order is passed by the AO without making inquiries or verifications which should have been

made

b) relief has been granted without inquiring into the claim;

c) order has not been passed in accordance with any order, direction or instruction issued by

CBDT under section 119

d) order has not been passed in accordance with the decision of the jurisdictional High Court or

Supreme Court which is prejudicial to the assessee.

G In certain cases, it has been held that penalty for concealment of income under Section 271(1)(c) of

the Act in respect of additions/ disallowances made in the income computation under the regular

provisions of the Act, where the assessment is ultimately framed under section 115JB of the Act,

Refer:

• Commissioner of Income Tax Vs Nalwa Sons Investments Ltd (2010)327 ITR page 543).

Further SLP dismissed in SLP (Civil) No.18564 of 2011

• Gujarat Organics Ltd, Mumbai vs ACIT: I.T.A No.6382/ Mum/2009

• CIT vs Aleo Manali Hydro Power P Ltd (2013)38.com288 (All. HC)

Penalty for concealment of Income sought to be evaded even under Section 115JB and Section

115JC

[Clause 68] (w.e.f. 01.04.2016)

57

G It is proposed to amend Section 271 of the Act so as to provide that the amount of tax sought to be

evaded shall be the summation of tax sought to be evaded under the general provisions and tax

sought to be evaded under the provisions of Section 115JB or Section 115JC.

G It is also provided that if the amount of concealment of income on any issue is considered both

under the general provision and provisions of section 115JB or section 115JC then such amount

shall not be considered in computing tax sought to be evaded under provisions of section 115JB or

section 115JC.

G It is also provided that in a case where the provisions of section 115JB or section 115JC are not

applicable, the computation of tax sought to be evaded under the provisions of section 115JB or

115JC shall be ignored.

G To the above effect, Explanation 4 of Section 271(1)(c) of the Act, which defines the ‘amount of

tax sought to be evaded’, is sought to be amended as follows:

Amount of tax sought to be evaded = (A – B) + (C – D), where

A = amount of tax on the total income assessed as per the provisions other than the provisions

contained in section 115JB or section 115JC;

B = amount of tax that would have been chargeable had the total income assessed as per the general

provisions been reduced by the amount of income in respect of which particulars have been

concealed or inaccurate particulars have been furnished;

C = amount of tax on the total income assessed as per the provisions contained in section 115JB or

section 115JC;

D = amount of tax that would have been chargeable had the total income assessed as per the

provisions contained in section 115JB or section 115JC been reduced by the amount of income in

respect of which particulars have been concealed or inaccurate particulars have been furnished;

Provided that where the amount of income in respect of which particulars have been concealed or

inaccurate particulars have been furnished on any issue is considered both under the provisions

contained in section 115JB or section 115JC and under general provisions, such amount shall not

be reduced from total income assessed while determining the amount under them.

Provided further that in a case where the provisions contained in section 115JB or section 115JC

are not applicable, the item (C – D) in the formula shall be ignored.

Threshold limit for constitution of single member bench of the Income Tax Appellate Tribunal

[Clause 64] (w.e.f. 01.06.2015)

58

G The existing provision contained in sub-section (3) of section 255 of the Act provides for

constitution of single member bench. It provides that single member bench may dispose of any

case which pertains to an assessee whose total income as computed by the Assessing Officer does

not exceed five lakh rupees. The limit was last revised in the year 1998.

G The monetary limit is now proposed to be revised to provide that single member bench may

dispose of any case where the income assessed by the assessing officer does not exceed ̀ 15 lakhs.

G The above amendment is expected to increase the disposal of appeals by the Income Tax Appellate

Tribunal.

G The existing provision contained in sub-section (1) of section 253 specifies orders which are

appealable before the Income-Tax Appellate Tribunal. The order passed by the prescribed

authority under section 10(23C)(vi) and (via) are not appealable before the Income Tax Appellate

Tribunal.

G It is now proposed to amend the provisions of section 253 so as to provide that orders passed by the

prescribed authority refusing to grant approval under section 10(23C)(vi) and (via) may be

appealed before the Income Tax Appellate Tribunal.

G Under Section 47(vib) of the Act, any capital asset transferred by the demerged company to the

resulting company in the scheme of demerger is not regarded as transfer if the resulting company

is an Indian Company.

G However, there is no provision in the Income Tax Act expressly providing for the period of holding

and cost of acquisition as increased by the cost of improvement in the hands of the resulting

company in the case of demerger.

G It is proposed to amend section 47 of the Act to include transfer and to provide that the cost of

acquisition of an asset acquired by resulting company shall be the cost for which the demerged

company acquired the capital asset as increased by the cost of improvement incurred by the

Appeal before the Income Tax Appellate Tribunal against order passed under sub-clauses (vi)

and (via) of clause (23C) of section 10

[Clause 63] (w.e.f. 01.06.2015)

Cost of acquisition of a capital asset in the hands of resulting company to be the cost for which the

demerged company acquired the capital asset

[Clause 14] (w.e.f. 01.04.2016)

59

demerged company.

G Under the existing provisions of section 80G of the Act, deduction is allowed in computing the

total income of a person in respect of donations made to certain funds and charitable institutions.

G Swachh Bharat Kosh has been set up by the Central Government to mobilize resources for

improving sanitation facilities through the Swachh Bharat Abhiyan. Similarly, Clean Ganga Fund

has been established by the Central Government to rejuvenate river Ganga.

G With a view to encourage and enhance participation in the improvement of sanitation facilities and

rejuvenation of river Ganga, it is proposed to amend section 80G of the Act so as to incentivize

donations to the two funds.

G It is proposed to provide that donations made to the Swachh Bharat Kosh and donations made by

resident donorsto Clean Ganga Fund will be eligible for deduction of hundred per cent of the

donation amount from the total income.

G However, any sum spent in pursuance of Corporate Social Responsibility under sub-section (5) of

section 135 of the Companies Act, 2013, will not be eligible for deduction from the total income of

the donor.

G Section 158A of the Income-tax Act provides that during pendency of assessment proceedings, an

assessee can submit a claim before the Assessing Officer or any appellate authority that a question

of law arising in the assessment year under consideration is identical with the question of law

already pending in his own case before the High Court or Supreme Court for another assessment

year. If the Assessing Officer or any appellate authority agrees to apply the final decision on the

question of law in that earlier year to the present year, the assessee agrees not to agitate the same

question of law once again for the present year before higher appellate authorities.

G Presently there are no similar provisions enabling the Revenue to not to file an appeal before the

Income Tax Appellate Tribunal in case where the department is in appeal on the same question of

Tax benefits for donations made to Swachh Bharat Kosh and Clean Ganga Fund

[Clauses 7 & 21] (w.r.e.f. 01.04.2015)

Procedure to avoid duplication of appeal by the Department when identical question of law

pending before the Supreme Court

[Clause 39] (w.e.f. 01.06.2015)

60

law for an earlier year.

G It is now proposed to insert new section 158AA so as to provide that where any question of law

arising in the case of an assessee for any assessment year is identical with a question of law arising

in his case for another assessment year which is pending before the Supreme Court in an appeal or

in a special leave petition filed by the Revenue, the Revenue authorities may make an application

to the Income Tax Appellate Tribunal in the prescribed form within sixty days from the date of

receipt of order of the Commissioner (Appeals) stating that an appeal on the question of law

arising in the relevant case may be filed when the decision on the question of law becomes final in

the earlier case.

G It is further proposed to provide that where the order of Commissioner of Income Tax (Appeals) is

not in conformity with the final decision of the Supreme Court on the relevant question of law, the

Revenue may file an appeal with the Income tax Appellate Tribunal within 60 days from the date

of communication of the order of the Supreme Court.

G It is further proposed to provide that the Commissioner or Principal Commissioner shall proceed

as aforesaid only if an acceptance is received from the assessee to the effect that the question of

law in the other case is identical to that arising in the present case.

G The above provision is intended to avoid duplication of appeals by the department in cases

involving same question of law for the same assessee.

G In order to curb generation of black money by way of dealings in cash in immovable property

transactions, it is proposed to amend provision of section 269SS so as to provide that no person

shall accept any sum of money, as advance or otherwise, in relation to transfer of an immovable

property otherwise than by an account payee cheque or account payee bank draft or by electronic

clearing system through a bank account, if the aggregate amount of loan, deposit and such sum of

money is ̀ 20,000 or more.

G It is also proposed to amend section 269T of the Income-tax Act so as to provide that no person

shall repay any sum of money, as advance or otherwise, received by it in relation to transfer of an

immovable property otherwise than by an account payee cheque or account payee bank draft or by

electronic clearing system through a bank account, if the amount or aggregate amount of loans,

Measures to Curb Generation and Circulation of Black Money

[Clauses 66 & 67] (w.e.f. 01.06.2015)

61

deposits and such sum of money is ̀ 20,000 or more.

G The above amendment overrules the decision of the Gujarat High Court in the case of CIT vs

Madhav Enterprise Pvt Ltd (ITA No 561/2013) wherein the Court held that interest free repayment

of advance received by a builder from prospective buyers cannot be regarded as loan or advance so

as to be brought within the ambit of Section 269T.

G Exemption under sub-clause (iiiab) and (iiiac) of clause (23C) of section 10 of the Act, is available

to a university or educational institution, hospital or other medical institution which is wholly or

substantially financed by the Government, subject to certain specified conditions.

G Under the existing provisions of section 139, all entities whose income is exempt under clause

(23C) of section 10, other than those referred to in sub-clauses (iiiab) and (iiiac), are mandatorily

required to file their return of income.

G Section 139(4C) is proposed to be amended to provide that institutions specified under sub-clause

(iiiab) and (iiiac) of clause (23C) of section 10 shall file their return of income if their total income

without giving effect to exemption under section 10 exceeds the maximum amount not chargeable

to tax.

G There is no provision in the Act which debarred a Chartered Accountant from issuing reports/

certificates for the concerns in which they are interested. However, as per the provisions of

Companies Act, 2013 a Chartered Accountant is debarred to carry out audit or issue reports/

certificate in relation to concern in which they are interested.

G It is proposed to amend section 288 of the Act to provide that an auditor who is not eligible to be

appointed as auditor of the company as per the provisions of section 141 of the Companies Act,

2013 shall not be eligible for carrying out any audit or furnishing of any report/ certificate under

the any provision of the Act in respect of that company.

G Similar provision has been made for non company assessee as well.

Filing of Return of Income by Certain Universities and Hospitals

[Clause 34] (w.e.f. 01.04.2016)

Certain persons debarred to issue reports/ certificates

[Clause 77] (w.e.f. 01.06.2015)

62

63

CUSTOMS DUTY

CHANGES IN THE CUSTOMS ACT, 1962

[w.e.f.: date to be notified]

G

• Proviso (2) to Section 128 of the Customs Act, 1962 is being added to provide that in cases not

involving fraud, collusion or misstatement or suppression of facts or contravention of any

provision of the Act or rules with the intent to evade payment of duty, no penalty shall be

imposed if the amount of duty along with interest leviable under section 28AA or the amount

of interest, as the case may be, as specified in the notice, is paid in full within 30 days from the

date of receipt of the notice and the proceedings in respect of such person or other persons to

whom the notice is served shall be deemed to be concluded;

• In cases involving fraud or collusion or willful mis-statement or suppression of facts or

contravention of any provision of the Act or rules with the intent to evade payment of duty, the

amount of penalty payable shall be 15% instead of the present 25%;

• Explanation 3 is being inserted to provide that where a notice under Section 28(1)(a) or

section 28(4), as the case may be, has been served but an order determining duty under section

28(8) has not been passed before the date of the enactment of the Finance Bill, 2015, the

proceedings in respect of such person or other persons to whom the notice is served shall be

deemed to be concluded if the payment of duty, interest and penalty under the proviso to

section 28(2) or section 28(5), as the case may be, is made in full within 30 days from the date

on which such assent is received.

• It is also being provided that in cases of short levy or non-levy or short payment or non-

payment and erroneous refund of duty for reasons of collusion or any willful misstatement or

suppression of facts, if the duty as determined under section 28(8) and the interest payable

thereon under section 28AA is paid within 30 days from the date of communication of the

order of the proper officer determining such duty, the amount of penalty liable to paid by such

person under this section shall be 25% of the penalty so determined.

• It is also being provided that in cases of short levy or non-levy or short payment or non-

payment and erroneous refund of duty for reasons of collusion or any willful misstatement or

suppression of facts, if the duty as determined under section 28(8) and the interest payable

thereon under section 28AA is paid within 30 days from the date of communication of the

order of the proper officer determining such duty, the amount of penalty liable to paid by such

person under this section shall be 25% of the penalty so determined.

INDIRECT TAX PROPOSALS

64

• Provisions relating to penalty leviable in case of improper importation and exportation of

goods are being amended. Following amendments are being made to Section 112 and

Section 114:

• Clause (b) of sub-clause (ii) of Section 112 is being amended so as to provide that any

person who acquires possession of or is in any way concerned with or in any other

manner deals with any dutiable goods, other than prohibited goods, which he knows or

has reasons to believe are liable to confiscation under section 111, shall, subject to the

provisions of section 114A, be liable to a penalty of upto10% of the duty sought to be

evaded (instead of full amount of the duty sought to be evaded, as it stood before) or `

5000/-, whichever is greater.

• Clause (ii) of Section 114 is being amended so as to provide that any person who in

relation to any dutiable goods, other than prohibited goods, does or omits to do any act

which act or omission would render such goods liable to confiscation under section 113,

or abets the doing or omission of such an act, shall, subject to the provisions of section

114A, be liable to a penalty of upto 10% of the duty sought to be evaded (as against full

amount of the duty sought to be evaded, as it stood before) or ` 5000/-, whichever is

greater.

• The scope of term ‘Applicant’ has been widened to include “resident firm” as class of persons

enlisted for the purpose of filing an application for determination by the Authority for

Advance Ruling.

• Certain redundant provisions relevant to Settlement Commission in Customs Act, 1962 are

being omitted.

• The proviso to clause (b) of section 127A is being amended to provide that when any

proceeding is referred back, whether in appeal or revision or otherwise, by any court,

Appellate Tribunal Authority or any other authority to the adjudicating authority for a fresh

adjudication or decision, then such case shall not be entitled for settlement.

G

G

AMENDMENT TO PROVISIONS OF CUSTOMS ACT, 1962 PERTAINING TO

ADVANCE RULING.

[w.e.f. 1st March, 2015]

AMENDMENT TO PROVISIONS OF CUSTOMS ACT, 1962 PERTAINING TO

SETTLEMENT COMMISSION.


65

G

G

G

G

G

RATE CHANGES ON SPECIFIC PRODUCTS/SECTORS


CHEMICALS AND PETROCHEMICALS

FERTILISERS

INFRASTRUCTURE

ORES and METALS

• Basic Customs Duty on ulexite ore is being reduced from 2.5% to Nil.

• Basic Customs duty on isoprene and liquefied butane is being reduced from 5% to 2.5%.

• Basic Customs Duty on ethylene dichloride (EDC), vinyl chloride monomer (VCM) and

styrene monomer (SM) is being reduced from 2.5% to 2%.

• Basic Customs Duty on butyl acrylate is being reduced from 7.5% to 5%.

• Basic Customs Duty on anthraquinone is being reduced from 7.5% to 2.5%.

• Basic Customs Duty on antimony metal and antimony waste and scrap is being reduced from

5% to 2.5%

• SAD on naphtha, ethylene dichloride (EDC), vinyl chloride monomer (VCM) and styrene

monomer (SM) for manufacture of excisable goods is being reduced from 4% to 2%.

• Basic Customs Duty on sulphuric acid for the manufacture of fertilizers is being reduced from

7.5% to 5%.

• The Scheduled rates of Additional Duty of Customs levied on imported Motor Spirit [Petrol]

and High Speed Diesel Oil [commonly known as Road Cess] are being increased from ̀ 2 per

litre to ` 8 per litre. The effective rates of Additional Duty of Customs levied on imported

Motor Spirit [Petrol] and High Speed Diesel Oil [commonly known as Road Cess] are being

increased from ̀ 2 per litre to ̀ 6 per litre only.

• Export duty on upgraded ilmenite is being reduced from 5% to 2.5%.

• Basic Customs Duty on metallurgical coke is being increased from 2.5% to 5%.

• SAD on melting scrap of iron & steel including stainless steel scrap for melting, copper scrap,

brass scrap and aluminium scrap is being reduced from 4% to 2%.

66

• The tariff rate of basic customs duty on goods falling under all the tariff items of Chapters 72

and 73 that is iron and steel and articles of iron or steel, is being increased from 10% to 15%.

However, there is no change in the existing effective rates of basic customs duty on these

goods.

• All goods except populated printed circuit boards, falling under any Chapter of Customs

Tariff, for use in the manufacture of ITA Bound Items, are being fully exempted from SAD,

subject to actual user condition;

• Excise duty structure for mobile handsets including cellular phones is being changed from

1% without CENVAT credit or 6% with CENVAT credit to 1% without CENVAT credit or

12.5% with CENVAT credit. NCCD of 1% on mobile handsets including cellular phone,

remains unchanged.

• Excise duty structure of 2% without CENVAT credit or 12.5% with credit is being prescribed

for tablet computers. Parts, components and accessories (falling under any Chapter) for use in

the manufacture of tablet computers and their sub-parts for use in the manufacture of parts,

components and accessories are being fully exempted from BCD, CVD and SAD, subject to

actual user condition.

• Basic Customs Duty on ‘metal parts’ for use in the manufacture of electrical insulators is

being reduced from 10% to 7.5%, subject to actual user condition.

• Basic Customs Duty on Ethylene-Propylene-non-conjugated-Diene Rubber (EPDM), Water

blocking tape and Mica glass tape, for use in the manufacture of insulated wires and cables, is

being reduced from 10% to 7.5%, subject to actual user condition.

• Basic Customs Duty on magnetron of upto 1 KW for use in the manufacture of domestic

microwave ovens is being reduced from 5% to Nil, subject to actual user condition.

• Basic Customs Duty on zeolite, ceria zirconia compounds and cerium compounds for use in

the manufacture of wash coats, which are used in manufacture of catalytic converters, is

being reduced from 7.5% to 5%, subject to actual user condition.

• Basic Customs Duty on specified components for use in the manufacture of specified CNC

lathe machines and machining centres is being reduced from 7.5% to 2.5%, subject to actual

user condition.

G ELECTRONICS/HARDWARE

67

• Basic Customs Duty on C- Block for Compressor, Over Load Protector (OLP) & Positive

thermal co-efficient and Crank Shaft for compressor for use in the manufacture of

Refrigerator compressors is being reduced from 7.5% to 5%.

• Basic Customs Duty on specified inputs for use in the manufacture of flexible medical video

endoscope is being reduced from 5% to 2.5%.

• Basic Customs Duty on HDPE for use in the manufacture of telecommunication grade optical

fibre cables is being reduced from 7.5% to Nil, subject to actual user condition.

• Basic Customs Duty on Black Light Unit Module for use in the manufacture of LCD/LED TV

panels is being reduced from 10% to Nil, subject to actual user condition.

• Basic Customs Duty on Organic LED (OLED) TV panels is being reduced from 10% to Nil.

• CVD and SAD are being fully exempted on specified raw materials [battery, titanium,

palladium wire, eutectic wire, silicone resins and rubbers, solder paste, reed switch, diodes,

transistors, capacitors, controllers, coils (steel), tubing (silicone)] for use in the manufacture

of pacemakers, subject to actual user condition.

• SAD on inputs for use in the manufacture of LED drivers and MCPCB for LED lights,

fixtures and lamps is being fully exempted, subject to actual user condition.

• Basic Customs Duty on Digital Still Image Video Camera capable of recording video with

minimum resolution of 800x600 pixels, at minimum 23 frames per second, for at least 30

minutes in a single sequence, using the maximum storage (including the expanded) capacity

and parts and components for use in the manufacture of such cameras is being reduced to Nil.

• Basic Customs Duty is being fully exempted on Evacuated Tubes with three layers of solar

selective coating for use in the manufacture of solar water heater and system, subject to actual

user condition.

• Basic Customs Duty on Active Energy Controller (AEC) for use in the manufacture of

Renewable Power System (RPS) Inverters is being reduced to 5%, subject to certification by

MNRE.

• The tariff rate of Basic Customs Duty on Commercial Vehicles is being increased from 10%

to 40%. The effective Basic customs duty on such Vehicles is being increased from 10% to

20%. However, customs duty on such vehicles in Completely Knocked Down (CKD)

G

G

RENEWABLE ENERGY

AUTOMOBILES

68

condition and electrically operated vehicles of heading 8702 including those in CKD

condition will continue to be at 10%.

• Concessional customs duties of Nil Basic Customs Duty, 6% excise/CVD and Nil SAD on

specified goods for use in the manufacture of Electrically operated vehicles and Hybrid

motor vehicles, presently available upto 31.03.2015, are being extended upto 31.03.2016.

• Basic Customs Duty and CVD is being fully exempted on artificial heart (left ventricular

assist device).

• Parts and components of cash dispenser and automatic bank note dispensers [heading 8473

40] are exempt from Basic Customs Duty. However, since the classification of parts was not

mentioned in the relevant notification, there were doubts about the scope of the exemption for

parts of cash dispenser and automatic bank note dispensers. As the ‘parts and components of

cash dispensers and automatic bank note dispensers’ were specifically included in the

description of goods even though their classification was not, it is clarified that the benefit of

exemption from Basic Customs Duty was available to parts and components of cash

dispenser and automatic bank note dispensers. Prospectively, the S. No. 408 of the

Notification No. 12/2012- Customs dated 17-3-2012 is being amended to include the

classification [8473 40] of parts and components of cash dispensers and automatic bank note

dispensers.

• S. No. 507 of Notification No. 12/2012-Customs dated 17-3-2012 prescribes Nil BCD and

NIL CVD for goods imported for setting up a Mega Power Project specified in List No. 32A

of the said Notification. In case of imports for a project for which the certificate regarding

Mega Power Project status is provisional, the exemption is, inter alia, subject to condition that

importer furnishes a bank guarantee or fixed deposit receipt for a term of 36 months or more.

This condition is being amended to prescribe furnishing of bank guarantee or fixed deposit

receipt for a period of 66 months. This condition is also applicable to imports under S. No.

508 of Notification No. 12/2012-Customs dated 17-3-2012.

• Bulk drugs used in the manufacture of the specified drugs (listed in the table annexed to the

exemption notification) are either exempt from BCD or attract concessional rate of 5% BCD,

under Sl. No. 148(B) and 147(B) respectively of notification No 12/2012-Customs, if the

procedure as laid down in the Customs (Import of Goods at Concessional Rate of Duty for

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AUTOMOBILES

MISCELLANEOUS AMENDMENTS

69

Manufacture of Excisable Goods) Rules, 1996 is followed by the importers. Further, these

bulk drugs used in the manufacture of the specified drugs are also exempt from excise duty,

under S. No. 108 (B) of the notification 12/2012- CE, provided the procedure laid down in the

Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of

Excisable Goods) Rules, is followed. In this context, clarification has been sought whether a

separate certificate issued under the above mentioned Central Excise Rules is required when

a similar certificate under the above mentioned Customs Rules issued from the same

jurisdictional Central Excise officer is already produced. It is being clarified that there is no

need to separately comply with Central Excise (Removal of Goods at Concessional Rate of

Duty for Manufacture of Excisable Goods) Rules, 2001 for the purposes of availing of the

CVD exemption under notification No.12/2012-CE, if the procedure as laid down in the

Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable

Goods) Rule, 1996 is already followed by the importer for availing exemption / concession

from BCD on the same bulk drug.

• Notification No.12/2012-Customs fully exempts Basic Customs Duty and CVD leviable on

life saving drugs and medicines imported by an individual for personal use subject to the

Condition No.10, which stipulates that importer produces a certificate (in prescribed form)

issued by the Director General or Deputy Director General or Assistant Director General,

Health Services, New Delhi, Director of Health Services of the State Government or the

District Medical Officer/Civil Surgeon of the district, in each individual case, that the goods

are life saving drugs or medicines. The prescribed Form is being amended so as to provide

that such certificate shall be valid for a period of one year in case of patients who have to

import such drugs and medicines on a regular basis.

• CVD and SAD exemption on specified goods imported for use by Security Printing and

Minting Corporation of India Limited (SPMCIL) are being withdrawn.

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CENTRAL EXCISE

CHANGES IN THE CENVAT CREDIT RULES, 2004

[with immediate effect]

CHANGES IN THE CENTRAL EXCISE RULES, 2002


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Rule 4 amended to allow increase in time limit for taking CENVAT credit on inputs and input

services from the present six months to one year from the date of presenting CENVATABLE

invoice.

Increase the time limit for return of Capital Goods from a job worker from the present six months to

two years

Rule 6 amended to make provision relating to reversal for CENVAT Credit, presently applicable to

exempt goods and services, applicable to non-excisable goods cleared for a consideration from the

factory

Rule 14 substituted to allow for recovery of CENVAT credit wrongly taken but not utilized in terms

of provisions of section 11A of the Central Excise Act or section 73 of the Finance Act, 1994

Rule 14 substituted to allow for recovery of CENVAT credit wrongly taken and utilized in terms of

provisions of Sections 11A and 11AA of the Central Excise Act or Sections 73 and 75 of the

Finance Act, 1994

Amendment in Rule 10 and Rule 11 to allow for issue of digitally signed invoices and preservation

of records in electronic form by a manufacturer in the following manner:

• All excise records can be maintained and preserved in electronic form and the records so

preserved shall be authenticated by means of a digital signature.

Invoices issued by a manufacturer may be authenticated by means of a digital signature.

Further, a hard copy of the duplicate copy of the invoice meant for transporter and self

attested by the manufacturer shall be used for transport of goods.

Amendment in Rule 12(5) to provide for penalty of one hundred rupees per day subject to a

maximum of twenty thousand rupees for delay in submission of any return or Annual Financial

Information Statement or Annual Installed Capacity Statement.

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The rebate / refund claims of the assessee, as pending with the authorities, can now be adjusted

against amount of penalty imposed on the assessee in addition to the amount of duty and interest

liability of the assessee.

The provisions of Rule 11(7), Rule 12CCC, Rule 22 and Rule 25(1), presently applicable to the

registered dealers, has now also been extended to a registered importer

Rule 12(6) and Rule 17(6) has been inserted to provide for the payment of INR 100 per day, subject

to a maximum of INR 20,000 for a period of delay in submission of any return or statement, as

applicable under Rule 12 / Rule 17

Manufacturers can file a letter of undertaking instead of executing a general bond with surety or

security, as provided under Rule 3(3) of the CE Removal Rules, provided no show cause notice

has been issued under Section 11A of the Central Excise Act or no action is proposed under any

Notification issued in pursuance of Rule 12CCC of Central Excise Rules or Rule 12AAA of

CENVAT Credit Rules, 2004.

Following proviso to Rule 11(2) are inserted:

• If the goods are directly dispatched to the registered dealer’s customer, under the direction of

the registered dealer, the invoice should specify the name of such registered dealer

• Similarly, if the goods are directly dispatched to the job worker, under the direction of the

manufacturer/ provider of output service, the invoice should specify the name of such

manufacturer/ provider of output service

• Also, if the goods imported under the cover of BOE are directly dispatched to the buyer’s

premises, the invoice should mention that the goods are being dispatched from the place or

port of import to the buyer’s premises

Amendments in Rule 11 of the Central Excise Rules, 2002 and Rule 4 of the CENVAT Credit

Rules, 2004 are being simultaneously being done to provide for:

• Availment of CENVAT credit in case of direct dispatch of goods to registered dealer’s/

registered importer’s customers without first bringing them to the dealer’s / importer’s

registered premises

CHANGES IN THE CENVAT CREDIT RULES, 2004 AND CENTRAL EXCISE RULES, 2002


72

• Availment of CENVAT credit in case of direct dispatch of inputs and capital goods to job

worker without first bringing them to the manufacturer’s /output service provider’s premises

Amendments in Rule 5 of the Central Excise Rules, 2002 and Rule 18 of the CENVAT Credit

Rules, 2004 are being simultaneously being done to provide for

• Insertion of definition of ‘export goods’ as means any goods which are to be taken out of India

to a place outside India.

• Insertion of definition of ‘export’ as means with its grammatical variations and cognate

expressions, means taking goods out of India to a place outside India and includes shipment

of goods as provision or stores for use on board a ship proceeding to a foreign port or supplied

to a foreign going aircraft.

CHANGES IN THE PAN MASALA PACKING MACHINES (CAPACITY DETERMINATION

AND COLLECTION OF DUTY) RULES, 2008 AND CHEWING TOBACCO AND

UNMANUFACTURED TOBACCO PACKING MACHINES (CAPACITY DETERMINATION

AND COLLECTION OF DUTY) RULES, 2010

Following amendments have been made to enable determination of the annual capacity of

production for the period March 1, 2015 onwards:

• The maximum speed of packing machine for packages of notified goods of various retail

selling prices is being specified as a factor relevant to production for determining Excise

Duty payable under Section 3A.

• The deemed production and duty payable per machine per month are accordingly being

notified in respect of the pan masala and chewing tobacco with reference to the speed range,

in which the maximum speed of a packing machine for packages of various retail sale prices,

falls.

Sub section (3) of Section 3A, which empowers the Central Government to charge excise duty on

the basis of capacity of production in respect of notified goods, is proposed to be amended so as to

insert an Explanation to provide that factor relevant to production includes factors relevant to

production, so as to enable the Central Government to specify more than one factor relevant to the

production of such goods. This amendment will come into effect immediately owing to a

declaration under the Provisional Collection of Taxes Act, 1931.

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PROPOSED AMENDMENTS IN THE CENTRAL EXCISE ACT, 1944

[to be effective as and when the Bill receives the Presidential assent]

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G The Central Excise Act, 1944 is being amended so as to rationalize provisions relating to penalty

leviable on recovery of duties not levied or short-levied or erroneously refunded. Accordingly, the

following sections are being amended so as to provide for the following:

• Section 11A which provided that if during the course of audit / investigation / verification,

any duty was found to be not paid / short levied / short paid / erroneously refunded for reasons

attributable to fraud, collusion, willful misstatement or suppression of facts but the details of

the same were available in the specified records, the Central Excise Officer could have served

notice within a period of 5 years from the relevant date, demanding such duty not levied or

paid along with interest and penalty equivalent to 50% of such duty. In terms of the proposed

amendment. The aforesaid provision is sought to be omitted. The provision is being amended

to provide that:

(i) Remove from the statute the category of cases where extended period of time applies

but the transactions are recorded in the specified record;

(ii) Amend the provision relating to relevant date to provide definition of relevant date in

respect of cases where a return is not filed on the due date and where only interest is

required to be recovered.

(iii) Provide that the provisions of section 11A shall not apply to cases where the non-

payment or short payment of duty is reflected in the periodic returns filed and that in

such cases recovery of duty shall be made in such manner as may be prescribed in the

rules.

• Section 11AC is being substituted so as to rationalize the penalty as follows:

(I) In cases not involving fraud or collusion or wilful mis-statement or suppression of facts

or contravention of any provision of the Act or rules with the intent to evade payment of

excise duty, in the following manner,-

a) in addition to the duty as determined under sub-section (10) of section 11A, a

penalty not exceeding 10% of the duty so determined or Rs. 5000 whichever is

higher shall be payable;

b) if duty and interest payable thereon under section 11AA is paid either before issue

of show cause notice or within 30 days of issue of show cause notice, no penalty

shall be payable and all proceedings in respect of said duty and interest shall be

deemed to be concluded;

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c) if duty as determined under sub-section (10) of section 11A and interest payable

thereon under section 11AA is paid within 30 days of the date of communication of

order of the Central Excise Officer who has determined such duty, the amount of

penalty shall be equal to 25% of the penalty so imposed shall be payable, provided

that such reduced penalty is also paid within 30 days of the date of communication

of such order; and

d) if the duty amount gets reduced in any appellate proceeding, then penalty amount

shall also stand modified accordingly, and benefit of reduced penalty (25% of

penalty imposed) shall be admissible if duty, interest and reduced penalty is paid

within 30 days of such appellate order.

(ii) In cases involving fraud or collusion or wilful mis-statement of suppression of facts or

contravention of any provision of the Act or rules with the intent to evade payment of

excise duty, in the following manner,-

a) in addition to the duty as determined under sub-section (10) of section 11A, a

penalty equal to the duty so determined shall be payable. In respect of cases where

the details relating to such transactions are recorded in the specified record for the

period beginning with 8th April, 2011 and upto the date of assent to the Finance

Bill, 2015, the penalty payable shall be 50% of the duty so determined.

b) if duty and interest payable thereon under section 11AA is paid within 30 days of

communication of show cause notice, the amount of penalty payable shall be 15%

of the duty demanded, provided that such reduced penalty is also paid 30 days of

communication of show cause notice and all proceedings in respect of said duty

and interest shall be deemed to be concluded;

c) if duty as determined under sub-section (10) of section 11A and interest payable

thereon under section 11AA is paid within 30 days of the date of communication of

order of the Central Excise Officer who has determined such duty, the amount of

penalty shall be equal to 25% of the duty so determined, provided that such reduced

penalty is also paid within 30 days of the date of communication of such order; and

d) if the duty amount gets reduced in any appellate proceeding, then penalty amount

shall also stand modified accordingly, and benefit of reduced penalty (25% of

penalty imposed) shall be admissible if duty, interest and reduced penalty is paid


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G Provisions relating to Settlement Commission are also sought to be amended. Following

amendments are being introduced with regard thereto:

• The proviso to sub-section (c) of section 31 relating to the provisions of Settlement

Commission is being amended to delete the reference to “in appeal or revision, as the case

may be” so as to provide that when any proceeding is referred back, whether in appeal or

revision or otherwise, by any court, Appellate Tribunal Authority or any other authority to the

adjudicating authority for a fresh adjudication or decision, then such case shall not be entitled

for settlement.

• Sub-section (1A) to section 32E which provides that in case of applications made prior to 1st

day of June 2007, and where no order under section 32F (1) has been made before said date or

applicant has not paid the amount so ordered by the Settlement Commission shall within

thirty days from 1st day of June 2007 pay the accepted duty liability failing which his

application shall be liable to be rejected is being omitted.

• Sub-section (6) of section 32F provides that in respect of the applications filed before 31st

day of May, 2007, Settlement Commission shall pass the final order of settlement under sub-

section (5) of section 32F latest by 29th February 2008 and in cases filed after 31st day of

May, 2007, within nine months. Since all the applications filed before 31st day of May, 2007

shall have been necessarily disposed of by 29th day of 2008, the reference to the said dates

have become redundant. Therefore, the said sub-section has been amended so as to omit the

phrase “in respect of an application filed on or before the 31st day of May, 2007, later than the

29th day of February, 2008 and in respect of application made on or after the 1st day of June,

2007”.

• Section 32H which provides that Settlement Commission can reopen the completed

proceedings in certain conditions is being omitted.

• Explanation to sub-section (1) of section 32K which provides that in respect of the

applications filed on or before 31st day of May 2007, Settlement Commission shall decide the

applications as if the amendments made in the said section were not in force is being omitted

as the said provision has become redundant.

• Section 32O which provides the situations in which the person in whose case the order has

been passed by the Settlement Commission cannot again approach the Settlement

Commission. When the said section was amended in 2007, the said section made distinction

in respect of the orders passed prior the commencement of section 122 of the Finance Act,

2007 and after that. In respect of the cases decided after the said commencement, the

76

applicant was barred from making subsequent applications, whereas in the cases decided

prior to that he could have made the application if his case was not covered by any of the

clauses mentioned in sub-section (1). However vide the amendments made by the Finance

Act, 2010, even in cases decided after commencement of section 122 of the Finance Act, 2007

the applicant was allowed to approach Settlement Commission if not hit by any of the clauses

to sub-section (1). Thus, clauses (i) and (ii) of sub-section (1) of section 32O are being

amended so as to omit the phrase “passed under sub-section (7) of the section 32F, as it stood

immediately before the commencement of section 122 of the Finance Act, 2007 (22 of 2007)

or sub-section (5) of the section 32F” as the same have become redundant.

Amendment to provision pertaining to Advance Ruling. This amendment shall have immediate

effect from the date of Notification No. 11/2015-CE, i.e., from 01.03.2015. The scope of term

‘Applicant’ has been widened to include “resident firm” as class of persons enlisted for the

purpose of filing an application for determination by the Authority for Advance Ruling. For the

purposes of this amendment,-

(a) “firm” shall have the meaning assigned to it in section 4 of the Indian Partnership Act, 1932 (9

of 1932), and includes-

(i) the limited liability partnership as defined in clause (n) of sub-section (1) of the section 2

of the Limited Liability Partnership Act, 2008 (6 of 2009); or

(ii) limited liability partnership which has no company as its partner; or

(iii) the sole proprietorship; or

(iv) One Person Company.

(b) (i) “sole proprietorship” means an individual who engages himself in an activity as defined

in sub-clause (a) of section 28E of the Customs Act, 1962.

(ii) “One Person Company” means as defined in clause (62) of section 2 of the Companies

Act, 2013 (18 of 2013).

(c) “resident” shall have the meaning assigned to it in clause (42) of section 2 of the Income-tax

Act, 1961 (43 of 1961) in so far as it applies to a resident firm.

The First Schedule to the Tariff Act is being amended as follows-

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AMENDMENTS IN THE FIRST SCHEDULE TO THE CENTRAL EXCISE TARIFF ACT,

1985:

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• Education Cess and Secondary & Higher Education Cess leviable on excisable goods are

being fully exempted. Simultaneously, the standard ad valorem rate of duty of excise (i.e.

CENVAT) is being increased from 12% to 12.5%.

• The Schedule Rates of the Additional Duty of Excise (commonly known as Road Cess) levied

on Petrol and High Speed Diesel Oil is being increased from Rs. 2 per litre to Rs. 8 per litre.

The effective rates of the Additional Duty of Excise (commonly known as Road Cess) levied

on Petrol and High Speed Diesel Oil is being increased from Rs. 2 per litre to Rs. 6 per litre

only.

• Education Cess and Secondary and Higher Education Cess, presently applicable to petroleum

products, including petrol and High Speed Diesel, are being exempted.

• Rates of duty of excise (CENVAT) on Petrol and High Speed Diesel Oil (both branded and

unbranded) are also being revised as follows:

Duty rates applicable prior upto 28.02.2105 Duty rates applicable with effect from 01.03.2015

RATE CHANGES ON SPECIFIC PRODUCTS/SECTORS

G PETROLEUM

CENVAT

` / Litre

SAED `.

/ Litre

AED ` /

Litre

Educatio

n Cesses

(as % of

aggregat

e of

duties of

excise)

Total ` /

Litre

CENVA

T

SAED AED Educatio

n Cesses

Total

Unbranded petrol

8.95 6 2 3% 17.46 5.46 6 6 NIL 17.46

Branded petrol

10.10 6 2 3% 18.64 6.64 6 6 NIL 18.64

Unbranded Diesel

7.96 NIL 2 3% 10.26 4.26 NIL 6 NIL 10.26

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Branded Diesel

14% + ̀

5 /litre

o r `

10.25 /

l i t r e ,

whiche

v e r i s

lower

NIL 2 3% 12.62 6.62 NIL 6 NIL 12.62

• Tariff rate of excise duty on high speed diesel (HSD) falling under tariff item 2710 19 30 is

being increased from 14% + ̀ 5 per litre to 14% + ̀ 15 per litre. However, there is no change in

the aggregate of various duties of excise on high speed diesel (HSD).

• All goods falling under Chapter sub-heading 2101 20, including iced tea, are being notified

under section 4A of the Central Excise Act for the purpose of assessment of Central Excise

duty with reference to the Retail Sale Price with an abatement of 30%.

• Goods, such as lemonade and other beverages, are being notified under section 4A of the

Central Excise Act for the purpose of assessment of Central Excise duty with reference to the

Retail Sale Price with an abatement of 35%.

• Excise duty of 2% without CENVAT credit or 6% with CENVAT credit is being levied on

condensed milk put up in unit containers. Condensed milk is also being notified under section

4A of the Central Excise Act for the purpose of valuation with reference to the Retail Sale

Price with an abatement of 30%.

• Excise duty of 2% without CENVAT credit or 6% with CENVAT credit is being levied on

peanut butter.

• Excise duty on chassis for ambulances is being reduced from 24% to 12.5% subject to actual

user condition.

• Concessional excise duty of 6% on specified goods for use in the manufacture of electrically

operated vehicles and hybrid vehicles, presently available upto 31.03.2015, is being extended

upto 31.03.2016.

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FOOD PROCESSING SECTOR

AUTOMOBILES

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HEALTH

ELECTRONICS/HARDWARE

• Excise duty on cigarettes is being increased by 25% for cigarettes of length not exceeding 65

mm and by 15% for cigarettes of other lengths. Excise duty on cigars, cheroots & cigarillos

and cigarettes & cigarillos of tobacco substitutes is also being increased.

• Duty of excise on cigarettes is being increased by 25% for cigarettes of length not exceeding

65 mm and by 15% for cigarettes of other lengths. Increase in duty rates is also proposed on

cigars, cheroots and cigarillos.

• Excise duty on cut tobacco is being increased from ̀ 60 per kg to ̀ 70 per kg.

• Maximum speed of packing machine for packing of notified goods of various retail sale

prices is being specified as a factor relevant to production for determining excise duty

payable under the Compounded Levy Scheme presently applicable to pan masala, gutkha and

chewing tobacco. Accordingly, deemed production and duty payable per machine per month

are being notified with reference to the speed range in which the maximum speed of a packing

machine falls.

• Excise duty on wafers for manufacture of integrated circuit (IC) modules for smart cards is

being reduced from 12% to 6%, subject to actual user condition.

• Excise duty on inputs for use in the manufacture of LED drivers and MCPCB for LED lights,

fixtures and lamps, is being reduced from 12% to 6%, subject to actual user condition.

• Excise duty structure for mobiles phones is being changed from 1% without CENVAT credit

or 6% with credit to 1% without credit or 12.5% with credit. NCCD of 1% on mobile phones

remains unchanged.

• Excise duty structure of 2% without CENVAT credit or 12.5% with credit is being extended to

tablet computers. Parts, components and accessories (falling under any Chapter) for use in

manufacture of tablet computers and their sub-parts for use in manufacture of parts,

components and accessories are being fully exempted from excise duty, subject to actual user

condition.

• Excise duty on specified raw materials [battery, titanium, palladium wire, eutectic wire,

silicone resins and rubbers, solder paste, reed switch, diodes, transistors, capacitors,

controllers, coils (steel), tubing (silicone)] for use in manufacture of pacemakers is being

fully exempted, subject to actual user condition.

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• Suitable amendment is being carried out to expressly provide that LED lights or fixtures

including LED lamps are liable to assessment of excise duty with reference to retail sale price.

Similar changes are being made in the Third Schedule to the Central Excise Act, 1944.

• Excise duty on pig iron SG grade and Ferro-silicon-magnesium for manufacture of Cast

components of wind operated electricity generators is being fully exempted, subject to

certification by MNRE in this regard.

• Excise duty structure of NIL without CENVAT credit or 12.5% with credit is being prescribed

for solar water heater and system.

• Excise duty on round copper wire and tin alloys for manufacture of Solar PV ribbon for

manufacture of solar PV cells is being fully exempted subject to certification by Department

of Electronics and Information Technology (DeitY).

• Excise duty on leather footwear (footwear with uppers made of leather of heading 4107 or

4112 to 4114), of Retail Sale Price of more than ̀ 1000 per pair is being reduced from 12% to

6%.

• The entry “waters, including mineral waters and aerated waters, containing added sugar or

other sweetening matter or flavoured” in the Seventh Schedule to the Finance Act, 2005

related to levy of additional duty of excise @ 5% is being omitted. Till the enactment of the

Finance Bill, 2015, the said additional duty of excise of 5% leviable on such goods is being

exempted. Simultaneously, the Basic Excise Duty rate on these goods is being increased from

12% to 18%.

• The Schedule Rate of Clean Energy Cess, levied on coal, lignite and peat, is being increased

from ` 100 per tonne to ` 300 per tonne. The effective rate of Clean Energy Cess is being

increased from ` 100 per tonne to ` 200 per tonne. The increase in rate of Clean Energy

Cess will come into effect immediately owing to a declaration under the Provisional

Collection of Taxes Act, 1931.

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RENEWABLE ENERGY

CONSUMER GOODS

ENERGY SECTOR

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• Excise duty on sacks and bags of polymers of ethylene, other than for industrial use, is being

increased to 15%.

• Tariff rate of excise duty on sacks and bags (including cones) of plastics falling under tariff

items 3923 21 00, 3923 29 10 and 3923 29 90 is being increased from 12% to 18%.

• The term for furnishing the bank guarantee in relation to the Power Projects has been

enhanced as under:

(i) For Ultra Mega Power Project- 42 months (earlier 36 months);

(ii) For Mega Power Project- 66 months (earlier 36 months)

• Full exemption from excise duty is being extended to captively consumed intermediate

compound coming into existence during the manufacture of Agarbattis as Agarbattis attract

NIL excise duty.

• Goods manufactured domestically and supplied against International Competitive Bidding

are eligible for full excise duty exemption provided that such goods when imported attract Nil

Basic Customs Duty and Nil CVD. The condition is being amended so as to provide that if

imported goods are eligible for Nil Basic Customs Duty and Nil CVD subject to certain

conditions, then the said conditions shall also apply mutatis mutandis to such goods when

manufactured domestically and supplied against International Competitive Bidding for the

purposes of availing of the said excise duty exemption.

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MEGA PROJECTS

MISCELLANEOUS

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SERVICE TAX

SERVICE TAX RATE

ENABLING PROVISION FOR LEVY OF “SWACHH BHARAT CESS”:

[w.e.f. date to be notified]

PROPOSED CHANGES IN THE NEGATIVE LIST


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• The rate of service tax is being increased from 12% plus education cesses to 14%. The

‘education cess’ and ‘secondary and higher education cess’ shall be subsumed in the revised

rate of service tax. Thus, the effective increase in service tax rate will be from the existing rate

of 12.36% (inclusive of cesses) to 14%, subsuming the cesses.

• In this context, an amendment is being made in Section 66B of the Finance Act, 1994 (“the

Act”). Further, Sections 95 of the Finance Act, 2004 and 140 of the Finance Act, 2007,

levying education cess and secondary and higher education cess on taxable services shall

cease to have effect from a date to be notified.

• The new service tax rate shall come into effect from a date to be notified by the Central

Government after the enactment of the Finance Bill, 2015.Till the time the revised rate comes

into effect, the ‘education cess’ and ‘secondary and higher education cess’ will continue to be

levied.

• An enabling provision is being made to empower the Central Government to impose

a“Swachh Bharat Cess” on all or any of the taxable services at a rate of 2% on the value of

such taxable services.

• Clause (j) of Section 66D of the Act covering “admission to entertainment event or access to

amusement facility” is being omitted. Consequently, the definitions of “amusement facility”

[Section 65B (9)]and “entertainment event” [Section 65B(24)] are also being omitted. The

implication of these changes are as follows:

(a) Service tax shall be levied on the service provided by way of access to amusement

facility providing fun or recreation by means of rides, gaming devices or bowling alleys

in amusement parks, amusement arcades, water parks and theme parks.

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(b) Service tax shall be levied on service by way of admission to entertainment event of

concerts, pageants, musical performance concerts, award functions and sporting events

other than the recognized sporting event, if the amount charged is more than ` 500/- for

right to admission to such an event. However, the existing exemption, by way of the

Negative List entry, to service byway of admission to entertainment event, namely,

exhibition of cinematographic film, circus, recognized sporting event, dance, theatrical

performance including drama and ballet shall be continued, through the route of

exemption. For this purpose a new entry is being inserted in notification No. 25/12-ST.

The term recognized sporting event has been defined in the proposed amendment in the

said notification as under:

“(zab) “recognised sporting event” means any sporting event,-

(i) organized by a recognized sports body where the participating team or

individual represent any district, state, zone or country;

(ii) covered under entry 11 of the notification”.

• Clause (f) of Section 66D of the Act, which covers service by way of “any process amounting

to manufacture or production of goods” is being pruned to exclude any service by way of

carrying out “any processes for production or manufacture of alcoholic liquor for human

consumption”. Consequently, service tax shall be levied on contract manufacturing/job work

for production of potable liquor for a consideration. In this context, the definition of the term

“process amounting to manufacture or production of goods” [Section 65B (40)] is also being

amended, along with the Negative List entry [Section 66D (f)], with a consequential

amendment in S. No. 30 of notification No. 25/12-ST, to exclude intermediate production of

alcoholic liquor for human consumption from its ambit.

• Section 66D of the Act covers services provided by Government or a local authority,

excluding certain services specified under clause (a) of the said section. Service tax is

applicable on the “support service” provided by the Government or local authority to a

business entity (under reverse charge). An enabling provision is being made, by amending

Section 66D (a)(iv), to exclude all services provided by the Government or local authority to

a business entity from the Negative List. Consequently, the definition of “support service”

[Section 65B (49)] is being omitted. Accordingly, as and when this amendment is given effect

to, all services provided by the Government or local authority to a business entity, except the

services that are specifically exempted, or covered by any another entry in the Negative List,

shall be liable to service tax.

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G AMENDMENTS IN CHAPTER V OF THE FINANCE ACT, 1994:


• Services, excluding a few specified services, provided by the government are included in the

Negative List. Further, specified services received by the government are also exempt.

Hitherto, the term “government” was not been defined in the Act or the notification, thus,

giving rise to interpretational issues. To address such issues, a definition of the

term“government” is being incorporated under Section 65B (26A) of the Act as under:

“Government” means the Departments of the Central Government, a State Government

and its Departments and a Union territory and its Departments, but shall not include any

entity, whether created by a statute or otherwise, the accounts of which are not required

to be kept in accordance with article 150 of the Constitution or the rules made

thereunder”

• The intention in law has been to levy service tax on the services provided by:

(a) chit fund foremen by way of conducting a chit.

(b) distributor or selling agents of lottery, as appointed or authorized by the organizing state

for promoting, marketing, distributing, selling, or assisting the state in any other way for

organizing and conducting a lottery.

An Explanation is being inserted in the definition of “service” to specifically state the

intention of the legislature to levy service tax on activities undertaken by chit fund foremen in

relation to chit, and lottery distributors and selling agents, in relation to lotteries [section65B

(44)]. Further, an explanation is being added in entry (I) of Section 66D to specifically state

that these activities are not covered by the Negative List.

• Section 66F (1) prescribes that unless otherwise specified, reference to a service shall not

include reference to any input service used for providing such services. An illustration is

being incorporated in this section to exemplify the scope of this provision. By way of

illustration, it is clarified that reference to service provided by the Reserve Bank of India

(RBI), in Section 66D (b) does not include any agency service provided by other banks to

RBI, as such agency services are input services used by RBI for provision of its main service.

Accordingly, banks providing agency service to or in relation to services of RBI, are liable to

pay service taxon the agency services so provided by virtue of the existing Section 66F (1).

• Section 67 prescribes for the valuation of taxable services. The term “consideration” is being

substituted to read as under:

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“consideration” includes –

(i) any amount that is payable for the taxable services provided or to be provided

(ii) any reimbursable expenditure or cost incurred by the service provider and

charged in the course of providing or agreeing to provide a taxable service, except

in such circumstances, and subject to such condition, as may be prescribed

(iii) any amount retained by the lottery distributor or selling agent from gross sale

amount of lottery ticket in addition to the fee or commission, if any, or, as the case

may be, the discount received, that is to say, the difference in the face value of

lottery ticket and the price at which the distributor or selling agent gets such

ticket”.

• Section 73 of the Act is being amended in the following manner:

(a) a new sub-section (1B) is being inserted to provide that recovery of the service tax

amount self-assessed and declared in the ST-3 return but not paid shall be recoverable

along with interest in any of the modes specified in Section 87, without service of any

notice under sub-section (1) of Section 73; and

(b) sub-section (4A) that provides for reduced penalty, where true and complete details of

transaction were available on specified records, is being omitted.

• Section 76 of the Act is being amended to rationalize the provisions relating to penalties, in

cases not involving fraud or collusion or wilful misstatement or suppression of facts or

contravention of any provision of the Act or rules with the intent to evade payment of service

tax, in the following manner:

(a) penalty not to exceed ten per cent of service tax amount involved in such cases;

(b) no penalty is to be paid if service tax and interest is paid within30 days of issuance of

notice under Section 73(1);

(c) a reduced penalty equal to 25% of the penalty imposed by the Central Excise officer by

way of an order is to be paid if the service tax, interest and reduced penalty is paid within

30 days of such order; and

(d) if the service tax amount gets reduced in any appellate proceeding, then the penalty

amount shall also stand modified accordingly, and benefit of reduced penalty (25% of

penalty imposed) shall be admissible if service tax, interest and reduced penalty is paid


86

• Section 78 is being amended to rationalize penalty, in cases involving fraud or collusion or

wilful mis-statement of suppression of facts or contravention of any provision of the Act or

rules with the intent to evade payment of service tax, in the following manner,-

(a) penalty shall be hundred per cent of service tax amount involved in such cases;

(b) a reduced penalty equal to 15% of the service tax amount is to be paid if service tax,

interest and reduced penalty is paid within30 days of service of notice in this regard;

(c) a reduced penalty equal to 25% of the service tax amount, determined by the Central

Excise officer by an order, is to be paid if the service tax, interest and reduced penalty is

paid within 30days of such order; and

(d) if the service tax amount gets reduced in any appellate proceeding, then the penalty

amount shall also stand modified accordingly, and benefit of reduced penalty (25%)

shall be admissible if service tax, interest and reduced penalty is paid within 30 days of

such appellate order.

• A new Section 78 B is being inserted to prescribe, by way of a transition provision, that,-

(a) amended provisions of Sections 76 and 78 shall apply to cases where either no notice is

served, or notice is served under sub-section(1) of Section 73 or proviso thereto but no

order has been issued under sub-section (2) of Section 73, before the date of enactment of

the Finance Bill, 2015; and

(b) in respect of cases covered by sub-section (4A) of Section 73, if no notice is served, or

notice is served under sub-section (1) of Section 73 or proviso thereto but no order has

been issued under sub-section (2) of Section 73, before the date of enactment of the

Finance Bill, 2015, penalty shall not exceed 50% of the service tax amount.

• Section 80 of the Act which provided for waiver of penalty in certain circumstances, is being

omitted.

• Section 86 of the Act is being amended to prescribe that remedy/ appeal against the order

passed by Commissioner (Appeal), in a matter involving rebate of service tax, shall lie in

terms of Section 35EE of the Central Excise Act. It is also being provided that all appeals filed

in Tribunal after the date the Finance Act, 2012 came into effect and pending on the date when

the Finance Bill, 2015 receives assent of the President, shall be transferred and dealt in

accordance with Section 35EE of the Central Excise Act.

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• Certain changes have been made in the provisions relating to Settlement Commission. These

provisions, contained in the Central Excise Act, 1944, are made applicable to service tax,

through Section 83 of the Finance Act, 1994.

The following changes are being made as a result of the review of exemptions.

(i) Hitherto any service provided by way of transportation of a patient to and from a clinical

establishment by a clinical establishment is exempt from service tax. The scope of this

exemption is being widened to include all ambulance services.

(ii) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling

of fruits and vegetables is being exempted.

(iii) Service provided by a Common Effluent Treatment Plant operator for treatment of effluent is

being exempted.

(iv) Life insurance service provided by way of Varishtha Pension Bima Yojna is being exempted.

(v) Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the

distributor or association of persons consisting of such exhibitor as one of it’s members is

being exempted.

(vi) Service provided by way of admission to a museum, zoo, national park, wild life sanctuary

and a tiger reserve is being exempted.

(vii) Service by way of right to admission to,-

(i) exhibition of cinematographic film, circus, dance, or theatrical performances including

drama or ballet,

(ii) recognized sporting events,

(iii) concerts, pageants, award functions, musical or sporting event not covered by the above

exemption, where the consideration for such admission is upto ̀ 500/- per person

This change shall be brought into effect from the date the amendments being made in the Negative

List, concerning the service by way of admission to entertainment events, come into effect.

G REVIEW OF GENERAL EXEMPTIONS:

[Notification No. 06/2015-ST dated 01.03.2015 –w.e.f. 1st April, 2015]

• Exemptions to be introduced:-

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• Exemption being withdrawn:-

• Exemptions being rationalized:-

(i) Exemption presently available on specified services of construction, erection,

commissioning, etc. provided to the Government, a local authority or a governmental

authority ( vide S. No. 12) shall be limited only to,-

(a) a historical monument, archaeological site or remains of national importance,

archeological excavation or antiquity;

(b) canal, dam or other irrigation work; and

(c) pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage

treatment or disposal.

Exemption to other services presently covered under S. No. 12 of notification No. 25/12-ST is

being withdrawn.

(ii) Exemption to construction, erection, commissioning or installation of original works

pertaining to an airport or port is being withdrawn. The other exemptions covered under S.

No. 14 of notification No. 25/12-ST shall continue unchanged.

(iii) Exemptions are being withdrawn on the following services:

(a) services provided by a mutual fund agent to a mutual fund or assets management

company,

(b) distributor to a mutual fund or AMC,

(c) selling or marketing agent of lottery ticket to a distributor.

(iv) Exemption is being withdrawn on the following service,-

(a) departmentally run public telephone;

(b) guaranteed public telephone operating only local calls; and

(c) service by way of making telephone calls from free telephone at airport and hospital

where no bill is issued.

(i) Exemption to services provided by a performing artist in folk or classical art form of (i)

music, or (ii) dance, or (iii) theatre, will be limited only to such cases where amount charged is

upto ` 1,00,000/- for a performance. However, the exemption shall not apply to service

provided by such artist as a brand ambassador.

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(ii) Exemption to transportation of food stuff by rail, or vessels or road will be limited to food

grains including rice and pulses, flour, milk and salt.

(iii) Consequent to imposition of service tax levy on service by way of manufacture of alcoholic

liquor for human consumption, an amendment is being made in the entry at S. No. 30 of

Notification No. 25/12-ST to exclude carrying out of intermediate production process of

alcoholic liquor for human consumption on job work from this entry -

(i) Goods transport agency service provided for transport of export goods by road from the place

of removal to an inland container depot, a container freight station, a port or airport is exempt

from service tax vide notification No. 31/12-ST dated 20.6.2012.Scope of this exemption is

being widened to exempt such services when provided for transport of export goods by road

from the place of removal to a land customs station (LCS).

• At present, service tax is payable on 30% of the value of rail transport for goods and

passengers, 25% of the value of goods transport by road by a goods transport agency and 40%

for goods transport by vessels. The conditions prescribed also vary. A uniform abatement is

now being prescribed for transport by rail, road and vessel and service tax shall be payable on

30% of the value of such service subject to a uniform condition of non-availment of Cenvat

credit on inputs, capital goods and input services.

• At present, service tax is payable on 40% of the value of air transport of passenger for

economy as well as higher classes, e.g. business class. The abatement for classes other than

economy is being reduced and service tax would be payable on 60% of the value of such

higher classes.

• Abatement is being withdrawn with respect to services provided in relation to chit.

Consequently, service tax shall be paid by the chit fund foremen on the full consideration

received by way of fee, commission or any such amount. However, they would be entitled to

take Cenvat credit.

[w.e.f. date to be

notified]

• Scope of Notification No. 31/2012-ST dated 20.06.2012 widened

[Notification No. 4/2015-ST w.e.f. 1st April, 2015]

RATIONALIZATION OF ABATEMENTS

[w.e.f.1st April, 2015]

G

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G

G

REVERSE CHARGE MECHANISM

[w.e.f. 1st April, 2015]

AMENDMENT TO SERVICE TAX RULES, 1994

• Manpower supply and security services when provided by an individual, HUF, or partnership

firm to a body corporate are being brought to full reverse charge from the present partial

reverse charge mechanism.

• Services provided by:

(i) mutual fund agents, mutual fund distributors; and

(ii) agents of lottery distributor

are being brought under reverse charge consequent to withdrawal of the exemption on such

services. Accordingly, service tax in respect of services provided by a mutual fund agent or

mutual fund distributor shall be paid by the mutual fund or asset management company

receiving such service. In respect of services provided by a selling or marketing agent of

lottery tickets, service tax shall be paid by the lottery distributor or selling agent under reverse

charge.

• Rule 4 is being amended to provide that the CBEC shall, by way of an order, specify the

conditions, safeguards and procedure for registration in service tax. In this regard, Order No.

1/15-ST, dated 28.2.2015, effective from 1.3.2015 has been issued, prescribing

documentation, time limits and procedure for registration. It has also been prescribed that

henceforth registration for single premises shall be granted within two days of filing the

application.

• A provision for issuing digitally signed invoices is being added along with the option of

maintaining of records in electronic form and their authentication by means of digital

signatures. The conditions and procedure in this regard shall be specified by the CBEC.

• Rule 6 (6A) which provided for recovery of service tax self-assessed and declared in the

return under section 87 is being omitted consequent to the amendment in Section 73 for

enabling such recovery. This change will become effective from the date of enactment of the

Finance Bill, 2015.

• In respect of certain services like money changing service, service provided by air travel

agent, insurance service and service provided by lottery distributor and selling agent, the

service provider has been allowed to pay service tax at an alternative rate subject to the

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conditions as prescribed under Rule 6(7), 6(7A), 6(7B) and 6(7C) of the Service Tax Rules,

1994. Consequent to the upward revision in service tax rate, the said alternative rates shall

also be revised proportionately. The said amendments shall come into effect as and when the

revised service tax rate comes into effect.

• In respect of any service provided under aggregator model, the aggregator, or any of his

representative office located in India, is being made liable to pay Service Tax if the service is

so provided using the brand name of the aggregator in any manner. If an aggregator does not

have any presence, including that by way of a representative, in such a case any agent

appointed by the aggregator shall pay the tax on behalf of the aggregator. Accordingly, the

term “aggregator” is being defined under the Service Tax Rules as under:

“(aa) “aggregator” means a person, who owns and manages a web based software

application, and by means of the application and ac ommunication device, enables a

potential customer to connect with persons providing service of a particular kind under

the brand name or trade name of the aggregator”

• Rule 4(7) is being amended to allow Cenvat credit of service tax paid under partial reverse

charge by the service receiver without linking it to the payment to the service provider. This

change will come into effect from1st April, 2015.

• The period for taking Cenvat credit is being extended from six months from the date of

invoice to one year from the date of invoice.

• Certain other changes are being made in the provisions of the Cenvat Credit Rules, 2004,

which, inter-alia, include allowing Cenvat credit on input and capital goods received directly

by job workers, defining “export goods” for the purposes of Rule 5, and defining “exempt

goods” for the purposes of Rule 6.

• Rule 14 substituted to provide for recovery of Cenvat credit taken but not utilized. Further, the

manner of determining utilization of Credit is also being provided in the rule as under:

G

G

AMENDMENT TO SERVICE TAX RULES, 1994 WITH RESPECT TO REVERSE

CHARGE MECHANISM


CENVAT CREDIT RULES, 2004

[Save as otherwise provided, the amendment shall come in to force w.e.f. 01.03.2015]

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– All credits taken during a month shall be deemed to have been taken on the last day of the

month and the utilization thereof shall be deemed to have occurred in the following manner,

namely: -

(i) the opening balance of the month has been utilized first;

(ii) credit admissible in terms of these rules taken during the month has been utilized next;

(iii) credit inadmissible in terms of these rules taken during the month has been utilized

thereafter.

• The facility of Advance Ruling is being extended to all resident firms by specifying such

firms under Section 96A (b)(iii) of the Act.

G ADVANCE RULINGS

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KEY ECONOMIC POLICY ANNOUNCEMENTS

AND

INDUSTRY SPECIFIC IMPACT

Atal Innovation Mission

Pradhan Mantri Suraksha Bima Yojna

Pradhan Mantri Jeevan Jyoti BimaYojana

Atal Pension Yojana

New Pension Scheme

Senior Citizen Welfare Fund

G Proposal to allocate ̀ 150 crores to create an Innovation Promotion Platform involving academics,

entrepreneurs, and researchers and draw upon national and international experiences to foster a

culture of innovation, R&D and scientific research in India.

G Proposal to provide cover of accidental death risk of ̀ 2 lakhs for a premium of just ̀ 12 per year.

G Proposal to provide cover of both natural and accidental death risk of ` 2 lakhs at a premium of `

330 per year, or less than one rupee per day, for the age group 18-50.

G Proposal to provide a defined pension, depending on the contribution, and its period and to

encourage people to join this scheme, the Government will contribute 50% of the beneficiaries’

premium limited to Rs. 1000 each year, for five years, in the new accounts opened before 31st

December, 2015.

G Proposal to introduce New Pension Scheme wherein the employees may opt for Employee

Provident Fund or New Pension Scheme.

G Employee below a certain threshold of monthly income will have an option to contribute to

Employee Provident Fund, without affecting or reducing employers’ contribution.

G Employee should have an option of choosing either Employee State Insurance or a health

insurance product recognized by IRDA.

G Creation of Senior Citizen Welfare Fund for appropriation of unclaimed funds in Public Provident

Fund and Employee Provident Fund corpus which will be utilized to subsidize the premiums of

vulnerable groups such as old pensioners, BPL card holders, small and marginal farmers and

others.

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Integrated Education and Livelihood scheme (Nai Manzil)

Gold Monetization Scheme

Pradhan Mantri Mudra Yojana

Self-Employment and Talent Utilization (SETU)

Deen Dayal Upadhyay Gramin Kaushal Yojana

Electronic Receivables Discounting System (TReDS)

Autonomous Bank Board Bureau

G The scheme is proposed to be launched this year to enable minority youth who do not have a formal

school- leaving certificate to obtain one and find better employment.

G Introduction of a scheme to allow the depositors of gold to earn interest in their metal accounts and

the jewelers to obtain loans in their metal account.

G Sovereign Gold Bonds to be introduced and to develop the same as an alternate financial asset.

G Proposed allocation for creation of a Micro Units Development Refinance Agency (MUDRA)

Bank, with a corpus of ̀ 20,000 crores, and credit guarantee corpus of ̀ 3,000 crores.

G MUDRA bank will refinance micro finance institutions through Pradhan Mantri Mudra Yojana

and the priority will be given to SC/ST enterprises.

G SETU will be a Techno-Financial, Incubation and Facilitation Programme which will support

start-up businesses and other self-employment activities.

G Allocation of ̀ 1,000 crores for SETU.

G Allocation of ` 1,500 crores under this scheme to enhance the employability of rural youth of the

country.

G In order to provide liquidity to MSME, it is proposed that the government will establish an

electronic TReDS for financing of trade receivables of MSME from corporate and other buyers,

through multiple financiers.

G Proposal to establish a bank Board Bureau with an aim to improve the governance of Public Sector

banks and help them in developing differentiated strategies and capital raising plans through

innovative financial methods and instruments.

G The Bureau will also search and select heads of public sector banks.

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Pradhan Mantri Vidya Lakshmi Karyakram

MGNREGA

Agriculture

Education

Infrastructure

G To ensure that there will be adequate availability of funds for poor and middle class students for

their higher education, it is proposed to set up of a fully IT based student financial aid authority.

The said authority will administer and monitor scholarships and educational loan schemes

through Pradhan Mantri Vidya Lakshmi Karyakram.

G Initial allocation of ` 34,699 crores to focus on improving the quality and effectiveness of

activities under this scheme.

G Allocation of ̀ 5,300 crores to support micro- irrigation, watershed development and the Pradhan

Mantri Krishi Sinchai Yojana.

G Proposed allocation of ` 25,000 crores in 2015-16 to the corpus of Rural Infrastructure

Development Fund (RIDF) set up in NABARD.

G Proposed allocation of ̀ 15,000 crores for Long Term Rural Credit Fund.

G Proposed allocation of ̀ 45,000 crores for Short Term Cooperative Rural Credit Refinance Fund.

G Proposed allocation of ̀ 15,000 crores for Short Term RRB Refinance Fund.

G Proposal to set up AIIMS in states like J&K, Punjab, Tamil Nadu, Himachal Pradesh and Assam.

G Proposal to set up IITs in Karnataka and to upgrade Indian School of Mines, Dhanbad into a full-

fledged IIT.

G Proposal to establish IIMs in J&K and Andhra Pradesh.

G Proposal to establish 3 new National Institutes of Pharmaceutical Education and Research in

Maharashtra, Rajasthan, and Chattisgarh.

G Proposal for increased outlays on both the roads and the gross budgetary support to the Railways

by ̀ 14, 031 crores and ̀ 10, 050 crores respectively.

G The government proposes to establish National Investment and Infrastructure Fund (NIIF) and

will ensure that it receives an annual flow of ` 20,000 crores to enable NIIF to raise debt, and in

turn, invest as equity, in infrastructure finance companies such as the IRFC and NHB.

96

G Proposal to permit tax free infrastructure bonds for the projects in the rail, road and irrigation

sectors.

G PPP mode of infrastructure development has to be revisited and revitalised.

G Proposal to establish 5 new ultra-mega power projects of 4000 MWs each in the plug and play

mode.

G Proposal to set up of Public Debt Management Agency (PDMA) to bring both India’s external

borrowings and domestic debt under one roof.

G Proposal to merge forward markets commission with SEBI to strengthen regulation of commodity

forwards market and reduce wild speculation.

G Proposal to introduce a Benami Transactions (Prohibition) Bill to curb domestic black money to be

introduced in the current session of Parliament.

G Proposal to set up a Sector-neutral Financial Redressal Agency to address grievances against all

financial service providers.

G Proposal to amend section-6 of Foreign Exchange Management Act, 1999 to clearly provide that

control on capital flows as equity will be exercised by the Government, in consultation with the

RBI.

G Proposal to include NBFCs registered with RBI and having asset size of ̀ 500 crores and above to

be considered for notifications as financial institutions in terms of SARFAESI Act, 2002 in order

to bring parity in regulation of NBFCs with other financial institutions in respect of matters

relating to recoveries.

G An initial outlay of ` 75 crores for scheme for Faster Adoption and Manufacturing of Electric

Vehicles (FAME) in 2015-16.

G Speeding up of the National Optical Fibre Network Programme by allowing willing States to

undertake its execution, on reimbursement of cost as determined by Department of

Telecommunications.

Financial Markets

Capital Account Controls

Green India

Digital India

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Defence

Investment

Nirbhaya Fund

Tourism

Miscellaneous

INDUSTRY SPECIFIC IMPACT

Agriculture/AgricultureCredit

G Budget allocation of ̀ 246,727 crores for expenditure for the financial year 2015-2016 for defence

purposes.

G Proposal to allow foreign investments in the alternate investment funds.

G Distinction between different types of foreign investment especially foreign portfolio investment

and foreign direct investment to be done away with.

G Proposed allocation of ` 1,000 crores for the safety and security of women and to support

programmes for women security, advocacy and awareness.

G Resources to be provided to work along restoration, signage and other facilities including security

and restrooms across various heritage sites.

G Proposed ‘visa on arrival’ for upto150 countries, in stages.

G Proposal to introduce Public Contracts (Resolution of Disputes) Bill to streamline the institutional

arrangements for resolution of such disputes.

G Introduction of a comprehensive bankruptcy code in fiscal year 2015-2016 to bring legal certainty

and speed for improving the ease of doing business in India.

G Proposal to set up exclusive commercial divisions in various Courts in India for quick resolution of

commercial disputes.

G For the benefit of senior citizens, service tax exemption will be provided on Life insurance service

provided by way of Varishtha Pension BimaYojna.

G Several important measures have been ensured by the Central Government in Budget 2015 to

provide impetus to Agricultural sector.

98

G Creation of Unified National Agriculture Market with the collaboration of Centre, State

governments and the NITI Ayogis proposed in the Budget. This would benefit the farmers to fetch

not only the right price but even higher prices for their produces.

G Emphasis on micro irrigation, watershed development and Pradhan Mantri Krishi Sinchai Yojana

will result in better irrigation facilities and increase the use of water efficiently, ultimately

achieving the goal of “Per Drop More Crop” specifically outlined in the Budget.

G The exemption of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling

services in respect of fruits and vegetables from service tax net is also a welcome move, which will

attract investments in agricultural infrastructure, promote food processing sector and check price

rise of such perishable items.

G The announcement of setting up of Micro Units Development Refinance Agency (“MUDRA”)

Bank with a corpus of INR 20,000 crores and a Credit Guarantee Corpus of INR 3,000 crores

would benefit and provide much-needed credit facilities to micro, small, medium entrepreneurs

with a special focus business promoted by SC and ST entrepreneurs, for whom otherwise

financing is not easily available.

G It is proposed to set up an autonomous bank Board Bureau to change the structure of Public Sector

Banks and establish a holding and investment company for such Banks. The Bureau will advise

them on business strategies and capital raising plans through innovative financial methods and

instruments. This would improve the governance of such banks and correct its poor lending

practices of the past.

G NBFC's with asset size of more than INR 500 crores to come under SARFAESI Act. The Act

allows a lender to recover non-performing assets without court's intervention. With the inclusion

of NBFCs under the act, they will be almost at an equal footing with banks.

G It is proposed to introduce a comprehensive Bankruptcy code in fiscal 2015-16 of global

standards. Basically the said code would be introduced in line with US’ Chapter 11 under which

companies going bankrupt would get protection from courts and lenders could revive such

companies quickly. This in turn reduce the number of pending litigations in the courts and would

also reform the current cumbersome procedures.

G Automobile Sector received little attention in the Budget.

Banking and Finance

Automobile/Auto Sector

99

G Hike in funds allocated to farm credit, agricultural initiatives and related institutions such as

NABARD may marginally boost tractor sales.

G Hike in customs duty on imported vehicles to 20% will not have major impact as imported vehicle

forms miniscule part of total sales of auto segment.

G Allocation of INR 75 crores towards Faster Adoption and manufacturing of Electric Vehicles

(FAME), would benefit growth of small bicycles and electric two wheelers.

G No special incentives/schemes have been proposed for Aviation Sector.

G Lower service tax abatements on business/first class air tickets would lead to higher fares, however

this segment is less elastic to fares, so would not have much impact on traffic.

G Higher rate of freight on coal and slag will lead to increase in price of cement;

G However, thrust to infrastructure and housing development sector will increase cement demand

thereby cement companies will be benefitted from the increase in long-term funding availability

for infrastructure projects and will boost capacity utilisation.

G There is mixed impact on consumer sector. Increase in the basic excise duty from 12% to 18% on

cigarettes, tobacco products, mineral water, iced tea, lemonade, aerated drinks and other

beverages will pinch smokers and tobacco consumers and may hopefully result reduction in use of

tobacco in the long run.

G Reduced excise duty on leather would be beneficial to leather manufacturing and footwear

industry.

G Leather shoes priced more than INR 1,000 will get cheaper by around 5% as excise duty on has

been reduced to 6% from 12%.

G Packaged foods and vegetables will become cheaper as pre-cooling, ripening, retail packing and

labelling of these items have been exempted from service tax.

G Increase in service tax from 12.36% to 14% and widening of its coverage will impact the

consumers pocket as they will have to shell out more money.

Aviation

Cement

Consumer Goods

Increase in Service Tax

100

Education

Gold and Jewellery

Hospitality

G The budget has given great emphasis to education sector. It is proposed to upgrade secondary

schools and add / upgrade junior / middle schools to higher level. This will address the problems of

primary education in India. Many institutions of medical sciences / management / research and

education have been proposed to be set up. The same will lead to skill development of young

generation.

G There is also a proposal to set up a fully IT based Student Financial Aid Authority to administer

and monitor scholarship as well educational loan schemes to enhance the growth in education

sector.

G The Budget has introduced a Gold Monetisation Scheme (replacing the present Gold Deposit and

Gold Metal Loan Schemes) to curb gold imports, monetise large idle stocks of the precious metal

and control the current account deficit. The proposed scheme will allow the depositors of gold to

earn interest in their metal accounts and the jewelers to obtain loans in their metal account.

G The said scheme is expected to increase availability of the yellow metal in the domestic market and

help boost Indian jewellery manufacturing sector. Moreover, there is a possibility that the gold

prices may come down as a result of reducing imports and the same would enable the end user to

save on cost while buying gold jewellery.

G Development of Sovereign Gold Bond has been proposed in the Budget, as an alternative to

purchasing metal gold. The said Bonds will carry a fixed rate of interest, and also be redeemable in

cash in terms of the face value of the gold, at the time of redemption by the holder of the Bond.

G The Budget has also proposed introduction of Indian Gold Coin, which will carry the Ashok

Chakra on its face, in order to reduce the demand for coins minted outside India and to help recycle

the gold available in the country.

G The Government plans to increase the number of countries eligible for visa on arrival from 43 to

150. This will definitely boost arrival of foreign tourist in the country and provide larger business

to hotel and travel companies, specially to the premium hotels which derive close to 70% of their

revenues from foreign tourist.

G The identification of 25 world cultural heritage sites for restoration will provide good business for

tour and travel companies.

101

G However, the increase in service tax rates and education cess to 14% from the current 12.36% may

impact the hotel industry adversly.

G The Budget has made an allocation of INR 33,152 crore towards the health sector.

G 100% income tax relief for Swachh Bharat Kosh will be a great impeatus for the Swachh Bharat

campaign which is not only a programme for hygiene and cleanliness but at a deeper level, a

programme for preventive healthcare and building awareness.

G Increase in the number of countries eligible for visa on arrival from 43 to 150 is expected to give a

boost to India’s medical tourism.

G The Budget has made an allocation of INR 22,407 crore for housing and urban development.

G The Budget envisages a roof for each family in India by 2022, which would require completion of

2 crore houses in urban areas and 4 crore houses in rural areas and each house in the country to

have basic facilities of 24-hour power supply, clean drinking water, a toilet, and connectivity to a

road. This could mean a boom in the housing sector in terms of more business for real estate firms,

as well as construction material suppliers and would definitely help in creation of more jobs.

However, the Budget provides no concessions either for home buyers or for developers.

G The Budget has made an allocation of INR 1,000 crore for establishing Self-Employment and

Talent Utilization (SETU) - a techno-financial incubation and facilitation programme to support

all aspects of start-up businesses, and other self-employment activities, particularly in

technology-driven areas, which will help the industries to adopt new technologies and provide

employment opportunities.

G The Budget has proposed an exemption of basic customs duty, countervailing duty (CVD) and

special additional duty (SAD) on parts, components and accessories used in manufacture of tablet

computers and their sub-parts to make tablet computers cheaper.

The aforesaid initiatives will have a positive impact on the sector.

Health

Housing

Information Technology

102

Insurance

Infrastructure

G The Budget has proposed to increase the maximum permissible deduction u/s 80D of the Income

Tax Act, 1961 towards health insurance premium from INR 15,000 to INR 25,000. For senior

citizens, the said limit has been increased from INR 20,000 to INR 30,000.

For senior citizens aged above 80 years or more, who are not covered by health insurance, a

deduction of INR 30,000 towards expenditure incurred on their treatment will be allowed. The

said increase in permissible deduction for health insurance premium will improve affordability,

accessibility and awareness of health insurance and will enable people to seek out for quality

healthcare.

G The Budget has made an allocation of INR 1,200 crore towards the Ahmedabad-Dhaulera

Investment Region in Gujarat and the Shendra–Bidkin Industrial Park near Aurangabad, in

Maharashtra.

G The Budget has increased the allocation towards capex in infrastructure sector by INR 70,000

crore in 2015-16 from the previous year, to be funded by the Centre and Central Public Sector

Enterprises. Also, with a view to aligning infrastructure with the growth ambitions it is proposed

to increase outlays on both the roads and the gross budgetary support to the railways, by INR

14,031 crore and INR 10,050 crore respectively. The capital expenditure of public sector units is

expected to be INR 3,17,889 crore, an increase of approximately INR 80,844 crore over revised

estimate 2014-15.

G The Budget proposes to provide reimbursement of expenses to States that roll out national optic

fibre network to 2.5 lakh villages.

G Customs duty on steel has been increased from 10% to 15% and on metallurgical coke from 2.5%

to 5%. This will provide an additional protection to the domestic industries from cheap imports.

G There is a proposal to complete 1,00,000 km of under-construction roads and award new road

contracts of another 1,00,000 km for connecting each of the 1,78,000 unconnected habitations. In

order to fund investment in roads and other infrastructure sectors Excise duty on petrol and diesel

to the extent of INR 4 per litre has been converted to Road Cess.

G There is a proposal that the remaining 20,000 villages in the country shall receive electricity by the

year 2020. Off-grid solar power plants and other sources will help achieve this target.

103

G The Budget proposes to set up a National Investment and Infrastructure Fund, for which there is a

provision to allocate annually INR 20,000 crore to it. This will enable the Fund to raise debt, and in

turn, invest as equity, in infrastructure finance companies such as the Indian Railway Finance

Corporation and National Housing Board, which can thereafter, leverage this extra equity, many

fold.

G The Budget exempts rail and tram track making material, from excise duty, retrospectively for the

period from 17.03.2012 to 02.02.2014, if no CENVAT credit of duty paid on such rails is availed.

G The Budget proposes to set up 5 Ultra Mega Power Projects (UMPPs) with INR 1,00,000 crore

investment. This will improve demand for capital goods in near future and model for UMPPs will

provide much clarity on the contract visibility and execution of power projects. This will further

improve the capacity utilisation of companies and reduce the strain on their working capital.

G To revive investment, especially for roads and railways, the tax-free infra bonds have been

introduced as part of the Budget proposal for projects in the rail, road and irrigation sectors. These

new projects in roads, ports, railway with new public- private partnership models and with

clearance in place are expected to revive interest and widen base of construction firms and also

improve demand for capital goods, cement and steel. Further, higher allocation and availability of

funds will accelerate awarding and providing sizable construction opportunities.

G It is proposed that ports in public sectors will be encouraged to corporatize and become companies

under the Companies Act. This could help ports introduce efficiency in operations including

autonomy in tariff fixation.

G The Budget proposes to rationalise the capital gains regime for the sponsors exiting at the time of

listing of the real estate investment trust and infrastructure investments trusts units, subject to

payment of securities transaction tax. This move is intended to unlock large quantum of funds

locked in various completed projects. This will further enable new infrastructure projects to take

off.

G All the above initiatives proposed in the Budget will have a positive impact on the infrastructure

sector considering the fact that various opportunities are expected to be unlocked in terms of

projects, efficiency and available funds.

G The Basic Custom duty on Metallurgical coke has been increased from 2.5% to 5. The increase in

basic customs duty will negatively impact many industries due to the increase in input costs on

production.

Metals

104

G Tariff rate of basic customs duty on bituminous coal has been reduced from 55% to 10%. It comes

as a major relief for the metal companies which are fighting a pitched battle for coal blocks that are

being auctioned.

G Special additional duty on melting scrap of iron and steel including scrap of stainless steel, copper,

brass and aluminum has been reduced from 4% to 2% and would be beneficial for Secondary Steel

producers.

G It is proposed to establish an Electronic Trade Receivables Discounting System (TReDS) for

facilitating financing of trade receivables of MSMEs which will improve liquidity position in this

sector significantly.

G The Finance Minister has proposed to levy service tax on service by way of admission to

entertainment event like concerts, non-recognized sporting events, pageants, music concerts and

award functions, if the amount charged for admission is more than ` 500. No significant impact

expected as organizers are likely to pass on the hike in service tax as part of the price to the buyers.

G The services by way of admission to exhibition of the cinematographic film, circus, dance, or

theatrical performances including drama, ballets or recognized sporting events shall continue to

be exempt from service tax.

G Exemption from service tax to the services provided by a performing artist in folk or classical art

form of (i) music, or (ii) dance, or (iii) theater, will be limited only to such cases where amount

charged is upto ̀ 1,00,000 for a performance (except brand ambassador)

G In order to give boost to the physical growth of north-eastern regions of the country and to bring

them on par with the rest of the country, the Finance Minister has allocated INR 2,362.74 crores

for the Development of North Eastern Region (DoNER). The initiatives proposed to bring the

north-eastern region within the mainstream are as follows:

G All India Institute of Medical Sciences (AIIMS) to be set up in five new states, namely, J&K,

Punjab, Tamil Nadu, Himachal Pradesh and Assam in order to improve the quality of healthcare

and medical education, and reducing the exodus of seriously ill patients belonging to the north-

eastern regions to other parts of the country;

Micro, Small and Medium Enterprises (MSMES):

Media and Entertainment

North Eastern States

105

G Indian Institutes of Science and Education Research to be set up in Nagaland in order to create

quality education and research in basic sciences;

G Centre for Film Production, Animation and Gaming to be set up in Arunachal Pradesh which will

act as an incentive for the film makers to shoot films in north-eastern states and help them carry out

film shooting work in a cost-effective and easy manner, besides boosting film-making in the

region. Further, due to paucity of skilled work force in animation and gaming industry, offering

animation and gaming courses is a step in the right direction.

G The Finance Minister has proposed to reduce the petroleum subsidy to INR 30,000 crores in 2015-

16 from INR 60,270 crores in the current financial year. Out of the INR 30,000, a sum of INR

22,000 crores has been earmarked for LPG subsidy while the remaining amount is provided for

kerosene.

G This proposal shall wipe out the subsidy rollover of around INR 9,000- 10,000 crores from 2014-

15, and will reduce oil marketing companies’ working capital requirement.

G The contribution of INR 30,000 by the government to fuel subsidies is expected to result into

around 5% fall in under-recoveries’ contribution.

G The duty structure for petrol and diesel has been rejigged i.e. the hike in road cess on fuel is offset

by lower basic excise duty and exemption from the payment of education cess. Overall, it will

have no impact on the final excise duties payable on the said commodities.

G To provide basic facility of 24 hour power supply in every house and electrification of 20,000

villages by 2020, including by off-grid solar power generation.

G To set up five new ultra mega power projects, each of 4000 MWs in the plug-and-play mode. All

clearances and linkages are proposed to be in place before the project is awarded by a transparent

auction system. This will unlock the investments to the extent of 1 lakh crore.

G Clean energy cess on coal proposed to be increased from ̀ 100/- to ̀ 200/- per metric tonne of coal,

etc. to finance clean environment initiatives.

G Hike in coal cess on steam coal would lead to rise in coal cost by about 6 paise per unit.

G It is proposed to set up three new National Institute of Pharmaceuticals Education and Research in

Maharashtra, Rajasthan & Chattisgarh.

Oil and Natural Gas

Power (including Renewable Energy)

Pharmaceuticals

106

G It is proposed to set up Institute of Science and Education Research in Nagaland & Orissa.

G The new institutes proposed to be set up will address the issue of severe shortage of doctors and

skilled staff.

G It is proposed to reduce basic custom duty on Ethylene dichloride (EDC), Vinyl Chloride

Monomer (VCM) and Styrene Monomer (SM) from 2.5% to 2%.

G Special Additional duty on Naphtha, EDC, VCM and SM for manufacture of excisable goods has

been reduced from 4% to 2%. Reduction in SAD on Naptha will lower the raw-material cost

across petrochemical chain but will be passed on.

G The capital gains regime for the sponsors exiting at the time of listing of the units of Real Estate

Investment Trusts (REITs) and Infrastructure Investments Trusts (InvITs) has been proposed to be

rationalised, subject to payment of Securities Transaction Tax (STT). It is proposed that the

sponsor will be given the same treatment on offloading of units at the time of listing as would have

been available to him if he had offloaded his shareholding of special purpose vehicle (SPV) at the

stage of direct listing. Further, the rental income arising from real estate assets directly held by the

REIT is also proposed to be allowed to pass through and to be taxed in the hands of the unit holders

of the REIT. This is a welcome move and is significant for developers with substantial exposure in

rental-yield real estate assets.

G Increase in service tax will marginally increase the cost of under-construction real estate space.

Petrochemicals

Real Estate

107

IMPACT OF BUDGET ON CAPITAL MARKET

G It is proposed to set up a Public Debt Management Agency (PDMA) for providing a dynamic a n d

robust Indian bond market. PDMA will include external borrowings and domestic debt under its

ambit.

G To provide fair and efficient commodity forward market it is proposed to merge Forwards Markets

Commission with Securities and Exchange Board of India.

G It is proposed to establish a sector-neutral Financial Redressal Agency that will address grievances

against all financial service providers.

G A status report on the review of Indian Financial Code is to be tabled (a comprehensive code

amending and consolidating laws relating to regulation of all financial sectors) and introduced

soon in the Parliament for consideration.

G To strengthen the domestic funding, it is proposed to allow foreign investments in Alternate

Investment Funds.

G It is proposed to allow a tax ‘pass through’ to Category-I and Category-II Alternative Investment

Funds (SEBI AIF Regulations), so that tax is levied on the investors in these Funds and not on the

Funds per se allowing the Funds to mobilise higher resources.

G It is proposed to rationalise the capital gains regime for the sponsors exiting at listing of the units of

Real Estate Investment Trusts (REITs) and Infrastructure Investment Trust (InvITs), subject to

payment of Securities Transaction Tax. It is also proposed that the rental income of REITs from

their own assets will have pass through facility.

G FII’s will now be exempted from payment of MAT on capital gains on transactions in securities

for profits corresponding to income which are liable to tax at a lower rate.

G It is proposed to modify the permanent establishment norms in order to facilitate relocation of fund

managers of offshore funds in India.

G Extension of the period of applicability of reduced rate of tax at 5% in respect of income of foreign

investors (FIIs and QFIs) from corporate bonds and government securities, from 31.5.2015 to

30.06.2017.

G It is proposed to exempt the income of Core Settlement Guarantee Fund established by Clearing

Corporations. The settlement guarantee fund deals with settlement defaults, mostly at times of

freak trades and temporary outages on stock exchange platforms.

108

G In cases of consolidation of Mutual Funds schemes as per SEBI Mutual Fund Regulations, 1996 it

is proposed to amend the provisions of the Income-tax Act, in order to provide tax neutrality on

transfer of units of a Mutual Fund scheme.

G It is proposed to levy a surcharge @ 12% as against current rate of 10% on additional income-tax

payable by companies on distribution of dividends and buyback of shares, or by mutual funds and

securitisation trusts on distribution of income.

G Service Tax exemptions have been withdrawn on the services provided by (a) a mutual fund agent

to a Mutual Fund or Assets Management Company; and (b) distributor to a Mutual Fund or AMC.

Consequent to the said withdrawal, services provided by mutual fund agents and Mutual Fund

distributors have been brought to under reverse charge.

G To establish National Investment and Infrastructure Fund (NIIF) with an expected annual flow of ̀

20,000 crore. This will enable the said Trust (NIIF) to raise debt and invest as equity in

infrastructure finance companies such as the Indian Railway Finance Corporation and National

Housing Board.

G Amendment to Section-6 of FEMA through the Finance Bill, 2015, to specify that, control on

capital flows as equity will be exercised by the Government, in consultation with the RBI.

NOTES

NOTES

NOTES

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THE UNION BUDGET 2015-16 - lexsite.comlexsite.com/Budget2015_2016/booklet_final_vaish.pdf · Budget at a Glance 3 Direct Tax Proposals Personal Taxation 5 Charitable Trusts 7 Business

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