U.S. Gandhi Budget 2015 - 2016 Analysis

An Analysis of the Implications on
Businesses and Individuals

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Innovative
On Time
Passionate
Good
Service
Professional
CA
Good Quality
We are a multi-disciplinary Chartered
Accountancy firm founded in 1983, with a vision to
provide a myriad array of advisory & support
services to businesses and organizations, both
domestic and international. With a practice
spanning three & a half decades we have
formulated & developed solutions that are
creative, yet realistic and feasible.
We do this by
• blending our knowledge & expertise
with analytical processes
• ensuring the highest standards of
quality & assurance
• cultivating high quality professionals
with a passion for excellence
• mitigating the needs of client for
controls and efficiency.
About us

5
Meet The Team
• He is the founder & managing partner of the firm
and is a member of Institute of Chartered
Accountants of India (ICAI) & also Institute of
Company Secretaries of India (ICSI) since past
two & a half decades.
• He specializes in direct & indirect tax. He has
maneuvered the firm’s sphere of practice from
audit & taxation to areas like process reviews,
due diligence reviews, strategic consulting etc.
• He is also an empanelled arbitrator with Bombay
High Court.
• A go-getter at his work, he is constantly looking
at new areas of growth for clients, firm, affiliates
& employees. His positive approach to any issue
flows into the firm & hence reflects in the firm’s
performance.
• He has led various forensic audits and
investigations in matters with the Economic
Offences Wing.
CA Uday Gandhi
FOUNDER & MANAGING PARTNER
• He heads the Consulting and Taxation
divisions of the firm. Having represented a
number of top corporates before the Tax
authorities at the assessment and appellate
forums, Kunal is extremely proactive and
innovative to achieve client objectives.
• Along with being an active contributor to
technical articles, he is also invited to address
various conferences on areas of Tax
structuring, Fund raising and
Entrepreneurship.
• Prior to this, Kunal was a Consultant at
Protiviti, one of the leading firms in Risk
Consulting and internal audit where his
responsibilities included Process reviews, SOB
designing and Due diligences.
• Before his stint at Protiviti, he was working
with N.M. Raiji & Co. involved in statutory
audits of large listed public and private sector
entities.
CA Kunal Gandhi
PARTNER

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Pragmatism meets Populism in this years budget
FOREWARD
Rarely has there been a budget as highly anticipated as this one.
Coming on the heels of the defeat of the ruling BJP in the recent Delhi
elections, there were expectations that the original ‘Maximum
governance, minimum government’ model would give place to a more
populist agenda.
India Inc on the other hand expected improving the ease of doing
business and a more rational tax regime.
While Corporate tax was lowered and Wealth tax was abolished, a
major theme in the budget was creating a social security framework.
Targeting a GDP growth rate of 8 – 8.5%, the budget plans to keep the
deficit to within 3.9% of GDP by laying special emphasis on
infrastructure development with a major spend budgeted on Road
building.
All in all, though there were no big bang reforms, the budget 2015 was
a good mix of Pragmatism and Populism. We are optimistic about
growth and believe a lot more reforms are expected in the coming 3
years.

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Income Tax break up by sector
Service tax and other taxes
9%
Union excise duties
10%
Customs
9%
Income Tax
14%
Corporation Tax
21%
Borrowing and other
liabilities
24%
Non – debt capital
receipts
3%
Non Tax
Revenue
10%

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Expense allocation by sector
Other non planned expense
4%
Subsidies
10%
Defence
10%
Interest Payments
19%
Central Plan
24%
Planned assistance to
states and UT
8%
Non-planned
assistance to states
and UT
4%
Non Tax
Revenue
21%

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Personal Taxation
BUDGET FLASH
• Tax slabs for Individual Tax Players to continue
• Transport Allowance exemption increased from Rs 800 pm to Rs
1,600 pm
• Investment in Sukanya Samriddhi Account Scheme will be
eligible for deduction u/s 80C.
• Contributions made to National Pension Scheme a deduction of
up to Rs 50,000 over and above the limit of Rs 1,50,000 u/s
80CCD.
• Limit of deduction u/s 80CCC for contribution to certain pension
funds increased to Rs 1,50,000 from Rs 1,00,000.

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Personal Taxation
BUDGET FLASH
• Limit of deduction under section 80D i.e. Health insurance
increased to Rs 25,000. For senior citizens to Rs 30,000.
• Medical expenditure in the case of very senior citizens, up to Rs
30,000 provided no health insurance coverage has been taken.
• Medical treatment u/s 80DD of persons with disability increased
to Rs 75,000 and in case of person with severe disability to
Rs125,000.

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Personal Taxation
BUDGET FLASH
• Deduction u/s 80DDB for Medical treatment of very senior
citizens with specified diseases with specified ailments increased
to Rs 80000.
• Deduction u/s 80U in case of person with disability increased to
Rs 75,000 and in case of severe disability to Rs 1,25,000.
• 100% deduction allowed u/s 80G of the Act for donations made
to Swachh Bharat Kosh, Clean Ganga Fund and National Fund for
Control of Drug Abuse.
• Quoting PAN a must for all purchases and sale above Rs. 1 Lakh

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Corporate Taxation
BUDGET FLASH
• Corporate tax rate of an Indian company will be reduced from
30% to 25% over a period of 4 years starting from FY 2016-17
• Surcharge @ 7% for income from Rs 1Cr up to Rs 10 Crs and @
12% for income exceeding Rs 10 Crs
• Surcharge rate on income tax payable on distribution of
dividends increased from 10% to 12%.
• Allowance of balance 50% additional depreciation in respect of
assets used for less than 180 days available in the immediately
succeeding previous year.

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Corporate Taxation
BUDGET FLASH
• New Sec. 32AD inserted to provide additional 15% investment
allowance of cost of new Plant & Machinery acquired and
installed in notified backward area of State of Andhra Pradesh &
Telangana. Further, higher additional depreciation on such assets
@ 35%.
• Benefit of deduction u/s 80JJAA of the Act to be extended to all
assesses having manufacturing units. Also minimum 100 regular
workmen has now been reduced to 50.

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Corporate Taxation
BUDGET FLASH
• Income exempt u/s 86 of the Act being share of a member of
AOP or BOI to be excluded while computing book profit u/s
115JB with a corresponding increase in expenditure related to
such income
• Proposes to rationalise capital gains tax regime for the sponsors
exiting at the time of listing of units of REITs. Rental income of
REITs from their own assets to have pass through facility.

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Corporate Taxation
BUDGET FLASH
• Proposed to extend the pass through status to certain Category I
& Category II Alternate Investment Fund regulated by SEBI.
• Benefit of non-deduction of tax at source u/s 194C for plying,
hiring or leasing goods carriages on furnishing of PAN, restricted
to contractor owning upto 10 carriages.
• TDS @10% on premature withdrawal of amount in excess of Rs
30,000 by employee from Recognised Provident Fund. Failure to
furnish PAN to trustees of EPFS would attract TDS @ 30%.

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International Taxation
BUDGET FLASH
• Rate of tax on royalty and fees for technical services u/s. 115A of
the IT Act proposed to be reduced from 25% to 10%
• Domestic Transfer Pricing threshold limit increased from Rs 5Crs
to Rs 20 Crs
• Shell companies abroad to be taxed in India
• If a company has its ‘place of effective management’, at any time
during the year in India, then such company will be considered as
a resident in India.

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Other Proposals
BUDGET FLASH
• Yoga to be included as Charitable Purpose
• Mandatory filing of return in respect of foreign Asset
• Tax evasion with respect to foreign assets would result in
rigorous, non compoundable imprisonment upto 10 years in
addition to penalty of 300% of tax sought to be evaded. Further,
there will be no provision of approaching to settlement
commission.
• Undisclosed income to be taxable at maximum marginal rate

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Other Proposals
BUDGET FLASH
• Monetary limit for disposal of cases by a single member bench of
ITAT where total income computed by the AO revised to Rs 15
lakhs from Rs 5 lakhs
• Wealth tax act to be abolished.
• For the purpose of revisionary proceedings u/s 263, the
expression ‘erroneous in so far as it is prejudicial to the interests
of the revenue’ has been clarified.
• To defer GAAR by 2 years
• Amendment made u/s 271(1)(c) to clarify that penalty would
also apply where the provisions of section 115JB and 115JC (MAT
and AMT) apply.

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Service Tax
BUDGET FLASH
• Rate of Service tax increased to flat 14% from 12.36%
• Introduction of Swachh Bharat Cess @2% on all taxable
services
• Abatement rate for transport of goods by road, rail and vessel
rationalized at 30% on value of services, with effect from 1st
April 2015
• Scope of Service Tax extended by deleting the services from
Negative list or Mega Exemption notification
• Rationalising penalty provisions u/s 76 and 78

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Service Tax
BUDGET FLASH
• The reverse charge mechanism is now extended to services
provided by mutual fund agents/ distributors & lottery
agents to AMC/mutual fund and to the distributor of lottery
respectively.
• Liability of the service recipient of Manpower supply and
security services under partial reverse charge is extended to
100% from 75%
• Reimbursement of expenses to be included in consideration
and service tax also needs to be charged on the same
• Increase in time limit in claiming CENVAT from 6 months to 1
year from the invoice date

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Central Excise
BUDGET FLASH
• Basic Excise Duty (BED) increased to 12.50% from 12% EC
and SHEC leviable on excise duty subsumed in BED with
effect from 1st March 2015
• Excise duty on leather footwear MRP > Rs1000 per pair
reduced from 12% to 6%
• Excise Duty completely withdrawn from captively consumed
intermediate compound coming into existence during the
manufacture of Agarbattis

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Central Excise
BUDGET FLASH
• Time-limit for availing CENVAT credit on inputs and input
services is being extended from 6 months to 1 year from the
invoice date
• Time-limit for return of capital goods from job worker’s
premises extended from 6 months to 2 years

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Custom Duty
BUDGET FLASH
• Standard ad-valorem rate of Counter Veiling Duty (CVD)
proposed to be increased from the existing rate of 12% to
12.5%.
• Education cess and Secondary & Higher Education cess to be
applicable on Basic Custom Duty (BCD).

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Other Indirect Tax Proposals
BUDGET FLASH
• GST to be implemented by next year
• In case of Central Excise Duty and Service Tax, issuance of
digitally signed invoices and maintenance of electronic
records permissible.
• Central Excise and Service Tax registration process simplified
by prescribing documents, time limit and procedure for
registration. Single premises registration shall be granted
within two working days of filing the application.

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Tax Rates
Foreign Company
Particulars
Taxable Income > Rs.
1 crore, but < Rs. 10
crore
Taxable Income >
Rs. 10 crore
Corporate Tax rate 40% 40%
Surcharge 2% 5%
Corporate Tax + Surcharge 40.80% 42%
Education cess thereon 3% 3%
Effective tax rate 42.02% 43.26%
Domestic Company/Partnerships
Particulars
Taxable Income > Rs.
1 crore, but < Rs. 10
crore
Taxable Income >
Rs. 10 crore
Tax rate 30% 30%
Surcharge 7% 12%
Tax + Surcharge 32.10% 33.60%
Education cess thereon 3% 3%
Effective tax rate 33.06% 34.61%

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Individual or H.U.F or A.O.P or B.O.I
The income tax rates for individuals continues to be the same. While the surcharge has
been increased to 12% for income over Rs. 1 crore, the education cess rates have been
kept intact.
In case of persons other than those specified in II and III below the rates of income-tax on
total income shall be as follows: -
Tax Rates
Personal tax Rates
Income Tax Rate
Up to Rs.2,50,000 NIL
Rs.2,50,001 to Rs.5,00,000 10%
Rs.5,00,001 to Rs.10,00,000 20%
Above Rs.10,00,000 30%

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In case of senior citizens (60 yrs – 80 yrs) the rates of income-tax on total income
shall be as follows:
Tax Rates
Personal tax Rates
Income Tax Rate
Rs.3,00,001 to Rs.5,00,000 10%
Rs.5,00,001 to Rs.10,00,000 20%
Above Rs.10,00,000 30%

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In case of senior most citizens (80 yrs and above) the rates of income-tax on total
income shall be as follows:
Tax Rates
Personal tax Rates
Income Tax Rate
Rs.5,00,001 to Rs.10,00,000 20%
Above Rs.10,00,000 30%

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Direct Tax Proposals
Deduction for Health insurance premium/Health check-up/Medical expenditure
The existing deduction available under section 80D for payment towards health insurance premium
and preventive health checkup has been enhanced by Rs. 10,000 as under:
Existing limits – Rs. 15,000 for individual, spouse and dependent children
Rs. 20,000 for senior citizens, including payment for parents
Proposed limits – Rs. 25,000 for individuals, spouse and dependent children
Rs. 30,000 for senior citizens, including payment for parents.
It is proposed that medical expenditure incurred for very senior citizens (80 years and above) will be
deductible up to Rs. 30,000 if no payment has been made towards any existing health insurance
policy for such individuals.
100% deduction for National Fund for Control of Drug Abuse
Deduction of 100% will be allowed in respect of donations made to National Fund for Control of
Drug Abuse u/s 80G.

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Abolition of levy of wealth-tax under Wealth-tax Act, 1957
It is proposed to abolish levy of wealth tax under the Wealth Tax Act,1957 with effect from the 1st
April, 2015.
Contributions for the benefit of girl child
Contributions/ investments made by an individual in the name of girl child to notified
securities/schemes will be eligible for deduction under section 80C. Interest earned on
Sukanya Samriddhi account will also be exempt.

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Medical treatment of specified diseases
Raising the limit of deduction in case of disability
In view of raising cost of medical care and special needs of disabled person, the limit of deduction
u/s 80DD and 80U has been increased from Rs.50,000/- to Rs.75,000/- per annum
And in case of severe disability it has been increased from Rs.1,00,000/- to Rs.1,25,000/- per annum
Under the existing provisions of section 80DDB, a certificate is required from a specialist doctor in
a Government hospital for claiming deduction for expenditure incurred for medical treatment of
specified diseases. It is now proposed that it will suffice if a prescription is obtained from a
specialist doctor (not necessarily from a Government hospital) for this purpose. In addition, the
limit in case of very senior citizens (80 years or above) is proposed to be increased to Rs. 80,000
from Rs. 60,000.

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Investment in Life Insurance Corporation (‘LIC’) Annuity Plan / any other Pension Fund under 80CCC
The limit of eligible deduction for investment in LIC Annuity Plan or any other Pension Fund is
proposed to be increased to Rs. 150,000 from the existing
Additional deduction for contribution to National Pension Scheme under 80CCD
In order to encourage people to contribute towards National Pension Scheme, an additional
deduction upto Rs. 50,000 will be available on the employee’s contribution. This is in addition to the
deduction available upto 10% of salary within an overall limit of Rs. 150,000

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Relief from withholding of tax on payments from LIC
Currently, tax is deducted @ 2 per cent on sum paid under a life insurance policy, including the
sum allocated by way of bonus, which are not exempt under section 10(10D) of the Act. Hence,
it is proposed that individuals not having taxable income and receiving payments under LIC upto
Rs. 100,000 can claim relief of non-deduction of tax at source by submitting Form 15G / 15H.
This amendment will take effect from 1st June,2015
Relaxing the requirement of obtaining TAN for certain deductors
It is proposed to amend the provisions of section 203A of the Act so as to provide that the
requirement of obtaining and quoting of TAN under section 203A of the Act shall not apply to the
notified deductors or collectors.
This amendment will take effect from 1st June, 2015.

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Section 269SS is amended to prohibit acceptance and repayment of deposits otherwise than
by an account payee cheque for an amount exceeding Rs 20,000 in case of Immoveable
Property
Provisions of section 269T, 271D and 271E are accordingly amended to include the above
transactions
With effect from 1-6-2015
Inclusion of immovable property transaction under the ambit of section 269SS
GAAR would be made applicable from FY 2017-18. It has been clarified that GAAR would apply
prospectively to investments made on or after 01.04.2017.
General Anti Avoidance Rules (‘GAAR’) deferred for 2 years

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Deduction under section 80JJAA for new workmen extended to all assessees
The benefit of additional deduction of 30% for wages paid to workmen is extended to all assessees
instead of companies only. Further limit for minimum number of new employees is reduced from
existing 100 to 50.
Allowance of balance additional depreciation
Under the existing provisions, additional depreciation is restricted to 50% if the new asset is put to
use for a period less than 180 days. This can result in deferral of investment by assessee to
beginning of next year to avail full deduction. It is now proposed that balance additional
depreciation of 50% shall be allowed in the subsequent year.
Additional Reporting for Weighted deduction for R&D Expenditure
It is proposed to amend the provisions of section 35(2AB) of the Act to provide that deduction under
the said section shall be allowed only if the company enters into an agreement with the prescribed
authority for cooperation in such research and development facility. The entity is also required to
maintain and audit the books of accounts and also furnishes the reports in the prescribed formats. It
is also proposed to send the reports to the Principal Chief Commissioner or Chief Commissioner
having jurisdiction over the company claiming the weighted deduction under the said section.

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It is proposed to clarify the meaning of “tax sought to be evaded” under section 271(1)(iii) for
purpose of levy of concealment penalty, especially where tax is paid as per MAT/ AMT i.e. it
shall be the summation of tax sought to be evaded under the general provisions and the tax
sought to be evaded under MAT/AMT provisions. However, if an amount of concealed income
is considered both, under general provisions and for MAT/AMT purposes, then such amount
shall not be considered in computing tax sought to be evaded under MAT/AMT provisions.
Quantification of concealment penalty
Cost of acquisition and period of holding in case of demerger – Clarification
It is now clarified that the cost of acquisition and period of holding of the asset of the
demerged company shall be passed on to the resulting company.

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Pass through treatment to Category –I and Category –II Alternative Investment Funds (‘AIF’)
The present provisions provide a “tax-pass through status” to:
▪ The Domestic Venture Capital Fund (either incorporated as a Trust or a Company); or Category I
Alternative Investment Funds.
▪ In order to cover the provisions applicable to other form of collective investment vehicles, the provisions
have been extended to Category I and Category II AIFs (‘Investment Funds’). The salient features of the
regime are as under:
▪ Income of Investment Funds will not be taxable in the hands of Investment Funds but taxable in the hands
of investors.
▪ Business income will not be eligible for ‘pass-through’, and will be taxable in the hands of Investment
Funds.
▪ Income payable by Investment Funds will be subject to deduction of tax at source at 10%.
▪ Receipt of income by such Investment Funds will not be liable to TDS and a notification giving effect to the
proposal shall be issued.
▪ MAT may not be applicable to income arising to investors in Investment funds.
▪ Express provisions have been provided for filing return of income by Investment Funds.
Pass through status for rental income earned directly by REITs
Under Section 10(23FCA), Rental Income earned by REITs via investment directly in real estate will be given
pass through status and the same will be taxable in hands of unit holders. TDS at 10% would be required to be
deducted by the REITs on distribution of rental income to residents and at the rates in force in case of
distribution to non residents.

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Tax Implications on Migration to Real Estate Investment Trusts (‘REITs’)
Currently, taxability of gains arising on swap of shares of the special purpose vehicle (‘SPV’), being
an Indian company, with the units (‘Swap Units’) of REITs is deferred till transfer of such Swap Units.
Further, concessional capital gains tax regime is not available to the gains arising on transfer of such
Swap Units i.e. long term capital gains is taxable at 20% and short term capital gains is taxable at
30%. This results in disadvantageous tax position vis-à-vis direct Initial Public Offering (‘IPO’) of the
SPV.
In order to give a boost to setting up of REITs, it is proposed that the gains arising on transfer of
Swap Units of REITs would be exempt from tax in case of long term capital gains and would be
subject to concessional tax rate of 15% in case of short term capital gains. This capital gains tax
treatment would be available at the time of IPO or subsequent sale on stock exchange (subject to
levy of STT).
Minimum alternate tax (‘MAT’) would continue to apply to holding companies on gains arising from
swap of shares of the SPV for units of the REITs.
No capital gains tax exemption would be available on swap of other assets with units of REITs.

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Threshold limit for Specified Domestic Transactions increased
Section 92BA has been amended to increase the threshold limit of specified domestic transactions
from Rs 5 crores to Rs 20 crores.
Definition of Charitable Purpose
Section 2(15) has been amended to include yoga
Presently, in case of an institution carrying on ‘advancement of any other object of general public
utility’, where trade, commerce or business activities are undertaken (and where the receipts
exceed a certain threshold), the institution cannot claim a charitable/tax exempt status. With a view
to protect genuine institutions which carry on trade, commerce or business as a part of their
charitable activities, it is proposed to rationalise the definition and provide that carrying on the
aforesaid activities would not impact the charitable status of the institution, if the following
conditions are satisfied:
a) Such activities are undertaken in the course of actual conduct of charitable activities; and
b) Aggregate receipts from such activities does not exceed 20% of the total receipts of the
charitable institution during the year.

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Condition for availing benefit of income accumulations for charities.
In order to bring clarity with regard to the period within which the charitable institution is required
to file Form No. 10 with the tax authorities and to ensure timely filing of the return of income, it is
proposed that benefit of income accumulation for future will be available only if both, the return of
income and Form No. 10 are filed within the due date of filing original return of income
Furnishing of return of income by certain universities and hospitals
Entities covered under Sec 10 clause (23C)(iiiab) and (iiiac) that are Universities, educational
institutions, hospitals and other institutions for medical treatment which are substantially financed
by government are now required to file return of income mandatorily.

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Computed Income limit for cases to be decided by a Single Member Bench of ITAT raised
Section 255(3) of the Act is proposed to be amended to increase the income limit computed by the
AO from Rs 5,00,000 to Rs 15,00,000 for cases to be decided by a single member bench of the ITAT.
This amendment is effective from June 01st, 2015.
Investment Allowance and Additional Depreciation of 35% for Andhra Pradesh and Telegana
Under section 32AD, additional investment allowance of 15% of the cost of new assets acquired and
installed in the Andhra Pradesh and Telegana is allowed subject to certain conditions. This is over
and above the allowance allowed under section 32AC.
Additional Depreciation of 35% instead of 20% under section 32 is allowed for new plant and
machinery acquired and installed in Andhra Pradesh and Telegana.

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Tax neutrality on merger of similar schemes of Mutual Funds
It is now proposed to provide tax neutrality to unit holders upon consolidation or merger of mutual
fund schemes i.e. consolidation shall not be regarded as a taxable event in the hands of the unit
holders.
The key condition for such tax neutrality is that the schemes should be of the same type, i.e. the
consolidation is of two or more schemes of “an equity oriented fund” or two or more schemes of
“other than equity oriented funds”.
The cost of acquisition of the units of consolidated scheme shall be the cost of units in the
consolidating scheme and the period of holding of the units of the consolidated scheme shall
include the period for which the units in consolidating schemes were held by the unit holder.

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Provisions to avoid repetitive appeals by the Tax Department
A new section 158 AA, is introduced to provide that where a question of law arising in case of an
assessee for any assessment year is identical to the one pending before the Supreme Court for
another assessment year for the same assesse (due to the appeal or a special leave petition filed by
the revenue), then the Commissioner or Principal Commissioner may direct the Assessing Officer to
make an application to the Tribunal for filing the appeal after the decision of the Supreme Court
becomes final and the order is in favour of the revenue. This is subject to the acceptance from the
assessee that the question of law is identical. This provision is introduced to avoid repetitive filing of
appeals by the revenue on the same issue resulting in needless litigation.

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Levy of interest for default in payment of advance tax
Sec 234B is proposed to be amended to levy interest from 1st April of next financial year till the date
of assessment order passed u/s 147 or 153A or 245C (reassessments)
Expansion of revisionary jurisdiction
Sec 263(1) gives right to commissioner / principle commissioner to revise any order passed. It is now
expressly clarified that the revisionary proceedings can be initiated in case the Commissioner is
satisfied that the Assessing Officer’s order has been passed:
• Without making inquiries or verification
• Allowing relief without inquiring into the claim
• Not in accordance with any order, direction or instruction issued by the CBDT
• Not in accordance with any decision of the jurisdictional High Court or Supreme Court which is
prejudicial to the assessee.
Withholding tax on payments to transporters
Presently, all transporters, irrespective of their size, are eligible to claim exemption from
withholding tax u/s 194C by furnishing their PAN to the deductor/payer.
• An amendment has been proposed to exempt only small transport operators from the purview
of withholding tax. The exemption shall now be available only to such transporters who own
less than 10 goods carriage at any time during the previous year and who have also furnished a
declaration to this effect along with PAN to the deductor/payer

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TDS will now be applicable on interest paid by banks on recurring deposits if such interest paid
exceeds the threshold limit of Rs. 10,000 per year.
Currently, the interest income for the purpose of TDS is computed with reference to a branch of bank
/ cooperative society. It has been proposed that, for entities which have adopted core banking
solution, TDS on interest should be computed on the interest paid at the entity level (and not at a
branch level).
Currently, payment of interest to members by a cooperative society is not subject to TDS. It is
proposed that this benefit shall not apply on interest on time deposits by the co-operative banks to
its members.
It is proposed that TDS shall be applicable only on payment (and not accrual) of interest on
compensation awarded by Motor Accident Claim Tribunal.
Withholding tax on interest payments
The above amendments will come into effect from 1st June, 2015.

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It is proposed to insert provisions to enable correction in and processing of TCS statements on
same lines as TDS under section 206C.
It is also clarified that the intimation generated on processing TCS statements will be regarded as
a notice of demand under section 156 and will also be subject to rectification and appeal.
Further, where interest is charged for any period on the tax amount specified in the intimation, it
is clarified that no interest would be charged under section 220(2) on the same amount for the
same period
Rationalisation of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS)

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Currently, any sum withdrawn from Recognised Provident Fund (RPF) is exempt. It is
proposed to tax any withdrawals by employee before serving continuous service of five years
(other than the cases of termination due to ill health, closure of business, etc.) and if he does
not opt for transfer of accumulated balance to new employer
Deduction of Tax at Source on pre-mature withdrawal from Employee Provident Fund Scheme
A new section 192A will be inserted making the trustees of the RPF responsible to deduct tax
at source @ 10% at the time of payment over and above the threshold limit of Rs. 30,000/-. It
is further proposed that non-furnishing of PAN will result in deducting tax at the maximum
marginal rate i.e. 30%.
The above amendments will come into effect from 1st June, 2015.

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Rationalisation of provisions pertaining to Settlement Commission
Earlier notices from income tax department were required before approaching the settlement
commission u/s 245 for particular assessment year. It is proposed, if a reassessment notice has
been issued for any one year, an assessee can approach Settlement Commission for other
assessment years involving similar issue provided a valid return of income has been furnished.
If the final settlement order does not provide for terms of settlement, the proceedings will be
considered as abated from the day on which such order was passed.
Existing provision did not provide for correction of order passed by settlement commission by
assessee or commissioner. Amended sec 245D sub section (6B) now allows the assessee /
commissioner to file application for same in prescribed time limit.
As per amended Sec 245H now settlement commission order shall record reasons in writing if the
commission is granting immunity from prosecution to assessee.
Amended sec 245K now bars such person to approach settlement commission whose related
person has already approached settlement commission for similar issues.
Ambit of sec 132 is widened to adjust liability arising as per order of settlement commission against
assets seized.

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53Direct Tax Proposals
Expansion in ambit of appeals to Income Tax Appellate Tribunal
Appeal can now be filed u/s 253(1) before Tribunal against an order passed by the prescribed
authority (Chief Commissioner and Director General) with respect to exemption to any university or
other educational institution existing solely for educational purposes, and any hospital or other
institution existing solely for philanthropic purposes
Clarification with respect to Search and Seizure assessment
It has been clarified that in case of search and seizure assessment, if any books of account or
documents (seized or requisitioned) pertain to any person other than the person being assessed,
then such other person can also be assessed by the jurisdictional Assessing Officer.
Permission for re-assessment
Complicated permission rules mentioned under erstwhile sec 151 for issue of reassessment notice
now proposed to be simplified . Prior permission of appropriate senior officer as required under
the act made mandatory before issuing reassessment notices.

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It is proposed to amend section 288 of the Act to provide that an auditor who is not eligible to
be appointed as a statutory auditor of a company as per section 141 of the Companies Act,
2013 shall not be eligible for carrying out any type of audit or furnishing of any
report/certificate under any provisions of the Act in respect of that company. However, this
does not debar the accountant from attending income tax proceedings and act as an
authorized representative of the company.
Eligibility of Chartered Accountant to furnish reports/certificates
The above amendment will come into effect from 1st June, 2015.
It is further proposed to provide that the any person convicted by a court of an offence
involving fraud shall not be eligible to act as an authorised representative for a period of 10
years from the date of such conviction.

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Rationalizing MAT provisions
Under the present MAT provisions, a company which is a member of an AOP or BOI is liable to MAT
on its share of income even if no income tax is payable on the same under the normal provisions.
New clause (iib) is inserted to provide that share of members of AOP or BOI on which income tax is
payable in accordance with the provisions of sec 86 of the Act, should be excluded while computing
the MAT liability and corresponding expenses shall be excluded when arriving at book profit for the
purpose of MAT.
New clause (iic) is inserted to provide that income from securities of FPI’s shall be considered as
capital gains and hence same shall be excluded while arriving at book profit for MAT purposes.
Disclosure of foreign assets
While the Wealth Tax Act has been abolished, it is proposed that assets currently covered in Wealth
Tax returns will be disclosed in the individual’s Return of Income. Stringent provisions are proposed
to be introduced for non-disclosure of foreign assets and any concealment of income. Concealment
of income and non-reporting of foreign assets may lead to prosecution and penalty of 300% of the
tax on such concealed income. A new law will be introduced shortly in this regard.

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Lower rate of TDS on interest to foreigners on debt investments
TDS would continue to be deducted at 5% on interest earned on Government Securities and Rupee
denominated Corporate Bonds subject to certain condition upto June 30th, 2017.
Reduction of tax rates on royalties and FTS payments to Non Residents
Section 115A is proposed to be amended whereby non residents would be charged to tax at 10%
instead of 25% (plus surcharge as applicable) on royalties and fees for technical services.
Presently, a foreign company is considered resident in India if the control and management of its
affairs is situated wholly in India. To curb the creation of shell companies which are incorporated
outside India but controlled from India, the concept of Place of Effective Management is now being
introduced. Through his concept, a company will said to be resident in India in any previous year, if
it is an Indian company or its place of effective management, at any time in that year is in India.
Place of effective management means a place from where key management and commercial
decisions which are necessary for the conduct of the business are undertaken.
Residential status of foreign companies - Concept of place of effective management introduced

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A new section 9A is proposed to be inserted, whereby Fund Managers of offshore funds situated in
India would not be considered as a permanent establishment of the off shore fund in India subject to
various conditions being satisfied by both. As a result, offshore funds would not be liable to tax in
India from its income from investments solely due to the fact that the fund management activity is
carried out in India.
The key conditions specified for investment funds include diversified holding at the fund level and for
fund managers include registration with appropriate authority in India, as applicable.
Fund Managers in India not to constitute permanent establishment of offshore funds
Penalty of Rs 5,00,000 under new section 271FAB is proposed if the prescribed particulars are not
reported within 90 days from the end of the financial year by the fund

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Clarification regarding Indirect transfer of assets
The following key amendments have been made in Section 9 based on the recommendations of the
Shome Committee:
• A foreign company or entity shall be deemed to derive its value substantially from Indian assets
if the fair market value of Indian assets represent at least 50 per cent of value of all the assets
owned by such foreign company or entity, subject to minimum value of Indian assets of Rs. 100
million.
• Indian assets would include both tangible as well as intangible assets (without reduction of
liabilities).
• Specified valuation date is 31 March or accounting year end date (as the case may be),
preceding the date of transfer. However, if there is an increase in book value of the assets
between balance sheet date and date of transfer, by 15% or more, then valuation date would
be date of transfer.
• Capital gains tax would be proportional to the value of assets located in India.
• To provide relief to the minority shareholders, capital gains exemption is proposed to be
granted if transferor (along with its associated enterprises) does not hold – (i) right of control or
management, and (ii) voting rights or share capital or interest exceeding five per cent, in the
foreign company or entity at any time in the 12 months preceding the date of transfer.

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Clarification regarding Indirect transfer of assets (contd.)
Similar exemption is also granted to indirect minority shareholders.
Following additional clarifications would be prescribed through the Rules:
Manner of determination of FMV of the Indian assets vis-a vis global assets
Method for determination of proportionate value of Indian assets
The Indian concern in which such foreign company or entity has investments would be under an
obligation to furnish necessary information within prescribed time. Specific penalty is proposed for
non-compliance with the above obligation.
Enabling the Board to notify rules for giving foreign tax credit
It is proposed to grant powers to the CBDT to lay down the procedure for granting relief of any tax
paid by Indian residents in any foreign country or specified territory.
This amendment is effective from 1st June , 2015.

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In order to further scrutinize the payments to nonresidents under section 195, it is proposed that
payer shall be under obligation to report specific information in the prescribed form (whether or not
such payment is chargeable to tax) by amending the provisions of section 195 of the Act. It is further
proposed to insert a new provision in the Act to provide that in case of default in furnishing incorrect
or non-furnishing of information under sub-section (6) of section 195(6) of the Act, a penalty of one
lakh rupees shall be levied.
Reporting of payments to non-residents
The above amendments will come into effect from 1st June, 2015
Taxability of interest paid to foreign banks by Indian branches
With an intent to provide clarity on the taxability of interest payments by Indian branch of foreign
banks, it is proposed that:
• Indian branch of foreign banks shall be deemed to be a separate and independent person from
its head office or offshore branches (in the context of payment of interest by the Indian branch);
• The payer branch in India will withhold income-tax on such interest payments.
• This overrules certain tax rulings which held that interest paid by Indian branch of a foreign
bank is not taxable in hands of head office or offshore branches.

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It is proposed to amend the provisions of section 271(1)(iii) of the Act so as to provide that
the amount of tax sought to be evaded shall be the aggregate of tax sought to be evaded
under the general provisions and the tax sought to be evaded under the provisions of section
115JB or 115JC.
The above amendment will come into effect from 1st April, 2016.
Cost of acquisition of capital assets in the hands of Resulting company
It is proposed to amend section 49 (1)(e) of the Act to include transfer of asset under section
47 of the Act. It is further proposed to provide that the cost of acquisition of an asset acquired
by resulting company shall be same as the cost for which the demerged company acquired
the capital asset as increased by the cost of improvement incurred, if any.
The above amendment will come into effect from 1st April, 2016.
Determination of tax sought to be evaded on concealed income for the purpose of penalty

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Indirect Tax Proposals –
Customs and Central
Excise

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The following table shows the new rates of Basic Customs Duty
Goods
Existing
Rates (%)
New
Rates (%)
Butanes 5.00 2.50
Sulphuric acid for manufacture of fertilizers 7.50 5.00
Isoprene 5.00 2.50
Sub-parts, parts, components or accessories for manufacture of tablet
computer
7.50 NIL
Evacuated tubes with three layers of solar selective coating for use in the
manufacture of solar water heater and system
7.50 NIL
Over Load Protector (OLP), positive thermal coefficient, c-block compressor
and crankshafts for manufacture of refrigerator compressor
7.50 5.00
Butyl acrylate 7.50 5.00
Styrene, Ethylene dichloride (EDC) and Vinyl chloride monomer (VCM) 2.5 2 2.50 2.00
Active Energy Controller (AEC) for manufacture of Renewable Power System
(RPS) inverters
7.50 5.00
Custom Duty

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Custom Duty
Goods
Existing
Rates (%)
New
Rates (%)
Anthraquinone 7.50 2.50
Specified goods for manufacture of pacemakers 10.00 7.50
Artificial Heart (left ventricular assist device) 5.00 0.00
Specified goods for use in manufacture of Flexible Medical Video Endoscope 7.50 2.50
Magnetron (upto 1 KW)for manufacture of domestic microwave ovens 5.00 NIL
Black Light Unit module for manufacture of LCD and LED TV panels 10.00 NIL
Organic LED TV panels 10.00 NIL
Digital Still Image Video Cameras with minimum resolution of 800 x 600
pixels, at minimum 23 frames/ second, for at least 30 minutes in a single
sequence, using the maximum storage (including the expanded) capacity/
Parts and components of above
10/5 NIL
Commercial motor vehicles (other than those imported in CKD form or
electrically operated motor vehicle)
10.00 20.00
Metallurgical coke 2.50 5.00
The above changes will be effective from 1st March 2015

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65
Custom Duty
Goods on which SAD is exempted or reduced
Goods
Existing
Rates (%)
New Rates
(%)
All goods [except populated PCBs] for manufacture of ITA bound goods 4.00 NIL
Specified goods for manufacture of pacemakers 4.00 NIL
All inputs for manufacture of LED driver or MCPCB for LED lights and
fixtures or LED lamps
4.00 NIL
Naphtha, Styrene, Ethylene dichloride, Vinyl chloride monomer 4.00 2.00
Melting scrap of iron or steel, Stainless steel scrap, for the purpose of
melting
4.00 2.00
Copper, brass and aluminium scrap 4.00 2.00

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Export Duty on upgraded Ilmenite reduced from 5% to 2.5%
Custom Duty
Concessional BCD rate benefit on import of specified goods for use in manufacture
of electrically operated and hybrid motor vehicle extended till 1 April 2016
Increase in Additional Duty of Customs (Road Cess) on imported HSD and Motor
Spirits (Petrol) from Rs 2 per litre to Rs 6 per Litre.
The above changes will be effective from 1 March 2015
66

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Central Excise
Rate of excise duty is increased from 12.36% to 12.50%. However, Education Cess and
Secondary Higher Education Cess leviable on excise duty are subsumed in BED with
effect from 1st March 2015
Penalty provisions have been rationalised. However, new penalty provisions will be
applicable only in cases where no show cause notice has been issued prior to the date
on which the Finance Bill, 2015 receives assent.
Penalty on confiscation of goods have been increased from Rs 2,000 to Rs 5,000
Tariff rate on following items have been increased as under;
Particulars Old rate New rate
Cement Rs. 900 per ton Rs. 1,000 per ton
Waters, including mineral waters and aerated waters 12% 18%
Cut tobacco Rs. 60 per kg Rs. 70 per kg
67

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Central Excise
Registration process will be simplified. It is also proposed that the registration will
be granted within 2 working days of application
A welcome move for allowing records to be signed digitally and keeping the same
in electronic form
Clean energy cess increased from Rs. 100 to Rs. 200 per tonne
Time-limit for availing CENVAT credit on inputs and input services is being
extended from 6 months to 1 year from the invoice date
Time-limit for return of capital goods from job worker’s premises extended from
6 months to 2 years
Inputs and capital goods allowed to be sent directly to job worker’s premises at
the direction of manufacturer or service provider
68

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Indirect Tax Proposals –
Service Tax and Cenvat
Credit

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70
Service Tax Proposals
The rate of Service Tax is being increased from 12% to 14%. The ‘Education Cess’ and
‘Secondary and Higher Education Cess’ shall be subsumed in the revised rate of Service Tax.
Thus, the effective increase in Service Tax rate will be from the existing rate of 12.36%
(inclusive of cesses) to 14%, subsuming the cesses.
Change in Service Tax rate
The Bill empowers the Government to levy Swachh Bharat Cess @ 2% on all or any of the
taxable services, from the date to be notified after enactment of Finance Bill 2015.
Till the time the revised rate comes into effect, the ‘Education Cess’ and ‘Secondary and
Higher Education Cess’ will continue to be levied in Service Tax.
Levy of Swachh Bharat Cess
Change in definition of Service
It is proposed to replace existing explanation 2, clarifying the term “transactions in money or
actionable claim” with new explanation where “transactions in money or actionable claim”
does not include –
a) Money changer services
b) Any activity for consideration in relation to facilitating transaction in money as specified
in act.

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Access to amusement facility will be subject to service tax.
Currently, the access to amusement facilities is not taxable as it is covered under the negative
list. The Finance Minister has proposed omission of this entry from the negative list. The
change will be effective from the notified date.
This will result in levy of service tax if the amount charged is more than Rs. 500 for right to
admission to such an event / park.
Amendment in Negative List
Any process amounting to manufacture or production of goods.
It is proposed to exclude from its purview any service by way of carrying out any processes for
production or manufacture of alcoholic liquor for human consumption, by amending
definition of manufacture in Section 65(B)(40). Consequently, Service Tax shall be levied on
contract manufacturing/job work for production of potable liquor for a consideration.
Services provided by Central Government or local authority
Presently support services provided by the Central Government or local authority to business
activity was excluded from negative list and was hence taxable under service tax net, however
now the Finance Bill proposes to exclude any service provided by the Central Government or
local authority to the business entity, from the negative list, consequently such services will
be liable to tax.

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Other changes in Finance Act
It is clarified that the for providing main services, if any services are utilized, then the same
should not take colour of the main service, just because it is used as input service for
providing the main service.
Change in provision relating to valuation of service tax by including
a) Reimbursement of expenses and b) Commission / Discount on sale of lottery ticket in
ambit of service tax.
It is proposed to insert sub section (1B) under Section 73, to provide for recovery of service
tax amount self assessed and declared in the return but not paid shall be made under section
87, without serving any notice.
Provision relating to penalty of maximum of 25% of the tax amount, which is presently
applicable, if true and complete details of transactions were available, is proposed to be
deleted. Hence now the assessee will not get benefit of only 25% penalty.
It is proposed to delete the beneficial provision provided in Section 80, for waiver of penalty
where there was reasonable cause for failure to the service tax.

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73
Amendment in provisions relating to penalty for failure to pay service tax
Presently maximum penalty of 50% can be levied in case of failure to pay tax, which does not
involve fraud, collusion or willful misconduct or suppression of facts.
It is proposed to amend these provisions to rationalize penalty in such cases in following
manner
a) The maximum amount of penalty would be 10 percent of service tax liability.
b) No penalty will be imposed if service tax and interest is paid within 30 days of service of
Show Cause Notice.
c) A reduced penalty of 25 percent of the penalty imposed by the officer if the assesse pays
the service tax along with interest and reduced penalty is paid within thirty days of issuance
of Order.
d) If the service tax amount gets modified in the appellate proceedings then the penalty shall
accordingly be modified. This benefit of reduced penalty will be available if the service tax,
interest and reduced penalty is paid within thirty days of such appellate order.

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Amendments in provisions of penalty for suppressing value of taxable services
Section 78 is being amended to rationalize penalty, in cases involving fraud or collusion or
wilful mis-statement of suppression of facts or contravention of any provision of the Act or
rules with the intent to evade payment of Service Tax, in the following manner,-
a) Penalty shall be hundred per cent of Service Tax amount involved in such cases.
b) A reduced penalty equal to 15% of the Service Tax amount is to be paid if Service Tax,
interest and reduced penalty is paid within 30 days of service of notice in this regard.
c) A reduced penalty equal to 25% of the Service Tax amount, determined by the Central
Excise officer by an order, is to be paid if the Service Tax, interest and reduced penalty is paid
within 30 days of such order.
d) If the Service Tax amount gets reduced in any appellate proceeding, then the penalty
amount shall also stand modified accordingly, and benefit of reduced penalty (25%) shall be
admissible if Service Tax, interest and reduced penalty is paid within 30 days of such appellate
order.

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75Service Tax Proposals
A) Exemption for services provided to Government, Local/Governmental authority restricted for
specified structures reduced the exemption with effect from 1 April 2015 to a selective original
work structures as prescribed.
B) Exemption of services of construction, erection, commissioning or installation of original works
pertaining to an airport/port withdrawn.
C) Exemption of services by an artist in folk, classical art form of music, dance or theatre limited
only to cases where amount charged is up to Rs. 1,00,000 per performance.
D) Exemption for transportation service of food stuff by rail/vessels/road limited to milk, salt, food
grains including rice, pulses and flour.
E) Exemption of services provided by a Mutual fund agent and distributor to a Mutual Fund
(‘MF’)/Asset Management Company (‘AMC’) withdrawn .
F) Exemption of services by a selling or marketing agent of a lottery ticket to a distributor
withdrawn .
G) Exemption to service of departmentally run public telephone, guaranteed public operating
only local calls and service of making telephone calls from free telephone at airport and hospital
when no bill is issued stands withdrawn .
H) Rescinding of existing service tax exemption for services provided by a commission agent
located outside India to an exporter in India with immediate effect .
Significant trimming of exemptions

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Though many services removed from negative list, mega exemption notification is widened to
include following services as exempt service.
A) Any service provided by way of transportation of a patient to and from a clinical establishment
by a clinical establishment was exempt.
B) Life insurance services provided by way of Varishtha Pension Bima Yojna .
C) Services provided by a Common Effluent Treatment Plant Operator for treatment of effluents.
D) Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of
fruits and vegetables which do not change or alter the essential characteristics of the fruit and
vegetables .
E) Services provided by way of admission to a museum, zoo, national park, wild life sanctuary and
a tiger reserve .
F) Services provided by way of exhibition of movie by the exhibitor/theatre owner to the
distributor .
G) Enlarging the exemption for road transport services provided for export goods .
H) Goods transport agency services provided for transport of export goods by road from the place
of removal to an inland container depot, a container freight station, a port or airport was exempt
from service tax. Scope of this exemption is widened to exempt such services when provided for
transport of export goods by road from place of removal/ inland container depot/ container
depot to a land customs station .
Scope of mega exemption notification widened

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A) A uniform abatement rate of 70 percent for transport by rail, road and vessels services. This
abatement is now available only when CREDIT CREDIT is not availed on inputs, capital goods and
input services. Earlier, abatement on services of rail transport for goods and passengers could be
availed without any such CREDIT CREDIT availment condition.
B) At present, Service Tax is payable on 40% of the value of air transport of passenger for
economy as well as higher classes, e.g. business class. The abatement for classes other than
economy is being reduced and Service Tax would be payable on 60% of the value of such higher
classes.
C) New rates in Reverse Charge Mechanism as per table on next slide.
Modifications to Abatement and Reverse Charge Mechanism
Other compliance simplification amendments
A) Procedure for registration simplified . Service tax registration will be granted within 2 days of
filing of an online application for single premises. An appropriate Order No. 1/15-ST dated
28.02.2015 deals with this issue. Further, the requirement of filing physical documents has been
done away with effect from 1 March 2015.
B) Digitally signed invoices along with an option to maintain electronic records allowed . A new
rule has been inserted that gives an option to authenticate, by means of digital signature, any
invoice, bill or challan or consignment note.

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Sr No. Nature of service
Existing New
Payable by Payable by
Providor Receiver Providor Receiver
1
Manpower Supply & Security Service provided by
Induvual, HUF or Partnership Firm to Body Corporate
50% 50% Nil 100%
2
Services provided or agreed to be
- - Nil 100%provided by a mutual fund agent or distributor, to a
mutual fund or asset management company
3
Service provided or agreed to be
- - Nil 100%provided by a selling or marketing agent of lottery
tickets to a lottery distributor or selling agent
4
Services provided by a person involving and aggregator
In any manner - - Nil 100%

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Change in CREDIT CREDIT rules
Consequent to change in the effect rate of service tax from 12% to 14%, there
will be revision of the alternate rates provided, which will be as under
SrNo. Nature of Service Existing Rate Revise Rate
1 Booking of air ticket for domestic travel 0.60% 0.70%
2 Booking of air ticket for international travel 1.20% 1.40%
3 Insurance premium for 1st year 3.00% 3.50%
4 Insurance premium for subsequent years 1.50% 1.75%
5
Gross amount of currency exchange upto Rs.
1,00,000/-
0.12%, subject to minimum
Rs. 30/-
0.14%, subject to
minimum Rs. 35/-
6
Gross amount of currency exchange exceeding
Rs. 1,00,000/- and upto Rs. 10,00,000/-
120/- and 0.06% 140/- and 0.07%
7
Gross amount of currency exchange exceeding
Rs. 10,00,000/-
660/- and 0.012%, subject
to maximum of Rs. 6,000/-
770/- and 0.014%, subject
to maximum of Rs. 7,000/-
A) Rule 4(7) is being amended to allow CREDIT CREDIT of Service Tax paid under partial reverse
charge by the service receiver without linking it to the payment to the service provider.
B) The period for taking CREDIT CREDIT is being extended from six months from the date of
invoice to one year from the date of invoice.

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80Cenvat Credit Proposals
Change in CREDIT CREDIT rules
A) Rule 4(7) is being amended to allow CREDIT CREDIT of Service Tax paid under partial reverse
charge by the service receiver without linking it to the payment to the service provider.
B) The period for taking CREDIT CREDIT is being extended from six months from the date of
invoice to one year from the date of invoice.
C) Condition has been inserted that abatement for transport by rail, road and vessels serviceswill
now available only when CREDIT CREDIT is not availed on inputs, capital goods and input services

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Contact Us
Address
215,Sundervilla, 19,S.V.Road, Santacruz
(West), Mumbai-400054 India
Mobile
+91 9821458072
E-mail
kunal.gandhi@usgandhigroup.com
Website
www.usgandhigroup.com
Tel: +91-22-26601159/ 2259
Fax: +91-22-26600059

U.S. Gandhi Budget 2015 - 2016 Analysis

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U.S. Gandhi Budget 2015 - 2016 Analysis