Final presentation for budget 2014 11072014-tax- updated

India Union Budget

2014 Highlights

Contents

1. The budget backdrop

2. Foreign direct investment

3. Direct tax proposals

4. Transfer pricing proposals

5. Indirect tax proposals

6. Questions and Answers

Budget 2014 Highlights

|2© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International

Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The budget backdropBudget 2014 Highlights

3


© 2014 KPMG, an Indian partnership firm and a member firm of the KPMG network of independent member firms affiliated with KPMG International


The budget backdrop

45 days of the government Budget expectations

• Backdrop of turbulent tax year

• High expectations from a majority

government

• Bold move in the form of rail price increase

• Determination to reduce subsidies

• Stable foreign exchange regime liberalisation

• Buoyant stock market

• Reform-oriented budget expected in the

backdrop of political stability

• Stable tax regime; action on manifesto

promises

• Indicators in the economic survey

Slow growth with the hope of recovery in

2016-2017

Low GDP ratio

High inflation, hope of lower interest

rates towards the end of the year

Current account deficit under control

Need for fiscal consolidation

Varying monsoon season and changes

in global outlook

4




Key policy announcementsOutlook for 2014–

2015

• Investment revival

might happen

gradually

Commitment to a stable and predictable

tax regime

No use of retrospective amendments, to

create fresh liabilities

Slew of measures to reduce tax litigation

Composite cap of foreign direct

investment to be raised to 49 per cent in

defense and insurance

Comprehensive approach; SMEs,

entrepreneurs, socio economic plans,

financial services, infrastructure impetus

Economic survey

2013–2014

The budget backdrop

• Improved balance of

payments situation and

modest global growth

revival

• Current account deficit

reduced to

1.7 per cent in 2013–

2014 from 4.7 per cent

in 2012–2013

• Lower than 5 per cent

growth of gross

domestic product (GDP)

for 2012–2013 and

2013–2014

• Expectation of better

performance in

manufacturing

• Reversion to a growth

rate of around 7–8 per

cent may occur only

beyond the ongoing

and the next fiscal

year

• Fiscal deficit of 4.5 per

cent of the GDP in

2013–2014, as

compared to the

budgeted target of

4.8 per cent.



Foreign direct investmentBudget 2014 Highlights




Policy changes in foreign

direct investment

Insurance

Currently at 26 per cent; FDI allowed under automatic route

Increased to 49 per cent under FIPB approval route with full Indian

management and control

Insurance law amendment bill to be tabled in the parliament soon.

Defence

Currently at 26 per cent; FDI allowed under approval route

Increased to 49 per cent; FDI with full Indian management and control

through the FIPB approval route.

E-commerce

Manufacturing units (under automatic route) under retail, allowed to sell

their products through e-commerce platforms without additional approval.

Real Estate

Minimum built-up area and capitalisation requirements reduced from

50,000 sq. metres to 20,000 sq. metres and from INR60 crore to INR30

crore respectively with a 3 three year post completion lock-in

Exemption available to projects which commit at least 30 per cent to low

cost affordable housing.



Direct tax proposalsBudget 2014 Highlights

8




Corporate tax

Retrospective amendments

• Government to not use retrospective amendment ordinarily, as it

may create fresh liability

• To improve tax administration, a high level committee to be

constituted by CBDT for scrutinising fresh cases arising out of the

retrospective amendments in indirect transfers.

Dispute resolution mechanisms/ administrative measures

• Authority for Advance Rulings (‘AAR’):

- Proposal to extend AAR mechanism to residents, subject to

threshold requirement

- AAR to be strengthened by constituting additional benches

• Scope of income-tax settlement commission enlarged

• Government to set-up a high level committee to interact with trade

and industry on a regular basis to ascertain areas requiring clarity in

tax laws.

9




Corporate tax

Lower withholding tax on foreign borrowings/bonds

• Lower withholding tax rate at 5 five per cent (plus applicable surcharge

and cess) on interest payable to a non-resident on borrowings in foreign

currency, extended to all types of bonds (currently long-term

infrastructure bonds are covered)

• Time limit extended from 30 June 2015 to 30 June 2017

Characterisation of income for FII

• Security held by FII (FPI) to be treated as capital asset and income on

transfer of such securities to be taxed as capital gains

• Addresses ambiguity on characterisation of FII’s income that promote

presence of a fund manager in India.

10




Corporate tax

Incentives

• Tax holiday in holiday in power sector; commencement date extended

till 31 March 2017

• Investment linked deduction extended to two new sectors (slurry

pipelines for the transportation of iron ore, semi-conductor wafer

fabrication units)

• Investment allowance to a manufacturing company

- Additional deduction of 15 per cent to manufacturing companies

which invest more than INR25 crore in new plant and machinery in

a year, up to 31 March 2017

- Existing benefit on investment of INR100 crore extended till 31

March 2017 and to run parallel to the above benefit.

11




Corporate tax

Dividend distribution tax (‘DDT’)

• Revised mechanism for calculation of DDT; dividends distributed by

domestic companies and mutual funds to be grossed up

• Effective DDT rate to go up by approximately three per cent with

effect from 1 October 2014

• Similar amendment on distribution by mutual funds

Corporate social responsibility (‘CSR’)

• Expenditure incurred on CSR activities not allowed as a deduction

under section 37 of the Act

• CSR expenditure covered under section 30 to 36 may be allowed as

a deduction subject to fulfillment of certain conditions.

12




Corporate tax

Other key changes

• No change in corporate tax rates

• New categories of investment vehicles announced i.e. Real Estate

Investment Trust (REITs) and Infrastructure Investment Trusts to

enjoy tax pass through status (subject to conditions)

• Concessional tax rate of 15 per cent on dividend earned by Indian

companies received from specified foreign companies (shareholding

of 26 per cent or more) to continue without any sunset

• Unlisted security and units (other than equity oriented mutual fund)

to be short-term capital asset if held up to 36 months

• Long Term Capital Gain from transfer of units of mutual funds, other

than equity oriented funds, to be taxed at 20 per cent as against 10

per cent.

13




Corporate tax

Personal taxation

• Individual income-tax slab for resident senior citizens, limit raised to

INR3,00,000 from INR2,50,000. For all others, limit raised to

INR2,50,000 from INR2,00,000

• Deduction towards specified investments under section 80C increased

to INR1,50,000 from INR1,00,000

• Deduction towards interest on housing loan for self occupied property

increased to INR2,00,000 from INR1,50,000.



Transfer pricing proposalsBudget 2014 Highlights

15




Transfer pricing

• Proposal to introduce ‘rollback’ for maximum, four previous years;

• Conditions, procedure and manner of rollback to be prescribed;

• Applicable w.e.f. 1 October 2014.

Advance pricing agreement rollback provisions

Key questions (Illustrative)

• Opting of selective years out of four prior years (sequential or otherwise)

• Opting of APA rollback for APA already applied and currently pending for

disposal

• Prevention of double taxation for unilateral APA and also requirement of

initiation of MAP for prior years

• Penalty waiver for rollback years

Range concept

• ‘Range concept’ for arm’s length price instead of arithmetical mean

• Arithmetic mean to continue where adequate comparables not available

• No amendments currently proposed in Finance Bill. ‘Relevant data is

under analysis and appropriate rules will be prescribed’.

16




Transfer pricing

Multiple year data

• Proposal to allow use of multiple year data

• No amendments proposed in Finance Bill, necessary legislative

amendments expected subsequently

Deemed international transaction to include transactions with

third parties in India

• Section 92B(2) proposed to be amended to include domestic

transactions with third parties in India as ‘international transactions’

• Applicable w.e.f. 1 April 2015

TPO empowered to levy penalty for failure to furnish

documentation required under section 92D (TP

documentation)

• Section 271G proposed to be amended to include TPO as an authority

competent to levy penalty for failure to furnish information and

documentation, two percent of the value of international transactions.

• Currently, only Assessing Officer or CIT(Appeal) empowered to levy such

penalty and TPO at best can recommend in his order

• Applicable w.e.f. 1 October 2014.

17

Indirect tax proposalsBudget 2014 Highlights

18




Service tax

• Service tax negative list pruned. Service tax now applicable on:

˗ sale of space or time on online and mobile advertising media

˗ services provided by radio taxis or radio cabs

(4.944 per cent abated rate)

• Certain service tax exemptions withdrawn

˗ clinical research on human participants

˗ air-conditioned point to point contract carriages services like buses

• Certain service tax exemptions rationalised, like

˗ ‘auxiliary educational services’ procured by educational institutions

• New service tax exemptions announced:

˗ services provided by Indian tour operators to foreign tourists in

relation to a tour wholly conducted outside India.

19




Service tax

• CENVAT Credit:

˗ Time limit of six months prescribed for availing credit

˗ Service tax paid under full reverse charge mechanism (associated

enterprises), credit available immediately after tax payment

• Place of provision of services rules amended:

˗ Repair services provided on goods temporarily imported into India

for such repair and exported thereafter, not to attract service tax

˗ Services provided by ‘intermediary’ of goods (like commission

agent), to be taxed on the basis of location of service provider

• Service tax on all kinds of works contract except ‘original works’

rationalised to 8.65 per cent.

20




Service tax

• Service tax exemption on services provided to SEZ unit/developer, made

subject to stricter compliances

• Expansion in scope of reverse charge mechanism under service tax

• Mandatory pre-deposit (subject to ceiling of INR10 crore)

˗7.5 per cent for filing first stage appeal before Commissioner (Appeals

or Tribunal)

˗10 per cent for filing second stage appeal (before Tribunal)

• Service tax dues of a predecessor made recoverable from the assets of a

successor

• Interest rate for delayed payment of service tax increased from 18 per cent

to a range of 18 to 30 per cent, based on the period of delay.

21




Customs duty

• To boost domestic manufacture and to address the issue of inverted

duties, basic customs duty (BCD) reduced on certain items

• Concessional duty of 5 five per cent extended to machinery and

equipment required for setting up of solar energy project and exemption

of duty on specified raw materials for solar PV cells or modules

• Harmonisation of customs duty on coal to eliminate classification

disputes on non-agglomerated coal

• Exemption from SAD on all inputs/components used in manufacture of

personal computers (laptops/desktops) and tablet computers.

22




Customs duty

• Imposition of 10 per cent BCD on non-ITA bound telecom equipment and

customs education cess levied on ITA bound items

• Plants and equipment imported prior to 2008 for use in projects financed

by UN/international organisation, which could not be transferred/sold/re-

exported are now being allowed subject to the conditions

• No customs duties to be recovered on mineral oils including petroleum

and natural gas extracted or produced in the continental shelf of India or

the exclusive economic zone for the period prior to 7 February, 2002

• For passenger facilitation, free baggage allowance increased from

INR35,000 to INR45,000.

23




Customs duty

• Compulsory pre-deposit of 7.5 per cent of the duty demanded/penalty

imposed/both for filing appeal before Commissioner (Appeals)/Tribunal

at the first stage and another 10 per cent of the duty demanded or

penalty imposed or both for filing second stage appeal before the

Tribunal (subject to a ceiling of INR10 crore)

• Safeguard duty on inputs/raw materials applicable on import by EOU

when cleared into DTA as such or are used in the manufacture of final

products and cleared into DTA

• 24X7 customs clearance facility extended to 13 more airports and 14

more sea ports in respect of specified import and export goods.

24




Excise duty

• Goods supplied against international competitive bidding; clarification

provided to state that exemption also available to sub-contractors for

manufacture and supply of goods for or on behalf of the main contractor

(who has won the bid for the project through ICB) subject to compliance

with specified conditions

• FIAT decision over turned; transaction value to be adopted if seller does

not get any additional consideration

• Place of removal now defined to be a factory, depot, warehouse or other

place from where goods are removed for sale

• Time limit of six months introduced taking CENVAT credit on inputs/input

services.

25




Excise duty

• Assessee to self compute and pay penalty at one per cent per month on

the amount of duty not paid beyond one month from due date for each

month or part thereof

• AAR; scheme of advance ruling extended to resident private limited

companies

• Excise duty increased on numerous products like cigars, cigarettes,

aerated water with sugar

• Education cess exempted on goods cleared by EOU to DTA.

Questions and answersBudget 2014 Highlights

27


KPMG in India - Contact Us

Amarjeet Singh

+91124 3345022

Gaurav Mehndiratta

+91120 3868707

Manoj Pardasani

+91124 3074589

Sujit Ghosh

+911124 3345001

Nidhi Maheshwari

+91124 3074322

© 2014 KPMG, an Indian Partnership and a member firm of the KPMG

network of independent member firms affiliated with KPMG International


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

trademarks or trademarks of KPMG International Cooperative ("KPMG

International").

BangaloreSolitaire, 139/26, 3rd Floor,

Inner Ring Road,

Koramangala,

Bangalore 560071

Tel +91 80 3980 6000

Fax +91 80 3980 6999

ChandigarhSCO 22-23

1st floor. Sector 8 C

Madhya Marg

Chandigarh 160019

Tel : 0172 3935778

Fax 0172 3935780

ChennaiNo. 10, Mahatma Gandhi

Road,

Nungambakam,

Chennai 600 034

Tel +91 40 3914 5000

Fax +91 40 3914 5999

DelhiBuilding No.10,

Tower B, 8th Floor,

DLF Cyber City, Phase – II

Gurgaon 122002 Haryana

Tel +91 124 3074000

Fax +91 124 2549101

Hyderabad8-2-618/2

Reliance Humsafar,

4th Floor

Road No. 11, Banjara Hills

Hyderabad 500 034

Tel +91 40 6630 5000

Fax +91 40 6630 5299

Kochi4/F, Palal Towers,

M. G. Road,

Ravipuram, Kochi 682016

Tel +91 (484) 302 7000

Fax +91 (484) 302 7001

KolkataInfinity Benchmark, Plot No.G-1,

10th floor, Block - EP & GP,

Sector - V, Salt Lake City

Kolkata 700091

Tel: +91 33 44034066

Fax: +91 33 4403 4199

MumbaiLodha Excelus, 1st Floor,

Apollo Mills Compound,

N.M. Joshi Marg, Mahalakshmi,

Mumbai 400 011

Tel +9122 39896000

Fax +91 22 39836000

Pune703, Godrej Castlemaine

Bund Garden

Pune 411 001

Tel: +91 20 3058 5764/ 65

Fax: +91 20 30585775

AhmedabadSafal Profitaire

B4 3rd Floor, Corporate Road,

Opp. Auda Garden,

Prahlad Nagar

Ahmedabad – 380 015

Tel +91 (79) 4040 2200

Fax +91 (79) 4040 2244

Thank You

The information contained herein is of a

general nature and is not intended to

address the circumstances of any particular

individual or entity. Although we endeavour

to provide accurate and timely information,

there can be no guarantee that such

information is accurate as of the date it is

received or that it will continue to be

accurate in the future. No one should act

on such information without appropriate

professional advice after a thorough

examination of the particular situation.

Final presentation for budget 2014 11072014-tax- updated

Economy & Finance

Transcript of Final presentation for budget 2014 11072014-tax- updated