2. IndIa’s TrysT
WITh desTIny
The time has come for India to announce its
robust presence in the global community of
nations.
The timing cannot be more opportune.
The global economy is struggling with the ravages
of a slowdown; India appears to be moving out of
one.
Most developed countries are experiencing the
problems arising out of an increasingly elderly
gentry; India as a nation is becoming progressively
younger.
The world is experiencing demand satiation
across a number of areas; India is probably the
most under-consumed large country in the world.
The result is that this is not an India looking at
itself with economic expectation; it is an eternal
audience pinning its hope that India may possibly
lift the world out of the slowdown.
Which is why the Union Budget 2015 is not just a
document for Indian eyes. It is a document that
needs to be interpreted by the world.
3. USD 2tn
Size of the
Indian economy
7.4%
Projected growth of India’s
service sector in FY 2015
7.5%
India’s economic growth in
the Oct-Dec, 2014
USD 42bn
Total FDI inflows into India
during 2014
7.4%
Projected annual GDP for
the FY 2015
USD 360bn
Projected value of total exports
from India during FY 2015
BALM FOR INDIA.
HOPE FOR THE WORLD.
There is a growing recognition that what is good for India is good for the world.
Because India comprises a sixth of mankind. What would be beneficial for this high proportion
would inevitably be good for the wide world.
Because India possesses centuries of entrepreneurial experience, industrial discipline, engineering
competence and mineral resources – one of the most extensive value chains anywhere in the world.
Because more than anything, India possesses one of the last great captive home markets that
are still relatively under-consumed, providing attractive economies-of-scale and international
competitiveness to become a dependable global provider.
The time begins now.
MAKE IN
INDIA
4. OUR PHILOSOPHY
01
Partner Driven Approach: We cater to all
our clients with personalised attention and
meet their business challenges with ease and
finesse.
02
Extraordinary Client Service: Our client-
centric approach is built around highly
customised services through continuous
innovation to deliver value and growth to our
clients. We provide support to our clients that
they can rely on and encompasses all the
requirements to the best of our ability. We
believe in ‘total client satisfaction’.
03
Vibrant & Long-lasting Client Relationships:
Our client relationships are more than
just business partnerships. We Endeavour
to understand the client as well as their
business and build a vibrant and long-lasting
relationship.
04
Trust, Reliability and Transparency:
For a relationship to flourish, it must be based
on trust, reliability and transparency – values
that we hold sacred.
5. This publication is for private circulation only.
Information in this publication is intended to provide general guidance only. While
all reasonable care is taken to ensure fool proof accuracy of content at the time
of drafting the document, we accept no responsibility for any errors or for any
omissions or for any loss, however caused or sustained, by the person who relies on
his interpretation of the document. Readers are advised to seek professional advice
before acting on the information provided in this publication.
The cover line, content and analysis provided in the document are the sole property
of DH Consultants P. Ltd. No reproduction in part or in whole, is allowed without our
prior written approval.
Basics
10
Budget proposals
- Direct Taxes
32
Budget proposals
- Indirect Taxes
88
Miscellaneous
138
PART 1
PART 2
PART 3
PART 4
CONTENTS
Section 1 Foreword 10
Section 2 Budget Snapshot 12
Section 3 Economic Indicators &
Budget Financials
22
T
Section 8 Central Excise 90
Section 9 Customs 110
Section 10 Service ax 120
Section 11 SEBI & Capital Markets 138
Section 12 Tax Rate Structure 144
Section 13 Glossary 152
Section 4 CorporateTaxation 34
Section 5 InternationalTaxation &
Transfer Pricing
44
Section 6 PersonalTaxation 56
Section 7 Others 62
6. AGRICULTURE
FEEDING INDIA. FEEDING THE WORLD.
India is the second largest agricultural landmass in the world.
Surprisingly, even as India is considered one of the largest producers across a number of
crops, it possesses one of the lowest yields.
This sub-optimal utilisation of land is derived from legacy practices and inefficient resource
management.
What India needs is a combination of futuristic agriculture technologies, mindset
universalisation and the proactive embrace of global best practices.
With the objective of generating more from a finite land resource, utilizing precious land in
a sustainable way and raising enough not only to feed the world’s second largest population
cluster but also to feed the world at large.
The time is now.
7. T
he Economic Survey
2014-15 was tabled in
the Indian Parliament on
27 February 2015 and the
Union Budget 2015-16
was tabled in Parliament
on 28 February 2015. Both these are
more than economic statements; they
represent a grand perspective of a
robust optimistic India.
As a result, these documents extend beyond
the usual economic indicators (gross domestic
product, inflation, fiscal deficit, current account
deficit, foreign exchange reserves and primarily
tax sources) and application of revenues (primarily
planned and non-planned expenditures & outlays)
that one would expect in them. They clearly
indicate that India, at the cusp of emerging from
the protracted ‘doom and gloom’, is perched on a
long historic journey.
A new direction
A number of things have emerged in the first
nine months of the leadership of the new Indian
governmentunderthestewardshipofHon’blePrime
Minister, Mr. Narendra Modi, which emphasise a
long-term vision, quality and conviction. Among
the most visible of these signals being sent out
comprise transformational initiatives like ‘Make
in India’, ‘Skill India’ and ‘Digital India’ on the one
hand and ‘Swachh Bharat’ on the other with the
objective to energize the economy.
The result is that the new Indian government
announced fast-track infrastructure development
to match the country’s growth ambition. This
manifested in announcements to increase public
investments, establish National Investment
and Infrastructure Fund (NIIF), float tax-free
infrastructure bonds, revisit PPP models for
rebalancing risk, replace multiple permissions
with a pre-existing regulatory mechanism and
also introduce a plug-and-play model for mega
infra projects.
Building on a natural advantage
India brings to the reality of the moment some of
the most compelling natural advantages.
The country is among the youngest in the world;
more than 54% of its population is below 25 years
of age.
This sizable population cluster – probably the
largest in any country – needs to be educated and
trained towards employability.
In line with the priority, the Indian government
intends to launch a National Skill Mission through
the Skill Development and Entrepreneurship
Ministry. The Mission will consolidate skill
initiatives spread across several Ministries
resulting in a standardization of procedures and
outcomes across 31 Sector Skill Councils.
Besides, the government expects to create a
Digital India through an aggressive National
Optical Fibre Network Programme running across
750,000 kilometers networking 250,000 villages
that is expected to leapfrog rural realities into a
modern future.
The result is a ‘ray of hope’, which, considering the
protracted slowdown, may now be considered a
major sentiment-driver and achievement.
An insight
A number of economic commentators seeking
‘big bang’ announcements from the Union Budget
may have been disappointed in the short-term but
are convinced that the Union Budget will have a
decisive long-term impact.
This impact is likely to be derived from three levels
– the implementation of JAM (Jan Dhan, Aadhar
and Mobile) leading to Amrut Mahotsav benefits in
2022 (India’s 75th year).
The Amrut Mahotsav in 2022 focuses on the
following dynamic objectives:
Housing for all
• Basic facilities (including 24-hour power supply)
in each house
• Access to livelihood means for at least one
member of each family
• Connecting each of 178,000 unconnected
habitats through all-weather roads
• Providing a senior secondary school within 5 km
of each child.
• Providing medical services in each village
Overview
What we admire about the Union Budget 2015-
16 is that for the first time the subjects of Jan
Suraksha (universal social security system), public
investment, plug-and-play infrastructure, phased
corporate tax rate reduction, gold monetization
(through sovereign gold bonds and gold coins),
restoration of Cultural World Heritage Sites, Green
India and a law to curb black money and benami
transactions have been articulated.
The Union Budget 2015-16 then is a reflection of
the government’s commitment towards change,
growth, jobs and social upliftment.
In our opinion, the Union Budget 2015-16 is
Progressive, the theme of this review document.
Knowledge Management Team
Mumbai, March 2015
FOREWORD
SECTION 1
10 INDIA BUDGET
2015-16
11 BASICS
BUDGET PROPOSAL
DIRECT TAXES
BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
9. Individual Taxation
• No increase in Income-tax basic exemption
limit.
• Increase in Surcharge from 10% to 12%, if the
total income exceeds H1 Cr.
• Education Cess on income tax @ 2% and
Secondary and Higher Education Cess @ 1 %
continued for the financial year 2015-16.
• Investment in Sukanya Samriddhi Account
Scheme will be eligible for deduction u/s 80C.
• Limit of deduction u/s 80CCC for contribution to
certain pension funds increased from H1,00,000
to H1,50,000.
• For contributions made to National Pension
Scheme, deduction upto H50,000 is available
over and above the aggregate deductible limit of
H1,50,000.
• Limit of deduction u/s 80D for health insurance
premium increased from H15,000 to H25,000
(other than senior citizens) and from H20,000 to
H30,000 (senior citizens). Deduction of H30,000 is
proposed to be allowed for medical expenditure
of very senior citizen if there is no health
insurance in force.
• Deduction u/s 80DD for medical treatment
of dependent with disability proposed to be
increased from H50,000 to H75,000. In case
of severe disability amount of deduction is
proposed to be increased from H1,00,000 to
H1,25,000.
• Deduction u/s 80DDB on expenditure on spe-
cified diseases for very senior citizens proposed
to be increased from H60,000 to H80,000.
• Deduction u/s 80U in case of person with
disability increased from H50,000 to H75,000. In
case of severe disability amount of deduction
is proposed to be increased from H1,00,000 to
H1,25,000.
• Any payment received from an account opened
in accordance with ‘Sukanya Samriddhi Account
Rules 2014’ proposed to be exempt u/s 10(11A).
• 100% deduction proposed to be allowed u/s 80G
for donations made to (i) Swachh Bharat Kosh,
(ii) Clean Ganga Fund and (iii) National Fund for
Control of Drug Abuse.
• Exemption of Transport Allowance proposed to
be increased from H800 pm to H1600 pm.
• TDS @10% on premature withdrawal from
Recognised Provident Fund provided the amount
of withdrawal is H30,000 or more. Failure to
furnish PAN to trustees of EPFS would attract
TDS at Maximum Marginal Rate.
• Acceptance or repayment of advance of H20,000
or more in cash for purchase of immovable
property proposed to be prohibited.
• Threshold limit for applicability of transfer
pricing regulations to specified domestic
transactions proposed to be increased from H5
Crs. to H20 Crs.
Corporate Taxation
• Corporate tax rate proposed to be reduced from
30% to 25 % over the period of 4 Years.
• Surcharge @7% for income above H1Cr and upto
H10 Crs and @12% for income above H10 Crs.
• No change in Surcharge rate for Foreign
Companies.
• Surcharge on DDT proposed to be increased
from 10% to 12%.
• Sec. 32AD proposed to be inserted to provide
additional 15% Investment Allowance on cost
of new eligible Plant & Machinery acquired
and installed in new unit set up in notified
backward area of Andhra Pradesh & Telangana
on or after 01-04-2015 but before 01-04-2020.
This allowance would be over & above the
existing allowance @15% u/s 32AC. Further,
higher additional depreciation u/s 32(1)(iia)
also proposed on such assets @ 35% instead of
existing rate of 20%.
• Balance 50% additional depreciation u/s 32(i)
(iia) on eligible Plant & Machinery, acquired &
put to use for less than 180 days in a previous
year, proposed to be allowed in the immediately
succeeding previous year.
• Benefit of deduction u/s 80JJAA proposed to be
extended to all assesses having manufacturing
units instead of only to corporate assessee.
Further, criteria for employing new regular
workmen proposed to be reduced from 100 to 50
for being eligible for deduction.
• Special tax regime specified for certain Category
I & Category II Alternate Investment Fund
regulated by SEBI allowing pass through status
to Investment Funds.
• Share of income of a member of AOP or BOI
exempt u/s 86, proposed to be excluded in
computing Book Profit u/s 115JB, with a
corresponding increase in expenditure related
to such income
• Rationalisation of capital gains regime for the
sponsors existing at the time of listing of units
of REITs and InvITs. Rental income of REITs from
their own assets to have pass through facility.
International Taxation and Transfer
Pricing
• Rate of tax on Royalty and FTS proposed to be
reduced from 25% to 10%.
• Period of applicability of reduced rate of tax of
5% in respect of income of foreign investors (FIIs
and QFIs) from corporate bonds and government
securities proposed to be extended from 31-05-
2015 to 30-06-2017 [Sec. 194LD].
DIRECT TAX – AT A GLANCE
14 INDIA BUDGET
2015-16
15 BASICS
BUDGET PROPOSAL
DIRECT TAXES
BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
10. • Sec. 195 to give power to CBDT to capture
information on foreign remittances which are
claimed to be not chargeable to tax.
• CBDT to notify rules for giving foreign tax credit
to Indian Residents u/s 90, 90A & 91.
Other relevant Proposals
• Provisions of General Anti Avoidance Rule
(GAAR) introduced vide Finance Act 2012 in
Chapter X-A which was applicable from 01-
04-2015 have been deferred for 2 more years
and would now proposed to apply w.e.f 01-04-
2017. Investments made upto 31-03-2017 are
proposed to be protected from the applicability
of GAAR.
• Direct Tax Code (DTC) which was to replace
the present Act, shall not be enacted as major
recommendations have been incorporated in the
current Statute.
• Wealth Tax Act, 1957 has been abolished w.e.f FY
2015-16. Particulars and information in relation
to assets furnished in Wealth Tax Return shall
be incorporated in modified Income tax Return
to be notified.
• New comprehensive Law to be enacted in
the current session to deal with black money
stashed abroad.
• New Benami Transaction (Prohibition) Bill
to curb domestic black money also to be
introduced.
• Penalty u/s 271(1)(c) is proposed to be imposed
for additions made both under Normal provisions
& MAT provisions.
General and administrative
• It is proposed to provide that interest paid by
a PE or a branch of foreign bank to its HO and
other overseas branches shall be chargeable to
tax in India and shall also be liable for TDS.
• CBDT to prescribe rules for the purposes of
determination of ‘resident’ status in the case of
India seafarer.
• Residency criteria of companies widened by
introduction of Place of Effective Management
concept.
• In search cases, seized cash proposed to be
adjusted against the tax liability computed in the
settlement application.
• Share or interest of a foreign company or
entity outside India shall be deemed to derive
its value substantially from the assets located
in India, if on the specified date, value of such
assets represents at least fifty per cent of the
fair market value of all the assets owned by the
company or entity. However, the indirect transfer
provisions would not apply if the value of Indian
assets does not exceed H10 Crs.
• Indian entity shall be obligated to furnish
information relating to the offshore transactions
having the effect of directly or indirectly
modifying the ownership structure or control
of the Indian company or entity. In case of non-
compliance, a penalty is proposed to be levied.
• Chartered Accountants who are disqualified
to be appointed as an auditor u/s 141(3) of the
Companies Act, 2013 shall be not be considered
as an “accountant” for the purpose of the IT Act.
• Benefit of non-deduction of tax at source u/s
194C on sums paid to transport contractor on
furnishing of PAN, proposed to be restricted
to transport contractor owning upto 10 goods
carriages.
Central Excise
• As a move towards GST, EC and SHEC leviable
on excise duty proposed to be subsumed in BED
• BED increased from 12% to 12.5%
• Changes in duty rates of Petrol and HSD
Specific rates revised to subsume EC and
SHEC
Conversion of existing excise duty to the extent
of H4 per litre into Road Cess
• Excise duty on leather footwear of RSP > H1000
per pair reduced from 12% to 6%
• Excise Duty increased on:
Cement falling under chapter sub-heading
2523 29 from H900/MT to H1000/MT
Sacks and bags, other than for industrial use,
from 12% to 15%
Mobile handsets, including cellular phones
from 6% to 12.5% (with CENVAT credit)
• Clean Energy Cess on coal increased from H100/
MT to H300/MT. Effective rate increased from
H100 per/MT to H200/MT
• Excise Duty completely withdrawn from captively
consumed intermediate compound coming into
existence during the manufacture of Agarbattis;
• Concessional excise duty of 6% extended upto
31 March 2016 on specified goods for use in
manufacture of electrically operated vehicles
and hybrid vehicles
INDIRECT TAX – AT A GLANCE
16 INDIA BUDGET
2015-16
17 BASICS
BUDGET PROPOSAL
DIRECT TAXES
BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
11. Specified components used in manufacture of
specified CNC lathe machines and machining
centres from 7.5% to 2.5%.
C- Block for Compressor, Over Load Protector
(OLP) & Positive thermal co-efficient and
Crank Shaft for compressor for use in
manufacture of Refrigerator compressors
from 7.5% to 5%.
Specified inputs for manufacture of flexible
medical video endoscope from 5% to 2.5%.
ActiveEnergyController(AEC)formanufacture
of Renewable Power System (RPS) Inverters
conditionally reduced to 5%
• BCD brought down to zero:
Magnetron of upto 1 KW for manufacturing
microwave owens from 5% to NIL
HDPE for manufacture of telecommunication
grade optical fibre cables from 7.5% to Nil.
Black Light Unit Module for manufacture of
LCD/LED TV panels from 10% to Nil.
Organic LED (OLED) TV panels from 10% to
Nil.
Specified Digital Still Image Video Camera
capable of recording video and components
for use in the manufacture of such cameras is
being reduced to Nil.
Evacuated Tubes with three layers of solar
selective coating for manufacture of solar
water heater and system is being fully
exempted.
• SAD exemption in respect of:
All goods except populated printed circuit
boards, falling under any Chapter of Customs
Tariff, for use in the manufacture of ITA Bound
Items.
Inputs for manufacture of LED drivers and
MCPCB for LED lights, fixtures and lamps.
• Scheduled rates of Additional Duty of Customs
levied on imported Motor Spirit [Petrol] and High
Speed Diesel Oil [commonly known as Road
Cess] are being increased from H2 per litre to H6
per litre.
• CVD and SAD are being fully exempted
on specified raw materials for use in the
manufacture of pacemakers.
• Current duty structure on specified goods for
manufacture of Electrically Operated Vehicles
and Hybrid motor vehicles BCD- Nil, CVD-6%
and SAD – Nil which are presently applicable
upto 31.03.2015, are being extended upto
31.03.2016.
• BCD and CVD are fully exempted on artificial
heart (left ventricular assist device).
• In case of imports for a Mega Power Project
when the status is provisional, condition of
executing fixed deposit receipt for a term of
36 months or more has been increased to 66
months.
• CVD and SAD exemption on specified goods
imported for use by Security Printing and
Minting Corporation of India Limited (SPMCIL)
are being withdrawn.
• Penalty provisions under Section 28 of the
Customs Act, rationalised as under:
No Penalty and the proceedings would be
deemed to be closed if customs duty along with
interest is paid within 30 days of receipt of the
Show Cause Notice, in cases not involving fraud,
collusion, suppression of fact etc.
Penalty reduced from 25% to 15% and the
proceedings would be deemed to be closed if
customs duty along with interest is paid within
30 days of receipt of the Show Cause Notice, in
cases involving fraud, collusion, suppression of
fact etc.
The above benefit extended to cases where
notice issued but not adjudicated before the
Finance Bill 2015 is enacted. The proceedings
• Penalty provisions are being rationalized
to encourage compliance and early dispute
resolution
Cases not involving extended period of
limitation
Penalty will be restricted to 10% of Duty
involved
No penalty if duty and interest is paid within
30 days of issuance of notice.
Reducedpenaltyof25%ofpenaltyapplicable
if duty, interest and reduced penalty paid
within 30 days of order
Benefit of reduced penalty to be extended to
cases where penalty modified in appellate
proceedings
Casesinvolvingfraud,collusion,misstatement,
suppression, extended period of limitation
Penalty will be 100% of duty involved, and
in case where the transactions are recorded
by the assessee, for the period from 8th
April 2011 till the bill receives the assent of
the President, penalty would be 50% of the
duty.
Reduced penalty of 15% is applicable if duty,
interest and reduced penalty is paid within
30 days of issuance of notice
Reduced penalty of 25% of duty imposed
is applicable if duty, interest and reduced
penalty is paid within 30 days of order.
Benefit of reduced penalty to be extended to
cases where penalty modified in appellate
proceedings
• Assessees will be allowed to issue digitally
signed invoices and maintain other records
electronically
• Proceedings remanded by Court or Tribunal to
the Adjudicating Authority for fresh adjudication
not to be considered as case eligible for filing
application before Settlement Commission
• Excise Duty increased on goods covered under
Medicinal and Toilet Preparations Act, 1955 from
12% to 12.5% ad valorem
• Facility provided to a manufacturer and
registered dealer and importer &/or port of
import to directly dispatch goods from vendor to
job worker/customer’s premises
• Penalty prescribed for delay in filing of
Annual Financial Information Statement or
Annual Capacity Statement
Return by an EOU
Customs
• Peak rate of duty remains unchanged.
• BCD increased on:
Iron and steel and articles thereof from 10% to
15%
Bauxite from 10% to 20%.
Motor vehicles used for passenger transport
and goods transport from 10% to 40%.
However, the effective Basic customs duty on
such Vehicles increased from 10% to 20%.
Metallurgical coke from 2.5% to 5%
• BCD reduction on:
Sulphuric acid for the manufacture of
fertilizers from 7.5% to 5%
Melting scrap of iron & steel, copper scrap,
brass scrap and aluminium scrap from 4% to
2%.
‘Metal parts’ for use in the manufacture of
electrical insulators is being reduced from
10% to 7.5%.
Ethylene-Propylene-non-conjugated-Diene
Rubber (EPDM), Water blocking tape and
Mica glass tape, for use in the manufacture of
insulated wires and cables from 10% to 7.5%.
Zeolite, ceria zirconia compounds and cerium
compounds for manufacture of washcoats,
used in manufacture of catalytic converters,
from 7.5% to 5%.
18 INDIA BUDGET
2015-16
19 BASICS
BUDGET PROPOSAL
DIRECT TAXES
BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
12. 40% from 60%.
Services provided in relation to chit reduced
from 30% to NIL.
• Section 67 has been amended to provide that
consideration for a taxable service shall include
all reimbursable expenditure or cost incurred
and charged by the service provider. The
provision has now been clearly incorporated in
Section 67 due to contrary view taken by courts
in some cases.
• Penalty provisions under Section 76 and 78
rationalised as under:
Cases not involving extended period of
limitation
Penalty will be restricted to 10% of service
tax involved
No penalty if service tax and interest is paid
within 30 days of issuance of notice.
Reduced penalty of 25% applicable if service
tax, interest and reduced penalty paid within
30 days of order
Benefit of reduced penalty to be extended
to cases where in appellate proceedings the
penalty is modified
Cases involving extended period of limitation
Penalty will be 100% of Service Tax involved,
and in case where the transactions are
recorded by the assessee, for the period from
8th April 2011 till the bill receives the assent
of the President penalty would be 50% of the
Service Tax.
Reduced penalty of 15% is applicable if
service tax, interest and reduced penalty is
paid within 30 days of issuance of notice
Reduced penalty of 25% is applicable if
service tax, interest and reduced penalty is
paid within 30 days of order.
Benefit of reduced penalty to be extended
to cases where in appellate proceedings the
penalty is modified
• Facility of waiver of penalty under Section 80 if
reasonable cause could be shown for failure to
pay service tax has been withdrawn.
• Assessee allowed to use digitally signed invoices
and maintain electronic records.
Goods and Services Tax (GST)
• To revive growth and investment, India needs an
enabling tax policy. Towards this goal, GST to be
implemented by next year
CENVAT Credit Rules
• Amendment in Rule 4 of CCR along with Rule 11
of CER specifically to permit credit of excise duty
paid on inputs and capital goods sent directly to
job worker from another manufacturer/dealer
or importer subject to conditions.
• Time limit for availing CENVAT credit on inputs
and input services extended from present 6
months to 1 year from the date of invoice.
• Requirement of reversal of CENVAT credit in
case of return of capital goods from a job worker
extended from present 6 months to 2 years.
• Requirement of reversal of CENVAT Credit
made applicable to non-excisable goods also
apart from the exempted goods and exempted
services under Rule 6 of CCR.
• Rule 14 amended enabling revenue to recover/
reverse CENVAT Credit without interest incase
of credit wrongly taken but not utilised and
with interest in case credit wrongly taken and
utilised.
• Method of computation of interest has also
been prescribed. Penalty in terms of Sec. 76
of Finance Act 1994 invokable in case of credit
wrongly taken or utilised without suppression of
fact etc. Penalty u/s 78(1) of Finance Act 1994
invokable in similar case with suppression of
facts etc.
would be deemed to be concluded, if customs
duty, applicable interest and penalty (wherever
applicable) is paid within 30 days of the
enactment of the Finance Bill. The conclusion
of the proceedings would be without prejudice to
prosecution proceedings.
In case of improper Import or Export, penalty
is leviable equal to 100% of the Customs duty
or H5,000/- whichever is higher. The penalty is
reduced to 10% of the duty or H5,000/- whichever
is higher if duty demanded alongwith applicable
interest and penalty is paid within 30 days of the
receipt of the order.
Service Tax
• Basic Service Tax rate is being increased from
12% to 14% effective from a date to be notified.
• Education Cess and Higher Education Cess
abolished and subsumed in the above rate of
14%.
• Provision to levy Swachh Bharat Cess @ 2% or
less on value of all or any taxable services from
a date to be notified.
• Services made taxable by deleting the following
from Negative list or Mega Exemption
notification:
Admission to entertainment event or access
to amusement facility except for exhibition
of cinematographic film, circus, recognized
sporting event etc.
Any processes (including intermediate
production process) for production or
manufacture of alcoholic liquor for human
consumption.
Construction, erection, commissioning or
installation of original works pertaining to an
airport or port.
All services provided by the Government or
local authority to a business entity.
Activities undertaken by chit fund foremen
in relation to chit and activities provided by
lottery distributors and selling agents in
relation to lotteries.
Services provided by a mutual fund agent/
distributor to a mutual fund or AMC.
• The reverse charge mechanism is not extended
to the following services:
Services provided by mutual fund agents/
distributors to AMC/mutual fund.
Services provided by lottery agents to the
distributor of lottery.
• Liabilityoftheservicerecipient(abodycorporate)
of Manpower supply and security services when
received from an individual, HUF, or partnership
firm is extended to 100% from 75%.
• Exemption from service tax granted to:
All ambulance services.
Life insurance service of Varishtha Pension
Bima Yojna.
Services by way of operation of common
effluent treatment plant.
Pre-conditioning, pre-cooling, ripening,
waxing, retail packing, labelling of fruits and
vegetables.
Services by way of exhibition of movie by the
exhibitor (theatre owner) to the distributor.
Goods transport agency service provided for
transport of export goods from the place of
removal to a land customs station.
• Abatements amended:
Uniform abatement of 70% for transport by
rail, road and vessel is proposed. Hitherto
the quantum of abatement was 70% for rail
transport for goods and passengers, 75% for
road transport by goods transport agency and
60% for goods transport by vessels.
Air transport of passenger in first/business
class (other than economy class) reduced to
20 INDIA BUDGET
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21 BASICS
BUDGET PROPOSAL
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BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
14. This Indian Budget 2015, on the foundation of
a ‘Boomerang-ing’ Indian Economy is, all set
to usher-in a Renaissance-era in India – and be
remembered as a the Bridge between the present
India and the Transformed-Developed India.
The Economy over the last year (i.e. F.Y. 2014-15)
is already providing promising signals. The 2014-
15 Economic Survey presented by the Hon’ble
Finance Minister focuses on two themes – “Create
Opportunity” and “Reduce Vulnerability”.
India has emerged with brighter prospects
among the few large economies with propitious
economic outlook, amidst the mood of pessimism
and uncertainties that engulfs a large number
of advanced and emerging economies, today.
The economy stands largely relieved of the
vulnerabilities associated with an economic
slowdown, persistent inflation, elevated fiscal
deficit, slackening domestic demand, external
account imbalances and oscillating value of the
rupee. The growth rate in GDP at constant (2011-
12) market prices in 2012-13 was 5.1 per cent,
which increased to 6.9 percent in 2013-14 and it
is expected to further increase to 7.4 per cent in
2014-15 (advanced estimates).
Growth rate in Gross Value Added (GVA) at basic
prices in agriculture is projected to decline from
3.7 per cent in 2013-14, an exceptionally good year
from the point of view of rainfall, to 1.1 per cent in
2014-15, a year with not-so-favourable monsoon.
The manufacturing sector registered a growth
in GVA at basic prices of 6.2 per cent and 5.3 per
cent respectively in 2012-13 and 2013-14, and it
is expected to keep up the growth momentum in
2014-15 with a growth rate of 6.8 per cent. There is
continued momentum in the services sector with
the growth of the sector in 2014-15 expected to be
10.6 per cent, higher than 9.1 per cent recorded in
2013-14.
Key Indicators of Indian economy
Industry
The Index of Industrial Production (IIP) suggests
that the industrial sector is recovering slowly with
a 2.1 per cent growth in April- December 2014-15
over the 0.1 per cent in the same period last year.
The recovery is led by electricity, coal, and cement
while manufacturing growth continues to remain
tepid. Except the mining sector, all other major
industrial sectors have experienced slowdown in
growthofcreditin2014-15ascomparedto2013-14.
To improve industrial growth, the new government
has emphasized on rapidly improving ease of doing
business and skill development and launching
fresh initiatives like Make in India and Digital
India, creating a National Industrial Corridors
Authority, streamlining environment and forest
clearances and labour reforms. In infrastructure,
the 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. To overcome critical constraints
holding up use of land and natural resources,
action has been taken to remove regulatory
uncertainty by passing Ordinances to streamline
land acquisition, e-auction of coal blocks for
private companies, and auction of iron ore and
other new coal mines. During April –December
2014-15 growth in the eight core industries was
4.4 per cent growth. Electricity (9.7 per cent), coal
(9.1 per cent), and cement (7.9 per cent) boosted
the performance, while natural gas (-5.1 per cent),
fertilizers (-1.4 per cent), crude oil (-0.9 per cent),
refinery products (0.2 per cent), and steel (1.6 per
cent) accounted for moderation in growth.
Agriculture
The agriculture sector registered an annual growth
of 3.8 per cent in value added in the decade since
2004-05 on the back of increase in real prices (31
per cent during 2004-05 to 2011-12). According to
the new series of national income released by the
CSO, at 2011-12 prices the share of agriculture
in total GDP is 18 per cent in 2013-14. As against
a growth target of 4 per cent for agriculture and
allied sectors in the Twelfth Plan, the growth
registered in the first year at 2011-12 prices was
1.2 per cent, 3.7 per cent in 2013-14, and 1.1 per
cent in 2014-15.The total food grains production in
the country is estimated at 257.07 million tonnes
which is the fourth highest quantity of annual
foodgrains production in the country. As compared
to last year’s production of 265.57 million tonnes,
current year’s production of foodgrains is lower by
8.5 million tonnes. This decline has occurred on
account of lower production of rice, coarse cereals
and pulses due to erratic rainfall conditions during
the monsoon season 2014.To improve resilience of
the agricultural sector and bolster food security
including availability and affordable access,
strategy for agriculture has to focus on improving
yield and productivity.
Services
The services sector accounting for 51.3 per cent
of India’s gross value added (GVA) at basic prices
(current prices) in 2013-14, grew by 9.1 per cent
compared to 6.6 per cent total GVA growth and
6.9 per cent GDP growth at market prices. During
2014-15, the FDI inflows to services grew by 105.8
percent compared to 2.2 per cent growth in overall
FDI inflows. In the first half of 2014-15, services
exports grew by 3.7 per cent to US$ 75.9 billion
and import of services grew by 5.0 per cent to
US$ 39.9 billion, resulting in net services growth
of only 2.4 per cent. Some available indicators of
the different services in India for 2014-15 show
reasonably good performance of tourism, telecom,
aviation and railways. The IT–business process
management (BPM) industry grew by an estimated
12 per cent, reaching US$ 119 billion in 2014-15,
while the export market at US $ 98 billion grew by
12.3 per cent and domestic market at US $ 20.9
billion grew by 10 per cent over the previous year.
The Software products and services revenues for
2015-16 are projected to grow at 12-14 per cent
to reach US $133-136 billion as per NASSCOM.
The professional, scientific and technical activities
GDP Growth Rate (%)
2011-12
0
2012-13
5.1
2013-14
6.9
2014-15*
7.4
Index of industrial Production (%)
2011-12
2.9
2012-13
1.1
2013-14
-0.1
2014-15*
2.1
* Estimated
* Estimated
24 INDIA BUDGET
2015-16
25 BASICS
BUDGET PROPOSAL
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INDIRECT TAXES
MISCELLANEOUS
15. including R&D grew by 14.0 per cent in 2013- 14.
However, India’s capacity for innovation has been
lower than many countries. Even in quality of
scientific research institutions India scores lower
than China, Brazil, and South Africa.
Inflation
The year 2014-15 (April-December) witnessed
a substantial decline in inflation. The Average
Wholesale Price Index (WPI) (base year 2004-
05 = 100) inflation declined to 3.4% in 2014-15
(April-December) as compared to an average of
6% during 2013-14. The decline was caused by
lower food and fuel prices. During the first quarter
of 2014-15, WPI headline inflation stood at 5.8%
as mainly food and fuel prices were high. In the
second and third quarters of 2014-15, WPI inflation
declined to 3.9% and 0.5% respectively.
The retail inflation as measured by the Consumer
Price Index (CPI) (base year 2010= 100) moderated
significantly since the second quarter of 2014-15.
It declined to an all time low of 5% in Q3 of 2014-15
after having remained stubbornly sticky at around
9-10% for the last two years. During the third
quarter of 2014-15, the CPI food inflation declined
considerably due to seasonal softening of food and
vegetable prices after the late arrival of monsoon
exerted some pressure on vegetable prices during
June-August, 2014.
CPI inflation in the fuel and light group registered
a consistent decline during 2014-15, touching
3.4% in the third quarter following the sharp
decline in International Crude Oil prices. The main
factors causing moderation in inflation include
both global factors as well as domestic measures.
Global factors, namely persistent decline in
crude prices and softness in the global prices of
tradables, particularly edible oils and even coal,
helped moderate headline inflation
Fiscal Deficit
Outlining the roadmap for fiscal consolidation,
the Budget for 2014-15 envisaged a fiscal deficit
target at 4.1 per cent of GDP and sought to
reduce it further to 3 per cent of GDP by 2016-17.
Achieving this target is daunting in the backdrop
of only a moderate increase in indirect taxes and a
large subsidy bill despite significant decline in the
subsidies burden in 2014-15, mainly due to lower
prices of crude oil in the international market in
the second half of 2014-15.
The Budget for 2014-15 sought to contain the fiscal
deficit at 5,31,177 crs. (4.1 per cent of GDP) against
5,08,148 crs. (4.5 per cent of GDP) in 2013-14.
The Budget for 2014-15 had indicated that while
containing the fiscal deficit at 4.1 per cent of
GDP was a daunting challenge given the then
macroeconomic conjecture, it outlined the
importance of adherence to fiscal consolidation
and it accepted the challenge. The fiscal
consolidation plan as enunciated in BE 2014-15
entailed an increase in the tax to GDP and non-
debt receipts to GDP ratios to 10.6 per cent and
9.8 per cent respectively and a continuance of the
low level of total expenditure to GDP ratio at 13.9
per cent
Trade Imports and Exports
Over the last ten years, India’s merchandise trade
(on customs basis) increased manifold from
US$ 195.1 billion in 2004-05 to US$ 764.6 billion
in 2013-14 helping in improving India’s share in
global exports and imports from 0.8 per cent and
1.0 per cent respectively in 2004 to 1.7 per cent and
2.5 per cent in 2013.
In 2014-15 (April-January), imports grew by 2.2
per cent to US$ 383.4 billion from US$ 375.3
billion in 2013-14 (April-January). While value
of Petroleum, Oil and Lubricants (POL) imports
declined by 7.9 per cent in 2014-15 (April-January),
as a result of decline in the price of international
crude petroleum products. Gold and silver imports
grew by 8.0 per cent in 2014-15 (April-January).
Non POL and non- gold and silver imports which
largely reflect the imports needed for industrial
activity grew by 7.8 per cent in 2014-15 (April-
January), after registering a decline of 6.9 per cent
in 2013-14.
Foreign Direct Investment
In 2014, FDI policy has been further liberalized.
FDI upto 49% through the Government route have
been permitted in the Defence industry. Higher
FDI has also been allowed on a case to case
basis. FDI upto 100% through automatic route
has been permitted in construction, operation
and maintenance of identified railways transport
infrastructure.
Norms related to minimum land area,
capitalization and repatriation of funds for FDI
in construction, development projects have been
further liberalized. During April-November2014,
total FDI inflows (including equity inflow, reinvested
earnings, and other capital) were US $27.4 billion,
while FDI equity inflows were US $ 18.9 billion.
During(ApriltoNovember)2014-15,theFDIinflows
to services grew by 105.8 per cent compared to
22.2 per cent growth in overall FDI inflows. The
Fiscal Deficit (%)
2011-12 2012-13 2013-14 2014-15*
5.7
4.4
2.7
4.1
2.9
0.8
4.5
3.2
1.8
4.8
3.6
1.8
Gross fiscal deficit (% of GDP)
Revenue Deficit (% of GDP)
Primary Deficit (% of GDP)
Inflation index (%)
2011-12 2012-13 2013-14 2014-15*
8.9
8.4
3.4
6.2
6.0
9.7
7.4
10.4
WPI (%) CPI (%)
Trade Imports and Exports (%)
2011-12 2012-13 2013-14 2014-15*
21.8
32.3
4.0
3.6
4.7
-8.3
-1.8
0.3
Export Growth (US$) [%]
Import Growth (US$) [%]
* Estimated * Estimated
* Estimated
26 INDIA BUDGET
2015-16
27 BASICS
BUDGET PROPOSAL
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INDIRECT TAXES
MISCELLANEOUS
16. total FDI inflows to the top five services in the
first eight months of this year are higher than for
the whole of 2013-14 owing to major inflows in
telecommunications.
FDI in Real Estate and Housing Sector fell to US$
703 million in the current fiscal (April – November,
2014). With 100 percent FDI permitted in the Film
Sector, India is emerging as the new favourite of
international studios.
Exchange Rate
In 2013-14, global uncertainty following the May
2013 announcement by the US Fed about its intent
to withdraw the quantitative easing led to a bout of
depreciationinthecurrenciesofemergingmarkets
with varying intensities depending upon the
external financing requirement as indicated by the
levels of CAD. The Rupee-US dollar exchange rate
has broadly remained stable during the year due
to the huge inflow of FDI and FII in the equity and
bond markets. Due to the weak economic outlook
in Europe and Japan, the Rupee has appreciated
against the Euro and Yen since September 2014
in tandem with cross-currency movements of the
Euro and Yen vis-à-vis the US dollar. On the whole,
the Rupee has exhibited resilience to global events
in view of the strong external-sector outcome.
Exchange Rates of Rupee per Foreign Currency
Particulars
Average exchange rates (H per foreign currency)
US dollar Pound Sterling Euro
Japanese Yen
(per 100 Yen)
April, 2014 60.36 101.08 83.35 58.86
May, 2014 59.31 99.94 81.49 58.28
June, 2014 59.73 100.98 81.24 58.53
July, 2014 60.06 102.62 81.39 59.07
Aug, 2014 60.90 101.81 81.14 59.17
Sep, 2014 60.86 99.31 78.60 56.77
Oct, 2014 61.34 98.72 77.91 56.87
Nov, 2014 61.70 97.28 76.99 53.05
Dec, 2014 62.75 98.11 77.36 52.60
Jan, 2015 62.23 94.54 72.77 52.54
Expenditure Chart
Central Plan Interest payment Defence
Subsidies Other non plan expenditure
States’ share of taxes and duties Non plan
assistance of state and UT Plan assistance to state
and UT Governments
Receipts Chart
Borrowings and other liabilities Corporation Tax
Income Tax Customs Union Excise Duties
Service Tax and other taxes Non Tax revenues
Non Debt Capital Receipts Draw Down of Cash
Balance
1%
24%
20%
14%
9%
10%
10% 3% 8%
8%18%
4%
5% 24%
16%
17%
28 INDIA BUDGET
2015-16
29 BASICS
BUDGET PROPOSAL
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BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
17. CREATING THE PATHWAYS OF SUCCESS
India is one of the most under-invested large countries from an infrastructure
perspective.
India only invests an average of about 6% of its GDP (estimated at USD 2 trillion)
in infrastructure as compared with China’s 11% (estimated GDP of USD 8 trillion).
The time has come to kick-start the Indian economy through sizable infrastructure
investments that do two things – increase downstream demand and also catalyse
the economy out of increased infrastructure use.
The time starts now.
INFRASTRUCTURE
18. • The enhancement of the threshold limit of Transport Allowance
• Indirect transfers – deemed income taxable in India – provisions clarified
• New comprehensive Law to be enacted in the current session to address black money
stashed abroad.
• Benami Transaction (Prohibition) Bill to curb domestic black money to be introduced.
• Allowance of balance 50% Additional Depreciation in the immediately succeeding
previous year
• Sums received as advance or otherwise in relation to the transfer of immovable
property now covered within the ambit of u/s 269SS & 269T
• Taxation Regime for Real Estate Investment Trust (‘REIT’) and Infrastructure
Investment Trust (‘Invit’)
• Corporate tax rate proposed to be reduced from 30% to 25 % over four years
• Modification in the definition of ‘accountant’
• Incentivising industrial development in Andhra Pradesh and Telangana
• Amendment in the provision for deduction for employment of New Workmen
• Contributions made to the Swachh Bharat Kosh and Clean Ganga Fund in pursuance
of CSR under section 135(5) of the Companies Act, 2013 not eligible for deduction U/S
80G.
• Levy of interest U/S 234B in other than Settlement Cases
• Modification in the definition of ‘Amount of tax sought to be evaded’
• Deferment of provisions relating to general anti-avoidance rule
• Abolition of Wealth Tax Act, 1957
Practical
Predictable
Proactive
Promising
Progressive
Protective
Prudent
DIRECT TAX
32 INDIA BUDGET
2015-16
33 BASICS
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MISCELLANEOUS
20. Sl. No. Particulars Page
4.1 Corporate Income Tax Rates 37
4.2 Deferment of Provisions Relating to General Anti Avoidance Rule 37
4.3 Amendment in the provision for deduction for employment of New Workmen 38
4.4 Incentivising industrial development in the State of Andhra Pradesh & Telangana 38
4.5 Allowance of balance 50% Additional Depreciation in i mmediately succeeding
previous year
39
4.6 Prescribed conditions on maintenance of accounts, audit etc to be fulfilled by the
approved in house R&D facility
40
4.7 Cost of acquisition and period of holding of capital asset in the hands of resulting
company in Demerger
40
4.8 Tax Neutrality on merger of similar schemes of mutual funds 41
4.9 Modification in the definition of “Amount of tax sought to be evaded” 41
4.10 Contribution to schemes eligible for 100% deduction 42
4.11 Clarification on orders to be considered as erroneous and prejudicial to the interest
of revenue
42
4.12 Threshold limit for applicability of domestic transfer pricing provisions raised from
H5 Crs. to H20 Crs.
43
4.1
Corporate Income Tax Rates
[w.e.f AY 2016-17]
No changes have been proposed in the basic Corporate Income Tax Rates. However, surcharge has been
increased by 2% for entities having income in excess of H1 Cr. Applicable Corporate income tax rates for
AY 2016-17 are summarised as under:
• Hitherto, provisions of GAAR were to come into
effect from 01-04-2016. The implementation of
GAAR provisions has been reviewed. Concerns
have been expressed regarding certain aspects
of GAAR. Further, it has been noted that the
Base Erosion and Profit Shifting (BEPS) project
under Organisation of Economic Cooperation
and Development (OECD) is continuing and
NORMAL TAX
Sl.
No.
Particulars Tax
Surcharge
(%)
E. Cess
(%)
S & H
E. Cess (%)
Effective
Tax (%)
1
Domestic companies (with total income
less than H1 cr.)
30 - 2 1 30.90
2
Domestic companies (with total income
more than H1 cr. but less than H10 cr.)
30 7* 2 1 33.063
3 Other domestic companies 30 12# 2 1 34.608
4
Foreign companies (with total income
less than H1 cr.)
40 - 2 1 41.20
5
Foreign companies (with total income
more than H1 cr. but less than H10 cr.)
40 2 2 1 42.02
6 Other foreign companies 40 5 2 1 43.26
* Surcharge has been increased from 5% to 7%. # Surcharge has been increased from 10% to 12%
MINIMUM ALTERNATE TAX (MAT)
Sl.
No.
Particulars
Tax
(%)
Surcharge
(%)
E. Cess
(%)
S & H
E. Cess (%)
Effective
Tax (%)
1
Domestic companies (with total income
less than H1 cr.)
18.5 - 2 1 19.055
2
Domestic companies (with total income
more than H1 cr. but less than H10 cr.)
18.5 7* 2 1 20.389
3 Other domestic companies 18.5 12# 2 1 21.342
4
Foreign companies (with total income
less than H1 cr.)
18.5 - 2 1 19.055
5
Foreign companies
(with total income more than H1 Cr.
but less than H10 Cr.)
18.5 2 2 1 19.436
6 Other foreign companies 18.5 5 2 1 20.008
* Surcharge has been increased from 5% to 7%. # Surcharge has been increased from 10% to 12%
4.2
Deferment of Provisions Relating To General Anti Avoidance Rule
[w.e.f AY 2018-19]
36 INDIA BUDGET
2015-16
37 BASICS
BUDGET PROPOSAL
DIRECT TAXES
BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
21. India is an active participant in the project.
The report on various aspects of BEPS and
recommendations regarding the measures to
counter it are awaited. It would, therefore, be
proper that GAAR provisions are implemented
as part of a comprehensive regime to deal with
BEPS and aggressive tax avoidance.
• Accordingly, it is proposed to defer the
implementation of GAAR by two years, making it
applicablefromAY2018-19.Further,investments
made up to 31-03-2017 are proposed to be kept
outside the purview of GAAR.
• Deduction u/s 80JJAA is available to Indian
companies on additional wages paid to new
workmen. In order to encourage employment
generation, it is proposed to extend the benefit
to all assessee having manufacturing units
rather than restricting it to corporate assessee
only. It is also proposed to deny deduction to
assessee, which has acquired the factory by way
of transfer from any other person or as a result
of any “business re-organisation”.
• Further, in order to enable the smaller units to
claim this incentive, it is also proposed to extend
the benefit to units employing 50 instead of 100
regular workmen.
• Hitherto, vide 2nd proviso to Sec. 32(1)(ii),
additional depreciation u/s 32(1)(iia) on eligible
P & M acquired and put to use for less than 180
days in the previous year was restricted to 50%
of the prescribed rate of 20%.
• It is proposed to provide that the balance
additional depreciation of 10% [50% of 20%] on
eligible P & M acquired & used for less than 180
days in a previous year shall be allowed in the
immediately succeeding previous year.
Comments
• The proposed amendment fortifies the view
taken in the case of DCIT –vs.- Cosmo Films Ltd
(2012) 13 ITR(Tri) 340 (Del), MITC Rolling Mills P.
Ltd. (ITA No. 2789/Mum/2012), Birla Corporation
Limited –vs.- DCIT (ITA No. 683 & 581/Kol/2011)
(HC). However it also nullifies the decision of
Chennai ITAT in the case of Brakes India Ltd.
(ITA No. 1069/Mds/2010) wherein a contrary view
was taken.
• Additional Investment Allowance [Sec. 32AD]
It is proposed to insert Sec. 32AD to allow
additional investment allowance @ 15% of the
cost of new eligible plant & machinery acquired
and installed by the assessee in an undertaking
or enterprise set up in the notified backward
areas of Andhra Pradesh and Telangana on or
after 01-04-2015 for manufacture or production
of any article or thing. Further the eligible
plant & machinery needs to be acquired and
installed during the period beginning from 01-
04-2015 to 31-03-2020.
In order to ensure that the proposed incentive
contributes to economic growth of backward
areas, it is also proposed to restrict the
transfer of plant or machinery for a period of
5 years except in the case of amalgamation or
demerger or re-organisation.
Comments
• The above investment allowance u/s 32AD is in
addition to the investment allowance specified
under the existing provisions of Sec. 32AC if it
fulfils the specified conditions of both sections.
• Higher rate of additional depreciation [32(1)(iia)]
It is proposed to insert a new proviso [being 1st
Proviso] below Sec. 32(1)(iia) to provide that
where an assessee, sets up an undertaking or
enterprise for manufacture or production of
any article or thing in the notified backward
areas of Andhra Pradesh and Telangana on
or after 01-04-2015 but before 01-04-2020,
additional depreciation u/s 32(1)(iia) shall be
admissible @ 35% instead of 20% on eligible
new plant & machinery. Further, existing 1st
proviso has been renumbered as 2nd proviso.
Comments
• The likely scenario of benefits in the form of depreciation, additional depreciation & investment
allowance that would arise on addition of new eligible plant & machinery in new manufacturing units
set up in the notified backward areas of Andhra Pradesh and Telangana vis-a-vis the addition of new
plant & machinery in units located in other states is depicted as under:
4.3
Amendment in the provision for deduction for employment of
New Workmen [Sec. 80JJAA]
[w.e.f AY 2016-17]
4.5
Allowance of balance 50% Additional Depreciation in immediately
succeeding previous year [Sec. 32(1)(iia)]
[w.e.f AY 2016-17]
4.4
Incentivising industrial development in the state of
Andhra Pradesh & Telangana [Sec. 32AD & Sec. 32(1)(iia)]
[w.e.f AY 2016-17]
Particulars
Notified backward areas of
Andhra Pradesh & Telangana
Other states
Year 1 Year 2 onwards Year 1 Year 2 onwards
Investment in plant & machinery 100 100
Normal Depreciation 15 15
Investment Allowance u/s 32AC 15 15
Investment Allowance u/s 32AD 15 -
Additional Depreciation u/s 32(1)(iia) 35 20
Depreciation in future years
50
(@ 15% p.a.)
65
(@ 15% p.a.)
Aggregate benefits 80 50 50 65
The above tabulation depicts that 80% of the investment during the specified period in the Notified
backward areas of Andhra Pradesh & Telangana would be eligible for deduction in the year of investment
itself as against 50% in the other states.
These incentives are allowable only to the new unit set up in the specified area. It is not allowable to any
other undertaking even though it has undertaken substantial expansion in the existing undertaking or
substantial addition to new plant & machinery in an existing undertaking.
38 INDIA BUDGET
2015-16
39 BASICS
BUDGET PROPOSAL
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INDIRECT TAXES
MISCELLANEOUS
22. • Presently, there is no express provision in the
IT Act for determining the cost of acquisition of
capital asset in the hands of resulting company
where capital assets are transferred by way
of demerger. Such transfer are not regarded
as transfers u/s 47(vib) for the purpose of
computing capital gain tax. It is proposed to
amend Sec. 49(1)(iii)(e) to provide that cost of
acquisition of a capital asset acquired by the
resulting company shall be the cost for which the
demerged company acquired the capital asset,
as increased by the cost of improvement incurred
by the demerged company. Consequently, period
of holding of such asset in the hands of resulting
company will also include the period for which
the asset was held by the demerged company.
Comments
• The above amendment, seeks to treat ‘demerger’
at par with ‘amalgamation’ with regard to cost of
acquisition of capital asset as well as period of
holding in the hands of resulting company.
• Hitherto, penalty u/s 271(1)(c) is levied on the
amount of tax sought to be evaded by reason
of concealment of particular of income or
furnishing of inaccurate particulars of income.
• It is proposed to modify the definition of
“amount of tax sought to be evaded” provided in
Explanation 4 to sub-section (1) of Sec 271 so
as to include that the amount of tax sought to
be evaded shall be the summation of tax sought
to be evaded under the normal provisions
and under the provision of Sec. 115JB/115JC.
Further, if an item is disallowed both under the
normal provisions and the provisions of Sec.
115JB/115JC, then such amount shall not be
considered in computing tax sought to be evaded
under provisions of Sec. 115JB/115JC.
Comments
• The Delhi HC in the case of CIT –vs.- Nalwa
Sons Investments Ltd (2010) 327 ITR 543 (Del)
has held that penalty u/s 271(1)(c) cannot be
imposed on the concealment of income under
normal provisions, if the total income of the
assessee is assessed as per Sec 115JB of the IT
Act. The Apex Court has accepted the decision
4.7
Cost of acquisition and period of holding of capital asset in the
hands of resulting company in demerger [Sec. 49(1)(iii)(e)]
[w.e.f AY 2016-17]
4.9
Modification in the definition of “Amount of tax sought to be
evaded” [Sec.271(1)(c)]
[w.e.f AY 2016-17]
• SeveralMutualFundsarehavingdifferentschemes
with similar features. SEBI has been encouraging
to consolidate these mutual funds to have simpler
and fewer numbers of schemes. However, since
the process will result in transfer of unit between
schemes, such merger/consolidation is treated
as ‘transfer’ u/s 2(47) of the IT Act and hence
chargeable to Capital Gains tax.
• To facilitate consolidation of different scheme of
mutual funds, in the interest of investors, it is
proposed to provide tax neutrality to unit holders
provided consolidation is of two or more schemes
of an equity oriented or two or more schemes of
fund other than equity oriented fund.
• Accordingly, it is now proposed to insert a new
sub-section (xviii) to Sec. 47 to provide that in case
of transfer of unit in a consolidating scheme of
mutual fund for new unit in consolidated scheme
of mutual fund, shall not be regarded as transfer
and hence not exigible to capital gains tax.
• Further, sub-section (2AD) has been proposed
to be inserted in Sec. 49 to provide that cost of
the unit of the consolidated scheme of mutual
fund received pursuant to transfer exempt u/s
47(xviii), shall be cost of purchase of units in the
consolidating scheme of mutual fund.
• Consequential amendment has been proposed
in Sec. 2(42A) to provide that period of holding of
units in the consolidated scheme of mutual fund
also include the period for which the unit was
held in the consolidating scheme of mutual fund.
• The process of such consolidation has to be in
accordance with the Securities and Exchange
Board of India (Mutual Funds) Regulations, 1996
made under the SEBI Act, 1992.
4.8
Tax Neutrality on merger of similar Schemes of Mutual Funds
[Sec. 47(xviii) & Sec. 49(2AD)]
[w.e.f AY 2016-17]
• Sec. 35(2AB) provides for weighted deduction @
200% to a company engaged in the business of
bio-technology or manufacturing or production of
articles or things, for the expenditure (not being
expenditure incurred on land or building) incurred
on in house R&D facility. The company, apart
from, entering into an agreement with the DSIR,
is required to maintain separate books of accounts
and get the same audited for approved R&D facility.
• Itisproposedtoenlargethescopeofmaintenance
of accounts and audit thereof by clarifying that
both needs to be done in the manner prescribed.
Further the audit report shall also be furnished
in the prescribed manner.
• It is also proposed that DSIR shall also submit
the report in relation to the approval of the said
R&D facility to the Principal CCIT or CCIT having
jurisdiction over the company claiming the
weighted deduction. Similar amendment is also
proposed in Sec. 35(2AA).
Comments
• The DGIT (Exemptions) does not have jurisdiction
over the assessee company. In order to have a
better and meaningful monitoring mechanism for
weighted deduction u/s 35(2AB), the facility would
now also be monitored by the Principal CCIT or
CCIT having jurisdiction over the assessee.
4.6
Prescribed conditions on maintenance of accounts, audit etc to
be fulfilled by the approved in house R&D facility [Sec. 35(2AB)]
[w.e.f AY 2016-17]
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23. of the Delhi HC & dismissed the SLP filed by the
Revenue. The proposed amendment nullifies the
aforesaid decision of the Apex Court.
• If disallowance u/s 14A r.w.r 8D is made both
under normal provisions and in computing
Book Profit, then for the purpose computing the
amount of tax sought to be evaded, disallowance
made in computing Book profit will be ignored.
• Under the existing provisions of Sec. 80G,
contribution made to certain funds and institutions
formedforasocialpurposeofnationalimportance,
like the Prime Ministers’ National Relief Fund,
National Foundation for Communal Harmony etc
are eligible for 100% deduction.
• It is proposed to include the following funds in
the list of such eligible institutions:
- National Fund for Control of Drug Abuse [w.e.f
AY 2016-17]
- Swachh Bharat Kosh [w.r.e.f AY 2015-16]
- Clean Ganga Fund [w.r.e.f AY 2015-16] [For
resident assessee only]
• If any contribution is made to the Swachh Bharat
Kosh & Clean Ganga Fund, in pursuance of CSR
u/s 135(5) of the Companies Act, 2013 it will not
be eligible for deduction u/s 80G.
• Existing Transfer Pricing Regulations in India vide
Sec. 92BA provide that Transfer Pricing Provisions
shall apply to “specified domestic transactions”
where the aggregate of such transactions in the
relevant previous year exceeds a sum of H5 Crs.
• It is proposed to amend Sec. 92BA to enhance the
above threshold of H5 Crs. to H20 Crs.
Comments
This is a welcome move for the small sector
enterprises which will reduce the burden of
compliances and cost.
• Under the existing provision of Sec. 263,
proceedings under that section can be initiated
by the CIT if the order passed by the AO is
erroneous or prejudicial to the interests of
the revenue. The expressions “erroneous or
prejudicial to the interest of the revenue” is not
been defined in the IT Act.
• It is proposed to insert an Explanation to Sec.
263(1) to provide that order passed by the AO
shall be deemed to be erroneous or prejudicial
to the interests of Revenue, if the CIT or Principal
CIT opines that the same is passed :
- Without making inquiries or verification which
should have been made; or
- Allowing any relief without enquiring into the
claim; or
- Without following the order, directions or
instructions of the Board; or
- WithoutconsideringthedecisionofJurisdictional
HC or SC which is prejudicial to the assessee or
any other person.
Comments
• The proposed amendment fortifies the following
decisions :
Fab India Overseas Ltd –vs.- CIT (2011) 60 DTR
240 (Del) - The assessee supplied required
information regarding commission and general
charges to AO in response to a questionnaire and
the AO having assessed the assessee at a total
income far in excess of the declared income, it
cannot be said to be a case of lack of enquiry
and, therefore, CIT was not justified in exercising
4.10
Contribution to schemes eligible for 100% deduction [Sec. 80G]
[w.e.f AY 2016-17]
4.12
Threshold limit for applicability of domestic transfer pricing
provisions raised from H5 Crs. to H20 Crs. [Sec.92BA]
[w.e.f AY 2016-17]
4.11
Clarification on orders to be considered as erroneous and
prejudicial to the interest of revenue [Sec.263]
[w.e.f 01-06-2015]
power under Sec. 263 on the ground that the AO
should have made further enquiries.
Ranbaxy Laboratories Ltd –vs.- CIT (2012) 345
ITR 193 (Del) - CIT was justified in holding the
assessment as erroneous and prejudicial to
the interest of the revenue as AO has not made
any reference to the TPO required by CBDT
Instruction No. 3 dated 25-05-2003
CIT–vs.-HimachalPradeshFinancialCoporation
(2008) 8 DTR 161 (HP) -Assessment order was
erroneous & prejudicial to the interests of the
revenue since the same was passed without
considering the CBDT Circular on interest on
sticky loans.
Meghalaya Plywood Ltd –vs.- CIT (2007) 210 CTR
144 (Gau) - Assessment order passed on the
basis of the decision of jurisdictional HC, cannot
be considered as erroneous.
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25. Sl. No. Particulars Page
5.1 ‘Eligible Fund Manager’ not to constitute ‘Business Connection’ of offshore
investment funds – position clarified
47
5.2 Reduction in tax rates of income by way of Royalty or Fees for Technical Services 49
5.3 Indirect Transfers – Deemed income taxable in India – provisions clarified 49
5.4 CBDT to notify rules for giving foreign tax credit to Indian residents 51
5.5 Interest paid by Indian Branch to Foreign Banking companies taxable in India and
liable to withholding tax
52
5.6 Concessional tax rate u/s 194LD relating to Income by way of interest on certain
securities extended upto 30-06-2017
52
5.7 IT Act and Depository Receipt Scheme, 2014 aligned to extend tax benefits to
depository receipts issued against specified securities
53
5.8 Residency Criteria of Companies – widened by introduction of Place Of Effective
Management concept
54
5.9 Amendment in MAT provisions for FIIs 54
5.10 Furnishing of information relating to all payments to non-residents 55
5.1
“Eligible Fund Manager” not to constitute “Business Connection”
of offshore investment funds – position clarified
[Sec. 9A and 271FAB]
[w.e.f AY 2016-17]
• Presently, in terms of the existing provisions
of Sec. 9(1)(i) of the IT Act w.r.t “Business
Connection”, an India based fund manager
may create a sufficient nexus, and hence a
“business connection”, for the concerned
offshore Investment Fund even though such
fund manager may be an independent person.
The presence of the fund manager under
certain circumstances may lead to the off-shore
Investment Fund being held to be resident in
India on the basis of its control and management
being in India. Accordingly, income of such
offshore Investment Fund from investments
made in countries outside India may also get
taxed in India.
• Considering the above risks, offshore Investment
Funds do not typically retain fund managers
based in India, instead many fund managers
that manage India focused offshore funds,
tend to be based outside India and only have
an advisory relationship in India that provide
recommendatory services.
• In order to facilitate such fund managers to have
their base in India, it has been proposed to insert
a Sec. 9A to lay down a specific code for taxability
of such Offshore Investment Funds. The new
sec. provides that taxability of the income of
the Eligible Investment Fund from investment
made in India would not be impacted by the
fact that its Eligible Fund Manager is based in
India. Similarly, for income from investment
made outside India, its taxability shall not be in
India for the sole reason that its Eligible Fund
Manager is based in India.
• Thus the new regime proposes that the Eligible
Fund Manager in India of an Eligible Investment
Fundshallnotconstitutea“businessconnection”
in India of the said fund on fulfilment of specified
conditions. Further, an Eligible Investment Fund
shall not be said to be resident in India merely
because the Eligible Fund Manager undertaking
fund management activities is based in India.
• The conditions required to be fulfilled during the
relevant year for being an Eligible Investment
Fund are:
the fund is not a person resident in India;
the fund is a resident of a country or a specified
territory with which an agreement referred to
in Sec. 90(1) or 90A(1) has been entered into;
the aggregate participation or investment
in the fund, directly or indirectly, by persons
being resident in India does not exceed 5% of
the corpus of the fund;
the fund and its activities are subject to
applicable investor protection regulations in
the country or specified territory where it is
established or incorporated or is a resident;
the fund has a minimum of 25 members
who are, directly or indirectly, not connected
persons;
any member of the fund along with connected
persons shall not have any participation
interest, directly or indirectly, in the fund
exceeding 10%;
the aggregate participation interest, directly
or indirectly, of 10 or less members along with
their connected persons in the fund, shall be
less than 50%;
the investment by the fund in an entity shall
not exceed 20% of the corpus of the fund;
no investment shall be made by the fund in its
associate entity;
46 INDIA BUDGET
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26. the monthly average of the corpus of the fund
shall not be less than H100 crs. and if the fund
has been established or incorporated in the
previous year, the corpus of fund shall not be
less than H100 crs. at the end of such previous
year;
the fund shall not carry on or control and
manage, directly or indirectly, any business in
India or from India;
the fund is neither engaged in any activity
which constitutes a business connection
in India nor has any person acting on its
behalf whose activities constitute a business
connection in India other than the activities
undertaken by the eligible fund manager on
its behalf;
the remuneration paid by the fund to an
eligible fund manager in respect of fund
management activity undertaken on its behalf
is not less than the arm’s length price of such
activity.
• The conditions required to be fulfilled for being
an Eligible Fund Manager are:
the person is not an employee of the Eligible
Investment Fund or a connected person of the
fund;
the person is registered as a fund manager
or investment advisor in accordance with the
specified regulations;
the person is acting in the ordinary course of
his business as a fund manager;
the person along with his connected persons
shall not be entitled, directly or indirectly,
to more than 20% of the profits accruing or
arising to the eligible investment fund from
the transactions carried out by the fund
through such fund manager.
• However, this amendment shall not result in
excluding any income from the total income of
the Eligible Investment Fund, which would have
been so included irrespective of whether the
activity of the eligible fund manager constituted
the business connection in India of such fund or
not.
• It has also been proposed that the Fund
shall furnish a statement in a prescribed
form regarding fulfilment of above specified
conditions to tax authorities within 90 days from
the end of the financial year failing which the
Fund would be liable to penalty of H5,00,000.
Comments
• Several countries including the United Kingdom,
Singapore, Hong Kong, United States, and New
Zealand provide for a safe harbour to prevent
offshore investment funds from having a taxable
presence in their respective jurisdictions.
• Under the newly amended provision of Sec.
6 of the IT Act, a company (including foreign
company) shall be considered as resident in
India if the place of effective management at
any time is in India. This amendment would
have an adverse implication on offshore fund
having fund manager in India because place of
effective management has now been defined as
a place where key management and commercial
decision necessary for the business of an entity
as a whole and in substance are made. The
proposed insertion of Sec. 9A provides for a
welcome exception.
• By providing clarity on issues relating to
business connection and residential status of
offshore investment funds, India could benefit
immensely since it would provide a sense of
comfort for choosing India as the base for
investment managers. This would not only
develop the immense job opportunity that this
sector provides but would also help in developing
the related & complimentary talent pool in India.
• As per the existing provisions of Sec. 115A of the
IT Act, the Non-Resident taxpayers are liable
to pay tax @25% of gross amount of income by
way of Royalty and Fees for Technical Services
received from Government or an Indian concern in
pursuance of an agreement made by the foreign
company with Government or the Indian concern
after 31-03-1976 and where such agreement is
withanIndianconcern,theagreementisapproved
by the Central Government or where it relates to
a matter included in the industrial policy, for the
time being in force, of the Government of India,
the agreement is in accordance with that policy,
and, which are not effectively connected with PE,
if any, of the non-resident in India.
• It is proposed to amend Sec. 115A of the IT Act to
reduce the above tax rate of 25% to 10% on the
gross amount.
Comments
• This amendment is proposed with a view to
obviate the problems faced by small companies
and to facilitate the inflow of technology, thus,
reducing the rate of tax on royalty and fees for
technical services to 10%.
• Incidentally, vide the Finance Act, 2013, the rates
were increased to 25% from 10% to remove the
anomaly between the tax rate sec.115A and
DTAAs. However, the same is again proposed to
be restored to 10%.
• This may prove to be a relief for those non resident
taxpayers residing in countries with whom India
does not have DTAA as the income from Royalty
or fees for technical services arising to them
shall be taxable at par with other countries @10%
and shall facilitate increased inflow of technology.
The reduction of such rate is a well-foresighted
move towards the “Make-in-India” perspective.
Recently, the Revenue Authorities have been
raising demands on the payers/deductors by
taking a view that the rate of tax deduction in case
of non-residents, not having PAN should be 25%
instead of 20% by applying the provisions of sec.
206AA r.w.s 115A. However, with the proposed
amendment, the said issue is being put to rest
w.e.f FY 2015-16 onwards.
• Presently, Explanation 5 to Sec. 9(1)(i) of the
IT Act provides that any share or interest in a
company or an entity registered or incorporated
outside India shall be deemed to be situated in
India if the share or interest derives its value
substantially from the assets located in India.
Hence, any transfer of such share/interest in a
Foreign Company/ entity results in an indirect
transfer of Indian assets. However, the term
“value” and “substantially” were not defined
under the IT Act leading to significant subjectivity
and uncertainty.
• It is proposed to amend Sec. 9(1)(i) of the IT
Act by inserting Explanation 6 to provide that
any transfer of interest in a foreign company
or entity shall be deemed to derive its value
substantially from the assets (whether tangible
or intangible) located in India, if on the specified
date, the value of Indian assets (not net off
liabilities) exceeds the amount of H10 crs. and
5.2
Reduction in tax rates of income by way of Royalty or Fees for
technical services [Sec.115A]
[w.e.f AY 2016-17]
5.3
Indirect transfers – Deemed income taxable in India – provisions
clarified [Sec. 9(1),47(viab),47(vicc), 271GA and 285A]
[w.e.f AY 2016-17]
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27. represents at least 50% of the fair market value
of all the assets (not net of liabilities) owned by
such foreign company or entity.
• However, certain exceptions have been carved
out vide Explanation 7 and vide amendment in
Sec. 47 of the IT Act such as:
• Transfer outside India of share/interest in the
foreign company/entity which directly owns
the assets situated in India and the transferor
(whether individually or along with its AEs),
neither holds the management right or control,
nor holds voting power or share capital or
interest exceeding 5% in such foreign company/
entity; or
• Transfer outside India of share/interest in the
foreign company/entity which indirectly owns
the assets situated in India and the transferor
(whether individually or along with its AEs),
neither holds the right of management or
control in relation to such foreign company/
entity, nor holds any right in, or in relation to,
such company or entity which would entitle him
to the right of management or control in the
company or entity that directly owns the assets
situated in India, nor holds such percentage
of voting power or share capital or interest in
such company or entity which results in holding
of (either individually or along with associated
enterprises) a voting power or share capital or
interest exceeding 5% of the total voting power
or total share capital or total interest, as the
case may be, of the company or entity that
directly owns the assets situated in India.
• Any transfer, in a scheme of amalgamation,
of a capital asset, being a share of a foreign
company, which derives, directly or indirectly, its
value substantially from the share or shares of
an Indian company, held by the amalgamating
foreign company to the amalgamated foreign
company, if at least 25% of the shareholders of
the amalgamating foreign company continue
to remain shareholders of the amalgamated
foreign company and such transfer does not
attract tax on capital gains in the country in which
the amalgamating company is incorporated;
• Any transfer in a demerger, of a capital asset,
beingashareofaforeigncompany,whichderives,
directly or indirectly, its value substantially from
the share or shares of an Indian company, held by
the demerged foreign company to the resulting
foreign company, if the shareholders, holding
not less than 3/4th in value of the shares of the
demerged foreign company, continue to remain
shareholders of the resulting foreign company
and such transfer does not attract tax on capital
gains in the country in which the demerged
foreign company is incorporated.
• In case where all the assets owned, directly/
indirectly, by a company or entity are not
located in India, the income of the non-resident
transferor, from transfer outside India deemed
to accrue or arise in India, shall be only such
part of the income as is reasonably attributable
to the assets located in India. The relevant rules
in this regard shall be prescribed.
• It is proposed to insert Sec. 285A of the IT Act
vide which the Indian concern through or in
which the Indian assets are held by the foreign
company or the entity shall be under obligation
to furnish information relating to the off-shore
transaction having the effect of directly or
indirectly modifying the ownership structure
or control of the Indian company or entity. If
the Indian entity fails to do so, the income-tax
authority in terms of newly inserted Sec. 271GA
of the IT Act may direct that such Indian concern
shall pay, by way of penalty:
a sum equal to 2% of the value of the
transaction in respect of which such failure
has taken place, if such transaction had the
effect of directly or indirectly transferring the
right of management or control in relation to
the Indian concern;
H5,00,000 in any other case.
Comments
• The Finance Act, 2012 had retrospectively
amended (w.e.f 01-04-1962) Sec. 9 of the IT
Act, by inserting Explanation 5 to sub-sec. (1)
(i) to provide for taxability of indirect transfer.
The said explanation clarified that an asset or
capital asset, being any share or interest in a
company or entity registered or incorporated
outside India shall be deemed to be situated in
India if the share or interest derives, directly or
indirectly, its value substantially from the assets
located in India. However the term “value” and
“substantially” were not defined under the Act.
• Considering the concerns raised by various
stakeholders regarding the scope and impact
of the amendments by the Finance Act 2012,
an Expert Committee under the Chairmanship
of Dr. Parthasarathi Shome was constituted by
the Government to go into the various aspects
relating to the amendments.
• The Committee, in this context, recommended
that for an indirect transfer to be taxable in
India, there should be a prescribed monetary
threshold and that the value of the foreign assets
should derive at least 50% of its value from the
Indian assets. The above amendments seek to
rationalise the provisions of the IT Act and has
since accepted most of the recommendations
of the Committee on this aspect. However, the
recommendations of the Committee to provide
exemption to a foreign company listed on a
recognised stock exchange and whose shares
are frequently traded on the stock exchange;
and restructuring within the Group (other
than amalgamation and demerger) subject to
continuity of 100% ownership does not find its
way in the proposed amendments.
• It may also be noted that while Sec. 9 of the IT
Act was retrospectively amended vide Finance
Act, 2012 to provide for taxability of indirect
transfer, the above proposed amendments has
been made applicable w.e.f. AY 2016-17.
• Incidentally, the Delhi High Court in the recent
case of Copal Research Ltd. -vs.- DIT (2014)
270 CTR (Del) 223 has considered the threshold
of 50% for determining whether the foreign
company’s shares derive their value substantially
from the Indian Assets and accordingly it was
held that since the threshold was not breached,
there was no indirect transfer of Indian Assets.
5.4
CBDT to notify rules for giving foreign tax credit to Indian
Residents [Sec.295]
[w.e.f 01-06-2015]
• Presently, Sec. 91(1) of the IT Act provides for
relief to Indian residents in respect of income-
tax on the income which is taxed in India as well
as in the country with which there is no DTAA.
The present mechanism is to provide relief as
a deduction from the Indian income-tax of a
sum calculated on such doubly taxed income,
at the Indian rate of tax or the rate of tax of said
country, whichever is lower. In case of countries
with which India has entered into an agreement
for the purposes of avoidance of double taxation
Sec. 90 or 90A of the IT Act, a relief in respect of
income-tax on doubly taxed income is available
as per the respective DTAAs.
• Presently, the IT Act does not provide the manner
for granting credit of such taxes. Accordingly, it is
proposed to amend Sec. 295(2) of the IT Act so as
to provide that CBDT may make rules to provide
the procedure for granting relief or deduction, as
the case may be, of any income-tax paid in any
country or specified territory outside India, u/s 90,
90A or 91 of the IT Act, against the income-tax
payable under the IT Act.
Comments
Detailed Rules and procedure for grant of relief or
deduction of foreign tax credit is a welcome step
towards avoidance of future litigations.
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28. 5.7
IT Act and Depository Receipt Scheme, 2014 aligned to extend
tax benefits to depository receipts issued against specified
securities [Sec. 115ACA]
[w.e.f AY 2016-17]
5.5
Interest paid by Indian branch to foreign banking companies
taxable in India and liable to withholding tax [Sec. 9]
[w.e.f AY 2016-17]
• CBDT vide its Circular No. 740 dated 17-04-
1996 had earlier clarified that branch of a
foreign company in India is a separate entity
for the purpose of taxation under the IT Act and
accordingly TDS provisions would apply along
with separate taxation of interest paid to head
office or other branches of the non-resident,
which would be chargeable to tax in India.
• The principle enshrined in the said Circular is
now proposed to be incorporated in the IT Act by
amending Sec. 9(1) of the IT Act to provide that
in the case of a non-resident, being a person
engaged in the business of banking, any interest
payable by the PE in India of such non-resident
to the head office or any other part of such
non-resident outside India shall be deemed
to accrue or arise in India. Such interest shall
be chargeable to tax in addition to any income
attributable to the PE in India and the PE in India
shall be deemed to be a person separate and
independent of the non-resident person of which
it is a PE and the provisions of the IT Act relating
to computation of total income, determination of
tax and collection and recovery would apply.
• Accordingly, the PE in India shall be obligated to
deduct tax at source on any interest payable to
either the head office or any other branch or PE,
etc. of the non-resident outside India. Further,
non-deduction would result in disallowance of
interest claimed as expenditure by the PE and
may also attract levy of interest and penalty in
accordance with relevant provisions of the IT Act.
Comments
While the principle laid down in the said Circular
always existed, the same did not find support of
the Indian Judiciary who have time and again held
that in terms of the computation mechanism under
the DTAA provisions, deduction of interest paid, by
Indian branch to Head Office/ Overseas branches,
is allowed as deduction and at the same time the
said interest paid by the India PE is not chargeable
to tax under the provisions of IT Act being income
to self. The proposed amendment seeks to nullify
decisions in ABN Amro Bank, N.V. -vs.- CIT (2011)
241 CTR 552 (Cal), Bank of America -vs.- JCIT
(2014) 149 ITD 145 (Mum.), Deutsche bank AG -vs.-
ADIT (2014) 40 CCH 714 (Mum)(ITAT)
5.6
Concessional tax rate u/s 194LD relating to income by way
of interest on certain securities extended upto 30-06-2017
[Sec.194LD]
[w.e.f 01-06-2015]
• Sec. 194LD presently provides lower withholding
tax @ 5% in case of interest payable on or after
01-06 -2013 but before 01-06-2015 to FIIs and
Qualified Foreign Investors (QFIs) on their
investments in government securities and rupee
denominated bonds of an Indian Company if the
rate of interest does not exceed the rate notified
by the Central Government.
• To align the eligibility period u/s 194LC with Sec.
194LD, the bill proposes to amend Sec. 194LD to
extend the concessional rate of 5% upto 30-06-
2017 also.
Comments
The amendment shall incentivise and encourage
greater long term off-shore investment by FIIs and
QFIs in India.
• The Depository Receipts Scheme, 2014 has
been notified by the Department of Economic
affairs (DEA) vide Notification F.No.9/1/2013–
ECB dated 21-10-2014. This scheme replaces
“Issue of Foreign Currency Convertible Bonds
and Ordinary Shares (through depository receipt
mechanism) Scheme, 1993”.
• The current taxation scheme of income arising
in respect of depository receipts under the Act
is aligned with the earlier scheme which was
limited to issue of Depository Receipts (DRs)
based on the underlying shares of the company
issued for this purpose (i.e. sponsored GDR) or
Foreign Currency Convertible Bonds (FCCB) of
the issuing company and where the company
was either a listed company or was to list
simultaneously. Besides, the holder of such DRs
was a non-resident only.
• As per the new scheme, Depository Receipts
(DRs) can be issued against the securities of
listed, unlisted or private or public companies
against underlying securities which can be debt
instruments, shares or units etc. Further, both
the sponsored issues and unsponsored deposits
and acquisitions are permitted. Also, DRs can
be freely held and transferred by both residents
and non-residents.
• Since the tax benefits under the IT Act were
initially intended to be provided in respect of
sponsored GDRs and listed companies only,
clause (a) of the explanation Sec. 115ACA of the
IT Act has been amended in order to continue
the tax benefits only in respect of GDR’s against
the issue of:-
ordinary shares of issuing company, being
a company listed on a recognised stock
exchange in India; or
Foreign currency convertible bonds of issuing
company.
Comments
This would align the taxation scheme of income
arising in respect of DRs under the IT Act with the
earlier scheme which was limited to issue of DRs
based on the underlying shares of the company
issued for this purpose (i.e. sponsored GDR) or
FCCB of the issuing company and where the
company was either a listed company or was to
list simultaneously.
52 INDIA BUDGET
2015-16
53 BASICS
BUDGET PROPOSAL
DIRECT TAXES
BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
29. 5.8
Residency criteria of companies – widened by introduction of
Place of Effective Management concept [Sec. 6]
[w.e.f AY 2016-17]
5.9
Amendment in MAT provisions for FIIs [Sec. 115JB]
[w.e.f AY 2016-17]
• As per the existing provisions of Sec. 6 of the IT
Act, a company is said to be a resident in India in
any previous year, if:-
it is an Indian company; or
during that year, the control and management
of its affair is situated wholly in India.
• Sec. 6 is proposed to be amended to widen the
concept of residency test for companies as under -
it is an Indian company; or
its place of effective management, at any time
in that year, is in India.
• POEM shall 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.
Comments
• The amendment was primarily to plug the
loophole in case of shell companies which
are incorporated outside India but controlled
from India where the companies used to avoid
becoming a resident in India by simply holding a
board meeting outside India.
• Now, with the POEM Concept finding place
under the law, if at any time during the
previous year, such effective management is in
India, such companies would be regarded as
resident in India. The principle of “POEM” is an
internationally recognised concept. This concept
is also recognised and accepted by Organisation
for Economic Co-operation and Development
(OECD). The proposed amendment is also in line
with the definition of resident as contained in the
proposed Direct Taxes Code, 2013.
• Since determination of POEM is a fact dependent
exercise, a set of guiding principles to be followed
in determination of POEM would be issued in due
course for the benefit of the taxpayers as well
as tax administration. The ramification could
be that those companies would be required
to file return of income in India and offer their
global income for tax. Other complications like
dividend, TDS, etc. may also arise which will
require clarification. Business houses would
have to revisit their Group Structure to align it
with the new test of residency.
• Based on the international precedents and
limited jurisprudence available in India, the
criteria for determining POEM generally is
where the board meetings are usually held,
where the Chief Executive Officer & other senior
officials usually carry on their activities, where
the day to day management of the company is
carried on, where the company’s head quarters
are located etc.
• Vide Finance Act (No.2), 2014 it was provided
that any securities held by FIIs which has
invested in such securities in accordance
with the regulations made under the SEBI
Act, 1992 would be treated as a capital asset.
Consequently, the income arising to a FII from
transactions in securities would always be in the
nature of capital gains.
• It is now proposed to amend Sec. 115JB of the IT
Act to provide that income from transactions in
securities (other than short term capital gains
arising on transactions on which securities
transaction tax is not chargeable) arising to
a FII, shall be excluded from the chargeability
of MAT and the profit corresponding to such
income shall be reduced from the book profit.
The expenditures, if any, debited to the profit loss
account, corresponding to such income are also
proposed to be added back to the book profit for
the purpose of computation of MAT.
Comments
• The Revenue has been issuing notices for
payment of Minimum Alternate Tax in respect of
capital gains on sale of shares by FIIs which are
exempt under the Treaty provisions. The above
controversy has been put to rest by virtue of the
above amendment. However, no clarity has been
provided w.r.t other foreign companies earning
capital gains exempt under the Treaty.
5.10
Furnishing of information relating to all payments to
non-residents [Sec. 195(6) and 271I]
[w.e.f 01-06-2015]
• Presently, Sec. 195(1) of the IT Act provides that
any person responsible for paying any interest
(other than interest referred to in Sec. 194LB
or 194LC or 194LD of the IT Act) or any sum
chargeable to tax (not being salary income) to
a non-resident, not being a company, or to a
foreign company, shall deduct tax at the rates in
force. Further, for such remittances which are
chargeable to tax, such person is also required
to furnish information in the manner prescribed
in Sec. 195(6).
• Now, it is proposed to amend the provisions of
Sec. 195(6) of the IT Act to widen the scope of
furnishing the information so that the person
responsible for paying any sum, whether
chargeable to tax or not, shall furnish the
information as prescribed.
• ItisfurtherproposedtoinsertSec.271Itoprovide
that in case of non-furnishing of information or
furnishing of incorrect information u/s 195(6) of
the IT Act, a penalty of H1,00,000 shall be levied.
Comments
The present mechanism of obtaining of information
was restricted only to remittances chargeable to
tax. However, the same defeats one of the main
principles of obtaining information for foreign
remittances i.e. to identify the taxable remittances
on which tax was deductible but was not deducted.
54 INDIA BUDGET
2015-16
55 BASICS
BUDGET PROPOSAL
DIRECT TAXES
BUDGET PROPOSAL
INDIRECT TAXES
MISCELLANEOUS
31. Sl. No. Particulars Page
6.1 Tax Rates other than Corporate 59
6.2 Deduction under chapter VI-A for Individuals/HUFs 59
6.3 TDS mechanism on withdrawal of accumulated balance from Employees Provident
Fund Scheme (EPFS)
61
6.4 Enabling of filing of Form 15G/15H for payment made under life insurance policy 61
6.5 Enhancement of threshold limit of Transport Allowance 61
6.1
Tax rates other than Corporate
[w.e.f AY 2016-17]
6.2
Deduction under chapter VI-A for individuals/HUFs
[w.e.f AY 2016-17]
For individuals, Hindu Undivided Family, Association of Persons and Body of Individuals
Income Slabs (H) Tax Rates*
0 - 2,50,000@ Nil
2,50,001 – 5,00,000+ 10.30% of income exceeding H2,50,000
5,00,001 – 10,00,000 H25,750 plus 20.60% of income exceeding H5,00,000
10,00,001 –1,00,00,000 H1,28,750 plus 30.90% of income exceeding H10,00,000
1,00,00,001 and above H29,09,750 plus 34.608%# of income exceeding H1,00,00,000
* Tax rates are inclusive of Education Cess and Secondary Higher Education Cess @ 2% and 1%
respectively.
# Surcharge has been increased from 10% to 12% in case total income exceeds H1 cr.
@ In case of resident individual of age 60 years or more (Senior Citizen) the basic threshold limit of
H3,00,000 remains unchanged.
In case of resident individual of age 80 years or more (Very Senior Citizen) the basic threshold limit of
H5,00,000 remains unchanged.
+ Resident individual having total income less than H5,00,000 is eligible to claim Tax Rebate u/s 87A,
being lower of tax on total income or H2,000.
Sl.
No.
Section Particulars Existing Limit (H) Proposed Limit (H)
1 80C
Payment of Life Insurance Premium,
etc.
1,50,000 1,50,000
2 80CCC Contribution to certain Pension funds 1,00,000 1,50,000
3A 80CCD(1)
Contribution to National Pension
scheme (NPS)
10% of salary or
GTI (restricted to
H1,00,000)
10% of salary or GTI
3B 80CCD(1B) Not Applicable
Additional
deduction up
to H50,000 over
deduction allowed
u/s 80CCD(1)
4 80CCE Aggregate ceiling for Sl. Nos. 1, 2 & 3A 1,50,000 1,50,000
5 80D
Health Insurance Premium for
Individual/HUF
Please refer table below
58 INDIA BUDGET
2015-16
59 BASICS
BUDGET PROPOSAL
DIRECT TAXES
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