Union Budget - 2015A Roadmap towards growth

Preface

With world eyes set on Indian economy, the economic survey for Financial Year 2014-15 and the

Union Budget 2015 have carved out a roadmap to 'India Shining yet again'. In the first year of

governance, the new government has layed the foundation stone of investments which if

implemented and administered well would lead to a long term sustainable growth and

development for the nation. The budget 2015 have been a reflection of such strategies of the

government where the emphasis has been on commitment to fiscal consolidation, achieving

ambitious growth rate and curtailing inflation. The moto of 'maximum governance' has been the

backbone while announcing major policy changes including a detail address on the issue of Black

Money. While a larger amount has been allocated to public investments in employment creation and

skill development to back the initiative of 'Make in India', a certainty of taxes have been brought in by

clarifying many open tax positions including clarity on retrospective tax regime. A strong commitment

towards implementation of GST by 1 April 2016 has been exhibited which could bring in a revolution

in the Indirect-tax framework.

A Union budget is often looked from a taxation perspective that could provide us an insight in to the

impact that such tax proposals may have on an individual or body corporate. However, such tax

proposals are an outcome of the state of economy which needs detailed analysis of past performance

and implementation of future strategies for development of sustainable economy.

Through this document we have analysed the economic results and decoded the impact of budget

proposals on industry sectors as well as summarised the direct and indirect tax proposal implications

on you and your business.

Trust you will find the publication useful. Happy reading!!

In case you need any further clarification please feel free to e-mail me at akshaykenkre@transprice.in.

Thanks a lot.

Best Regards,

Akshay Kenkre

Founder and Managing Partner

TransPrice

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3

Table of Content

Indian Economic Highlights 4

- Economy Overview

- Fiscal Overview

- Inflation

Key Initiatives, Outlook and Challenges 8

Sectoral Impact 11

- Agriculture

- Infrastructure & Energy

- Mining & Metals

- BFSI

- Telecommunication & IT

- Real Estate & Housing

- Service Sector

Taxation Proposals 19

- Direct Tax proposals

- Indirect Tax proposals

- Make in India

- Economic Outlook and Challenges

Glossary 26

4

Indian Economic Highlights

Economic Indicators

Performance

FY 2014-15

Targets

FY 2015-16

% %

GDP Growth 7.40 8.0 - 8.5

Fiscal Deficit to GDP 4.10 3.90

Inflation CPI terms 5.10 5.00

0

2

4

6

8

10

12

Growth rate Inflation (CPI) Fiscal Deficit

Interplay - Economic Indicators

Economy Overview

Indian economy has picked up pace in FY 2014-15 despite the global slowdown, especially in the

European and Japanese economy. This is reflected in positive GDP growth, reduction in inflation

and fiscal deficit and near stability of rupee. This is mainly on account of steep decline in

international oil prices, increase in foreign inflow of funds and strengthening of domestic

demand.

The economic estimates present an optimistic growth outlook for the year 2015 and beyond. In

FY 2015-16, the economy is expected to grow at 8.0% to 8.5%. The fiscal consolidation target of

3% of GDP by FY 2017-18 is expected to be met by following greater financial discipline. Further,

reforms and policy initiatives of the new government are set to boost investments and investor

confidence, business sentiments, accelerated inflow of foreign funds and overall optimism in the

economy. There are, however, certain challenges that lie ahead, both on the domestic and

international front that need to be addressed in a structured manner.

A snapshot of current performance and targets for the Indian economy is as follows:

5

%

FY

The Government stays committed to fiscal consolidation targets. Despite large subsidy bill and

moderate increase in indirect taxes, the fiscal consolidation target in FY 2014-15 was achieved due

to lower prices of crude oil in the international market. Desired fiscal target in the previous 2 years

was achieved by counter balancing shortfall of tax revenue by higher or equivalent cut in the

expenditure. Therefore, it is important that the revenues pick up sufficiently or there would be a

need to persist with some compression in expenditure to meet the deficit target. However, growth

in Gross Tax Revenue of 7% is way below 17.7% as envisaged in budget estimates for FY 2014-15.

Fiscal Overview

Fiscal consolidation roadmap Fiscal deficit of 3% in FY 2017-18 (medium-term)

0

2

4

6

8

10

12

14

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15

Direct Tax Indirect Tax Total Tax

Tax to GDP Ratio%

6

Key to achieving medium term fiscal target : Mobilization of savings towards investments through:

Control of expenditure via subsidy rationalization and covering up leakages

Improvement in expenditure quality by shifting focus to investment from public consumption

Borrowing mainly for public investments

Drive higher disinvestment proceeds and subsidy savings towards public investments

FY

Inflation

WPI food inflation moderated to 4.8% during April-December 2014 from a high of 9.4% during

FY 2013-14

Like the WPI inflation, CPI inflation moderated considerably since the second quarter of FY

2014-15, with moderation observed across all three major sub-groups, viz. food and beverages,

and tobacco; fuel and light; and others. However, as fuel has larger weight in the WPI, the

decline in fuel prices led to a sharper reduction in the WPI as compared to CPI

Latest CPI inflation declined to a low of 5.1% and the WPI inflation has become negative

Important factors that helped moderate inflation include:

persistent decline in crude prices;

soft global prices of tradables, particularly edible oils and coal;

tight monetary policy;

stability of rupee vis-à-vis major currencies

7

9.5 9.710.4

8.17.4

5

0

2

4

6

8

10

12

Q1 Q2 Q3

CPI Inflation

FY 2013-14 FY 2014-15

%

8

Key Initiatives, Outlook

and Challenges

Economic Outlook and Challenges

Government aiming towards Big Bang reforms through decisive shifts in policies

Private investment to remain main engine for long run growth. However, in the interim, to revive

growth and to deepen connectivity, public investment especially in railways to have an important

role

India ranks well above the mean for its investment grade category and is amongst the most

attractive investment destinations, well above other countries

In short run, growth will receive a boost from low oil prices, easing of monetary policy facilitated

by lower inflation and forecasts of a normal monsoon

The persistence of moderated oil prices seems highly probable for at least three reasons: (i)

weaker global demand; (ii) increased supplies; and (iii) the global monetary and liquidity

environment

The power of growth to lift all boats would depend critically on employment creation potential of

the economy

The outlook is favorable for the current account and its financing. Risks from a shift in US

monetary policy and turmoil in the Eurozone need to be watched

Mobilization of funds through cash based transfers using the JAM number trinity could offer

exciting possibilities for allocation of public resources for the needy

Banking sector: 4D solution i.e. deregulation (addressing SLR and priority sector lending);

differentiation (within the public sector banks in relation to recapitalization, shrinking balance

sheets and ownerships); diversification of funds and disinterring (by improving exit mechanism)

Structuring transformation from traditional sectors to ‘registered’ manufacturing or services.

Building skilled infrastructure in an economy to be the success factors for such transformation

Challenge on international trade due to buoyancy of Indian exports with respect to world growth

Higher taxation on petroleum products to act as a carbon tax and an initiative taken as a part of

green action

Stalling rate of projects increased at an alarming rate in last five years. Stalled projects accounted

to about 7% of the GDP by 3rd quarter of FY 2014-15

Manufacturing and infrastructure dominate in total value of stalled projects in turn affecting

balance sheets of corporate sector and public sector banks

Challenges as identified in the Budget 2015:

Stress on Agriculture income

Need to step in public investments

Decline in share of manufacturing sector in GDP

To have a tight rope walk to ensure fiscal consolidation targets

Keeping in mind the true spirit of co-operative federalism, 62% share of taxes transferred

to states

9

Make in India

‘Make in India’, a flagship initiative on the idea of structural transformation (shifting resources from

agricultural/traditional sector to manufacturing/non-traditional sector)

The growth in manufacturing sector declined and its contribution to the country’s GDP also fell

from 18% to 17%

The initiative focuses on ‘registered manufacturing’ which is relatively a skilled labour intensive

sector and where the productivity could be higher than 7 times as compared to ‘unregistered

manufacturing’ sector

‘Make in India’ campaign aims at job creation and investment promotion in key sectors such as

automobiles, electronics, mining and pharma which has created ripples in the Indian

manufacturing sector

Proposal to launch National Skills Mission through Skill Development and Entrepreneurship Ministry

Separate policy on ‘Make in India’ to stress on providing equal opportunities for all the stakeholders

Custom duty on certain inputs, raw material and intermediaries in 22 items reduced to minimize the

impact of duty inversion

Excise duty cut on items such as solar water heaters, tablet PCs and leather footwear to help

domestic production

Deen Dayal Upadhaya Gramin Kaushal Yojna with a corpus of Rs 1,500 crore to enhance

employability of rural youth

Growing interest in start-ups needs to be encouraged for sustainable growth. Concerns on access

to global capital, funding for seed capital and ease of doing business needs to be addressed to

create employment opportunities. Rs. 1,000 crore allocated towards self employment and talent

utilization

Increased investment in infrastructure as well as higher allocation for defence to provide a boost to

domestic manufacturing industry

CVD and SAD on specified raw materials for use in the manufacture of pacemakers are being fully

exempted

SAD on inputs for use in the manufacture of LED drivers and MCPCB for LED lights, fixtures and

lamps is being fully exempted

Basic customs duty on specified inputs for use in the manufacture of Renewable Power System

Inverters is being reduced to 5%

10

11

Sectoral Impact

Agriculture

Agricultural sector comprises 18% share in GDP in FY 2013-14. The growth rate in the sector

slowed down to 1.1% in FY 2014-15 as compared to 3.7% in FY 2013-14

Despite deficiency of rainfall by 12% in FY 2014-15, the loss in production is restricted to around

3%

The policy focus to be on enhancing the resilience of the agriculture sector and eliminating

leakages, inclusions and exclusion errors and various distortions created by the present food

policy

Growth in agriculture to come from non-price factors

Improvement of yield and productivity are the key focus for agriculture sector

Agriculture research and education, agriculture extension, irrigation, quality of seeds, fertilizers

and agricultural credit along with mechanization identified as growth drivers and investment

avenues for the sector

Budget Highlights:

Soil and water to be the major focus factors

In order to improve soil health, it was proposed to support Agriculture Ministry’s organic

farming scheme i.e. Paramparagat Krishi Vikas Yojana

Pradhanmantri Gram Sinchai Yojana aimed at irrigating the field of every farmer and improving

water use efficiently to provide ‘Per Drop More Crop’

Alllocation of Rs. 5,300 crore to support micro-irrigation, watershed development and the

Pradhan Mantri Krishi Sinchai Yojana

Extended credit facilities to farmers with a target of Rs. 8.5 lakh crore for FY 2015-16. As a result,

a cumulative allocation of about Rs. 1 lakh crore extended to various credit and infrastructural

funds

Initial allocation to MGNREGA at Rs. 34,699 crore to improve the quality an effectiveness of

activities and if additional resources could be available due to tax buoyancy the same could be

enhanced by another Rs. 5,000 crore

The motive of the new government for the upcoming year is to create a national agriculture

market for the benefit of both, farmers and customers and further by moderating price rise

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Infrastructure & Energy

Focus has been on resolving long- pending issues like pricing of gas, establishing processes and

procedures for transparent auction of coal and minerals and improving power generation and

distribution

100% FDI allowed in building variety of rail infrastructure and new initiatives like bullet and

related trains and modernization of stations and timely completion of major projects

In road sector efforts have been taken to mobilize stalled projects and set up of National

Highways and Infrastructure Development Corporation Limited for speedy implementation of

highway projects in north-east

Stress on reforms in power sector to promote competition and efficiency in operation and

improve quality of supply of electricity

The domestic production of petroleum has been stagnant in last 4 years

The government has undertaken recent policy initiatives including gas pricing, reforms in

production- sharing contracts etc. to get a boost to the sector

Focus in the coal sector by addressing quantity, quality and time-bound transportation issues so

that the fuel needs of growing economy are met

Budget Highlights:

Infrastructure sector to need public investments to match growth ambition. Increased

investment allocation in the sector by Rs. 70,000 crore

Diversion of excise duty on petrol and diesel to the extent of Rs. 4 per liter to fund investment

Focus on green India through revision of renewable energy capacity for solar, wind, biomass

and small hydro

Clean energy cess increased from Rs. 100 to Rs. 200 per metric tonne of coal to finance clean

environmental initiatives

Tax free infrastructure bonds for rail roads and irrigation sectors

National Investment and Infrastructure Fund to be established with annual flow of Rs. 20,000

crore

PPP mode of infrastructure development to be stressed upon

Corporatization of Public sector ports to be encouraged to attract investments

Multiple prior permissions (up to14 nos. in setting up of projects) to be replaced by pre-existing

regulatory mechanism

5 new ultra mega power projects each of 4000 MW in the ‘plug and play’ mode

13

Mining & Metals

Share of mining in the GDP declined to 2.1% in FY 2013-14 as compared to 2.8% in FY 2012-13

Changes made in the MMDR Act for improving transparency in allocation of mineral resources,

encourage investment in mining sector and promote sustainable mining practices

BCD on bituminous coal is being reduced from 55% to 10%

BCD on antimony metals and waste and scrap reduced from 5% to 2.5%, metallurgical coke

increased from 2.5% to 5%, SAD on melting scrap of iron and steel reduced from 4% to 2% and

BCD on iron and steel increased from 10% to 15%

Sovereign gold bonds to be introduced as an alternative to purchasing gold scheme

Metal accounts to bring in gold monetization and access to loan for jewelers on gold account

14

BFSI

It is surprising to note that growing economy like India has seen consecutive years of decline in

the growth of bank credit. Deceleration in credit could be attributed to economic slowdown,

availability of alternative sources of funds, deterioration in asset quality of banks, especially PSBs,

and selling of stressed loans by a few banks to asset reconstruction companies

Several reform initiatives were taken in the banking and insurance sector in FY 2014-15

including allowing banks to raise capital from the market to meet capital adequacy norms by

diluting the government’s stake up to 52%

As a part of financial inclusion initiative 12.50 crore bank accounts have been opened by

launching of the PM Jan Dhan Yojana to provide universal access to banking facilities with at

least one basic banking account for every household

Asset quality of banks has shown increasing signs of stress during the year. Gross NPA of

scheduled commercial banks as a percentage of total advances showed an increase during the

year (increased to 4.5% in September 2014 from 4.1% in March 2014)

An ordinance was notified to enhance the foreign equity cap in the insurance sector from 26%

to 49%

Budget Highlights:

To extend credit to micro enterprises and start-ups, MUDRA Bank, with a corpus of Rs. 20,000

crore and credit guarantee corpus of Rs. 3,000 crore to be created. It will be responsible for

refinancing all Micro-finance Institutions

Trade Receivables Discounting System to be established which will serve as an electronic

platform for facilitating financing of trade receivables of MSMEs

NBFCs registered with RBI and having asset size of Rs. 500 crore and above may be considered

for notifications as ‘Financial Institution’ in terms of the SARFAESI Act

PM Suraksha Bima Yojna to cover accidental death risk of Rs. 2 lakh for a premium of just Rs. 12

per year

PM Jeevan Jyoti Bima Yojana to cover both natural and accidental death risk of Rs. 2 lakh at

premium of Rs. 330 per year for the age group of 18-50 years

FMC to be merged with SEBI to strengthen regulation of commodity forward markets and

reduce wild speculation

Foreign investments in AIFs to be allowed and distinction between different types of foreign

investments, especially between FPI and FDI to be done away with

Debit card transactions to be encouraged and cash transactions to be disincentivized

Thrust is to establish a public debt management agency with a view to bring both India’s

external borrowings and domestic debt under one roof

15

Telecommunication & IT

Software development and ITES including BPM, R&D services is one of the single largest

contributors to service exports

India ranks first and remains the pre-eminent destination for offshore services, with excellence

in IT, BPO and voice services

India shows robust growth in technology start-up and software product landscape and ranks

fourth largest start-up hub in the world with over 3,100 start-ups in the country

‘Digital India’ has been envisioned as ambitious umbrella programme to prepare India for

knowledge based information

Further, the ‘Make in India’ mission has included IT and BPM among 25 focus sectors

DoT plans to conduct auction in ‘Spectrum’ in all bands to achieve overall objective of reliable

communication services

Budget Highlights:

‘National Optical Fibre Network Project’ of 7.5 kms networking 2.5 lakh villages is being

further speeded up by allowing willing states to undertake its execution, on reimbursement of

cost as determined by DoT

Andhra Pradesh is first state to have opted for manner of implementation

In case of HDPE which is required for the use in manufacture of telecommunication grade

optical fiber cables, basic custom duty reduces from 7.5% to Nil

Excise duty structure for mobile handsets where CENVAT is being taken is changed from 6%

to 12.5%

Excise duty structure of 2% without CENVAT credit or 12.5% with CENVAT is now being

prescribed for tablet computers

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Real Estate & Housing

Real estate and ownership of dwelling constitutes 7.8% of GDP in FY 2013-14

Widening gap between demand and supply of housing units and affordable housing finance

solutions is a major policy concern

RBI relaxed norms for issue of long term bonds by banks for financing affordable housing

Amrut Mahotsav year 2022, 75th year of independence, to aim at housing for all (2 crore houses in

urban areas and 4 crore houses in rural areas) including basic facilities like power, clean drinking

water, a toilet and road connectivity

Proposal made for easier listing of REITs, allowing pass through on rental income and doing away

with capital gains issue for the sponsors on transfer of units of REIT through listing

Capital gain tax to be applicable for direct transfer of real estate to the trust

REITs to perform as a vehicle for real estate companies to sell down income producing assets in

the market to investors and use the cash to invest in other projects

Clarification on rental income taxability in the hands of unit holder instead of REIT to boost

confidence on investment through REIT. Further, no DDT on distribution of income

The sponsor of Business Trust to get benefit of tax concessions/ treatment at time of off-loading

of units under an initial offer in same manner as if he offloaded through IPO. Easy exit to

investor to boost up liquidity in the real estate sector

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Service Sector

India’s service sector has high share in income (57% in 2013) and relatively low share in

employment (28.1% in 2013)

The overall growth rate of Service Sector (10.6% in FY 2014-15) is mainly from real estate,

financial and professional services (13.7%) and public administration, defense and other

services (9%)

Share and Growth of India Service Sector (Provisional Estimate for FY 2013-14)

Tourism sector promoted by proposing resource allocation towards restoration and amenity

build up of cultural world heritage sites. Further visa on arrival benefit increased for up to 150

countries

Emphasis on setting up of Medical and Pharmaceutical institutes to provide a boost to

healthcare education

The first phase of GIFT in Gujarat to be in process soon and appropriate regulations to be

issued in March 2015. This will give impetus to financial centers and further give opportunity

to financial minds to exhibit and exploit their strength at par with international levels

Top Sectors % Share

Trade, hotels & restaurants 18.70

Financing, insurance, real estate & business services 20.90

Community, social and personal services 13.40

Constructions 8.00

Total Services GDP 61.00

Total GDP 100.00

Services

Others

India GDP composition FY 2013-14

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Taxation Proposals

Direct Tax proposals

General

No change in the basic rate of individual income taxes; corporate income tax rate proposed

to be reduced to 25% over the period of 4 years; however, no change in FY 2015-16

Surcharge increased by 2% over existing limit for all taxpayers except for foreign companies

Due to increase in the surcharge, the effective rate of DDT on dividend distributed to be

19.76% {i.e. arithmetically [15/85*100]*112%}

Additional investment allowance and depreciation (For notified backward area of Andhra

Pradesh and Telangana):

Deduction @ 15% of cost of new plant and machinery acquired and installed for

manufacture is allowed under section 32AD of the Act

Further deduction of 15% allowed if the total investment exceeds Rs. 25 crore

Additional depreciation limit proposed to be increased to 35% (currently 20%)

Tax incentives to manufacturing and power

Additional depreciation on assets acquired and installed for less than 180 days to enjoy

carry forward of balance 50% unclaimed additional depreciation to next financial year

Benefit of new workman provided to all taxpayers (which was earlier enjoyed only by a

company) and the limit of new workman reduced from 100 to 50 [Section 80 JJA]

A special tax regime to rationalize the taxability of Category 1 and II AIFs to distribute the

taxability of different heads of income amongst the fund and the investor

Merger of similar scheme of mutual funds proposed to be exempt from capital gains in the

hands of the unit holder (Section 47 (xviii))

Revenue department to prefer an appeal only if ‘no identical question of law’ is pending

before the Apex Court (w.e.f 1 June 2015)

Specified Domestic Transactions to fall under the computation mechanism of transfer pricing

if the aggregate of such transactions exceeds Rs. 20 crore (earlier Rs. 5 crore)

Wealth tax abolished. Replaced by 2% surcharge on super rich on income above Rs. 1 crore,

which is likely to affect the taxpayers not otherwise covered under Wealth Tax Act

Donation to Swachh Bharat Kosh, Clean Ganga Fund and National Fund for Control of Drug

Abuse eligible for 100% deduction for all taxpayers

Criteria defined for the applicability of revision powers of CIT or Principal CIT

Procedures for application to settlement commission rationalized

MAT rationalized for members of AOP

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Direct Tax proposals

Measures to Curb Black Money

Measures to curb generation of black money and its concealment to be dealt with effectively

and forcefully

Major breakthrough with Swiss Authorities by agreement to share banking and non-banking

information in time-bound manner

Prohibition on acceptance and repayment of any sums exceeding Rs. 20,000 other than by

account payee cheque/ bank draft/ electronic clearing system in relation to immovable

property

Comprehensive code on ‘black money parked abroad’ to be introduced. Key features of the

proposed code are as under:

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Situation Implication

Evasion of tax in relation to foreign assets Rigorous imprisonment up to 10 years, being

non compoundable

Penalty @ 300% of tax sought to be evaded

No right to approach settlement commission

Non-filing of return/ filing return with

inadequate disclosures

OR

Non-filing of return in respect of foreign

assets, irrespective of income by beneficial

owner

Rigorous imprisonment up to 7 years

Under Prevention of Money Laundering Act,

either (a) attach and confiscate unaccounted

assets held abroad or (b) otherwise,

confiscate equivalent asset in India

Undisclosed income from any foreign

assets

Taxable at Maximum Marginal Rate of tax

without benefit of deduction/ exemption

Holding foreign exchange, foreign security

or any immovable property outside India

held in contravention of FEMA

Rigorous imprisonment up to 5 years

Seizure and confiscation of equivalent value

of asset in India

Further, for curbing domestic black money, Benami Transactions (Prohibition) Bill to be

introduced

Penalty provisions may be imposed on furnishing inaccurate particulars or concealment

under both normal provisions and MAT

Seized cash to be adjusted towards tax liability under settlement application in search cases

PAN to be mandatory for transaction involving any purchase/ sale exceeding Rs. 1 lakh

Direct Tax proposals

Specific benefits for Individual taxpayers

Sukanya Samriddhi Account for girl child

In accordance with the Sukanya Samriddhi Account Rules 2014, the investments made in

the scheme will be eligible for deduction under section 80C of the Act

The interest accruing on deposits and withdrawals from the said scheme to be exempt

from Income - tax

Healthcare and Retirement benefits

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Section In respect of whom? Existing Limit Proposed Limit

Section 80D* Health Insurance Premium

Individual and his

family

Rs.15,000 Rs.25,000

Senior citizens Rs.20,000 Rs.30,000

Medical Expenditure

Very senior citizens

(above 80 years of

age)

0 Rs.30,000

Section 80DDB

(Individual suffering

from specified

disease)

Very senior citizens

(above 80 years of

age)

Rs.60,000 Rs.80,000

Section 80DD and

80U

Person with disability Rs.50,000 Rs.75,000

Person with severe

disability

Rs.1,00,000 Rs.1,25,000

Section 80CCC

(Pension Funds)

Individuals Rs.1,00,000 Rs.1,50,000

Section 80CCD

(National Pension

Scheme)

Individuals 10% of salary up to

Rs.1,00,000

10% of salary plus

Rs.50,000^

*Aggregate deduction for Health Insurance Premium and Medical Expenditure incurred will

be limited to Rs. 30,000

^Benefit of Rs. 50,000 is over and above overall ceiling of Rs. 1,50,000 under section 80CCE

Direct Tax proposals

International taxation

Deferral of GAAR by two years i.e. AY 2017-18 for its implementation as a part of a

comprehensive regime to deal with Base Erosion and Profit Shifting and aggressive tax

avoidance

In case of NR engaged in the business of banking, any interest paid by the PE in India, of such

NR, to the head office or any PE or any other party of NR outside India shall be deemed to

accrue or arise in India and shall be eligible for tax deduction at source

Payment of royalty to attract a lower withholding tax @ 10% w.e.f AY 2016-17 instead of earlier

25%

Lower withholding tax @ 5% on interest on ECB to be extended till 30 June 2017

Clarification on “Indirect Transfer” in relation to share or interest in a company registered

outside India:

Presently, an asset being share or interest in a company registered outside India is deemed

to be situated in India only if, the share or interest derives, directly or indirectly, its value

substantially from assets located in India

“Substantially”, in the above context, means FMV of assets -

Being more than Rs. 10 crore; and

Representing at least 50% of the value of assets owned by the Company

Capital gain arising as aforesaid will be taxed proportionately

No taxation to investor if he directly or indirectly holds voting rights of not more than of 5%

for preceding 12 months before date of transfer

Provision of PE not applicable for NR offshore trust due to mere presence of fund manager in

India

Rationalization of MAT provisions for FIIs/FPIs by not subjecting capital gains on transaction in

securities which are liable to tax at the lower rate

Power to CBDT for capturing transaction information about prescribed foreign remittances

which are claimed to be not chargeable to tax

23

Indirect Tax proposals

Goods and Service Tax (GST)

GST to be applicable from 1 April 2016, government to work towards game changing reforms

and implementation of the same

Service Tax

Online Service Tax registration can be done within two working days

Rate of service tax increased from existing 12.36% (inclusive of cess) to consolidated rate of

14%

Consequent to the revision of service tax rate, the services qualifying for alternate rate to be

revised upwards proportionately

Swachh Bharat Cess at a rate of 2% to be levied on all or any of the taxable services (applicable

date to be notified)

Service tax applicability widened and clarified by incorporating additional services in the

taxable service category

Service Tax exemption on Varishtha Bima Yojana, certain pre cold storage services in relation

to fruit and vegetables and transport of goods for export by road from factory to land custom

station

A uniform abatement prescribed for transport by rail, road and vessel, and service tax shall

now be payable on 30% of value of their services w.e.f 1 April 2015

Reverse charge mechanism @ 100% now applicable to manpower supply and security services

provided by an individual, HUF or a partnership firm to a body corporate w.e.f 1 April 2015

Clarification on allowability of CENVAT credit for service tax payment made under reverse

charge mechanism irrespective of payment to service provider

Clarification on applicability of Service tax on reimbursements

Taxpayers will be allowed to issue digitally signed invoices and maintain other records

electronically

Waiver of penalty on reasonable cause for failure to pay service tax is proposed to be

withdrawn. However, several measures proposed in rationalizing penal provisions with a view

to provide a choice to taxpayers to opt for such routes to avoid protracted tax litigations

24

Indirect Tax proposals

Excise and Customs

Online Excise registration can be done within two working days

Education cess and Secondary and Higher Education cess leviable on excisable goods to be

fully exempt

Ad valorem rate of duty is being increased from 12% to 12.5%

Excise duty on aerated drinks including mineral water increased from 12% to 18%

Excise duty on sacks and bags of polymer increased from 12% to 15%

Tariff rate on iron and steel and articles of iron and steel increased from 10% to 15%

Extension of concessions on custom and excise duty available to electronically operated

vehicles and hybrid vehicles

Taxpayers will be allowed to issue digitally signed invoices and maintain other records

electronically

Facility provided to a manufacturer and registered dealer to directly dispatch goods from

vendor to job worker/customer's premises

Capital goods sent at the job worker premises could be now kept until 2 years as against

existing time period of 6 months without CENVAT being reversed

Conversion of existing excise duty on petrol and diesel to the extent of Rs. 4 per litre converted

into road cess to fund the investment

Any order referred back by the appellate authority to the assessing authority for fresh

adjudication not entitled for settlement

CENVAT Credit Rules

To ensure that there are no leakages on account of timelines, time limit for taking CENVAT

credit on inputs and input services increased from 6 months to 1 year

CENVAT credit specifically allowed in respect of inputs and capital goods received directly in

the premises of job worker

Requirement of reversal of CENVAT credit made applicable to non-excisable goods apart from

the exempted goods and exempted services under rule 6 of CENVAT Credit Rules

25

Glossary

26

AIFs - Alternative Investment Funds IPO - Initial Public Offer

AOP - Association of Persons IT – Information Technology

BCD - Basic Custom Duty ITES - Information Technology Enabled Services

BE – Budget Estimate JAM - Jan Dhan Yojana, Aadhar and Mobile

BFSI – Banking, Financial Services and Insurance MAT - Minimum Alternate Tax

BPM - Business Process Management

MGNREGA – Mahatma Gandhi National Rural

Employment Guarantee Act

BPO - Business Process Outsourcing

MMDR – Mines and Minerals (Development and

Regulation) Act, 1957

CBDT - Central Board of Direct Taxes MSME – Micro Small and Medium Enterprises

CENVAT - Central Value Added TaxMUDRA - Micro Units Development Refinance

Agency

CIT - Commissioner of Income Tax MW - Mega Watt

CPI – Consumer Price Index NBFC – Non Banking Financial Corporation

CVD – Counter Veiling Duty NPA – Non Performing Asset

DDT - Dividend Distribution Tax NR - Non Resident

DoT - Department of Telecommunications PAN - Permanent Account Number

ECB – External Commercial Borrowing PE - Permanent Establishment

FDI – Foreign Direct Investment PPP – Public Private Partnership

FEMA - Foreign Exchange Management Act,

1999PSB – Public Sector Bank

FII – Foreign Institutional Investor R&D - Research and Development

FMC - Forward Markets Commission RBI – Reserve Bank of India

FMV - Fair Market Value REITS – Real Estate Investment Trusts

FPI - Foreign Portfolio Investment SAD – Special Additional Duty

FY – Financial Year

SARFAESI Act - The Securitization and

Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002

GAAR - General Anti Avoidance Rules SEBI - Securities and Exchange Board of India

GDP – Gross Domestic Product SLR – Statutory Liquidity Ratio

GIFT - Gujarat International Finance Tec-city WPI - Wholesale Price Index

HDPE - High Density Polyethylene The Act – Income Tax Act, 1961

HUF - Hindu Undivided Family

About us:

At Synthesis group, we provide integrated professional solutions to all your financial needs.

Synthesis acts as a common platform that host associated professional firms that specialize in

Advisory, Funding and Education, covering all aspects of Taxation, Accounting, Finance and

Legal. Our professionals combine strong capabilities with domain expertise, in-depth knowledge

of fiscal laws and regulations and understanding of complex technical issues. The group provides

solutions through the following associate firms:

TransPrice, dedicated to complex cross-border transactions, specialized advisory, representation

and compliance solution in the field of transfer pricing and international taxation: inbound and

outbound foreign investments.

Manish Modi & Associates with core focus on domestic tax advisory, management consultancy,

regulatory compliance and transaction support for allied laws including exchange control and

company law matters. The assurance team provides services of audits and management

accounting.

Intellivate Capital, a boutique investment bank, arranges equity funds for various projects and

new ventures. Offers consolidated M&A solutions, due diligence, structuring strategy advice and

implementation.

Aurum Capital, syndicates Debt funding, enables borrower to bank funds at best possible terms.

Credit rating appraisals, preparation of project report, active negotiations that would value add to

the sanctioning of the loan. Professional relationships with all nationalized and private banks.

Brianna Knowledge Resources, helps up skill employees in varied organisations through its

customized learning programs in the domain of business acumen and financial leadership.

Pinnacle Education, caters to hundreds of CA aspirants every year. At Pinnacle Education, we not

only prepare the students to clear their Chartered Accountancy course, but also help them to

have enough practical domain knowledge to face industry challenges once they qualify.

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