India Union Budget 2015 - An Overview | A BDO India Publication

India Union Budget 2015

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FOREWORDThe Hon’ble Finance Minister (‘FM’), Mr. Arun Jaitley announced the Union Budget 2015, which has set the tone for growth in earnest with a slew of provisions that will propel the Indian Economy to grow at 8 – 8.5% GDP growth, highest for large-sized economies in the world.

Rewind to 2014 and we, in India, seemed resigned to the oft-heard narrative - an economy slowly recovering from over 2 years of serious growth slowdown, 6 years of

adversarial tax regime replete with uncertainty did not bode well for business.

Fast-forward to early 2015 and the macro-economy has been rendered more stable, reforms have been launched, the downtrend in growth has been contained and the

is benign, and severe challenges in major global economies have made India the near-cynosure of eager investors. Aided by the dropping oil prices of which India is a prime

on a national scale to disburse subsidy (India currently dispenses nearly 7% of its GDP as

of regulations relating to Mines & Minerals, reviving the hitherto sluggish mining sector in India. Additionally, the new Government has been able to secure political agreement

increasing foreign direct investment (‘FDI’) in defense and insurance.

The FM has capitalized on the fact that the Indian economy is in a ‘sweet spot, rare

inflation is under control, global oil and commodity prices remain subdued and macroeconomic fundamentals including external account are stable.

The FM underscored goals of providing impetus to the initiatives of the NDA Government

etc. Further, huge initiatives to bring investment in infrastructure (India needs investment of US $ 1.07 to 1.6 trillion in the next 5 years) through various budgetary provisions outline the ambition for meeting with the large need of this sector. Ease of doing business in and with India will be a testimony of what the current Government delivers.

global standards is a step in the right direction.


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conducive tax regime, providing a stable environment, devoid of surprises and

to be a competitive tax jurisdiction comparable to other Asian economies in particular. The FM did well to show the way forward for the next 4 years by which the headline

capital gains for foreign companies, GAAR now being deferred to another 2 years and

of investment in various sectors.

On the Indirect Tax front, the FM has introduced the much awaited Goods and Services Tax (‘GST’) which would go live from April 1, 2016. A tall order, given that the

the new legislation, the Revenue Authorities need to gear up on the administration and training fronts to handle the new law. Importantly, the irritant, inverted duty structure that impacted cost and piled up cenvat credit has been addressed in the Budget.

address in the manufacturing sector is the inertia which also manifests in stagnation of

To conclude, the FM and Budget 2015 has not only put wind in the sail, but also set the

Milind S. Kothari

Managing Partner Head – Direct Tax

BDO India LLP March, 2015


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CONTENTS

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

2. DIRECT TAX PROPOSALS ................................................................... 3

3. INDIRECT TAX PROPOSALS

3.1. GOODS AND SERVICES TAX ........................................................20

3.2. CUSTOMS .............................................................................21

3.3. CENTRAL EXCISE ....................................................................27

3.4. SERVICE TAX AND CENVAT CREDIT ..............................................38

4. FDI PROPOSALS ............................................................................52

5. GLOSSARY OF TERMS ......................................................................56

ABOUT BDO .........................................................................................58


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A BDO India Publication


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1. ECONOMIC INDICATORS

Indian Economy is all set to take a giant leap and spearhead the world’s major economies today. The Economic Survey 2014-15 exemplifies a major reform and a benign external environment that would propel India to a double digit growth trajectory. It states that Indian economy appears to have now gone past

domestic demand, external account imbalances and oscillating value of the rupee.

The Survey taking into consideration the change of base year by the Central

prices for 2015-16 is expected to be 8.1% – 8.5% based on favorable monsoons.

in 2014-15.

One of the reasons for higher expected growth rates is on account of a number of reforms that have already been undertaken and more in pipeline. List of reform measures includes de-regulation of diesel prices, taxing energy products, replacing cooking gas subsidy by direct transfer on national scale, passing an ordinance to reform the coal sector via auctions, increasing FDI caps in defense, insurance, etc

Particulars 2012-13 2013-14 2014-15

1.2 1.1

Industry 4.5 5.9

Services 8.0 9.1 10.6

GVA at basic prices 4.9 6.6

5.1 6.9

Agricgood year from the point of rainfall.

Growth in manufacturing sector was primarily on account of robust growth in textiles, apparels, leather products, machinery and equipment.

and repair services, rail transport, communication and broadcasting services and miscellaneous services achieved double digit/close to double digits growth during the year. However, sectors like water transport and storage services lagged behind. Financing, insurance, real estate and business services, one of the most dynamic sector in the economy in recent years, is reckoned to have driven growth in the current year.


A BDO India Publication2

Growth in 2014-15 is primarily driven by domestic demand since the growth in exports is projected to be only 0.9% and growth rate of imports is -0.5%.

decline in household physical savings.

Future Outlook

While private investment will remain the primary engine of long-run growth, the public investment, especially in the railways, could play an important role at least in the interim, to revive growth and to deepen physical connectivity.

In the short run, growth will receive a boost from lower oil prices, from likely monetary policy easing facilitated by lower inflation and lower inflationary expectations, and forecasts of a normal monsoon.

insurance and land need to be translated into legislation approved by Parliament.

Public private partnership model of investment needs to be revitalized in the infrastructure sector.

Manufacturing sector and services sector are equally important for the growth of Indian economy. Accordingly, ‘Skilling India’ is no less important and deserves an equal attention as the other important goal of ‘Make in India’.

Constitutional amendment bill to implement the GST also needs to be enshrined



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2. DIRECT TAX PROPOSALS

2.1 Corporate Tax Rationalisation of Provisions Relating to Additional Depreciation

Presently, in case of acquisition and installation of new plant and machinery used in the manufacturing and power sector, the taxpayer is entitled to avail additional depreciation @ 20% of the cost of such new plant or

year when the said assets are put to use. In cases where such assets were used for a period less than 180 days only half of the additional depreciation was deductible. In such cases, the claim of the balance half was subject to varied interpretations, as a result many deferred their investment in such

In order to put the above controversy to rest and to encourage the acquisition and investment in new plant or machinery, the Finance Bill proposes to provide that the balance half of the additional depreciation in case where relevant assets are put to use for a period not exceeding 180

Minimum Alternate Tax on Capital Gains of FIIs

The Finance Bill proposes that in case of FIIs, the income arising from

to above mentioned income shall not be considered for computing book

This amendment does not address the flaming controversy regarding applicability of MAT to foreign companies.

2.2 Transfer Pricing

increase the aggregate monetary threshold from the existing INR 50mn to



The amendme

The above amendment is proposed with a view to reduce compliance burden for small businesses. It is pertinent to note that this amendment provides

that such transactions have been carried out at fair market value. It is to be seen whether the tax authorities borrow from the transfer pricing methods to determine fair market value for such provisions.

2.3 Taxation of Non-residents

Introduction of the Concept of Place of Effective Management

down the conditions to determine the residential status of a company in India. As per the proposed amendment, a company shall be considered as a resident if:

• it is an Indian Company, or

• if its place of effective management is in India at any time during a

The term ‘place of effective management’ has been explained 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.

Presently, a foreign company is considered as a resident in India only if the control and management of its affairs is situated wholly in India during that year. As a result, several companies could easily dodge residency in India by holding Board Meetings outside India. The proposed amendment plugs this loophole and aligns the corporate residency rules to internationally accepted concept.

subject to tax in India.

to introduce a set of guiding principles for determining the place of effective management.



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Taxation of Indirect Transfer of Indian Assets

Taking cue from the recommendations by the Expert Committee fromed under the chairmanship of Dr. Parthasarathi Shome, the Finance Bill

relation to tax on Indirect transfer of assets.

Scope of Indirect Transfer

The Finance Bill proposes that the shares or interest in any foreign company shall be deemed to derive its value substantially from assets located in

• exceeds INR 100 Mn, and

• represents atleast 50% of the value of total assets owned by the foreign company/ entity

Speci ed ate for a ation

period of the foreign company ends preceding the date of transfer. However, if the book value of assets of the foreign company as on the date of transfer is higher by 15% or more than the book value of assets as on the date on which the accounting period ends, the valuation shall be reckoned as on the date of transfer.

a ation of Indian ssets

The Finance Bill proposes to clarify that the value of an asset shall be its

of such asset. The Finance Minister has proposed to frame rules prescribing manner of computation of the value.

Ta a i it on a roportionate asis

The Finance Bill proposes that taxation under the Indirect Transfer shall be only on such part of the income as is reasonably attributable to assets located in India. Rules shall be prescribed to determine the manner of attribution.

e ption to inorit S are o ders

The Finance Bill proposes to provide exemption to minority shareholders, who do not have any right of control or management, nor hold any voting



rights/ shareholding/ interests in excess of the prescribed thresholds. Accordingly:

• In case of direct holdings (i.e. where the foreign company directly owns the assets situated in India), the non-resident shareholder shall not be taxable in India on account of income arising in his hands on transfer of shares/ interest of such foreign company, if such shareholder does not hold:

— the right of management or control, or

— voting power or share capital or interest in excess of 5%

in such foreign company

• In case of indirect holdings (i.e. where the foreign company/ entity indirectly owns the assets situated in India), the non-resident shareholder shall not be taxable in India on account of income arising in his hands on transfer of shares/ interest of such foreign company, if such shareholder does not hold:

— the right of management or control, in such foreign company

— any right which would entitle such shareholder to the right of management or control in the company that directly owns assets situated in India

— voting power or share capital or interest in the foreign company which would result in holding of voting power or share capital or interest exceeding 5% of the company that directly owns the assets situated in India

The right of management or control or the voting power/ share capital/ interest thresholds shall be determined qua the non-resident shareholder

pricing regulations. Further, the non-resident shareholder should have met at all the times the aforesaid conditions during the period of 12 months preceding the date of such transfer.

e ption on acco nt of orei n a a ations e er ers

The Finance Bill proposes to exempt income arising on account of transfer

demerger, which would have been otherwise taxable on account of Indirect Transfer.



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Speci ed a a ations

Shares of a foreign company, which are otherwise deemed to be situated in India under the Indirect Transfer, are transferred from an amalgamating foreign company to the amalgamated foreign company, and:

• atleast 25% shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company

• the transfer does not attract capital gains tax in the country in which the amalgamating foreign company is incorporated

Speci ed e er ers

Shares of a foreign company, which are otherwise deemed to be situated in India under the Indirect Transfer, are transferred from a demerged foreign company to the resulting foreign company, and:

demerged foreign company continue to remain shareholders of the resulting foreign company

• the transfer does not attract capital gains tax in the country in which the demerged foreign company is incorporated

eportin i ations on t e Indian oncern

The Finance Bill proposes to cast a reporting obligation on the Indian concern through or in which the Indian assets are held by the foreign company. Accordingly, such Indian concern shall be required to furnish the prescribed information for the purpose of determining the income that may be taxable in India by virtue of the Indirect Transfer. Failure to do so may attract penalty in the hands of the Indian concern.

Indirect Transfer, specially on the threshold percentage and the provisions granting exemption to minority shareholders, specified amalgamations, demergers etc. While the stand of the Government has been that the

applicable retrospectively, the Finance Bill proposes that the aforesaid

seen whether the aforesaid provisions could be said to be applicable in case of transfers effected before April 1, 2016.

Further, the FM indicated that appropriate circulars will be issued by the CBDT in due course to give effects to the other recommendations of the



Expert Committee on the subject of Indirect Transfer. Thus, one would have to wait for the CBDT circular clarifying the other positions and also the rules to be framed by the Government in this regard.

Tax on Income of Non-Residents from Royalty and Fees For Technical Services

income of non-residents from Royalty and Fees for Technical Services from the then rate of 10% to 25%.

However, in order to reduce the hardship faced by the small taxpayers due to high rate of tax, the Finance Bill proposes to bring back the rate of tax on income of non-residents from Royalty and Fees for Technical Services to 10%.

Interest Received by Non-Resident Banking Companies

or arise in India. Accordingly, such interest would now be taxable in India in the hands of the foreign bank.

In past ITAT has held that while interest paid by a branch of a foreign bank to the head office is tax deductible in the hands of the paying branch,

bank. The ITAT was of the view that the Indian branch is not distinct from

Act thereby creating a tax liability where the IT Act itself creates no such charge.

The proposed amendment seeks to put this controversy to rest by creating a deeming provision to treat PE in India as a person separate and independent of the non-resident of which it is a PE. As a result, branch/PE of a foreign bank in India will be required to withhold tax on interest payment to head

would result in disallowance of interest deduction to the Indian branch/PE.



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2.4 Taxation of Funds

Pass through Status to Alternate Investment Funds Holding Category I and II Registrations

The Finance Bill proposes to extend the ‘pass through status’ to Category

applicable to VCFs will continue to apply.

Ta a i it in ands of t e In est ent nd

It is proposed to exempt the income in the hands of Investment Fund

proposes to relax the levy of dividend distribution tax and income distribution tax on the income paid by Investment Fund to its unit holders. The Income received by Investment Fund will not be subjected to withholding tax under the proposed provisions. As per the proposed

in the hands of Investment Fund.

As regards the carry forward and set off of losses, the Finance Bill provides that any loss incurred by the Investment Fund will not be allowed to be passed through to the unit holder but will be allowed to be carried forward and set off in the hands of the Investment Fund.

Ta a i it in ands of nit o ders

The income of unit holders of the Investment fund is proposed to be taxed in the same manner as if such unit holder had made investments directly into the Investee Company and not through Investment fund. As regards the nature of income, income paid by the Investment fund will be treated as having same nature and in the same proportion in the hands of unit holder as had been received by the Investment fund.

As the income from profits and gains of business will be taxable in the hands of Investment Fund, the same shall be exempted in the hands of unit holders.

Any income, other than taxable income of Investment funds, will be liable to withholding tax @ 10%, which would be available as credit to the unit holder.



o p iance e ire ents

The compliance requirement of furnishing of return of income has been introduced to include the Investment funds. Further, such funds will be required to provide information on various components of income of the unit holders to the tax authorities and the unit holders.

shall be freely allowed. However, withholding tax on income payable to non-residents would pose challenges as to the determination of tax in case of non-residents, would as the same depend upon treaty provisions.

Fund Manager in India Not to Constitute PE for the Offshore Fund

the IT Act extinguishing the risk of a fund manager, creating a business connection or a PE of the offshore fund in India. As per the proposed amendment, the offshore fund shall not constitute a PE in India, if the

• The Fund should not be a resident in India;

• The Fund is a resident of a country with whom India has a tax treaty or tax information exchange agreement;

• Aggregate participation of residents in the Fund shall not exceed 5% of the total corpus of the fund;

• The Fund is a broad based fund with a minimum of at least 25 unconnected persons;

• Connected persons shall not have aggregate participation of more than 10%;

• The Fund shall not make any investment in its associate entity and shall not invest more than 20% in any single entity;

• Fund Manager shall not be employee of the Fund or a connected person;

• Fund Manager shall be registered with SEBI; and

the Fund.

Though a welcome change, the conditions laid down are onerous and non-starter. The regime, however, recognizes the market practice to remunerate Fund Managers. Large investors



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that the key condition requires minimum 25 investors with investment restriction of 10% for a single investor group.

2.5 Taxation of REIT and Invit (‘Business Trust’)

The Finance Bill proposes to treat the units of a business trust which are listed on a recognized stock exchange and held by the sponsor, at par with other securities subjected to STT. Thereby, exempting the income arising on transfer of such units held for a period of more than 12 months. The units with holding period of 12

15%.

under an initial offer upon listing of such units.

It is proposed that any income received by a REIT by way of renting /leasing /letting out of real estate asset owned directly by the REIT will not be taxable. Consequently, any such income payable to REIT shall not be subject to withholding tax under section 194I of the IT Act, resulting into ‘pass through status’ to the rental income as well.

The Budget proposals do not address the issue of applicability of MAT provisions on swap of shares for units in the hands of sponsor. Rental income in the hands of SPVs will continue to be subjected to withholding tax. In absence of any change

be subjected to onerous valuation norms.

2.6 Individual Taxation

investments in social security and other investment/saving schemes. In his budget speech the FM indicated that based on the proposals, an individual would now be able seek tax exemption for income upto INR 444,200.

Tax Saving Scheme for Parents of a Girl Child

With an objective of welfare of the girl child, the Prime Minister in July 2014 announced a small savings scheme titled ‘Sukanya Samriddhi’. The Finance Bill proposes to provide exemption from tax to parents/guardians of the girl child for the following payments from accounts held under the said scheme:

• Interest on deposits in the account

• Withdrawals from the said account in accordance with the relevant rules



Further, the investments in this scheme will be eligible for deduction

Increase in Limit of Deduction of Health Insurance Premia

The Finance Bill proposes to increase limit of deduction under section 80D of the IT Act in respect of health insurance premia:

Deduction for Medical Expenditure for Very Senior Citizens (age 80 years and above)

to an individual in relation to any payment made on account of medical

Such deduction is restricted only to cases where no payment has been made towards health insurance of such very senior citizen.

The tax deduction to an individual from the below is restricted to a total

• health insurance premia of senior citizens and

• medical expenditure of very senior citizens

Relaxation of Requirements for Claiming Deduction for Medical Treatment Expenditure

In order to reduce the burden of undue hardship on the taxpayer, the Finance Bill proposes to amend section 80DDB of the IT Act, wherein the

hospital is required. It is proposed that the deduction would be allowed

Further, the tax deduction for expenditure on medical treatment of a very



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Increase in Limit of Deduction Relating Expenditure on Treatment of

The Finance Bill proposes to enhance the quantum of deduction available

to INR 150,000

Increase in Limit of Deduction for Contribution to Pension

The Finance Bill proposes to increase the deduction for contribution to certain pension schemes under section 80CCC of the IT Act from INR 100,000 to INR 150,000.

Additional Deduction for Contribution to the National Pension System

As one of the many social security initiatives of the Budget, the Finance Bill

limit of deduction for contribution to NPS from INR 100,000 to INR 150,000.

It is also proposed to allow an additional deduction of upto INR 50,000 for contribution to NPS in excess of INR 150,000.

Relaxation of Requirement for Obtaining TAN for Certain Deductors

With a view to reduce the burden of procedural compliances, the Finance

the requirement for obtaining and quoting TAN in case of deductors and

This amendment will be effective from June 1,2015.

2.7 Withholding Tax

Tax Withholding on Salaries

There has been a lot of debate around the responsibility of the Employer to obtain information/documentation regarding various allowances/ deductions



while computing withholding tax on salaries. The Finance Bill proposes to amend section 192 of the IT Act to provide that the Employer shall obtain from the Employee, certain evidences or proofs or particulars of prescribed

The above proposed amendment will take effect from June 1, 2015.

Tax Withholding from Payments Made to Transporter

carriage, if such contractors furnish his Permanent Account Number to the payer. This amendment intended to exempt small transport contractors

the purview of deduction of tax at source on furnishing of PAN. However, the amendment did not convey the desired intention and as a result even large transporters have been claiming exemption from tax withholding.

In order to reinforce the above intent, the Finance Bill proposes to amend the existing provisions of section 194C of the IT Act, whereby the deduction of tax shall not be applicable, in case of payment made to the small contractors upon furnishing of PAN and obtaining declaration in respect of owning 10 or less goods carriages.

This amendment will take effect from June 1, 2015.

Furnishing of Particulars of Foreign Payments

Presently, while furnishing withholding tax returns, the payer is required to report all transactions of payment to non-residents where tax has been withheld. As a result of this, the transactions where the payer has not withheld tax went unreported. To remedy this, the Finance Bill proposes to amend provisions of section 195, wherein every person responsible for paying to a non resident or foreign company is required to furnish information in the form to be prescribed, irrespective of whether such payment is subject to withholding or not.

It is proposed that a penalty of INR 100,000 be levied for failure to furnish such information or on furnishing inaccurate information with respect to the above.

The above proposed amendments will take effect from June 1, 2015.



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Rationalization of TCS Procedures

Similar to the provisions dealing with of processing of Withholding Tax Returns, the Finance Bill proposes to introduce provisions to facilitate furnishing of correction statement, processing of such statements,

The above proposed amendment will take effect from June 1, 2015.

2.8 Other Key Amendments

Deferment of GAAR

1, 2015. Amendment is proposed to section 95 to defer the implementation

applicability of GAAR.

The FM explained that such a decision was taken after considering the contentious issues in GAAR which needed resolution and the need to accelerate momentum regarding the investment sentiment in the country. The FM has also taken note of the BEPS project of OECD and expressed prudence in deferring GAAR provisions and implement them as part of a comprehensive regime to deal with BEPS and aggressive tax avoidance.

Additionally, such deferral will also allow the tax administration machinery to be ready to effectively administer the provisions.

Measure to Curb Unaccounted Money in Real Estate Sector

provisions of section 269SS and 269T of the IT Act extending the same to Real Estate transactions. It is now proposed to extend penal consequences of acceptance or repayment of any loans, deposits and advances in cash exceeding INR 20,000 to advances or sums given or taken in cash in relation to transfer of immovable property whether or not the transfer takes place

This amendment would be effective for all transactions from June 1, 2015.

Power to Notify Rules for Granting Foreign Tax Credit

Presently, as per the provisions contained in section 90, 90A and 91 of the IT Act a tax payer is granted credit for taxes paid by it in foreign countries



on doubly taxed income. However the IT Act does not provide the manner for granting tax credit of taxes paid in any country outside India.

of the IT Act, wherein CBDT has been empowered to notify rules laying down procedure for granting relief or deduction for income-tax paid outside India against income-tax payable in India.

The said amendment will take effect from June 1, 2015.

Tax Neutrality to Unit Holders upon Consolidation of Mutual Fund Schemes

Act in order to exclude the transfer of units upon consolidation or merger

amendment would result into a tax neutral treatment for such transactions similar to that in case of amalgamation of companies.

A corresponding amendment is also proposed in section 49 of the IT Act whereby the cost of acquisition of units in the consolidating/old scheme shall be deemed to be the cost of acquisition of units allotted in the new scheme. Further, the period of holding of units in consolidating/old scheme shall be considered for the purpose of determining the period of holding of

The proposed amendment will facilitate consolidation of different mutual fund schemes having similar features so as to have simple and fewer number of schemes. Such consolidations will enable lower maintenance and regulatory costs for the mutual funds and enhance investor interests.

Cost of Acquisition in Cases of Tax Neutral Demergers

capital asset in the hands of the resulting company shall be the cost of such capital asset to the previous owner, i.e. the demerged company. Further, for the purpose of determining the period of holding of the capital asset in the hands of the resulting company, the period for which the capital asset was held by the demerged company shall also be taken into consideration.



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Deduction for Employment of New Workmen

Section 80JJA of the IT Act provides additional deduction to corporates

workers employed in the manufacturing facility. Promoting the ‘Make in

corporate taxpayers and the deduction is enhanced by bringing the base-limit from 100 workers to 50 workers.

Rationalisation of Penalty Provisions

Courts and Tribunal have held that no penalty for concealment can be

under MAT and concealment has been found under normal computation.

to be evaded’ so as to include the aggregate of tax sought to be evaded

the debate to rest.

Abolition of Wealth-tax

Considering the low revenue collection, the number of taxpayers paying Wealth Tax and with an objective to reduce the compliance burden on the taxpayers as well as administrative burden on tax authorities, the Finance Bill proposes to abolish the levy of wealth tax under the Wealth-tax Act,



2.9 Rates of Income-tax at a Glance

Income Slabs (INR)

Individual

Age below 60 yrs

Age above 60 but

below 80 yrs

Age 80 yrs and above

NIL NIL NIL NIL

10% NIL NIL 10%

10% 10% NIL 10%

500,001 – 1,000,000 20% 20% 20% 20%

1,000,001 & above

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

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

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

Partnership Firm / Limited Liability Partnerships

year 2014-15.

Limit

On the whole of the total income

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

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

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

HUF / AOP / BOI



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Company

Sr. no Particulars Basic

Tax Rate

Surcharge

Total Income

upto INR 10 mn

Total Income

above INR 10 mn upto INR 100 mn

Total Income

above INR 100 mn

1. Domestic Company

Normal Tax Rate

Minimum Alternative Tax

18.50%

Nil

Nil

12%

12%

2. Foreign Company

Normal Tax Rate 40% Nil 2% 5%

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

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

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



3. INDIRECT TAX PROPOSALS

3.1 GOODS AND SERVICES TAX

Following up on the strong intent statement outlined in the Budget Speech 2014 and the introduction of the GST 122nd Constitutional Amendment Bill in the Parliament on December 19, 2014, the FM has in the Budget Speech 2015 clearly

The FM touched upon the issue of GST implementation at various stages of the Budget Speech which clearly manifests the far reaching magnitude of this radical indirect tax reform. In the words of the FM:

“GST is a game changing reform which will put in place a state-of-the art indirect tax system by April 1, 2016. GST is expected to play a transformative role in the way our economy functions. It will add buoyancy to our economy by developing a common Indian market and reducing the cascading effect on the cost of goods and services. We are moving on various fronts to implement GST from the next year.”

The various measures announced in the Finance Bill are geared towards a smooth transition to the GST Regime such as abolition of Education Cess and Secondary & Higher Education Cess, Increase in Peak Rates of Service tax so on and so forth.

While the implementation of GST had missed several deadlines in the past creating

starting from the Budget Speech 2014 clearly indicates that the implementation of GST from April 1, 2016 is almost a certainty.

The coming weeks may see substantial movement on GST starting with putting up the draft GST Place of Supply Rules. The same had already been circulated to the States for their comments. In coming time it is expected that the rules would be



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3.2 CUSTOMS

Legislative Changes [to be effective from the date of enactment of Finance Bill]:

• Effective rate of Customs Duty

Duty of Customs Rate Existing New

Assessable Value 100.00 100.00

BCD 10.00% 10.00 10.00

Total value 110.00 110.00

CVD 12.50%

EC & SHEC

ADC 4.96 4.98

Total Value 128.85 129.44

Effective rate of Customs Duty 28.85% 29.44%

• Commutation/Waiver of Penalty against show cause notice:

willful mis-statement, suppression of facts etc. where duty and

the SCN.

reason of collusion, willful mis-statement, suppression of facts

date of the receipt of the SCN.

before the enactment of the Finance Bill, 2015 and the duty,

the date of enactment of the Finance Bill, 2015, the proceedings in respect of such persons shall be deemed to be concluded.

• Reduction of Penalty in case of improper importation of goods:

than prohibited goods has been reduced from 100% to 10% of the

greater.



from the date of the communication of order, the amount of penalty liable to be paid shall be 25% of the penalty so determined.

• Reduction of Penalty in case of improper Export of goods:

prohibited goods has been reduced from 100% to 10% of the

greater.

from the date of the communication of order, the amount of penalty liable to be paid shall be 25% of the penalty so determined.

• Advance Ruling [to be effective from March 1, 2015]:

‘Resident Firm’ has been included in the class of person eligible for making an application for Advance Ruling. ‘Resident Firm’ includes Limited Liability Partnership, Sole Proprietorship, One Person Company.

Amendments in Customs Tariff Act, 1975* [to be effective from March 1, 2015]I. Chemicals And Petrochemicals

Sr. No.

Description of goods Existing BCD Rate

Revised BCD Rate

1. 2.5% Nil

2. 5% 2.5%

2.5% 2%

4. Butyl Acrylate 5%

5. Anthraquinone 2.5%

6. Antimony metal and Antimony waste and scrap 5% 2.5%

Sr. No.

Description of goods Existing SAD Rate

Revised SAD Rate

1.

for manufacture of excisable goods

4% 2%

2. Naphtha 4% 2%



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II. Fertilizers

Sr. No.


Revised BCD Rate

1. Sulphuric Acid for manufacture of fertilizers

5%

III. Infrastructure

Sr. No.

Description of goods Existing Rate Revised Rate

1. Scheduled rate of Additional duty of Customs levied on Petrol and High Speed Diesel Oil

INR 2/litre INR 8/litre

Effective rate of Additional duty of Customs levied on Petrol and High Speed Diesel Oil

INR 2/litre INR 6/litre

IV. Ores And Metals

Sr. No.


Revised BCD Rate

1. Metallurgical Coke 2.5% 5%

2.iron and steel and articles of iron and steel

10% 15%

Sr. No.


Revised SAD Rate

1. Melting scrap of iron and steel including stainless steel scrap, copper scrap, brass scrap and aluminum scrap

4% 2%

Sr. No.

Description of goods Existing Export Duty

Revised Export Duty

1. 5% 2.5%



V. Electronics/Hardware

Sr. No.


Revised BCD Rate

1. Metal parts used in manufacture of electrical insulators subject to actual user condition

10%

2. Ethylene-Propylene-non-conjugated-Diene

Mica glass tape used in the manufacture of insulated wires and cables subject to actual user condition

10%

Magnetron of upto 1 KW used in the manufacture of domestic microwave ovens subject to actual user condition

5% Nil

4. Zeolite, Ceria Zirconia compounds and Cerium compounds used in the manufacture of washcoats, which are used in manufacture of catalytic converters subject to actual user condition

5%

5.of specified CNC Lathe machines and Machining Centres subject to actual user condition

2.5%

6. C- Block for Compressor, Over Load

used in the manufacture of Refrigerator compressors

5%

Specified inputs used in manufacture of 5% 2.5%

8. HDPE used in the manufacture of telecommunication grade optical fiber cables subject to actual user condition

Nil

9.manufacture of LCD/LED TV panels subject to actual user condition

10% Nil

10. 10% Nil



25

Sr. No.


Revised BCD Rate

11. Digital Still Image Video Camera’s capable of recording video with minimum resolution of 800x600 pixels at minimum

in a single sequence using maximum

and parts and components for use in the manufacture of such camera

10% Nil

12. Parts, components and accessories

manufacture of tablet computers and their sub-parts for use in the manufacture of parts, components and accessories subject to actual user condition

Various Tariff Rates

Exempted

Sr. No.


Revised SAD Rate

1. All goods except populated printed circuit boards, falling under any Chapter of Customs Tariff, used in the manufacture of ITA Bound Items subject to actual user conditions


Exempted

2. Parts, components and accessories

manufacture of tablet computers and their sub-parts for use in the manufacture of parts, components and accessories subject to actual user condition


Exempted

palladium wire, eutectic wire, silicone resins and rubbers, solder paste, reed switch, diodes, transistors, capacitors,

used in the manufacture of pacemakers subject to actual user condition


Exempted

4. Inputs used in the manufacture of LED

and lamps subject to actual user condition


Exempted



VI. Renewable Energy

Sr. No.


Revised BCD Rate

1. Evacuated Tubes with three layers of solar selective coating used in the manufacture of solar water heater and system, subject to actual user condition

8.5% Exempted

2.manufacture of Renewable Power System

MNRE

5%

VII. Automobiles

Sr. No.


Revised BCD Rate

1. Scheduled rate of Commercial Vehicles 10% 40%

Effective rate of Commercial Vehicles 10% 20%

Sr. No.

Description of goods Existing Revised

1.goods used in the manufacture of Electrically operated vehicles and Hybrid

Exemption upto Exemption extended to

VIII. Health

Sr. No.


Revised BCD Rate

1. Exempted

IX. Energy

Sr. No.


Revised BCD Rate

1. Bituminous Coal 55% 10%



27

X. Miscellaneous

Sr. No.


Revised SAD Rate

1. Specified goods used by Security and Minting Corporation of India Limited

Exempted Taxable

Tariff rates to be read along with exemption noti cation, if any.

3.3 CENTRAL EXCISE LEGISLATIVE AMENDMENTS:

I. Amendments to CE Act [to be effective from the date of enactment

• A new section 15A is being inserted in the Act empowering the Central Government to prescribe an authority or agency to whom

such as Income tax authorities, State Electricity Boards, VAT or Sales Tax Authorities, Registrar of Companies, Recognized Stock Exchange, Depository, Officer of RBI, amongst others. Another new section 15B is also being inserted so as to provide for imposition of penalty on the specified person on failure to furnish information return. The purpose of collecting the

This amendment will be effective immediately due to Declaration under the PCT Act.

• Section 11A of the CE Act is being amended in the following manner:

involving fraud, willful misstatement/suppression of facts, etc., but where the transactions are recorded in the

The purpose of the amendment is to bring uniformity in treatment of all such cases irrespective of whether the transactions are recorded or not. Thus, the concept of ‘captured transactions’ entailing reduced penalty will no longer be operative.

term ‘relevant date’ is being amended so as to provide a



where a return is not filed on the due date and cases where only interest is required to be recovered.

shall not apply in the cases where the non-payment or

in such manner as may be prescribed in the Rules.

• Section 11AC is being substituted with new section 11AC and the implications of the amendment are as under:

not involving fraud or collusion or willful misstatement or suppression of facts or contravention of any provisions of the Act or Rules with intent to evade payment of duty shall be as follows:

Section 11A, a penalty not exceeding 10% of the duty so determined or INR 5,000/- whichever is higher shall be payable, in addition to duty as determined.

is paid either before issue of show cause notice or within

shall be payable and the proceedings in respect of the duty and interest shall be deemed to be concluded.

11A and interest thereon in terms of section 11AA is paid

then the amount of penalty shall be equal to 25% of the penalty so imposed, provided that such reduced penalty

order.

• Penalty in cases involving fraud or collusion or willful misstatement or suppression of facts or contravention of any provisions of the Act or Rules with intent to evade payment of duty shall be as follows:

However, in such cases, if the transactions are recorded

and upto the date of assent to the Finance Bill, 2015, the penalty shall be 50% of the duty so determined.



29

notice, the amount of penalty shall be 15% of the duty demanded, provided the reduced penalty is also paid

case, all proceedings in respect of such duty, interest and penalty shall be deemed to be concluded.

and interest thereon in terms of Section 11AA are paid

the penalty shall be equal to 25% of the duty determined,

of the date of receipt of the order.

• Where the duty amount is modified in any appellate proceedings, then the penalty amount

In case, the duty amount is increased in the

penalty shall be admissible if duty, interest and penalty in relation to such increased duty is paid

order.

• It is further provided that the provisions of section 11AC as amended aforesaid shall apply to the cases where no SCN has been issued prior to the date on which the Finance Bill, 2015 receives the assent of the President.

• Provision has also been made for the closure of the proceedings in the pending show cause

fraud, collusion, etc. can be closed on payment of duty, interest and penalty equivalent to 15% of the

etc., can be closed on payment of duty and interest if the payment, in either case, is made

Bill receives the assent of the Hon’ble President.

• It is also provided that where SCN is adjudicated after the Finance Bill receives the assent of the

penalty of



25% of the duty in cases involving fraud, collusion, willful misstatement etc. or the reduced penalty of 25% of the penalty imposed in cases not involving fraud, collusion, willful misstatement, etc. shall be available if, in either case, the duty,

date of communication of the order.

• The provisions relating to Settlement Commission

CE Act. Amendments have been made to quite a few of these statutory provisions. However, a careful perusal of the amendments and the nature and scope thereof reveals that bulk of these amendments are made since the relevant provisions have become redundant for past many years.

• The only amendments that need some

amended to delete the reference to “in appeal or revision, as the case may be” so as to provide that any proceedings is referred back by any court, appellate tribunal or any other authority to the adjudicating authority for a fresh adjudication or decision, then such case shall not be entitled for settlement. The omission of the relevant words is presumably for the reason that the usage of the words “in appeal or revision”, could be interpreted to restrict the various occasions when the matter could be remanded by the court or tribunal or any other authority for fresh adjudication and not eligible for settlement.

even the Member can officiate as the Chairman in the absence of the Chairman of the Settlement Commission.



31

the penalty not exceeding the duty leviable on the offending goods or INR 2000, whichever is greater. Both the sub-sections are being amended so as to increase the minimum penalty from INR 2000 to INR 5000.

II. Other Amendments:

• Retrospective amendment:

being amended retrospectively so as to provide exemption to railway or tramway track construction material of iron and steel from payment of excise duty on the value of rails, subject to the condition that such rails have suffered excise duty and no credit of duty paid on them is taken under the Credit Rules, 2004.

The exemption is granted retrospectively for the period from

• Amendment to Third Schedule:

The third schedule to CE Act is being amended so as to include therein all goods falling under Chapter sub-heading 2101 20, all goods falling under Chapter Heading 2202 and to amend the entry related to Sr. No. 94.

These amendments will come into effect immediately due to Declaration under the PCT Act.



AMENDMENT IN ABATEMENT NOTIFICATION [to be effective from March 01, 2015]:

Sr. No.

Nature of Amendment

Heading, Sub- Heading or Tariff item

Description of goods percentage of Retail

Sale Price

After E. No.1

New Entry 0402 9110 Condensed Milk put up

After E. No.16

New Entry 2101 20 Extracts, essences and concentrates of tea or mate and preparations with a basis of these extracts, essences or concentrates or with a basis of tea or mate

After E. No. 25A

New entry 2202 All goods except mineral waters and aerated waters which attract abatement of 45% and 40% respectively

Entry No. 56

Rate of abatement changed

64 All footwear 25

Entry No. 101

Entry Substituted

85 or 94 Falling under heading

or fixtures including LED lamps falling under Chapter 85 or heading 9405

Entry No. 121, 122,

124

Deleted 2202 9010 2202 9020

2202 9090

All Goods

All Goods

Flavoured milk of animal origin

Tender coconut water



33

RATE OF DUTY

• The standard ad valorem rate of duty of Excise i.e. Cenvat is being

• The rate of Excise duty applicable on goods covered by M & TP Act

• Excise duty of 2% without Cenvat and 6% with Cenvat is being levied

However, the condensed milk other than put up in unit containers will continue to be exempt from Excise duty.

• Excise duty of 2% without Cenvat and 6% with Cenvat is being levied

• Full Excise duty exemption is being provided to all goods which are consumed within the factory of their production in the manufacture

• Nil Excise Duty for goods required to set up mega power projects is being amended to prescribe furnishing of bank guarantee or fixed deposit receipts for a period of 42 months for ultra mega power

Goods manufactured domestically and supplied against international competitive Bidding are eligible for full excise duty exemption provided that such goods when imported attracts Nil BCD and Nil CVD. The condition is being amended so as to provide that if imported goods are eligible for Nil BCD 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



Amendments in Central Excise Tariff Act, 1985 [to be effective from March 01, 2015]

Sr. No.

Description of goods Existing BED Rate

Revised BED Rate

1. Waters, including mineral waters and aerated waters, containing added sugar

12% 18%

2. Cut tobacco INR 60 per kg

Goods falling under Chapter sub-heading INR 900 per tone

INR 1000 per tone

4. High Speed diesel falling under tariff 14% + INR 5 per litre

14%+ INR 15 per litre

5. 12% 18%

6. Other Sacks and Bags falling under Sub- 12% 12.5%

I. PETROLEUM [TO BE EFFECTIVE FROM MARCH 01, 2015]

Sr. No.

Description of goods Existing Road Cess

Revised Road Cess

1. The Schedule Rates of the Additional Duty of Excise levied on Petrol and High Speed Diesel Oil

INR 2 per liter INR 8 per liter

2. The Effective Rates of the Additional Duty of Excise levied on Petrol and High Speed Diesel Oil

INR 2 per liter INR 6 per liter

• An Education Cess and Secondary & Higher Education Cess presently applicable to petroleum products including petrol and HSD are being



35

• Changes in various duties applicable to Petrol and Diesel:

Duty rates applicable prior upto 28.02.2015 Duty rates applicable with effect from 01.03.2015

CENVAT INR/Litre

SAED INR/Litre

AED INR/Litre

Education Cesses(as%

of aggregate of duties of excise)

Total INR / Litre

CEN VAT

SAED AED Edu- cation Cesses

Total

8.95 6 2 5.46 6 6 NIL

Branded petrol

10.10 6 2 18.64 6.64 6 6 NIL 18.64

NIL 2 10.26 4.26 NIL 6 NIL 10.26

Branded Diesel

14% + INR 5/litre or INR 10.25/litre, whichever is lower

NIL 2 12.62 6.62 NIL 6 NIL 12.62

II AUTOMOBILES [TO BE EFFECTIVE FROM MARCH 01, 2015]

Sr. No.


Revised BED Rate

1. 24% 12.5%

in the manufacture of electrically operated vehicles and hybrid vehicles is being



III. ELECTRONICS/ HARDWARE [TO BE EFFECTIVE FROM MARCH 01, 2015]

Sr. No.


Revised BED Rate

1. Wafers for manufacture of integrated circuit modules for smart cards

12% 6%

2. Inputs used in the manufacture of LED drivers and MCPCB for LED lights,

12% 6%

Mobile handsets including cellular phone 1% without Cenvat credit

or 6% with Cenvat credit

1% without Cenvat credit or 12.5% with Cenvat credit

4. Nil 2% without Cenvat credit or 12.5% with Cenvat credit

• NCCD of 1% on Mobile phones remains unchanged

• Excise duty is being exempted on specified raw materials for use in

• Conditional exemption has been provided in respect of Parts, components and accessories used in manufacture of tablet Computer and sub-parts for use in manufacture of parts, components, accessories of tablet computers

IV. RENEWABLE ENERGY [TO BE EFFECTIVE FROM MARCH 01, 2015]

Sr. No.


Revised BED Rate

1. Pig Iron SG grade and ferro – silicon-magnesium for manufacture of cast components of wind operated electricity generators subject to certification by MNRE in this regard

12% Nil

2. Solar water heater and system Nil Nil without Cenvat credit

Solar water heater and system Nil 12.5% with Cenvat credit

• Conditional exemption is being extended to round copper wire and tine alloys for use in manufacture of PV ribbon for manufacture of solar PV cells



37

V. CONSUMER GOODS [TO BE EFFECTIVE FROM MARCH 01, 2015]

Sr. No.


Revised BED Rate

1. Leather footwear of Retail Price of

revised rate will not be applicable to the footwear with leather sole and

12% 6%

• Additional duty of Excise of 5% levied on mineral waters, aerated waters, containing added sugar or other sweetening matter or flavored is being exempted till enactment of Finance Bill, 2015.

VI. SWACHH BHARAT AND ENERGY SECTOR [TO BE EFFECTIVE FROM MARCH 01, 2015]

Sr. No.

Description of goods Existing Clean Energy Cess

Revised Clean Energy Cess

1. The Schedule rate of Coal, Lignite and peat

INR 100 per tonne tonne

2. The Effective rate of Coal, Lignite and peat

INR 100 per tonne

INR 200 per tonne

Sacks and Bags of Polymers of ethylene other than for industrial use

12% 15%

VII. HEALTH

Tariff Item

Description (length in mm) BED INR Per 1000 sticks

(Existing Rate)

BED INR Per 1000 sticks (New Rate)

24022010 990 1280

24022020 Non-filter exceeding 65 but not 1995

Filter not exceeding 65 990 1280

24022040 Filter exceeding 65 but not 1490

24022050 1995

24022090 Other



3.4 SERVICE TAX AND CENVAT CREDIT

Change In Rate Of Tax And Provisions In Relation To Cess:I. Rate of Tax

the enactment of the Finance Bill.

• The Education cess and Secondary higher education cess will cease to

time, both the cesses shall be continued to be levied in service tax.

for various services having an option to pay service tax at alternative

effective rate for services with abatement would be as under:

Proposed Effective rate

Nature of Service

Provider/Service

Effective current rate

w.e.f from 1 April 2015

w.e.f the

Without Swachh

Bharat Cess

w.e.f the

with Swachh Bharat Cess

Domestic Air Travel Agent

0.618% 0.618% 0.8%

International Air Travel Agent

0.124% 0.124% 0.14% 0.16%

Insurer carrying life insurance business

year and 1.545% for subsequent years

year and 1.545% for subsequent years

for subsequent years

year and 2 % for subsequent years



39


Nature of Service

Provider/Service



w.e.f the

Without Swachh

Bharat Cess

w.e.f the


Money Changers

i. 0.12% subject to minimum

transactions upto 1,00,000

i. 0.12% subject to minimum of


i. 0.14% subject to minimum of


i. 0.16% subject to minimum of INR 40 for transactions upto 1,00,000

ii. INR 120 and 0.06% for transactions between 1,00,000 to 10,00,000


ii. INR 140 and

transactions between 1,00,000 to 10,00,000


iii. INR 660 and 0.012% subject to maximum of INR 6,000 for transactions exceeding INR 10,00,000


and 0.014% subject to maximum of INR

transactions exceeding INR 10,00,000


Financial leasing including hire purchases

1.40% 1.60%

Transport of goods and passengers by rail

4.20% 4.80%

Bundled services by way of supply of food together with renting of premises in a hotel, club, convention center etc.

8.652% 8.652% 9.80% 11.20%




Nature of Service

Provider/Service



w.e.f the

Without Swachh

Bharat Cess

w.e.f the


Air Traveli. Economy

Class

ii. Other than Economy Class

i. 4.944%

ii. 4.944%

i. 4.944% i. 5.60%

ii. 8.40%

i. 6.40%

ii. 9.60%

Accomm- odation services

8.4% 9.60%

Goods Transport Agency Services by road

4.20% 4.80%

Renting of motorcab

4.944% 4.944% 5.60% 6.40%

Contract carriage other than motor cab and a radio taxi

4.944% 4.944% 5.60% 6.40%

Transport of goods by vessel

4.944% 4.2% 4.80%

Tour operator servicesi. Package

Touri. 4.00 %

ii. Tour where operator is providing services solely of arranging or booking

ii. 1.4% ii. 1.60%

iii. Tour operator other than i and ii

iii. 4.944% iii. 4.944% iii. 5.6% iii. 6.40%



41


Nature of Service

Provider/Service



w.e.f the

Without Swachh

Bharat Cess

w.e.f the


Construction of complex, building or civil structure

i. Carpet area less than 2000 and amount charged less than INR 1 crore

i. 4.00%

ii. Other ii. 4.2% ii. 4.80%

For all other services

14.00% 16.00%

Note:

The above table illustrates for the sake of understanding the impact of the same if it is made applicable across all services.

Widening of Tax Base:

after the Finance Bill receives the assent of the President]

• Any service provided by Government or local authority to be taxable in the hands of the business entity receiving the services

Presently, services provided by Government in the nature of “support services” to business entities are taxable under reverse charge

“infrastructural, operational, administrative, logistics or any other support that entities carried out in ordinary course of operations themselves but may obtain from others……”. It is being proposed to tax all services,

consequently being omitted.



This would mean that the business entities would now have to examine every payment being made to the Government and local authorities.

• Contract manufacturing/job work in relation to production of alcoholic liquor for human consumption to be taxable

Presently, any process amounting to manufacture or production of goods stands exempted by way of inclusion in negative list. It is being proposed to tax any process for manufacture or production of alcoholic liquor for human consumption by excluding this activity from

Exemption Notification No. 25/12-ST is being amended to exclude intermediate production of alcoholic liquor for human consumption from its ambit.

Consequently, the contract manufacturing/job work for production of potable liquor for a consideration would attract the levy of service tax. This amendment clearly seems to have been made in line with the 122nd Constitutional Bill for GST that proposes to exclude the ‘alcoholic liquor for home consumption’ from the scope of GST.

• Admission to specified entertainment events and amusement facilities to be made taxable

Services in relation to admission to amusement facilities and entertainment events are proposed to be made taxable. However,

based exemption has also been provided for.

It would have to be seen as to how this levy will stand the test of constitutionality in terms of the State’s powers to levy Entertainment tax.

• Chit fund foreman and lottery distributors and selling agents to be taxable

Chit fund foreman and lottery distributors and selling agents are being brought under the tax net by inserting a deeming fiction vide the

under Negative list Various judicial pronouncements have declared the levy of service tax on the services provided by a chit fund foreman by way of conducting a chit or an appointed or authorized distributor or selling agent of lottery as unconstitutional. Now, the activities of



43

providing that the same shall not be covered by the expression ‘transaction in money or actionable claim’. It would have to be seen as to how this would stand the scrutiny of law.

a) Exemptions withdrawn [to be effective from 1 April 2015]:

• Services provided to Government, a local authority or a government authority by way of construction, erection,

maintenance, renovation, or alteration for the following services stands withdrawn:

a. Civil structure or any other original works

b. Structure for the use of an educational, a clinical establishment or an art or cultural establishment.

c. Residential complex for the use of employees or person

• Construction, erection, commissioning or installation services in relation to airport

Services provided to airport and port by way of construction and related services shall now become taxable.

• Value based exemption introduced for performing artist in folk and classical art

Services provided by artist in folk and classical art which was exempt except when provided as a brand ambassador is now restricted to INR 1,00,000 for such performances.

• Services by way of transportation by rails, vessel and goods transport agency for foodstuff

The foodstuff exemption available is now restricted to milk, salt,

• Services by the following specified persons in respective capacities is withdrawn

a. Mutual fund agent to a mutual fund or Asset Management

b. Distributor to a mutual fund or AMC,



c. Selling or marketing agent of lottery ticket to a distributor.

The above services are made taxable under the reverse charge mechanism mode.

effective from 1 April 2015]:

• Ambulance services for transportation of patient

The exemption available to clinical establishment for transportation of patients is now extended to all ambulances services

• Certain services in relation to fruits and vegetables

Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables is being exempted.

Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo has been exempted.

• Services provided by the exhibitor to the distributor or an AOP of exhibitor is exempt

Service provided by way of exhibition of movie by the exhibitor

consisting of such exhibitor as one of its members is being exempted.

• Services by way of right to admission for following is exempt:

i. exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet;

ii. recognised sporting event;



45

iii. award function, concert, pageant, musical performance or any sporting event other than a recognised sporting event, where the consideration for admission is not more than INR 500 per person.”.

Other Legistative Amendments:

Amendments to the Finance Act, 1994: [post enactment of Finance Bill,2015]

• Bundled Services – Taxability of input services used for providing exempt output services (Section 66F(1))

excluded from the negative list the input services used for providing such services would continue to be taxable. This position has been illustrated by stating that the agency service utilized by the Reserve Bank of India for providing the main service would be taxable even if the main service of RBI is excluded from the Negative List.

• Valuation of taxable services (Section 67)

To water down the effect of various rulings which struck down the vires

includes reimbursable expenditure or cost in its ambit for the purpose of determining the value of taxable service.

• Recovery of Service Tax amount self-assessed and declared but not paid (Section 73(1B))

to the revenue authorities to recover tax along with interest even in cases where the tax payable has been self-assessed and declared in the return by the service provider. This recovery can be done without service of show cause notice.

• Omission of provisions relation to reduced penalty (Section 73(4A))

during an audit and investigation but details of which were available in the

default. This provisions have been fully omitted in lieu of the new provisions made for levy of penalty. Further transition provisions have been inserted

no order has been passed before the enactment of Finance Act 2015 and



• Rationalisation of penal provisions (Section 76 and Section 78)

The provisions relating to penalty have been drastically amended. While the proportion of penalty has been laid down in a step up manner, the new provisions leave no scope for waiver even in case of reasonable cause. The following tabulates the percentage of penalty and the conditions thereof:

It has been further provided that

service of notice – no penalty would be payable.

date of receipt of order – penalty shall be 25% of the penalty imposed in the order would be payable.

c. In case the tax amounts get reduced in appellate proceedings

– the penalty of 25% of such reduced penalty would be payable

shall be generally equal to 100% of the service tax amount payable. However it has been further provided that

service of notice –penalty to the extent of 15% of the Service tax would be payable.

the date of receipt of order – penalty not exceeding 25% of the service tax determined in the order would be payable.

c. In case the tax amounts get reduced in appellate proceedings

and – the penalty of 25% of service tax so determined would be

order.

to state that this provisions would be applicable if no notice has been



47

IV. Section 80 which provided for waiver of penalty in case of “reasonable cause” has been omitted practically leaving no scope for any immunity in case of defaults in making payment of tax.

• Appeals against order of Commissioner (Appeals) in matters involving rebate of service tax

Section 86 has been amended to prescribe that remedy against

Excise Act have been made applicable in this regard.

Other Amendments:• Transport of export goods by road to land customs station

Services provided by way of transportation of export goods by road from place of removal to airport or port were exempt from the tax. The scope of such services is widened to included transport services upto Land Custom Station.

Amendments to Reverse Charge Mechanism Scheme • Aggregator liable to pay service tax under Reverse Charge Mechanism [to

be effective from March 01, 2015]

The aggregator located in the taxable territory would be liable to pay service tax under RCM for the services provided by any person involving the aggregator in any manner. The term aggregator and brand name/trade name

In case the aggregator does not have the physical presence in the taxable territory then it’s any representative located in the taxable territory would be liable to pay service tax under RCM.

In case the aggregator is not located in the taxable territory and it also does not have any representative in the taxable territory, then the aggregator shall appoint a person in the taxable territory for payment of service tax under RCM.

100% service tax under RCM would be payable by the aggregator /representative/appointed person.

• Other services covered under RCM

Consequent to the increase in the number of services provided by the Government in the tax net, more services provided by government under



Services provided by mutual fund agent/distributor to a mutual fund or an

Services provided by a selling/marketing agent of lottery tickets to a lottery

100% service tax under RCM in all the above cases would be payable by the service recipient.

• Services converted from partial reverse charge to full reverse charge [to be effective from April 01, 2015]

Now, security services and manpower supply services covered under full reverse charge mechanism.

Other Amendments to STR [to be effective from March 01, 2015] Invoices, bills, challans and consignment notes now can be authenticated by means

of digital signature.

Records for the purpose of service tax can now be preserved in electronic form. In such case every page of the record shall be authenticated by means of a digital signature.

CBEC would issue a detailed procedure in this regard by way of a separate

The terms ‘authenticate’ and ‘digital signature’ means as defined under the Information Technology Act, 2000.

CBEC. This procedure is applicable from March 01, 2015. Online registration to be granted within the period of 2 days from the date of uploading of the complete application form.

Amendments to CENVAT Credit Rules, 2004 [To be effective from March 1, 2015]:• CENVAT Credit in respect of inputs/capital goods sent directly to job

worker premises

Now, CENVAT Credit of excise duty paid on inputs or capital goods would be available immediately, even if the inputs are sent directly to the job worker’s premises on the directions of the manufacturer/output service provider.

• Time limit for availing CENVAT Credit on inputs/input service

The time limit for availing CENVAT Credit in respect inputs and input services has been raised from 6 months to 1 year from the date of invoice.



49

• Removal of inputs to the Job Worker Premises

Inputs removed as such/partially processed sent to job worker premises for processing, testing, repairing, re-conditioning or for manufacture of intermediate goods necessary for manufacture of final products/other purpose can now be further sent to another job worker premises for further processing without any requirement to reverse the CENVAT Credit availed thereon.

The inputs or product manufactured therefrom should be received back into the factory/premises of provider of output service within the time period of 180 days of the removal of inputs. However, the above time limit of 180 days in respect of the inputs sent directly to the job worker premises would be counted from the date of receipt of the inputs by the job worker.

If the inputs/products manufactured therefrom are not received back into the factory/premises of the output service provider, the amount equal to CENVAT Credit availed earlier would be required to be paid. The CENVAT Credit so paid could be re-availed once the inputs are received back.

• Time limit for receipt back of the capital goods removed to the Job worker premises

The time limit for receipt back of the capital goods sent to the job worker premises for further processing, testing, repair, re-conditioning or manufacture of intermediate goods, into the factory/premises of the output service provider is increased from 180 days to 2 years.

The above time limit of 2 years in respect of the capital goods directly sent to the job worker premises would be counted from the date of the receipt of capital goods by the job worker.

If the capital goods are not received back into the factory/premises of the output service provider, the amount equal to CENVAT Credit availed earlier would be required to be paid. The CENVAT Credit so paid could be re-availed once the capital goods are received back.

are to be taken out of India to place outside India”.

• Amendments in Rule 6 of the Credit Rules

Non excisable goods cleared from the factory for a consideration are included in the definition of ‘exempted goods/final products’ for the purpose of Rule 6.



Value of the non-excisable goods shall be invoice value. If the invoice value is not available, it would be determined by using reasonable means consistent with Central Excise Valuation Rules.

• Certain provisions extended to importer issuing Cevantable invoices

Maintenance of records and issuance of invoice containing the prescribed details pre-condition for availing CENVAT Credit passed on by importer.

To prevent misuse of the provisions of CENVAT Credit, the Central Government is now empowered to provide for certain measures including imposing restrictions on registered importers as well.

• CENVAT Credit recovery proceedings under Rule 14 of the Credit Rules extended to un-utilized credit

Recovery proceedings can now be initiated for recovery of CENVAT Credit wrongly taken and not utilized. Such recovery could be coupled with penal action. Earlier these provisions were applicable only for the CENVAT credit availed and utilized/erroneously refunded.

For the purposes of Rule 14 of the Rules, CENVAT Credit taken during a month shall be deemed to be taken on the last date of the month.

Further for this Rule, the CENVAT Credit utilized for a particular month shall be considered to be utilized from the total Credit pool in the following chronological order:

First: Opening balance of the month

Second: Admissible credit taken during the month

Last: Inadmissible CENVAT Credit taken during the month

• Other Changes

Consequential changes have been made in the penal provisions of Credit Rules



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Amendments to CENVAT Credit Rules, 2004 [To be effective from April 1, 2015]:• Changes made in point of availment of CENVAT Credit of service tax paid

on input services

Particulars Point of availment of CENVAT Credit

Input services covered under direct charge

Date of receipt of invoice/challan

Input services covered under partial reverse charge

Service Provider component:

Date of receipt of invoice/ challan

Service Recipient Components:

Date of payment of service tax under reverse charge

Input services covered under full reverse charge

Date of payment of service tax under reverse charge

Note: The existing pre-condition relating to the payment of value of input service and service tax thereon to the service recipient under partial reverse charge before availment of the Cenvat Credit is being omitted.

• Due date for reversal of CENVAT Credit for non-compliance of Rule 4

The CENVAT Credit payment required to be made for non-compliance of Rule 4 of Credit Rules has to made on or before the 5th of the following month, except for the month of March wherein such payment is required to

If the payment is not made in the above time limit, it would be recovered in terms of Rule 14 of the Credit Rules.



4. FDI PROPOSALS

4.1 Key amendments in foreign exchange regulations

Increase in FDI limit for Insurance sector

According to these rules, foreign equity investment has been capped at 49%

ensure that ownership and control remains at all times in the hands of resident Indian entities. The foreign equity investment cap of 49% also applies to insurance brokers, third party administrators, surveyors and loss assessors and other insurance intermediaries appointed under the provisions of the IRDA Act, 1999. FDI proposals up to 26% of the total paid up equity of the Indian insurance company shall be allowed on the automatic route and exceeding 26% shall require FIPB approval.

Increase in investment cap of defence sector

FDI in defense has increased from 26% to 49%, under government route subject to conditions. One of the key conditions is the investee company seeking permission of FDI up to 49% should be an Indian company owned and controlled by resident Indian citizens.

Proposals for FDI above 26% would be subject to approval of Cabinet Committee on Security on case to case basis, wherever it is likely to result in access to modern and ‘state-of-art’ technology in the country.

The limit of 49% is composite and includes all kinds of foreign investments i.e.

FVCI investment will not exceed 24% of the total equity of the investee company. Further, portfolio investment will be under the automatic route.

Medical devices vis-à-vis pharma sector

FDI up to 100% through the automatic route. Earlier, the medical devices industry was considered part of the overall pharmaceutical sector, where 100% FDI is

Opening up investment in railway infrastructure

Earlier FDI was prohibited in sectors not open to private sector investment e.g.

infrastructure sector is now permitted under the automatic route subject to conditions. FDI will be allowed in construction, operation and maintenance of suburban corridor projects through PPP, high speed train projects and dedicated



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freight lines. FDI has also been allowed in rolling stock including train sets and locomotives/coaches manufacturing and maintenance facilities, railway

others.

Relaxations in construction sector

Rules for FDI in the construction sector eased by reducing minimum built-up area

development of serviced plots, the condition of minimum land of 10 hectares has been completely removed. 2-year lock-in period for repatriation of investment done away with. The investor will be permitted to exit either on completion of the project or after development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.

Issue of partly paid shares and warrants by Indian company to foreign investors

debentures were recognised as eligible instruments for FDI. RBI eased foreign investment norms by allowing domestic companies to issue partly paid equity shares or warrants to foreign investors, subject to compliance with conditions in respect of pricing and receipt of balance consideration.

Issue of equity shares under FDI Scheme against legitimate dues

Earlier, an Indian company could issue shares to a non-resident against payment obligations only in certain circumstances. These related to “lump-sum technical

Special Economic Zones” subject to applicable conditions.

RBI has now allowed companies to issue shares to non-resident investors under the FDI policy against any other funds payable by the investee company, remittance of which does not require prior permission of the CG or RBI under FEMA or any rules/regulations framed or directions issued thereunder. However, this is subject to compliance with the terms and conditions of the FDI policy, including sectoral caps, pricing guidelines, etc., and also applicable tax laws.

Revision in pricing guidelines in relation to Issue/Transfer of Shares/Convertible Debentures

The pricing guidelines in respect of transfer/issue of shares and for exit from investment in equity shares with or without optionality clauses of listed/unlisted



under the FDI framework. All pricing guidelines were rationalized from DCF / RoE to “internationally accepted pricing methodologies”.

Reporting under FDI Scheme on the e-Biz platform

With a view to promoting the ease of reporting of transactions under FDI, the RBI,

Form FC-GPR with the RBI.

ECB in Indian rupees

ECB lenders are now permitted to extend loans in Indian rupees subject to compliance with prescribed conditions.

Liberalised Remittance Scheme

RBI in its monetary policy review decided to enhance the limit under the

person per year.

Restoration of ODI limit

Limit of ODI to be undertaken by an Indian Party under the automatic route was

commitment is within the limit of 400%.

Overseas investments by AIFs

SEBI registered AIFs have been permitted to invest overseas subject to terms and

4.2 Regulatory updates in Finance Bill

Foreign exchange regulations

equivalent to any Foreign Assets held in contravention of Section 4 of FEMA which disallows any Indian resident to hold any assets including immovable property



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Foreign Asset Holders where the value of such Foreign Assets is less than the value to be prescribed.

Powers to make regulations pertaining to capital account transactions now vest with the CG in consultation with the RBI.

Measures to curb black money

With a view to bring in transparency and discourage black money, the CG proposes

India. Key features of this proposed new law:

• Concealment of income and assets and evasion of tax in relation to foreign assets will be prosecutable with punishment of rigorous imprisonment upto 10 years;

— The offence will be non-compoundable;

— Offenders not permitted to approach Settlement Commission;

assets liable for prosecution with punishment of rigorous imprisonment upto

• Income from any undisclosed foreign asset or undisclosed income from any foreign asset taxable at MMR. Exemptions or deductions shall not be allowed;

• Abettors for above offence will be liable for prosecution & penalty;

• Offence of concealment of income or evasion of tax in relation to foreign asset will be made a predicate offence under PMLA.

A similar law is also proposed to be enacted to curb domestic black money titled

Parliament.

New bankruptcy law

A new Bankruptcy Code is proposed to be introduced in FY 2015-16 to expedite matters relating to insolvency. The law is expected to meet global standards and provide judicial capacity.



Abbreviation MeaningAAR Authority for Advance

RulingADC Additional Duty of

CustomsAED Additional Excise DutyAE Associated EnterpriseALP Arms Length PriceARF Advance Remittance

FormBCD Basic Customs DutyBEPS

ShiftingBN BillionCBDT Central Board of Direct

TaxesCBEC Central Board of Excise

and CustomsCE Act Central Excise Act, 1944CE Rules Central Excise Rules,

2002CENVAT Central Value Added TaxCESTAT/ Tribunal

Customs, Excise and Service Tax Appellate Tribunal

CETA Central Excise Tariff Act, 1985

CETH Central Excise TariffHeadingCG Central GovernmentCredit Rules CENVAT Credit Rules,

2004CSOCRR Cash Reserve RatioCST Central Sales TaxCTACTH Customs Tariff HeadingCustoms Act Customs Act, 1962CVD Countervailing dutyDCF Discounted Cash FlowDRP Dispute Resolution Panel

5. GLOSSARY

Abbreviation MeaningDTA Domestic Tariff AreaECB External Commercial

BorrowingFDI Foreign Direct

InvestmentFII Foreign Institutional

InvestorFEMA Foreign Exchange

Management Act, 1999FM Finance MinisterFPI Foreign Portfolio

InvestorFIPB Foreign Investment

Proposal BoardFVCI Foreign Venture Capital

InvestorGAAR General Anti Avoidance

RulesGST Goods and Services TaxGTA Goods transport agencyGDP Gross Domestic ProductGVA Gross Value AddedHSN Harmonized System of

Nomenclature

IIT Infrastructure Investment Trust

INR Indian RupeesIT Act Income Tax Act, 1961ITAT Income Tax Appellate

TribunalM & TP Act Medicinal & Toilet

Preparations Act, 1955MAT Minimum Alternative Taxmn MillionMRP Maximum Retail PriceMSME Medium and Small

Medium EnterpriseMMR Maximum Marginal Rate



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Abbreviation MeaningNCCD National Calamity

Contingent DutyNRI Non Resident IndianNPS National Pension SystemOECD Organisation for

Economic Cooperation and Development

ODI Overseas Direct Investment

PAN Permanent Account Number

PCT Act Provisional Collection of

PE Permanent Establishment

PMLA Prevention of Money Laundering Act, 2002

POT Point of taxationPPSR Place of Provision of

Services Rules, 2012

InvestorRBI Reserve Bank of IndiaRCM Reverse Charge

MechanismREIT Real Estate Investment

TrustRFPI Registered Foreign

Portfolio Investor

Abbreviation MeaningROE Return on EquityROI Return of IncomeSAD Special additional duty

of customsSCN Show Cause NoticeSEBI Securities & Exchange

Board of IndiaSEZ Special Economic ZoneSEZ Act Special Economic Zone

Act, 2005STR Service Tax Rules, 1994SLR Statutory Liquidity RatioSTT Securities Transaction

TaxTAN Tax Deduction Account

NumberTCS Tax Collection at SourceTDS Tax Deduction at Source

VAT Valued Added TaxValuation Rules Service Tax

w.e.f. With effect fromw.r.e.f. With retrospective

effect from



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