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Grant thornton budget expectations survey 2013
 

Grant thornton budget expectations survey 2013

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Grant Thornton India LLP’s budget expectations survey findings are now available. To get a copy of the report write to contact@in.gt.com or visit www.grantthornton.in

Grant Thornton India LLP’s budget expectations survey findings are now available. To get a copy of the report write to contact@in.gt.com or visit www.grantthornton.in

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    Grant thornton budget expectations survey 2013 Grant thornton budget expectations survey 2013 Presentation Transcript

    • Budget expectation survey- 2013 What India Inc. wants?© Grant Thornton India LLP. All rights reserved.
    • Content CONTENTS About the survey Survey synopsis 3 The survey was administered to participants from Survey synopsis- Sector specific 4 over 300 corporate houses which includes CEOs, CFOs and other personnel across various sectors • General 5 to gauge the pulse of India Inc on the expectations • Economy and Policy 9 from the ensuing budget. • Tax Rates 13 • New Proposals 15 • Indirect Taxes 17 • Transfer Pricing 23 • Your expectations 27 • Industry specific survey 29 - Healthcare and Pharma 30 - Technology 35 Disclaimer: The information contained in this document has been compiled or arrived at from a survey - Real Estate and Infrastructure 39 and other sources believed to be reliable, but no representation or warranty is made to its accuracy, completeness or correctness. The information contained in this document is - Financial Services 45 published for the knowledge of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. This document is not intended to be a substitute for professional, technical or legal advice or opinion and the - Insurance Services 52 contents in this document are subject to change without notice. Whilst due care has been taken in the preparation of this document and information contained herein, Grant Thornton does not take ownership of or endorse any findings or personal views expressed herein or accept any liability whatsoever, for any direct or consequential loss howsoever arising from any use of this report or its contents or otherwise arising in connection herewith.© Grant Thornton India LLP. All rights reserved. 2
    • Survey synopsis With the lag in the economic development growth rate While India Inc. expects positive changes on domestic and increasing fiscal deficit, introduction of measures to reverse charge regime for indirect taxes, fungibility widen personal income tax deductions is one of the between Service tax and Cenvat etc. is also high on key expectations of India Inc. expectation. Considering the increasing efforts of the Government to On transfer pricing front, there is clearly an expectation to widen the tax base, there is a sense that the Government bring more clarity on specified domestic transactions. may bring in Super Tax to tax exceptionally high While introduction of safe harbor rules would certainly be earning income group. helpful, India Inc. does not expect much on this front. While India Inc. does not expect major changes in the All in all, respondents expect the Budget 2013 to be a taxation rates, it expects increase on the limits of tax balanced budget with a thrust on the infrastructure and savings investments especially linked to housing loan agriculture sectors. and principal repayments. Amidst new proposals, India Inc. expects the Government Contd... to clarify its taxation stand on "indirect transfers” like the Vodafone case and clarity on domestic transfer pricing regulations.© Grant Thornton India LLP. All rights reserved. 3
    • Survey synopsis- Sector specific Healthcare and Pharma Financial services The industry does not seem to expect any changes under the Income Financial sector is uncertain that short term capital gains would be Tax Act though awarding “infrastructure” status to the sector could help in abolished. Sector seeks clarification on characterization of income development of the Healthcare and Pharma industry. earned by FIIs i.e. business income vis-à-vis capital gain as well as taxation regime for QFIs. From indirect taxes perspective, reduction in Central duties is needed for nutraceuticals and health supplements in line with drugs. Further, service From indirect taxes perspective, the industry believes there should be tax exemption is expected for conducting clinical trial research in India. parity on the treatment of head office and branch office transactions for inbound and outbound services (in other words, if the government is taxing imports, it should also equally allow outbound services to be considered as exports). Technology The industry does not seem to expect any changes under the Income Tax Act. Insurance From an indirect tax perspective, service tax exemption is expected for Opening up FDI in insurance sector by increasing the foreign suppliers who provide taxable services to SEZ units, even if the entity has participation from present 24% to 49% is considered to be on the offices outside the SEZ Unit. Also, clarity on dual levy of service tax and anvil. From a direct tax perspective the industry does not expect VAT on software is much awaited. major shift in this Budget. From an indirect taxes perspective, the existing CENVAT credit rules Real Estate and Infrastructure appear to be very restrictive. A need is clearly felt to allow credits for payments made against insurance claims, as well as permit The sector expects 80IA exemption to include Integrated township customers of group insurance schemes to claim CENVAT credits of projects and SEZs and reduction in borrowing costs for promoting service taxes paid on such premiums. housing development. From indirect taxes perspective, there appears a clear need for service tax incentives/ sops to be granted for urban residential construction.© Grant Thornton India LLP. All rights reserved. 4
    • Budget expectations survey- General© Grant Thornton India LLP. All rights reserved.
    • 1. General Chart 1A1A -Do you expect the Budget 2013 to be an investor friendly or revenuefriendly Budget? 12% Investor friendly 48% Revenue friendly 40% Cant Say Chart 1 B Yes No Cant say 55% 1B -Do you think that the Government will levy ‘Inheritance Tax’? 34% 11% The Message: 48% respondents anticipate the Budget 2013 to be somewhat investor friendly with majority expecting that Inheritance tax levy will not be brought in.© Grant Thornton India LLP. All rights reserved. 6
    • 1. General Chart 1 C 1C -Do you think that ‘Super Tax’ i.e. tax on individuals in higher income group will be introduced? 6% 32% Yes 62% No Cant say Chart 1 D Yes No Cant say1D -Do you expect that Budget 2013 will extend the special rate of 15% ondividends received from foreign companies beyond 31 March 2013? 58% 40% 2% The Message: 62% respondents anticipate that “Super Tax” will be introduced in the Budget 2013 whereas there are mixed views on the extension of preferential rate of taxation on foreign dividends.© Grant Thornton India LLP. All rights reserved. 7
    • 1. General1E -What changes do you expect in the following from Budget 2013? Chart 1E Remain Unchanged Increase Can’t Say 70% 54% 47% 48% 40% 30% 6% 5 0 Overall limit for deduction allowed Overall limit for deduction in tax free Overall limit for deduction of housing under section 80C (Rs.1,00,000 at infrastructure bonds loan interest paid (Rs. 1,50,000 at present) present) The Message: Positive expectation on increase in the overall thresholds for 80C and infrastructure bonds related tax exemptions but mixed expectations on increasing the housing loan deduction thresholds.© Grant Thornton India LLP. All rights reserved. 8
    • Budget expectations survey- Economy and Policy© Grant Thornton India LLP. All rights reserved.
    • 2. Economy and Policy2A -Rank in order of preference the sector(s) which will receive the major thrust in the Budget 2013 1 Infrastructure 22.1% 2 Agriculture 18% 3 Manufacturing 16.1% 4 Education 14.4% 5 Defence 10.9% 6 Real estate 10.7% 7 Aviation 7.8%© Grant Thornton India LLP. All rights reserved. 10
    • 2. Economy and Policy2B -Do you expect the Government to provide clarity on “indirect transfers” Chart 2Bof assets situated in India such as explaining the term “substantially” andproviding the computation mechanism? 27% 42% Yes No 31% Cant say Chart 2C 15% 2C -Do you expect the Budget 2013 to introduce amendments to reduce tax litigations? Yes 43% No Cant say 42% The Message: India Inc. expects the Budget 2013 to clear the mist on taxation of “indirect transfers” and bring amendments for a less litigious tax system.© Grant Thornton India LLP. All rights reserved. 11
    • 2. Economy and Policy Chart 2D 2D -Do you expect the Budget to be a balanced Budget i.e. resulting in an increase in revenue for the Government, while at the same time increasing Yes No Cant say incentives for the industry? 64 23 13 Chart 2E 50 452E -How do you expect the Stock Markets to react on the Budget day? 42.95 40 35 30 31.54 25 25.5 20 15 10 5 0 Rise Fall Remain Flat The Message: Respondents are definitely looking for a balanced Budget 2013 and anticipate the indexes to go up at the Stock Markets on “The Budget Day”.© Grant Thornton India LLP. All rights reserved. 12
    • Budget expectations survey- Tax Rates© Grant Thornton India LLP. All rights reserved.
    • 3. Tax Rates3 -What changes do you expect in the following rates? Chart 3A Remain Unchanged Increase Decrease Abolished 100 1 1 3 4 0 1 6% 12% 13% 1 9% 11% 8% 6% 16% 90 9% 11% 26% 7% 3% 11% 7% 16% 80 19% 11% 70 21% 22% 31% 12% 15% 60 50 40 83% 79% 78% 70% 72% 30 58% 60% 63% 61% 57% 20 10 0 Corporate Personal Surcharge Education Minimum Securities Dividend Central Excise Duty Service tax Tax Rate Income Tax Cess Alternate Transaction Distribution Sales Tax Rate Tax (‘MAT’) Tax (‘STT’) Tax (‘DDT’) The Message: Broadly, corporate India does not expect any major changes in direct and indirect tax rates.© Grant Thornton India LLP. All rights reserved. 14
    • Budget expectations survey- New proposals© Grant Thornton India LLP. All rights reserved.
    • 4. New proposals Chart 4A4A -Do you expect the Government to introduce provisions on taxation ofCarbon Credits? 23% 33% Yes No 44% Cant say Chart 4B 4B -Do you expect the Government to introduce an amnesty scheme to expedite repatriation of unaccounted money parked overseas? 23% 31% Yes No Cant say 46% The Message: Respondents are neither expecting any provisions for taxing “Carbon Credits” nor any amnesty scheme for expediting repatriation of unaccounted money parked overseas.© Grant Thornton India LLP. All rights reserved. 16
    • Budget expectations survey- Indirect taxes© Grant Thornton India LLP. All rights reserved.
    • 5. Indirect taxes5A -Whether there should be a relaxation with respect to “domestic reverse charge” regime which was expanded in the last Budget to includespecified services provided by non-corporate bodies? Chart 5A 40% 38% Yes No 22% Cant say The Message: While opinion is divided, 38% of respondents believe that domestic reverse charge regime should be relaxed, possibly by accepting 100% liability to be paid by recipients (avoiding valuation disputes between provider and recipient).© Grant Thornton India LLP. All rights reserved. 18
    • 5. Indirect taxes5B -Whether, in light of the Fiat judgment by the Supreme Court on excise valuation, suitable explanations should be inserted in Section 4 of theCentral Excise Act to Clarify the ambit of “extra commercial consideration” introduced in the Supreme Court ruling Permit business exigencies as adjustments to taxable value for the purpose of levying excise duty Dilute the impact of the Fiat judgment to assessments already concluded in the past Can’t say 45% 34% 13% 8% The Message: The Fiat judgment has re-opened disputes on Excise Valuation, thus creating needless ambiguities. 34% of respondents prefer "extra commercial considerations" as valuation adjustments while computing excise duties.© Grant Thornton India LLP. All rights reserved. 19
    • 5. Indirect taxes Chart 5C 5C -Do you expect that CENVAT Credit Rules will be amended to permit claiming Service tax as “input services”? 27% 46% Yes No 27% Cant say Chart 5D Yes No Cant say5D -Do you expect that CENVAT credit utilisation will be made morefungible (for instance, permitting excise duty CENVAT credits against 44%education cess and vice versa)? 29% 27% The Message: The industry is clearly anticipating relaxations in the current Rules to permit claiming service tax as "input services". However, 44% of the respondents do not expect CENVAT credit utilisation be made more fungible.© Grant Thornton India LLP. All rights reserved. 20
    • 5. Indirect taxes5E -Whether Additional Customs Duty in lieu of sales tax would be Chart 5E Reduced to 2 % exempted to importers who give a declaration stating that goods are for resale in India and the dealers are registered under domestic VAT laws for such purposes Removed all together from the Customs levy 66% None of the above 17% 11% 5% The Message: Additional customs duties in lieu of sales tax (SAD) is currently at 4% (in line with the CST rates at the time of introducing SAD) and it appears that the industry is comfortable with the "refund" option provided for SAD and is not expecting any change.© Grant Thornton India LLP. All rights reserved. 21
    • 5. Indirect taxes5F -Do you expect the powers granted to Revenue authorities for attachment of bank accounts, property and other mechanisms be restricted by way of Chart 5F Clarification from CBEC on the manner and circumstances in which such powers can be exercised Restricting such powers through amendments in the Law(s) for application only in extreme cases Removal of such powers in all cases other than for assessees on whom malafide intent is proven on facts All of the above None of the above 52% 23% 11% 9% 5% The Message: Majority of the respondents appear to be comfortable with the current provisions for recovery of taxes awarded to the Revenue authorities.© Grant Thornton India LLP. All rights reserved. 22
    • Budget expectations survey- Transfer Pricing© Grant Thornton India LLP. All rights reserved.
    • 6. Transfer Pricing Chart 6A6A -Do you expect that the Advance Pricing Agreements (‘APA’) Rollbackswill be introduced in the Budget 2013? 19% 39% Yes No 42% Cant say Chart 6B Yes No Cant say 44% 6B -Do you expect more clarity on how Transfer Pricing regulations would 38% be applicable to Specified Domestic Transactions (‘SDT’)? Will the Budget make Transfer Pricing applicable only to transactions between companies / units subject to differential tax rates? 18% The Message: Though APA rollbacks are essential, majority believe that, they are not expected soon. While on domestic transfer pricing, tax payers expect clarity on excluding tax neutral transactions.© Grant Thornton India LLP. All rights reserved. 24
    • 6. Transfer Pricing Chart 6C 6C -If answer to b) is in negative, will the Budget provide for corresponding adjustment to another related party where Transfer Pricing on SDT is applicable (i.e. if expense is disallowed in one party’s hands, will corresponding adjustment be made to the income of another related party) 29% 41% Yes No Cant say Chart 6D Industry-specific rules Issue-specific rules Both of the above 30% None of the above Cant Say 38%6D -Do you expect the introduction of industry-specific or issue-specific(such as guarantees, inter-company debt) safe harbor rules in the Budget2013? 19% 18% 15% 10% The Message: Majority of the respondents are unsure of corresponding adjustments being permitted and introduction of industry-specific and issue-specific safe harbor rules.© Grant Thornton India LLP. All rights reserved. 25
    • 6. Transfer Pricing6E -Do you expect any guidance on Transfer Pricing with respect to share valuation and marketing intangibles in the Budget 2013? Chart 6E 32% 47% Yes 21% No Cant say The Message: India Inc. expects more clarity on share valuation and marketing intangibles issues in the wake of the proposed high pitched adjustments in the recently concluded TP audits.© Grant Thornton India LLP. All rights reserved. 26
    • Budget expectations survey- Your expectations© Grant Thornton India LLP. All rights reserved.
    • 7. Your expectations7A -Please list down your top 3 expectations from the Budget 2013 Increase the deduction thresholds for Individual taxation (like 80C and Interest deductions on housing loans) Control fiscal deficit by focusing on investment and Introduction of GST growth© Grant Thornton India LLP. All rights reserved. 28
    • Budget expectations survey- Industry specific© Grant Thornton India LLP. All rights reserved.
    • Budget expectations survey-Healthcare and Pharma Industry© Grant Thornton India LLP. All rights reserved.
    • 8A. Healthcare and Pharma Industry Chart 8A(1)8A(1) -Do you expect that the hospitals will be awarded ‘Infrastructure’status for availing tax holiday under section 80IA of the Income Tax Act,1961, and borrowings at preferred rates? 16% 17% Yes 67% No Cant say Chart 8A(2) 1% 8A(2) -Do you expect the Government to provide exemption (both excise duty and customs duty) to diagnostic equipment, consumables and medical 33% devices for life saving/ threatening diseases? Yes No Cant say 66% The Message: While majority of the respondents are unsure of “infrastructure” status being awarded, the industry clearly does not expect any exemption being granted for life saving equipment / consumables / devices.© Grant Thornton India LLP. All rights reserved. 31
    • 8A. Healthcare and Pharma Industry Chart 8A(3) 8A(3) -Do you expect the Government to reduce customs duty rate from 1% 10% to 5% on formulations as suggested by Challiah Committee in its long term financial policy recommendations? Yes 49% No 50% Cant say Chart 8A(4) Yes No Cant say8A(4) -Do you expect a reduction in customs and central excise duty on 50nutraceuticals and health supplements and additional customs duty/centralexcise duty, at par with drugs? 33 17 The Message: While opinion is divided on reducing customs duties to 5% on formulations, the industry believes a reduction in Central duties is needed for nutraceuticals and health supplements in line with drugs.© Grant Thornton India LLP. All rights reserved. 32
    • 8A. Healthcare and Pharma Industry Chart 8A(5)8A(5) -Do you expect the Government to exempt clinical research from thelevy of service tax to boost outsourcing of clinical research? 1% 33% Yes 66% No Cant say Chart 8A(6) 1% 8A(6) -Do you expect the Government to exempt, from the levy of service tax, right to use trademarks or patents usually granted by a foreign entity to an Indian entity? Yes 50% 49% No Cant say The Message: The clinical trials industry believes the existing service tax law is likely to remain unchanged. However, opinion is divided on whether exemption from service tax is needed for payments towards patents/ trademarks.© Grant Thornton India LLP. All rights reserved. 33
    • 8A. Healthcare and Pharma Industry8A(7) -Rank in order of preference, the most desired expectation from the Budget 2013 1 Tax or other incentives to boost hospital infrastructure development 21% 2 Exemption to right to use trademarks/patents of a foreign company from service tax levy 20% 3 Exemption from excise duty and customs duty to medical devices and equipments 16% 4 Reduction in custom duty rate on formulations 15% 5 Exemption to clinical research from service tax levy 15% 6 Reduction in indirect tax rates on nutraceuticals and health supplements 13%© Grant Thornton India LLP. All rights reserved. 34
    • Budget expectations survey- Technology Industry© Grant Thornton India LLP. All rights reserved.
    • 8B. Technology Industry Chart 8B(1)8B(1) -Will the Government incentivise the Indian information technology Yes No Cant saymarket to promote “cloud computing technology” by introducing capitallinked incentives? 58% 33% 9% Chart 8B(2) Carve out transactions where no service tax is leviable.8B(2) -What steps should be taken to address theissue of double taxation of software under VAT and Clarify packaged and standard software, licence to use software electronically or on media shall not attract service taxService tax? None of the above Can’t say 58% 25% 8% 9% The Message: Less likelihood of IT sector getting boost for “cloud computing” but more than half of the respondents expect Budget 2013 to clarify the issue on double taxation of software under VAT and service tax.© Grant Thornton India LLP. All rights reserved. 36
    • 8B. Technology Industry Chart 8B(3) 8B(3) -Do you expect the Government to allow full refund in relation of services exclusively used in the Special Economic Zone (‘SEZ’) by units having operations in both SEZ and domestic tariff area (‘DTA’)? 38% Yes No 62% Cant say Chart 8B(4) Yes No Cant say8B(4) -Do you expect a clarification that the transfer of funds by the headoffice in India to its branch office outside India, for meeting the 58%administrative and related expenditure is outside the purview of service tax? 29% 13% The Message: 62% of the respondents feel that there is a need for service tax exemption on input services received by SEZ Units; even though the service recipient has offices/ establishments outside SEZ. Further, 58% of respondents also want that mere transfer of funds for meeting expenses of branches set up outside India should not attract service tax.© Grant Thornton India LLP. All rights reserved. 37
    • 8B. Technology Industry8B(5) -Rank in order of preference, the most desired expectation from the Budget 2013 1 Addressing issue relating to double taxation of software 32% 2 Allowing full refund for services used in the SEZ by units having operations in SEZ and DTA 26% Clarification that transfer of funds by the head office in India to its branch office outside India, for meeting the 3 22% administrative and related expenditure is outside the purview of service tax 4 Tax or other incentives to promote cloud computing 20%© Grant Thornton India LLP. All rights reserved. 38
    • Budget expectations survey- Real estate and Infrastructure© Grant Thornton India LLP. All rights reserved.
    • 8C. Real estate and Infrastructure Chart 8C(1)8C(1) - Do you expect the Budget 2013 to lay down the path for introductionof ‘Real Estate Investment Trust’ (‘REIT’) regulations? Yes No Cant say 47% 33% 20% Chart 8C(2) 7% 8C(2) - Do you expect that the definition of “Infrastructure Facility” under 13% section 80IA of the Income-tax Act, 1961 will be extended to include integrated township projects / special residential zones (mass Yes housing/residential townships)? No Cant say 80% The Message: 80% respondents expect 80IA exemption to include mass housing/ residential township, whereas REITs regulations are not anticipated to be introduced.© Grant Thornton India LLP. All rights reserved. 40
    • 8C. Real estate and Infrastructure Chart 8C(3) 8C(3) - Considering the steep increase in the purchase price of houses, do you expect the Budget 2013 to bring in a separate deduction for the principal repayment in relation to housing loan (i.e. over the 1,00,000 threshold under section 80C)? 13% 47% Yes 40% No Cant say Chart 8C(4) Yes, as it will help in providing better affordable housing to the society No, there has already been a substantial reduction at this front8C(4) - Does the market expect any actions from the Government to further Cant sayreduce the borrowing cost as it has been happening in the last few months? 73% 20% 7% The Message: 73% respondents expect the Budget 2013 to reduce the borrowing costs for promoting housing development but there seems to be mixed bag pulse for bringing in a separate deduction for principal repayment of housing loans.© Grant Thornton India LLP. All rights reserved. 41
    • 8C. Real estate and Infrastructure Chart 8C(5)8C(5) - Do you expect any exemption from “domestic reverse charge” to begranted to Joint Ventures (‘JVs’)/ association of persons (‘AOP’)arrangements that occur between consortium members for anyinfrastructure project to prevent blockage of CENVAT credits and provideadministrative relief to the infrastructure sector? 27% 33% Yes 40% No Cant say Chart 8C(6) 13% 8C(6) - Since many infrastructure projects are either exempted or allowed as “deemed exports”, do you expect the Government to provide a suitable refund mechanism to allow accumulated CENVAT credits to be paid back to Yes the infrastructure sector? 47% No Cant say 40% The Message: The industry view appears to be divided on whether JV/AOP structures should be granted relief from accumulation of CENVAT credits and whether CENVAT refunds should be permitted on "deemed export" activities.© Grant Thornton India LLP. All rights reserved. 42
    • 8C. Real estate and Infrastructure8C(7) - Which of the following features should be considered by the Government for exemption to real estate projects from service tax: Chart 8C(7) Construction of 12 dwelling units or less (similar exemption existed earlier) “Greenfield” projects for setting up urban residential infrastructure in identified areas Slum Rehabilitation Projects or other similar projects All of the above None of the above Can’t say 47% 33% 7% 7% 6% 0 The Message: Considering the high cost of urban residential construction, the Real Estate sector clearly feels the need for incentives/ sops from the Central Government to reduce the burden of service tax on their activities.© Grant Thornton India LLP. All rights reserved. 43
    • 8C. Real estate and Infrastructure8C(8) - Rank in order of preference, the most desired expectation from the Budget 2013 1 Infrastructure facility to include integrated township projects / special residential zones 18% 2 Introduction of features to exempt real estate projects from service tax levy 15% 3 Additional deduction for principal repayment of housing loan 16% 4 Government action to further reduce borrowing costs 16% 5 Introduction of REIT regulations 13% 6 Exemption from domestic reverse charge to JVs/AOP arrangements 12% 7 Introduction of refund mechanism to allow accumulated credits to be paid back 10%© Grant Thornton India LLP. All rights reserved. 44
    • Budget expectations survey- Financial Services© Grant Thornton India LLP. All rights reserved.
    • 8D. Financial Services Chart 8D(1)8D(1) -Do you expect the Government to abolish short term Yes No Cant saycapital gains’ tax and increase the rate of SecuritiesTransaction Tax (‘STT’) in Budget 2013? 64% 36% Chart 8D(2) 0 14% 8D(2) - Do you expect clarity on characterisation of income earned by Foreign Institutional Investors (‘FIIs’) i.e. ‘business Yes income’ vis-a-vis ‘capital gains’? No 27% 59% Cant say The Message: Only 36% respondents expect a positive news in the Budget on abolishing of short term capital gain. 59% respondents expects clarification on characterization of income in the hands of FIIs.© Grant Thornton India LLP. All rights reserved. 46
    • 8D. Financial Services8D(3) -Do you expect that the following: Chart 8D(3) the relevant provisions applicable to taxation of FII’s will be extended to Qualified Foreign Investors (‘QFI’s’) taxation on the fund registered under the SEBI (Alternative Investment Funds) Regulations, 2012 (‘AIF regulations’) would be clarified All categories of AIF be given the tax pass-through status All of the above None of the above 38% 29% 19% 14% 0 The Message: 29% respondents expect clarification in respect of taxation of a fund set up under AIF regulations.© Grant Thornton India LLP. All rights reserved. 47
    • 8D. Financial Services 8D(4) - Recently, the Central Board of Direct Taxes (‘CBDT’) released Chart 8D(4) frequently asked questions (‘FAQs’) providing generic understanding on tax framework for QFIs. Do you expect the Government to introduce specific provisions in line with the understanding provided in the FAQs? 29% Yes No 57% Cant say 14% Chart 8D(5) 8D(5) - Do you think that the benefit of “export of service” should be extended to transactions between branch office and head office by removing 23% clause (f) from Rule 6A (1) of the Service Tax Rules, 1994? Yes No 77% The Message: Majority of the respondents expect clarification on QFIs tax framework and "parity" between import and export rules for transactions between head office and branch office for financial services.© Grant Thornton India LLP. All rights reserved. 48
    • 8D. Financial Services8D(6) - Do you think that the Central Government should, in light of the Chart 8D(6)High Court decision in the case of Intercontinental Consultants, clarifythe position on group cost-recharge arrangements without any mark- Yes, unconditionallyup and permit such arrangements as deductions from taxable value forpayment of service tax? Yes, subject to restrictions on claim of CENVAT credits, if any, that relate to the expenses recharged by group company No Chart 8D(7) 62% Reversal of 50 % of eligible CENVAT credits, and removal of requirement for further reversal of credits on trading activities Reversal of 40 percent of eligible CENVAT credits, without any further restrictions/ adjustments No change needed 29% 72% 9% 8D(7) -Do you think that the ad-hoc provision applicable to banks 14% 14% and non-banking financial companies (‘NBFCs’) requiring reversal of 50 % of eligible CENVAT credits should be amended as under? The Message: The industry appears to be comfortable with the current CENVAT credit regime particularly for banks and NBFCs.© Grant Thornton India LLP. All rights reserved. 49
    • 8D. Financial Services8D(8) - Do you think that service tax trigger point should be modified to tax Chart 8D(8)at the location of service recipient (as against service provider) in case of“intermediary services” provided by banks and NBFCs in India in relation toECB, trade finance and other similar arrangements? 38% Yes 52% No Cant say 10% The Message: Financial service providers would like to have a single identifier for export of services; preferably based on the location of the service recipient.© Grant Thornton India LLP. All rights reserved. 50
    • 8D. Financial Services8D(9) - Rank in order of preference, the most desired expectation from the Budget 2013 1 Abolition of short term capital gains tax and increment in STT rate 19% 2 Clarity on characterisation of income earned by FIIs i.e. ‘business income’ vis-a-vis ‘capital gains 15% 3 Clarifications relating to QFI taxation 15% 4 Export of services to include transaction between head office and branch office 14% 5 Clarity of service tax position on group cost-recharge arrangements without any mark-up 13% 6 Service tax to trigger at the location of service recipient 12% 7 Amendment to reversal of cenvat credit for banks and NBFCs 11%© Grant Thornton India LLP. All rights reserved. 51
    • Budget expectations survey- Insurance Services© Grant Thornton India LLP. All rights reserved.
    • 8E. Insurance Services Chart 8E(1)8E(1) -Do you expect a clarification on taxability of life insurance businessi.e. whether the aggregate of surplus of Shareholders Funds andPolicyholders Funds should form part of the life insurance business? 25% 25% Yes No Cant say Chart 8E(2) 50% Yes No Cant say 50% 50% 8E(2) - Do you expect a clarification on applicability of section 194D of the Income Tax Act, 1961 i.e. tax withholding at source on the service tax component under the “reverse charge” mechanism on payment of commission to insurance agent? 0 The Message: Only 25% respondents expect clarity on taxation of life insurance business. Mixed responses have come regarding clarification on withholding tax on service tax component under the reverse charge mechanism on payment of commission to insurance agent.© Grant Thornton India LLP. All rights reserved. 53
    • 8E. Insurance Services Chart 8E(3) 8E(3) -Do you expect a clarification on availability of exemption of dividend 1% income under section 10(34) of the Income Tax Act, 1961 to insurance companies and consequently applicability of section 14A of the Income Tax Act, 1961? 25% Yes No Cant say 74% Chart 8E(4)8E(4) - Do you expect a clarification on whether loss from pension fund, the 10% 23%income of which is exempt under section 10(23AAB) of the Income Tax Act,1961 would be available for set off against income from insurance business Yesunder the provisions of the Income Tax Act, 1961? No Cant say 67% The Message: Majority of the respondents do not expect any clarification on the applicability of section 14A and allowing set off of loss from pension fund.© Grant Thornton India LLP. All rights reserved. 54
    • 8E. Insurance Services Chart 8E(5)8E(5) -Whether Budget 2013 will bring a clarification on whether thenegative reserve as disclosed in Form-I should not form part of the actuarialsurplus for determining the income from life insurance business? 25% 25% Yes No Chart 8E(6) Cant say Lead insurer pays service tax, and co-insurers are exempted from payment of 50% service tax on their revenue share All participating insurance companies’ pays service tax in respect of their share, and lead insurer is exempted from responsibility to pay service tax None of the above Can’t say 8E(6) -Which of the following clarification on applicability of service tax on co-insurance transactions is most likely to be 50% announced in the Budget 2013? 25% 25% 0 The Message: 25% respondents expect clarification on inclusion / exclusion of negative reserve for determining actuarial surplus for life insurance business while most participants appears to accept a model whether lead insurer should be exempted from service tax if other co-insurers are paying tax on their respective shares.© Grant Thornton India LLP. All rights reserved. 55
    • 8E. Insurance Services Chart 8E(7) 8E(7) -Whether a clarification should be issued on CENVAT credits, service tax applicability on expenses/ losses paid on account of cashless policies Yes - Special (motor, health, etc.)? provisions / 20% Explanation to be inserted No clarification expected 20% 60% Cant Say Chart 8E(7)8E(8) - Do you think that removal of restrictions of CENVAT credits oncustomers of group insurance policies would expand health insurance 25%business Yes 0% No Cant Say 75% The Message: Insurance companies are significantly affected by the restrictions on CENVAT credits, both on them as well as on their customers. Relaxations in CENVAT credit rules appear to be a key demand within the industry.© Grant Thornton India LLP. All rights reserved. 56
    • 8E. Insurance Services8E(9) -Rank in order of preference, the most desired expectation from the Budget 2013 1 Clarification on taxability of life insurance business 21% 2 Clarification on availability of exemption of dividend income to insurance companies and applicability of section 14A 21% 3 Clarification on tax withholding on service tax component on payment of commission to insurance agent 15% 4 Clarification on set off of loss from exempted pension fund against income from insurance business 14% 5 Clarification on whether the negative reserve as disclosed in Form-I should not form part of the actuarial surplus 12% 6 Clarification on CENVAT credits, service tax applicability on expenses/ losses paid on account of cashless policies 12% 7 Clarification on applicability of service tax on co-insurance transactions 6%© Grant Thornton India LLP. All rights reserved. 57
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