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BUDGET SPECIAL

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1 B. K. Khare & Co.

INDIA’S UNION BUDGET

B. K. Khare & Co. Chartered Accountants

BUDGET ANALYSIS 2015

This publication is a service to our clients based on a quick appreciation of the budget proposals and must not be regarded as professional advice, authoritative opinion or the sole basis for your decisions. This publication does not constitute an offer or solicitation. For Private Circulation only.


B. K. Khare & Co. 2

3 B. K. Khare & Co.


CONTENTSPoem 4

Editorial 6

Union Budget 2015 10

India at cross roads 10

Biting the Bullet 11

Economic Survey 2015 – Highlights 14

Challenges Ahead 17

Key Features 18

Direct Tax 21

Indirect Taxes 47

Highlights 47

Customs 48

Tax Rate 48

Central Excise 51

Service Tax 55


B. K. Khare & Co. 4

Nani Palkhivala famously saidWhen the United States sneezesThe world catches pneumonia.

Now we can sayMore modestlyWith the growing strength of India’s economyThat when India sneezesThe world shiversAnd reaches for a sweater.

India and ChinaThe oldest civilizationsAre the newest kids on the Economic Block!

The Indian economy is heating upAnd there might be a supernova explosionWith GST and business friendly policiesMr Modi has vowed our business leadersImpressed home and abroad with his preciseRousing oratoryEliciting rousing applauseRather than stifled yawnsPlaying to packed galleriesFrom Madison Square to Melbourne.

In New York at the turn of the last centuryFortunes were made by Rockerfellers and the likeIn the period when America emerged as an economic superpowerAnd was forging its Swayambhu identityBuilding cities and infrastructure that createdThe New Guilded American Age.

But thereafter prosperity did spreadAnd for a whileThe American Middle Class was the envy of one and allThrough the 1950’s, 1960’s and 1970’s.

We hope that this will happen in India as wellAnd with the growth of fortunes of the 1 per centThe rest of the 99 per cent will benefit from the BoomAnd the economic wave will lift millionsOut of aeons of poverty.Happiness shared is happiness multiplied!

5 B. K. Khare & Co.


Meanwhile the able Mr Raghuram RajanFights against the Hydra of InflationGrowth too has its downsideLike anything else.

We are now the Boom and Bust generationBlase about the axiomThat wherever there is a BoomThere will be a BustNewton’s Third Law of Econometrics.

Science gives us the idea of scale and proportionAnd how certain quantities are conservedThings like Angular MomentumIf you draw your arms in when spinningYou spin faster and faster.

So one might askDoes the balance of smiles and tears always remain the same?Is the joke always at someone’s expense?We can hope against hopeThat Happiness and WealthRather than being conserved quantitiesWill subtly shift upwardsTowards greater and greaterAll round contentment in theEvolving Universe.

As Sant Dnyaneshwar foretold in his PasayadanWe live in an interconnected worldHe Vishwachee Mazhe Ghar“The world is my oyster”I pray for an Economic Boom timeWhich is inclusiveAnd Leaves No Citizen Behind.

St. Dnyaneshwar at the end of his writing ‘Dnyaneshwari’ he prayed for the whole human beingTo find Happiness for themselves without wishing anything for himself !In the same manner, we B.K. Khare & Co. wish our clients alround peace and indeed material prosperity ! Let me sign off by wishing all of youAcche DinJo Aane Wale TheAur Ab Aur Bhi Kareeb Aa Gaye.

— B. K. Khare


B. K. Khare & Co. 6

Dear Esteemed Reader,

The Finance Minister’s Budget has been universally hailed as a Budget for Business and Growth. It seems to have something for everybody although not much for the middle class. The Finance Minister honoured the true spirit of federalism by taking the unprecedented step of increasing the share of States in the divisible pool of taxes to 42% (` 5.24 lakh crore in 2015-16). This has undoubtedly squeezed the Centre’s resources considerably. But as indicated by him that would not deter him from adhering to the challenging fiscal deficit target of 4.1% of GDP and committing to achieve the medium term target of 3% of GDP in the next three years.

Infrastructure which is the crying need of the hour could be a roadblock in the growth story. This has been an area of focus of the present Government and has received attention in this Budget. We certainly hope to see more action in the times to come. There is an additional earmarking of ` 70,000 crores from the Centre’s Funds; capital expenditure of the public sector units is expected to increase by ` 80,844 crores. The Finance Minister has also announced his intention of setting up a National Investment and Infrastructure Fund to which an annual flow of ` 20,000 crores is promised.

The most noticed announcement in the pro business measures of the Budget 2015 is of course the commitment to reduce Corporate tax to 25% from the present rate of 30% over the next four years. This conforms to the international benchmark and should in its own way make corporate India more globally competitive. During the 35 years that our firm has been commenting on Budget

proposals, this is the first time that such a commitment for the future has been made (although Mr. V. P. Singh in his own way also committed the Government to a more predictable tax regime). This reduction in rate, we are informed, will also be accompanied by a phasing out over the same period of various incentives and tax holidays that are currently available to companies. As a class of tax payers they effectively pay tax at 23% and therefore the proposed rate of 25% will not translate into a revenue loss. This then raises the question whether the proposed reduction is an optical illusion? Is it really a relief? In fact for the ensuing financial year 2015-16, a surcharge of 2% (discussed later) is proposed to be levied which will increase the tax rate for domestic companies to 34.61% It is of course a step in the right direction in terms of simple, predictable and certain tax regime, since the various incentives had led to a plethora of litigation, constituting a large part of tax litigation. Reduction in such litigation would reduce the burden of the Courts and hopefully lead to speedier justice for all.

There are a few incentives in the tax proposals for furthering the ‘Make in India’ mantra in the form of additional depreciation for capital expenditure in the form of plant and machinery and investment allowance for new units in backward areas of Andhra Pradesh and Telangana. Section 6 has been amended for defining residence of a company which is not an Indian company to provide that if the effective control and management of the company is at any time of the year in India then it would in some circumstances be resident in India. Although this is in keeping with OECD guidelines and DTAs and is ostensibly to take care of

7 B. K. Khare & Co.


shell companies, such a step would widen the test of residence. Again by including ownership etc. in right of management or control through an associated enterprise as defined in Section 92A, the net is cast very wide and would attract the provisions of Explanation 5 to Section 9(1)(i). Both these amendments would in our view receive negative attention from MNCs seeking to do business in India and once again obstruct the ‘ease of doing business’ in the country. Special tax regime for Alternative Investment Funds has been introduced to cover trust, company, limited liability partnership or any other body corporate and they have been provided pass through status. The said proposed amendments have been brought in to boost the infrastructure and improve the investment climate in the country. The requirement of tax withholding @ 10% from distribution of non-business income by such funds however appears harsh as refunds of tax in the hands of unit holders are not easy to get.

On the indirect tax front one of the most eagerly awaited rationalization measure of introduction of GST did not see much light thrown except a re-assertion of the commitment to introduce GST from 1 April 2016. After revealing the broad contours of GST in the Constitution Amendment Bill (122nd Amendment) recently introduced in the Indian Parliament, it was widely anticipated, as a build up to the budget, that the draft GST legislation will be put in the public domain for comments and views of all the stakeholders. This was necessary, given that we have just about a year to prepare for the transition to the new GST regime. However to pave the way for GST the FM has raised tax rates in the current Budget – excise duty

to 12.5% (earlier 12.36%) and service tax to 14% (earlier 12.36%). The increase in tax rates on services is even more severe, given the impending 2% additional levy in the guise of ‘Swachh Bharat Cess’ in addition to the 2% increase in the rate of service tax. This is bound to make services more expensive for the end consumer. It is well known that GST will bring down compliance costs and significantly eliminate tax cascading; hence, higher tax rates may still not impact the lower cost of goods & services in the new regime. This however cannot be said of the present scheme of taxation where cross credits between central indirect taxes and state levies are not available.

Penal provisions have been liberalized under Customs, Excise & Service Tax laws to afford an opportunity to tax evaders who want to come clean by paying off the amount demanded alongwith interest.

On Job Creation, it was expected that the Small & Medium sector will get a boost by way of increase in threshold for payment of excise duty or service tax; however, there is no measure in this direction to encourage entrepreneurship. Turnover thresholds for small scale sector have been left untouched.

On Minimum Government and Maximum Governance, one expected the CENVAT credit regime and mechanism for SAD refunds and service tax refunds to be liberalized to an audit based regime (grant refund first and audit books subsequently) but again apart from increasing the expiry date for taking credit on invoices upto 1 year (earlier 6 months) and facilitating electronic registration within two working days in excise & service tax, not much action has been witnessed at the ground level.


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So far as maximising benefits to the economy is concerned, levy of service tax on lottery agents and chit fund operators is certainly a move in the right direction and so is the levy of tax on sin goods (higher excise on cigarettes and service tax on job work for alcoholic drinks) but increasing customs duty on imported commercial vehicles and metallurgical coke (an important input for the steel and engineering industry) is not a welcome step. And now even entry to entertainment events and amusement parks will bear a service tax in addition to entertainment tax.

Wealth Tax has been abolished and this is one further step taken by the present Government in keeping with its theme ‘Minimum Government and Maximum Governance’. Keeping in mind the practical considerations of revenue loss a surcharge of 2% is proposed to be imposed on high income tax payers (taxable income of over 1 crore). Going by the math which the Finance Minister himself mentioned, this has again become a source of revenue garnering; for against the revenue sacrifice of INR 1,000 crores, the Government hopes to get wealthier by collecting about INR 9,000 crores from the 2% additional surcharge. However, the draconian provisions sought to be introduced in a separate legislation to curb tax evasion and arrest the menace of Black Money is neither in keeping with minimum governance nor will it make the tax administration less adversarial. The provisions in the existing tax legislations and FEMA are sufficient for the purpose of achieving this objective. As an economist was heard commenting in the media, the tax payers’ experience today is that discretion is never used judiciously; thus, even an honest tax

payer would be alarmed by this measure. Tax administration continues to be the biggest challenge both to foreign investors and the Indian tax payer. Not much has been achieved in bringing in a tax payer friendly approach.

Finally there is clarity on the fate of the Direct Tax Code. It has now been officially announced as buried and the provisions of GAAR have also been deferred for another two years. The Finance Minister clarified that most of the provision of DTC have been incorporated in the existing legislation which is now well settled and well challenged.

The Finance Minister has introduced a ‘Gold Monetisation Scheme’, whereby depositors of gold with the Banks and other dealers, would be able to earn interest on their gold. The scheme would also allow jewelers to obtain loans on their gold, held as stock in trade. This scheme as its name suggests intends to monetise gold which is otherwise an idle asset. Sovereign Gold Bonds are also proposed to develop an alternate financial assets based on gold. Such bonds will carry fixed rate of interest. Buyers of such bonds would be getting bonds issued by the Government instead of physical gold. On maturity, bonds can be redeemed with equal value of gold and interest thereon.

Both the above schemes would help to reduce the demand of overseas gold and black money as well as help in building infrastructure out of money kept in the Sovereign Gold Bonds.

Certain key Financial Market Reforms were announced in the Budget for promoting investment in India; Setting up a Public Debt Management Agency (PDMA) to stream

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line government debt structure and enable deepening of the bond market; proposed merger of Forward Market Commission with SEBI to strengthen regulation of commodity forward markets and reduce wild speculation; and creation of Task Force to establish a sector-neutral Financial Redressal Agency that will address grievances against all financial service providers.

The present Government has already made visible progress and stands further committed to the cause of financial inclusion. The program to enable a bank account for each household under the Financial Inclusion Mission has turned out to be a significant achievement, with over 12.5 crore families brought into the financial mainstream. Establishment of the Micro Units Development Refinance Agency (MUDRA) Bank, proposal to utilize the vast Indian postal network for financial access, financing the trade receivables of MSMEs, launching the schemes to expand coverage of natural and accidental death risk and provision of pension to the needy are steps in the right direction in the current Budget. In view of the huge economic disparity between the various sections of society and the large

number of people below the poverty line it is incumbent on the Government to provide necessary support and not merely depend on the trickle-down effect of economic progress. The Finance Minister has quoted the Upanishads in the context of the Government’s commitment to the have nots which finds an echo in the poem penned by Mr. B. K. Khare quoting Saint Gyaneshwar, one of the greatest sages of Maharashtra.

Our detailed analysis of the Direct and Indirect tax proposals is preceded by an overview of the Indian Economy which we hope you will find interesting reading

We look forward to your response.

Sincerely,

Padmini Khare Kaicker

Managing Partner

B. K. Khare & Co.Chartered Accountants

Date: 1 March 2015


B. K. Khare & Co. 10

UnIon BUDgET 2015

1. IndIA At CRoss RoAds: demogRAPHIC dIvIdend oR nIgHtmARe?

India is today the world’s fourth largest economy1. This has been one of the most significant achievements of our times. Only fifty years ago, very much within the living memory of many people, the country was chronically and helplessly dependent upon import of food grains from the U.S. Today, despite the fast increasing population, it is a powerhouse of agriculture and a net exporter of food: life expectancy has doubled and literacy rates quadrupled. India will soon have the largest and youngest workforce the world has ever known. It is also witnessing one of the fastest waves of urbanization ever recorded in history. In the coming decade its workforce is slowly poised to increase from 58% to 68% of the population. As that of the rest of the developed world ages and slowly diminishes during the same time horizon, the burgeoning working population in India is capable of producing an unprecedented bonanza in terms of GDP growth. More and more young people, at the rate of nearly ten million per annum, would be entering the job market. If the economy can grow, create enough jobs for them under the “Make in India” program, and make sure that skilled young men and women take advantage of them, unprecedented creative and entrepreneurial energies will unleash. But, if the country fails to get its act together, new investments do not materialize, or youth are not skilled enough to take advantage of the new opportunities that arise, the

1 Measuring GDP by the method of purchasing power parity (PPP)

same demographic dividend will soon convert into an unmitigated demographic disaster, generating considerable social and political stress.

The country thus stands at crossroads with possibilities both of an unprecedented boon as well as a slide into an economic quagmire of unimaginable proportions. If there is any certainty, it is only of huge expectations: if unfulfilled, it would be a sordid tale of wasted potential. The recent elections in Delhi during the past year or so have shown how volatile and impatient people have become.

There is thus absolutely no option for the country except to expand its industrial and manufacturing base, so as to absorb the large annual influx of people into urban areas. The following facts will amply testify to the nature of the problem that we face:

table 1

sectoral Composition of gdP (%)

Year Agriculture Industry services

1950-51 59 13 28

2011-12 14 27 59

table 2

sectoral Composition of Labour Force Participation (%)

Year Agriculture Industry services

1950-51 72.1 10.7 17.2

2011-12 52 14 34

The two tables above clearly indicate that the economy has witnessed major structural changes since independence. When India became free or soon thereafter, agriculture accounted for a little more than half the output (GDP) that was produced; it however employed about three-fourths of the

11 B. K. Khare & Co.


country’s labour force; now, it employs 50% of the labour force but produces less than 14% of the nation’s output or GDP. This structural shift in the composition of the GDP has been accompanied by a movement towards urban areas. In 1951, 82.7% of the population lived in rural areas; by 2011, about 15% of this population had migrated to urban areas in search of new jobs. Today, 14% of the population, mostly engaged in industry in urban areas, produces 27% of the GDP and another 34% of the population involved in providing services, contributes 59% of the GDP. It is in fact the industrial or manufacturing sector that offers the maximum hope for absorbing the large expected increase in the work force, simply because the services sector cannot create employment to the same extent, even though the two sectors are quite complementary to each other.

The trends we have witnessed in India are very similar to what other advanced countries witnessed while they were still developing. Today barely 2% the population of the U.S. is engaged in agriculture; this is simply because unless farmers reap economies of scale, it is just not a profitable activity and can provide meaningful livelihoods to very few people; most people have thus to migrate to urban areas in manufacturing and service sectors of the economy for their survival.

Reforms in the nineteen nineties focused mostly on freeing product markets, and inevitably produced a boon. The next generation of reforms which we have been waiting for a long time now must focus on freeing the factor markets- namely, land, labour and capital- so that poor people can find livelihoods and with luck, in the words of Mao Zedong, a thousand flowers can bloom.

2. BItIng tHe BuLLet

It is in this context that the current state of the economy has to be appraised: the year started with the economy still in the throes of a slowdown, caused partly by a policy paralysis and partly by six years of double digit inflation and high interest rates. When the year began, industrial activity was stagnant and infrastructural growth in disarray. Earlier still, during the year 2013 the economy had suffered a mini balance of payment crisis, but was fortunately able to recover from that without much pain.

Three developments occurring during the current year have proved beneficial medicine for nursing the economy back to health: first, the fall in oil and other commodity prices in the international market helped stabilize both the fiscal and current account deficits as well the rate of headline inflation in the economy. High rate of food inflation, in certain parts of the country, however, still remains a matter of concern, but this did not prevent the RBI from reducing the repo rate, thus signalling an easy monetary policy.

Second, the decisive mandate given to the new Government in the recent national elections and the political stability that followed fulfilled an important desire of many well-wishers of the country. The new Government was slow in its efforts to introduce economic reforms, but was quick in energizing the civil service, cutting red tape and introducing administrative reforms.

As a consequence, (and this is the third major trend to emerge), slow optimism began to replace the pessimism that had grounded the economy during the latter half of the UPA-II regime. Sentiment improved although it has still to result in actual hard investment on



the ground. With an overall expected growth rate of 5.3%, the economy out-performed not only the emerging economies of India’s class, but other economies of the world as well. As Japan continues to stagnate, China slows down, Europe struggles with legacy problems, and the U.S. slowly recovers from a recession, India, with an expected growth rate of 5.3%, continued to be one beacon of hope in the world. Even so, in January this year the Government revised the method of computing GDP from factor cost to market price- supposedly to conform to international norms. As a result, we were informed that the economy had grown by 6.9% in 2013-14, a year of severe policy paralysis and economic slowdown! Currently, when agriculture has suffered because of a bad monsoon and industrial production is more or less stagnant, we are slated to be growing at 7.3% and have already overtaken the Chinese! The new rates just do not appear credible.

Even so, future growth is critically dependent upon the Government’s willingness and ability to persist with the next generation of reforms that free up labour, capital and land markets. Can the Government accept this challenge?

If the Economic Survey 2015, is to be believed, it already has. The Government is now aiming for a growth rate of 8.1% to 8.5% in the year 2015-16 and about 10% in the medium term. Simultaneously, it introduced a slew of ordinances directed inter alia at making it easier to acquire land for projects, raising the ceiling for FDI in insurance from 26% to 49% etc. These ordinances, particularly the two indicated above, are being hotly contested both inside and outside Parliament. So far the Government has stayed the course. It

has signaled a similar intent with regard to maintaining fiscal discipline.

great expectations

To put things in perspective, the Government did start in right earnest, with a slew of initiatives, to fulfil the great expectations that had been placed upon it. Some of the key initiatives it took were:

YY Swachh Bharat Abhiyan aiming to ensure provision of clean defecation facilities to all;

YY ‘Make in India’ to promote and encourage domestic manufacturing sector;

YY Deen Dayal Upadhyaya Grameen Kaushal Yojana and Deen Dayal Upadhyaya Antyodaya Yojana towards skill development especially amongst the youth;

YY National Policy for Skill Development and Entrepreneurship” to align skilling initiatives with global standards;

YY Liberalization of FDI policy for real estate sector, enhancing the corpus of the National Housing Bank and increasing the income-tax incentives for housing loans, all these towards fulfilling the mission titled “Housing for All”;

YY National Optical Fibre Network aiming to transform India into a digitally empowered society and knowledge economy;

YY Deendayal Upadhyaya Gram Jyoti Yojana to improve rural electrification;

YY Beti Bachao, Beti Padhao Abhiyaan to change mindsets to celebrate the girl child;

YY Apprentice Protsahan Yojana to promote apprentices in MSMEs;

YY Pradhan Mantri Jan Dhan Yojana for greater financial inclusion;



YY NITI Aayog to foster cooperative federalism;

YY Namami Gange for River Ganga conservation;

YY Diamond Quadrilateral Project of high speed trains connecting the 4 metros

Note: Some of the schemes mentioned above are rechristened avatars of earlier schemes and in some cases, initiatives have now been taken up for pan-India implementation.

Since assuming office in May 2014, the new Government has undertaken a number of new reform measures whose cumulative impact could be substantial. These include:

YY Deregulating diesel prices, paving the way for new investments in this sector;

YY Raising gas prices from US$ 4.2 per million British thermal unit to US$ 5.6, and linking pricing, transparently and automatically, to international prices so as to provide incentives for greater gas supply and thereby relieving the power sector bottlenecks;

YY Taxing energy products by taking advantage of declining oil prices, resulting in additional tax collections;

YY Replacing the cooking gas subsidy by direct transfers on a national scale;

YY Instituting the Expenditure Management Commission, which has submitted its interim report for rationalizing expenditures;

YY Passing an ordinance to reform the coal sector via auctions;

YY Securing the political agreement on the goods and services tax (GST) that will allow legislative passage of the constitutional amendment bill;

YY Instituting a major program for financial inclusion—the Pradhan Mantri Jan Dhan Yojana;

YY Continuing the push to extending coverage under the Aadhaar program, targeting enrollment for 1 billion Indians;

YY Increasing FDI caps in defence;

YY Eliminating the quantitative restrictions on gold;

YY Passing an ordinance to make land acquisition less onerous, thereby easing the cost of doing business, while ensuring that farmers get fair compensation;

YY Facilitating Presidential assent for labour reforms in Rajasthan, setting an example for further reform initiatives by the states; and consolidating and making transparent a number of labour laws;

YY Passing an ordinance increasing the FDI cap in insurance to 49%;

YY Disinvestment of 10% of the government’s stake in Coal India; and

YY Passing the Mines and Minerals (Development and Regulation) (MMDR) Amendment Ordinance, 2015 to revive the hitherto stagnant mining sector in the country and usher in greater transparency and boost revenues for the States.

Overall, the Government made the right noises and sent out right signals to create trust and a business-friendly atmosphere inter-alia by not pursuing appeals in some high profile tax cases, trying to make it easy to do business in India and reforming labour laws. To indicate political intent, it even took the controversial ordinance route for some key reforms such as land acquisition and FDI in insurance. To be sure, it wanted to shed past baggage in order to reposition India on an 8-10% growth path.



emerging “green shoots”

According to a recent poll by FICCI, measures announced by the Government over the past seven-eight months revealed a positive impact on the sentiment of the business community. To the Government’s credit, it has not played to the galleries by rushing in ill-thought measures or resorting to ad-hocism. The successful coal and spectrum auctions are a case in point. Given the weight of the colossal expectations, it was easy for the Government to cave in to such temptations to demonstrate quick results. As the Economic Survey puts it, what was required was “a persistent, encompassing, and creative incrementalism”. The potential impact of the reform initiatives of this Government will in on all likelihood yield results only over time. The Government is correctly focusing on strengthening fundamentals and is resolved to calibrate and walk the difficult path of fiscal consolidation.

It has also yet to figure out a way of getting its legislative and reformist agenda passed through the Rajya Sabha where it does not enjoy a majority. And this may very well turn out to be its Achilles heel.

3 eConomIC suRveY 2015 - HIgHLIgHts

The Economic Survey suggests that India has reached a ‘sweet spot’ in its economic history; as a consequence it may now finally launch itself on a sustained double-digit growth trajectory. The economic consequences of such a development are enormous. A growth trajectory of that order will in time “lift all boats” and allow millions to escape from a life of poverty.

eConomIC gRoWtH

As highlighted in the table below, the economy has registered an impressive 6.9% growth in FY 2013-14 as compared to the previous estimate of 4.7%. In FY 2014-15 the economy is expected to grow by 7.4%. This may increase to a very healthy 8.5% from FY 2015-16 onwards.

FY gdP growth in % (At Factor Cost, Base Year 2011-12)

2012-13 5.1

2013-14 6.9

2014-15 7.4

2015-16 (PROJECTED) 8.5

A word of caution would be in order though. The numbers above are computed on the basis of the revised estimates of national income published by the Central Statistical Office, by shifting the base year from 2011-12 to 2004-05. Ironically, this revision reveals that the revival of growth actually started in 2013-14 and further strengthened in 2014-15, an analysis which does not appear to square up with ground realities.

The steep decline in oil prices and buoyant domestic demand, points out the Survey, helped in the recovery posted during 2014-15 when the economy witnessed an increase of 7.3% in exports and a decline of 8.4% in imports. Not surprisingly, there was a vast improvement in the current account deficit.

Subdued economic conditions globally, notably Europe, Japan and China, coupled with some of India’s own structural woes (viz., poor agricultural growth due to failure of monsoons, inadequate infrastructure and inadequate growth in employment opportunities, etc.) could possibly dampen the India growth story.



However, the survey is optimistic of a strong domestic demand to keep the growth momentum going.

seCtoRAL ContRIButIon

The sector-wise contribution to the GVA pie as also to the total employment in 2014-15 is depicted in the chart below:

Fig A reveals that the services sector continues to dominate the overall economic scene with a 53% share, in line with India’s transition to a service economy. Industry came second with 30% and agriculture contributed about 17% to the gross value added in the economy.

It may be noteworthy to add here that the industrial and agriculture sectors have posted a reduction in growth in 2014-15 as compared to 2013-14.

Fig B makes for even more interesting reading. In spite of contributing the least to the economy, agriculture occupies the prime position in employment: it employs about 49% of the workforce. Industry (24%) and the service (27%) sectors contribute, more or less equal shares, to the employment market. The skewed sectoral contributions to the GVA vis-à-vis their shares in providing employment starkly highlights the pressing need to skill the workforce, bring people into the industry and services sectors and thus, rectify this imbalance which has serious repercussions on the economy as a whole (urban migration on infrastructure, farm loans, etc.)

seCtoRAL gRoWtH

The sector-wise growth has been compared in the table below:

sector 2012-13 2013-14 2014-15

Agriculture, forestry & fishing 1.2 3.7 1.1

Industry 2.3 4.5 5.9

Mining & quarrying -0.2 5.4 2.3

Manufacturing 6.2 5.3 6.8

Electricity, gas, water supply & other utility services 4.0 4.8 9.6

Construction -4.3 2.5 4.5

services 8.0 9.1 10.6

Trade, hotels & restaurants, transport & communication 9.6 11.1 8.4

Financing, insurance, real estate & business services 8.8 7.9 13.7

Community, social & personal services 4.7 7.9 9.0

gvA at basic prices 4.9 6.6 7.5

Agriculture sectorThe contribution of various sub-sectors to agriculture (GVA at current prices) are as follows:

sub-sector share in %

Crops 11.8

Livestock 3.9

Forestry & logging 1.4

Fishing 0.9

The Survey has noted certain challenges and indicated the policy recommendations, notable ones are as follows:YY The need of agriculture and food

sectors for huge investments in research, education, irrigation, fertilizers, laboratories, warehousing and cold storage;



YY Poor yields in different crops as compared to the better ones across the world;

YY Creation of national common market for agricultural commodities;

YY Strengthening of Forward Markets Commission.

Overall, the Survey estimates sustainable future agricultural growth at about 4% per annum.

Industry sectorThe Prime Minister has made the revival of Indian manufacturing a top priority as reflected in the ‘Make in India’ campaign. The Survey highlights that only registered or formal manufacturing has the capacity to emerge as a transformational sector in terms of productivity and rapid growth. Accordingly, it has identified this sector apart from financial services, insurance and real estate services as requiring significant skill profile improvements to match underlying endowments.

If the Economic Survey truly reflects Government’s thinking, it could perhaps be inferred that the Government will not hesitate to adopt ‘protectionist’ responses (shielding domestic manufacturing from foreign competition via tariffs and local content requirements) to boost domestic industrial growth.

services sectorThe YoY growth in the services sector (as a % to GDP growth) has been depicted in the table below:

FY % to gdP

2012-13 8

2013-14 9.1

2014-15 10.6

It thus becomes evident that it was the services sector which provided the basic impetus for the growth during 2013-14. Trade and repair services, rail transport, communication and broadcasting services achieved close to double digit growth in 2013-14. Growth in financial, real estate and

professional services increased from 7.9% to 13.7% and public administration, defence and other services from 7.9% to 9.0% (yoy).

otHeR KeY mACRo eConomIC IndICAtoRs

Fiscal deficitThe fiscal deficit as a percentage of the GDP over the past few years has been tabulated in the table below:

% of gdP

2011-12 5.7

2012-13 4.8

2013-14 4.5

2014-15 4.1

2015-16 3.9

The budget documents reveal that the Government stood by its commitment of bringing down the fiscal deficit target for 2014-15 to 4.1% of GDP. However, the deadline to reduce it to 3% of GDP by 2016-17 has now been pushed back by another year.

InFLAtIon

Both the measures of inflation viz., the headline inflation measured in terms of Wholesale Price Index (WPI) and the Retail inflation as measured by the Consumer Price Index (CPI), have continued to show a downward trend.

2011-12 2012-13 2013-14 2014-15

W h o l e s a l e Price Index 8.9 7.4 6.0 3.4

C o n s u m e r Price Index 8.4 10.4 9.7 6.2

As fuel has larger weight in the WPI, the decline in oil prices led to sharper reduction in the WPI as compared to the CPI. The Finance Minister has indicated in the budget that the Government will maintain CPI inflation at around 5% in the immediate future.



eXteRnAL seCtoR

The key macro-economic indicators in the external sector are compiled in the table below:

Indicator 2011-12 2012-13 2013-14 2014-15

Export Growth % 21.8 -1.8 4.7 4.0

Import Growth % 32.3 0.3 -8.3 3.6

Forex Reserves USD Billion 294.4 292 304.2 328.7

Net FDI USD Billion 22.06 19.82 21.56 16.18

Overall the the current account now stands at 1.3 % of the GDP, thanks mostly to the reduction in international price of oil.

tAX CoLLeCtIons

The detailed break-up of the gross tax revenue (GTR) is provided in the table below:

(` In crores)

tax Head 2013-14 2014-15 2015-16

(1) Direct Taxes

a) On Income & Expenditure

Corporate Income-tax 394,678 426,079 470,628

Income-tax (other than corporate income-tax) 237,817 272,607 320,836

Hotel Receipts tax 1 – –

Interest tax 8 – –

FBT 5 – –

Others 9 – –

b) On Property and Capital transactions

Estate duty 0 – –

Wealth tax 1,007 950 –

Gift tax 1 – –

STT 5,018 5,992 6,531

BCTT 0 – –

total direct taxes (a+b) 638,543 705,628 797,995

(2) Indirect Taxes

Customs 172,085 188,713 208,336

Excise duties 169,455 184,731 229,054

Service tax 154,779 168,132 209,774

Others 1,004 975 1,005

Taxes collected by Union Territories without legislature

3,130 3,438 3,577

total Indirect taxes 500,453 545,988 651,746

gross tax Revenue (gtR) (1+2) 1,138,995 1,251,616 1,449,741

% of direct taxes to gtR 56% 56% 55%

% of indirect taxes to gtR 44% 44% 45%

The proportion of direct taxes and indirect taxes to the GTR over the past few years has remained more or less constant but the current statistics do now reflect much greater reliance by the Central Government on direct as opposed to indirect taxes for meeting the country’s revenue needs. This is in sharp contrast to the position that prevailed in the past.

4 CHALLenges AHeAd

The Finance Minister has listed five major challenges in the Union Budget, viz. stress on agricultural incomes; the need for increasing investment in infrastructure; decline in manufacturing witnessed in the recent past; the emerging resource crunch, as higher tax revenues devolve on states; and finally the urgent requirement of maintaining fiscal discipline. In order to meet these challenges, the public sector needs to step in to catalyze investment.

Arvind Panagriya observed recently that “green shoots” of recovery were emerging in the Indian economy. These shoots, however, need, to be carefully and artfully nurtured, and be provided with the right environment to grow; otherwise they will disappear.

On the whole, the Union Budget 2015, is a step in the right direction even though it travels “on a road less taken”. The policy makers need to realize that ultimately the key to the success of various proposals will lie in effective implementation. We have had good budgets in the past as well, but they failed to leave a mark because policy was poorly implemented. It is thus very important therefore that those called upon to deliver should not lose focus.



Key Features of Budget 2015-2016 presented on 28 February 2015

1 KeY ACHIevements

Credibility of Indian economy has been re-established in the last nine months.

After inheriting an economy with sentiments of “doom and gloom” with adverse macroeconomic indicators, nine months have seen at turn around, making India fastest growing large economy in the World with a real GDP growth expected to be 7.4% (New Series).

Three key achievements: 1) Financial Inclusion - 12.5 crores families financially mainstreamed in 100 days; 2) Transparent Coal Block auctions to augment resources of the States & 3) Swachh Bharat Abhiyaan to improve hygiene and cleanliness.

2 stAte oF tHe eConomYCPI inflation projected at 5% by the end of the year, consequently, easing of monetary policy.

GDP growth in 2015-16, projected to be between 8 to 8.5%.

The fiscal deficit targets are 3.9%, 3.5% and 3.0% in FY 2015-16, 2016-17 & 2017-18 respectively.

3 mAJoR CHALLenges AHeAd Five major challenges: Agricultural income under stress, increasing investment in infrastructure, decline in manufacturing, resource crunch in view of higher devolution in taxes to states, maintaining fiscal discipline.

4 KeY HIgHLIgHtsDirect Transfer of Benefits to be extended further with a view to increase the number of beneficiaries from 1 crore to 10.3 crore.

Target of ` 8.5 lakh crore of agricultural credit during the year 2015-16.

Government to work with the States, in NITI, for the creation of a Unified National Agriculture Market.

Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of ` 20,000 crores, and credit guarantee corpus of ` 3,000 crores to be created.

A Trade Receivables discounting System (TReDS) which will be an electronic platform for facilitating financing of trade receivables of MSMEs to be established.

Comprehensive Bankruptcy Code of global standards to be brought in fiscal 2015-16 towards ease of doing business.

Postal network with 1,54,000 points of presence spread across villages to be used for increasing access of the people to the formal financial system.

Pradhan Mantri Suraksha Bima Yojna to cover accidental death risk of ` 2 Lakh for a premium of just ` 12 per year.

Atal Pension Yojana to provide a defined pension, depending on the contribution and the period of contribution. Government to contribute 50% of the beneficiaries’ premium limited to ` 1,000 each year, for five years, in the new accounts opened before 31 December 2015.

Pradhan Mantri Jeevan Jyoti Bima Yojana to cover both natural and accidental death risk of ` 2 lakh at premium of ` 330 per year for the age group of 18-50.

National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of ` 20,000 crores to it.

Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors.

(SETU) Self-Employment and Talent Utilization) to be established as Techno-financial, incubation and facilitation program to support all aspects of start-up business.



An expert committee to examine the possibility and prepare a draft legislation where the need for multiple prior permission can be replaced by a pre-existing regulatory mechanism.

5 new Ultra Mega Power Projects, each of 4000 MW, in the Plug-and-Play mode.

Public Debt Management Agency (PDMA) bringing both external and domestic borrowings under one roof to be set up this year.

Forward Markets commission to be merged with SEBI.

Section 6 of FEMA to be amended through Finance Bill to provide control on capital flows as equity will be exercised by Government in consultation with RBI.

India Financial Code to be introduced soon in Parliament for consideration

Gold monetisation scheme to allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account to be introduced.

Foreign investments in Alternate Investment Funds to be allowed.

Distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments to be done away with. Replacement with composite caps.

Visas on arrival to be increased to 150 countries in stages.

Proposal to introduce a public Contracts (resolution of disputes) Bill to streamline the institutional arrangements for resolution of such disputes.

An autonomous Bank Board Bureau to be set up to improve the governance of public sector bank.

The first phase of GIFT to become a reality very soon. Appropriate regulations to be issued in March.

direct tax Proposals

No change in rate of personal income tax.

Proposal to reduce corporate tax from 30% to 25% over the next four years, starting from next financial year.

Bill for a comprehensive new law to deal with black money parked abroad to be introduced in the current session.

Benami Transactions (Prohibition) Bill to curb domestic black money to be introduced in the current session of Parliament.

Tax “pass through” to be allowed to both category I and category II alternative investment funds.

Permanent Establishment (PE) norm to be modified to encourage fund managers to relocate to India.

General Anti Avoidance Rule (GAAR) to be deferred by two years.

Additional investment allowance (@ 15%) and additional depreciation (@35%) to new manufacturing units set up during the period 01 April 2015 to 31 March 2020 in notified backward areas of Andhra Pradesh and Telangana.

Rate of Income-tax on royalty and fees for technical services reduced from 25% to 10% to facilitate technology inflow.

Benefit of deduction for employment of new regular workmen to all business entities and eligibility threshold reduced.

Monetary limit for a case to be heard by a single member bench of ITAT increase from ` 5 lakh to ` 15 lakh.

Wealth-tax replaced with additional surcharge of 2 per cent on super rich with a taxable income of over ` 1 crore annually.

Applicability of indirect transfer provisions to dividends paid by foreign companies to their shareholders to be addressed through a clarificatory circular.



Domestic transfer pricing threshold limit increased from ` 5 crore to ` 20 crore.

MAT rationalised for FIIs and members of an AOP.

Limit of deduction of health insurance premium increased from ` 15,000 to ` 25,000, for senior citizens limit increased from ` 20,000 to ` 30,000.

Senior citizens above the age of 80 years, who are not covered by health insurance, to be allowed deduction of ` 30,000 towards medical expenditures.

To mitigate the problem being faced by many genuine charitable institutions, it is proposed to modify the ceiling on receipts from activities in the nature of trade, commerce or business to 20% of the total receipts from the existing ceiling of ` 25 lakh.

Direct Tax Code not being pursued.

Indirect tax Proposals

Basic Custom duty on certain inputs, raw materials, inter mediates and components in 22 items, reduced to minimise the impact of duty inversion.

All goods, except populated printed circuit boards for use in manufacture of ITA bound items, exempted from SAD.

Time limit for taking CENVAT credit on inputs and input services increased from 6 months to 1 year.

Service-tax plus education cesses increased from 12.36% to 14% to facilitate transition to GST.

Education cess and the Secondary and Higher education cess to be subsumed in Central Excise Duty.



DIRECT TAX

INCOME TAXThe Clauses in the Finance Bill, 2015 (the Bill, for short) in so far as they relate to direct taxes, when enacted, will operate prospectively and from AY 2016-17 onwards. Where the intention is otherwise, there will be a specific mention of the fact. The readers will notice that when we make our comments on the diverse clauses of the Bill we have indicated the material clauses in bracket.

Amendment to Tax RateFor Individuals, Hindu Undivided Families, Association of Persons and Body of Individuals.

Existing Proposed

Income (`) Rate (%)

(1)(3)

Income (`) Rate (%) (1)(4)

0 – 2,50,000(2) Nil 0 – 2,50,000(2) Nil

2,50,001 – 5,00,000 10 2,50,001 – 5,00,000 10

5,00,001 – 10,00,000 20 5,00,001 – 10,00,000 20

10,00,001 and above 30 10,00,001 and above 30

(1) Education cess of 3% is leviable on the amount of income-tax.

(2) The basic exemption limit is ` 2,50,000 in case of every individual below the age of 60 years, ` 3,00,000 in case of resident individuals of the age of 60 years or more and ` 5,00,000 for “Very Senior Citizen” in case of resident individuals of age 80 years and above. Surcharge at the rate of 10% of such income tax in case of a person having a total income exceeding ` 1 crore.

(3) Surcharge at the rate of 10% of such income tax in case of a person having a total income exceeding ` 1 crore.

(4) Surcharge at the rate of 12% of such income tax in case of a person having a total income exceeding ` 1 crore.

For Others

Description Existing Rate (%)

Proposed Rate (%)

A) Domestic company

Regular tax 33.99(5) 34.608(6)

MAT 20.961 (of book profits)(7)

21.342 (of book profits)(8)

DDT 19.994 (9) 20.358(10)

Dividend Received from Foreign subsidiary company

19.994(11) 20.358(12)

B) Foreign company

Regular tax 43.26(13) 43.26(13)

C) Firm and LLP

Regular tax 33.99(14) 34.608(15)

Alternate Minimum Tax (AMT)

20.961(16) 21.342(17)

(5) Inclusive of surcharge of 10% and education cess of 3%. Where the total income is between ` 1 crore and ` 10 crore, then tax rate is 32.445% (inclusive of surcharge of 5% and education cess of 3%). Where the total income is equal to or less than ` 1 crore, then tax rate is 30.90% (inclusive of education cess only).






(9) Inclusive of surcharge of 10% and education cess of 3%. Amount of distribution of dividend to shareholders to be grossed up for the purpose of DDT.

(10) Inclusive of surcharge of 12% and education cess of 3%. Amount of distribution of dividend to shareholders to be grossed up for the purpose of DDT.



(13) Inclusive of surcharge of 5% and education cess of 3%. Where the total income is between ̀ 1 crore and ̀ 10 crore, then tax rate is 42.024% (inclusive of surcharge of 2% and education cess of 3%). Where the total income is equal to or less than ` 1 crore, then tax rate is 41.20% (inclusive of education cess only).

(14) Inclusive of surcharge of 10% and education cess of 3%. Where the

total income is equal to or less than ` 1 crore, then tax rate is 30.90% (inclusive of education cess only).

(15) Inclusive of surcharge of 12% and education cess of 3%. Where the total income is equal to or less than ` 1 crore, then tax rate is 30.90% (inclusive of education cess only).



Deferment of provisions relating to General Anti Avoidance Rule (GAAR) – Section 95

The existing provisions of GAAR are contained in Chapter X-A (Sections 95 to 102) and Section 144BA of the Income Tax Act, 1961 (IT Act). Chapter X-A provides the substantive provision of GAAR whereas Section 144 BA provide for the procedures to be under-taken for invoking GAAR and passing an assessment order invoking such provisions.

Concerns had been expressed regarding certain aspects of GAAR. India is an active participant of Base Erosion and Profit Shifting (BEPS) project of the Organisation for Economic Cooperation and Development (OECD) and the report on aspects of BEPS and measures to counter it is awaited.



In the light of the said circumstances the implementation of GAAR has been deferred by two years and made applicable to income of the FY 2017-18 (AY 2018-19), as a measure to promote domestic industry and improve investment climate.

The amendment is proposed to effective from 1 April 2015.

[Clause 25]

Abolition of Wealth Tax

Currently wealth tax is levied on Individual, HUF or Company if net wealth of the person exceeds ` 30 lakhs on the last date of the previous year. Only few specified assets are taken into account for the purpose of computing net wealth.

The collection of wealth tax has not shown any buoyancy and has cast a disproportionately high compliance burden on the assessee and administrative burden on the department.

It is therefore proposed to abolish levy of wealth tax with effect from 1 April 2016 (AY 2016-17) onwards and an enhanced surcharge is proposed on taxpayers earning higher income. The details of levy of enhanced surcharge are given under rates of taxes.

[Clause 79]

Special Tax regime for Category I and Category II Alternative Investment Funds – Sections 115U and 115UA

Existing Section 10(23FB) of the Income Tax Act exempts from taxation any income of a Venture Capital Company (VCC) or a Venture Capital Fund (VCF) from investments in a Venture Capital Undertaking (VCU).

Section 115U of the Act provides that income accruing or arising to or received by a person out of investment made in a VCC or VCF shall be taxable in the same manner on a current year basis as if the person had made a direct investment in a VCU.

Theses sections provide a tax pass through (i.e. income is taxable in the hands of the investors instead of VCF/VCC) only to the funds, being set up as a company or trust, which are registered under SEBI Regulations as VCF before 21 May 2012 or Category I Alternative Investment Fund (AIF) regulated by SEBI (AIF) Regulations w.e.f. 21 May 2012.

Under the AIF Regulations various types of AIFs have been classified under three categories I, II and III AIFs. These AIFs can be set up as a trust, company limited liability partnership or any other body corporate. Category I AIFs invest in start up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or in areas which the Government or Regulators consider as socially or economically desirable. Category II AIFs are funds including Private Equity Funds or Debt Funds which do not fall in Category I and III AIFs and which do not undertake leverage or borrowings other than for meeting day to day operational requirements. Category III AIFs are funds which employ diverse or complex trading strategies and may employ leverage.

It is proposed to provide a special tax regime to rationalise the taxation of Category I and II AIFs.

The salient features of tax regime are:

i. Income of the unit holder of investment fund shall be chargeable to tax in the same manner as if it were income accruing or arising had the investment been made directly by him.

ii. Income in the hands of investment fund other than profits and gains of business shall be exempt from tax. Income of the investment fund in the nature of Profits and gains shall be taxable in its hands.

iii. Income of the same nature as Profits and gains at the Investment Fund level



would be exempt in the hands of the investor.

iv. Any income other than income taxable at the Investment fund level and which is payable to a unit holder by an Investment fund shall attract tax deduction at source (TDS) at the rate of ten percent and the fund is obligated to deduct tax at source.

v. Income paid or credited by the Investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as if it had been received by or had accrued or arisen to the Investment fund.

vi. If there is a loss at the fund level which is either current or which has remained to be set off then the loss would be carried over at the fund level for set off against income of the succeeding year in accordance with the provisions of Chapter VI of Income Tax Act. The loss shall not allowed pass through to the investors.

vii. Provisions of Chapter XII-D (Dividend Distribution Tax) or Chapter XII-E (Tax on distributed income) shall not apply to income paid by an Investment fund to its unit holders.

viii. Income received by an Investment fund is to be exempt from TDS requirement. An appropriate notification under Section 197A(1F) is proposed to be issued subsequently for the said purpose.

ix. The Investment fund will be mandatorily required to file its return of income. The fund is required to provide the prescribed income tax authority and the investors the details of various components of its income.

x. The existing pass through regime is proposed to continue to apply to a

VCF/VCC registered under SEBI VCF Regulations 1996. Other VCFs viz. Categories I and II AIFs would be subject to the new pass through regime.

xi. In Section 115UA, reference to Clause (23 FCA) Section 10 is proposed to be inserted after reference to Clause (23FC) of Section 10.

[Clauses 30, 31 & 32]

Residence in India – Section 6

Section 6 lays down the conditions to be satisfied for a person to be treated as a ‘resident’ in India.

Explanation to Section 6(1), among others, defines the residential status of an Indian citizen, being a member of the crew of an Indian ship, who leaves India in any previous year.

It is now proposed to amend the section to also deal with the situation of an Indian citizen being a member of the crew of a foreign bound ship (as opposed to foreign bound Indian ship) leaving India.

It is proposed that in this case the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.

This amendment will take retrospective effect from 1 April 2015 and will apply to AY 2015-16 and subsequent years.

Section 6(3) deals with the residential status of a company.

At present, to be categorised as a ‘resident in India, one basic condition is that the company should be an Indian company. Alternatively, during that year the control and management of its affairs should be situated wholly in India.

Thus, if the control and management was shown to be either not wholly in India or not in India during the whole of the year,



residence could be shifted outside India thereby affecting the ambit of taxation of the income of such companies.

It is proposed that a company will be a resident in India if its place of effective management, at any time in that year, is in India.

“Place of effective management” is defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.

With this amendment provisions of the IT Act would be aligned with those of the DTAA entered into by India with other countries and would also be line with the principles recognised and accepted by OECD.

The aim of this amendment is stated to be to deal with cases of creation of shell companies incorporated outside India but effectively controlled from India. This amendment could have far reaching consequences.

[Clause 4]

Income deemed to accrue or arise in India – Section 9

Indirect Transfers This is one of amendments which has been categorised under ‘Ease of doing business/Dispute resolution’ and is stated to be based on the recommendations of the Expert Committee headed by Dr. Parthasarathi Shome.

The Finance Act, 2012 inserted Explanation 5 in Section 9(1)(i) which deals with income deemed to accrue or arise in India. The said explanation, inserted with retrospective effect from 1 April 1962, 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 value of share or interest is derived directly or indirectly substantially from the assets located in India.

The explanation was inserted with retrospective effect to overcome the decision in the case of Vodafone (341 ITR 1) wherein Honourable Supreme Court had held that transfer of shares of a foreign company which has an Indian Company as its subsidiary does not amount to transfer of any capital asset situated in India within meaning of fourth limb of Section 9(1)(i).

Subsequently the issue and applicability of said Explanation 5 came up for consideration before the Hon’ble Delhi High Court in the case of Copal Research Ltd., Mauritius 226 Taxman 226. The Delhi High Court referred to the substance of what the Explanation sought to achieve viz. charge of tax on the transfer of an asset where “in substance the assets in India are transacted by transacting in shares of overseas holding companies”. The Hon’ble Court expressed its view that a transfer of shares of foreign companies would not in substance be held to be a transfer of underlying Indian assets unless at least 50% of the value of such shares is derived from assets held in India. The Delhi High Court inter alia referred to the OECD Model Tax Convention on Income and on Capital to add a persuasive and not conclusive value and it was mentioned that the taxation rights in case of sale of shares are ceded to the country where the underlying assets are situated only if more than 50% of the value of such shares is derived from such property. The High Court also made a reference to the Shome Committee Report and the Direct Tax Code, 2010, wherein the term ‘substantially’ was considered to mean a threshold of 50% of the total value derived from assets of the entity. Based on the aforesaid reference, the Court concluded that the term ‘substantially’ has been used to define the threshold of attracting indirect transfer provisions and the term was synonymous to ‘principally’, ‘mainly’ or at least ‘majority’. Therefore, the Court held that gains arising from transfer of shares of an overseas company, which derives its



value less than 50% of assets situated in India would not be taxable in India under Section 9(1)(i) of the Income Tax Act.

In order to give effect to the recommendations of expert committee under Chairmanship of Dr. Parthasarathy Shome amendments have been proposed in Section 9(1)(i) and Sections 47, 49 and 271GA, 273B and 285A.

The Finance Act, 2012 inserted certain clarificatory amendments in the provisions of Section 9 one of which was insertion of Explanation 5 in Section 9(1)(i), with retrospective effect from 1 April 1962.

This 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 assets located in India.

It is now proposed that the share or interest of 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 (a) exceeds the amount of ten crore rupees and (b) represents at least fifty per cent of the value of all the assets owned by the company or entity.

Value of an asset would be the gross value (without reduction of liabilities in respect of such assets) to be determined in the manner prescribed in the Rules.

Specified date is proposed to means (i) date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or (ii) date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in Sub-clause (i), by fifteen per cent.

The expression “Accounting period” is defined to cater to different situations.

The rigors of Explanation 5 are further proposed to be reduced by providing that the said deeming provision of indirect transfer will not apply in the case of a non-resident from transfer, outside India, of any share of, or interest in, a company or an entity, registered or incorporated outside India:

(i) if such company or entity directly owns the assets situated in India;

(ii) the transferor [whether individually or along with its associated enterprises (as defined in Section 92A)], at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital or total interest, as the case may be, of such company or entity;

OR

a. if such company or entity indirectly owns the assets situated in India, and,

b. the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or 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,

c. 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 five per cent 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.

It is further proposed that in a case where all the assets owned, directly or indirectly, by a company or, as the case may be, an entity referred to in the Explanation 5, are not located in India, the income of the non-resident transferor, from transfer outside India of a share of, or interest in, such company or entity, deemed to accrue or arise in India under this clause, shall be only such part of the income as is reasonably attributable to assets located in India and determined in such manner as may be prescribed.

By including ownership etc. of right of management or control through an associated enterprise as defined in Section 92A, the net is cast very wide to attract the provisions of Explanation 5 to Section 9(1)(i).

[Clause 5]

Allied to above certain amendments have been proposed in the regime of taxation of capital gains.

Following clauses are proposed to be inserted in Section 47 which deals with transactions not regarded as transfer of capital assets.

Clause (viab) – Any transfer of shares referred to in Explanation 5 to Section 9(1)(i) whose value is derived substantially directly or indirectly from shares of an Indian company, in a scheme of amalgamation by the amalgamating foreign company to the amalgamated foreign company would not be regarded as transfer if:

(A) at least twenty five per cent of the shareholders of the amalgamating foreign company continue to remain shareholders of amalgamated foreign company.

(B) such transfer of share does not attract capital gains in the country in which the amalgamating company is incorporated.

Clause (vicc) – Any transfer of share referred to in Explanation 5 to Section 9(1)(i) whose value is derived substantially directly or indirectly from shares of an Indian company, in a demerger by a demerged foreign company to the resulting foreign company would not be regarded as transfer if:

(a) the shareholders holding not less than three fourths in value of the shares of the demerged foreign company continue to remain shareholders of the resulting foreign company.

(b) such transfer of share does not attract capital gains in the country in which the resulting company is incorporated.

(c) Provisions of Sections 391 to 394 of the Companies Act, 1956 shall not apply in case of demerger referred to in this Clause.

[Clause 13]

Section 9(1)(v) deals with deemed accrual in India of Interest

It is proposed to provide that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment (as defined in Section 92F(iiia) in India of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside India, shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India.

It is also proposed that the permanent establishment in India shall be deemed



to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly;

Such interest would however be entitled to be deducted as expenditure in computing the income of the permanent establishment in India.

[Clause 5]

Permanent Establishment – eligible investment fund – Section 9A

A new Section 9A – is proposed to be inserted to provide that in the case of an ‘eligible investment fund’ fund management activity carried out through an eligible fund manager acting on behalf of such fund would not constitute business connection in India.

It is further proposed that an eligible investment fund shall not be said to be resident in India for the purpose of Section 6 merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India.

An eligible investment fund has been defined to mean a fund established or incorporated or registered outside India, which collects funds from its members for investing it for their benefit and fulfils several stringent conditions (including that it is not a person resident in India; it is a resident of a country with whom India has entered into DTAA; it does not carry on or control and manage, directly or indirectly, any business in India or from India etc.)

Similarly, an eligible fund manager has been defined to mean any person who is engaged in the activity of fund management and fulfils certain conditions (including that he should be acting in the ordinary course of his business as a fund manager etc.)

The Fund would be required to file an annual statement in respect of its activities in a financial year non furnishing of which would attract penalty of ` 5 lacs.

This amendment would of course not affect the taxability of the income of the Fund earned or accrued in India de hors the business connection in India constituted by the fund manager. Similarly, the scope of total income of the eligible fund manager or its determination would not be affected by this amendment.

This provision will help off shore funds in that tax liability in respect of income arising to the Fund would not be affected by the existence of a fund manager in India for making investments. Similarly, income of the Fund from investments outside India would not be taxable in India simply by reason of the fact fund management activity in respect of such investments has been undertaken through a fund manager located in India.

It is further proposed that these exclusions shall apply to 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 is similarly provided that nothing contained in the proposed section shall have any effect on the scope of total income or determination of total income in the case of the eligible fund manager.

[Clause 6]

Allowance of balance 50% additional depreciation where assets used for less than 180 days – Section 32(1)(ii)

The assessee, engaged in manufacture/ production of articles or things or in the business of generation and distribution of power is currently entitled to additional depreciation of 20% on purchase and



installation of new plant & machinery, subject to compliance of specified conditions. Where the asset was put to use for less than 180 days in a year, the said additional depreciation was allowed at 50% of such depreciation.

The existing provision was silent on the assessee’s claim for depreciation of balance 50% in the succeeding year. The view that an assessee is entitled to claim the deduction for the balance 50% depreciation in the succeeding year was upheld by the Cochin Tribunal, the Mumbai Tribunal and the Delhi Tribunal. The Chennai Tribunal however held otherwise.

An amendment is proposed to allow the balance 50% of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation shall be allowed in the immediately succeeding previous year. This provision will take effect from the assessment year 2016-17.

[Clause 10]

Additional depreciation at the rate of 35% for setting up of manufacturing units in the notified backward area in Andhra Pradesh or Telangana – Section 32(1)(iia)

In order to incentivise acquisition and installation of plant and machinery for setting up of manufacturing units in the notified backward area in Andhra Pradesh or Telangana, it is proposed to allow higher additional depreciation at the rate of 35% (instead of 20%) in respect of the actual cost of new machinery or plant (other than a ship and aircraft) acquired and installed by a manufacturing undertaking or enterprise which is set up in the notified backward area on or after the 1 April 2015. This higher additional depreciation shall be available in respect of new plant or machinery acquired and installed during the period beginning on 1 April 2015 and ending before 1 April 2020.

[Clause 10]

Additional investment allowance for setting up of manufacturing units in the notified backward area of Andhra Pradesh or Telangana – Section 32AD

Section 32AC was inserted by the Finance Act, 2013 in order to encourage substantial investment in plant and machinery by companies engaged in the business of manufacture or production of any article or thing. Deduction allowable under Section 32AC is 15% of actual cost of new plant and machinery, subject to compliance of certain specified conditions.

A new Section 32AD is proposed to be inserted in order to encourage the setting up of industrial undertaking in the backward areas of Andhra Pradesh and Telangana. The additional investment allowance would be 15% of the cost of new asset acquired and installed by an assessee, if:

YY The undertaking or enterprise engaged in manufacture or production of any article or thing is set up after 1 April 2015 in the notified backward areas of Andhra Pradesh and Telangana, and.

YY the new assets are acquired and installed during the period between 1 April 2015 and 31 March 2020.

It has been clarified that if an undertaking is set up in the notified backward areas in Andhra Pradesh or Telangana, it shall be eligible to claim deduction under the existing provisions of Section 32AC as well as under the proposed Section 32AD, on fulfilment of conditions specified in both the sections.

In order to ensure that such manufacturing undertaking or enterprise contributes to economic growth of these backward areas by carrying on manufacturing for a substantial period of time, it is proposed to provide suitable safeguards for restricting the transfer of the plant or machinery for such period of 5 years. However, the restriction



of transfer shall not apply in the case of amalgamation or demerger or business reorganization. In such a scenario, the conditions of restricting the transfer of the plant or machinery for a period of 5 years shall continue to apply to the amalgamated company or resulting company or successor, as the case may be.

[Clause 11]

Prescribed conditions relating to maintenance of accounts, audit, etc. to be fulfilled by the Approved In-House R&D facility – Section 35

Under Section 35(2AB) of the Act, weighted deduction of 200% is allowed to a company engaged in the business of biotechnology or manufacturing of goods (except items specified in Schedule-XI) for the expenditure (not being expenditure in the nature of cost of any land or building) incurred on scientific research carried out in an approved in-house research and development facility. For availing this weighted deduction, the assessee company is required to enter into an agreement with, and obtain the approval of the Secretary, Department of Scientific and Industrial Research (DSIR) and the Secretary, DSIR is required to send the report in this regard to Director General of Income tax (Exemption) in the prescribed Form. The latter generally does not have jurisdiction over the assessee company. Further, the company is required to maintain separate books of account for the approved R&D facility and is also required to get the accounts audited. However, copy of the audit report is required to be submitted to the DSIR only.

The Comptroller and Auditor General of India recommended, in its report on the performance audit of the pharmaceuticals sector, that the implementation of the weighted deduction under this section ought to be rationalised.

In order to improve the monitoring mechanism for weighted deduction under

this provision, it is proposed that the this deduction shall be allowed if the company enters into an agreement for cooperation with the prescribed authority in such research and development facility, fulfils prescribed conditions with regard to maintenance and audit of accounts and furnishes prescribed reports.

It is also proposed that the prescribed report referred to in Sections 35(2AA) and 35(2AB) may be sent to the Principal Chief Commissioner or Chief Commissioner having jurisdiction over the company claiming the weighted deduction under the said sections instead of the Principal Director or Director General of Income tax.

[Clause 12]

Rationalisation of provisions – Section 115JB

Section 86 of the Income Tax Act provides that income tax is not payable on the share of income of member of Association of Persons (AOP) in certain circumstances. However in case of a company which is a member of an AOP, the share in the income of AOP is liable to minimum alternate tax (MAT) on such income credited to the Profit & Loss Account and therefore part of the book profits of such company.

In case of partnership firm the profit share of partner is exempt under Section 10(2A) and therefore does not suffer MAT.

Amendment is proposed to exclude the share of a member company in the income of AOP credited to the Profit & Loss Account from MAT liability. Expenditure if any corresponding to such excluded income is also proposed to be added to book profits for determining MAT liability. Clause (iib) is proposed to be inserted in Explanation 1 below sub section 2 of Section 115JB for that purpose.

Finance Act (No.2) of 2014 provided that any securities in which investment is made



by Foreign Institutional Investor (FII) in accordance with the regulations made under SEBI Act, 1992 would be capital assets i.e. investments and not stock in trade and consequently income arising from transactions in securities would constitute capital gains.

An amendment is proposed to exclude the capital gains arising from transactions in securities (other than short term capital gains arising on transactions on which STT is not chargeable) from the book profits when such amount is credited to the Profit & Loss Account for the purpose of determining MAT liability in the hands of FII.

New Clause (iiC) is proposed to be inserted in Explanation 1 below Sub-section 2 of Section 115JB for that purpose.

[Clause 29]

Deduction for employment of new workmen in excess of 50 workmen allowable to non-corporate assessee’s –Section 80JJAA

Under the existing provision deduction equal to 30% of the additional wages paid to new regular workmen in excess of one hundred workmen employed during the year in factory is allowed in case of assessee being an Indian Company. It is proposed to omit the words being an Indian Company. Thus the deduction is proposed to be allowed for all the assessee’s having manufacturing units. It is also proposed that deduction would be allowed in respect of payment of additional wages in excess of fifty instead of hundred workmen.

Further, under the existing provision deduction is not allowed if the factory is hived off or transferred from another existing entity or acquired by the assessee company as a result of amalgamation with another company. It is proposed to amend the above clause so as to provide that no deduction shall be allowed if the factory is acquired

by the assessee by way of transfer from any other person or as a result of any business reorganization.

[Clause 22]

Raising the threshold limit for Specified Domestic Transactions – Section 92BA

The existing provisions of Section 92BA define Specified domestic transactions to mean such transactions not being international transactions where the aggregate value of domestic transactions exceeds the threshold limit of ` 5 crores. In order to address the issue of compliance cost in case of small businesses the said threshold limit is proposed to be increased to ` 25 crores.

(Clause 24)

Reduction in rate of tax on income by way of Royalty and Fees for Technical Services in case of Non-Residents - Section 115A

The rate of tax of 25% on gross income by way of royalty and fees for technical services of non-resident tax payer has been specified under the existing provisions.

In order to reduce the hardship faced by the small entities due to high rate of 25% it is proposed to reduce the rate of tax to 10% under Section 115A.

[Clause 27]

Compliance and Penalty - Remittance outside India – Section 195

Section 195(1) of the Act provides that any person responsible for paying any interest (other than interest referred to in Sections 194LB or 194LC or 194LD of the Act) or any sum chargeable to tax (not being salary income) to a non-resident, shall deduct tax at the rates in force. As per Section 195(6) of the Act, such person is required to furnish prescribed information as per Rule 37BB (Form 15CA and 15CB) in relation to such remittances.



The mechanism of obtaining of information in respect of remittances fulfils twin objectives of ensuring deduction of tax at the appropriate rate from taxable remittances as well as identifying the remittances on which the tax was deductible but was not deducted at source. It is seen however in practice that the remitter does not provide the above information in respect of non-taxable remittances. Therefore, it is felt that obtaining of information only in respect of remittances which the remitter declared as taxable defeats one of the main principles of obtaining information in respect of foreign remittances i.e. to identify the taxable remittances on which tax was deductible but was not deducted. In view of this, it is proposed that the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident, not being a company, or to a foreign company, under Section 195(1) shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed.

Further, currently there is no provision for levying of penalty for non-submission/inaccurate submission of the prescribed information in respect of remittance to the non-resident. For ensuring submission of accurate information in respect of remittance to a non-resident, it is further proposed to levy a penalty of ` 1,00,000 for non-furnishing of information or furnishing of incorrect information under Section 195(6) except in the case where it is proved that there was reasonable cause for non-furnishing or incorrect furnishing of such information.

These amendments will take effect from 1 June 2015.

It may be noted that as per the Supreme Court judgements in the case of Vodafone International Holdings B.V. v. UOI (204 Taxman 408) and GE Technology Cen (P) Ltd v. CIT (193 Taxman 234), the provisions of Section 195 would apply only if the sum

is chargeable to tax. Further, Rule 37BB, notified vide Notification 67/2013 dated 2 September 2013, also provides that the specified information (i.e. Form 15CA and Form 15CB) is required to be furnished only in the case of payments made to the non-resident which are chargeable to tax in India. This notification further provides that Form 15CA and 15CB are not required for 28 items of remittances to the non-resident. In light of the above jurisprudence and the relevant extant regulations, it would appear that this provision in the proposed amendment may create some confusion and is also a retrograde step. At the same time, the above proposed amendment may also add to the compliance burden of the assessee. Further, there is an ambiguity with regard to the levy of this penalty, namely, whether it is to be levied per remittance or per financial year. Perhaps greater clarity would be required on these aspects.

[Clauses 48, 73 & 75]

Co-operative banks liable to deduct tax at source on interest to members, interest on recurring deposit liable for deduction of tax at sources and tax on interest on enhanced compensation to be deducted at time of payment – Section 194A

The existing provisions provided a general exemption from making tax deduction from payment of interest by all co-operative societies to its members. However, there were other specific provisions mandating the deduction of tax from the payment of interest on time deposits by the co-operative banks to its members. Due to the above provisions a doubt was created regarding the applicability of the specific provision mandating deduction of tax from the payment of interest on time deposits by the co-operative bank to its members. The existing provision is proposed to be amended so as to specifically provide



that the exemption provided from deduction of tax from payment of interest to members by a co-operative society shall not apply to payment of interest on time deposits by the co-operative banks to its members. Accordingly, the co-operative banks will be required to deduct tax at source on payment of interest even to its members on such deposits w.e.f. 1 June 2015.

Under the existing provisions tax at source was required to be deducted on time deposits. However, the term time deposits excluded recurring deposits from its scope. It is now proposed to include recurring deposits in the definition of time deposits for the purpose of deduction of tax under Section 194A. Accordingly, tax is required to be deducted even on interest on recurring deposits subject to threshold limit of ` 10,000.

As per the existing provision tax was required to be deducted on interest paid or credited whichever is earlier on compensation awarded by the Motor Accident Claim Tribunal if the amount of such interest credited or paid during a financial year exceeds ` 50,000/-. The provisions of Section 56(2)(viii) and Section 145A provided interest received on compensation or enhanced compensation shall be deemed to be the income of the year in which such interest is received. In view of the above deduction of tax on such interest on mercantile/accrual basis has resulted into undue hardship and mismatch. It is, therefore, proposed that deduction of tax under Section 194A of the Act from interest payment on the compensation amount awarded by the Motor Accident Claim Tribunal compensation shall be made only at the time of payment, if the amount of such payment or aggregate amount of such payments during a financial year exceeds ` 50,000/-.

Under the existing provision the interest income for the purpose of deduction of tax by the banking company or the co-operative bank or the public company is computed with reference to a branch of these entities. It is proposed that in case of entities who have adopted core banking solutions, the computation of interest income for the purposes of deduction of tax should be made with reference to the income credited or paid by such entities instead of the existing provision of branch wise computation of interest.

The amendments are proposed to take effect from 1 June 2015.

[Clause 42]

Tax is required to be deducted on payments of plying, hiring or leasing of goods carriage to contractors who owns more than 10 goods carriage vehicles – Section 194C

As per the existing provisions, the person responsible for paying or crediting any sum to the account of a contractor during the course of the business of plying, hiring or leasing goods carriages is not required to deduct tax at source once such contractor provides his Permanent Account Number.

The existing provision is now proposed to be amended to provide that the payee would not be required to deduct tax only in cases where such contractor owns 10 or less goods carriages at any time during the year and furnishes a declaration to that effect alongwith his PAN to the person paying or crediting such sum.

The amendment is proposed to take effect from 1 June 2015.

[Clause 43]



Section 295 – Enabling provision for CBDT to notify Rules for giving foreign tax credit

Presently the IT Act does not provide for the manner of granting credit of taxes paid outside India. Amendment is proposed to be brought in Sub-section (2) of Section 295 to provide that CBDT may make and notify Rules laying down procedure for granting relief or deduction under Section 90 / 90A / 91 as the case may be in respect of any income tax paid in any country or specified territory outside India against the income tax payable under the Income–tax Act.


[Clause 78]

Amount of tax sought to be evaded in the case of penalty where the concealment of income occurs under general provisions; but the ultimate tax liability is paid under MAT – Section 271(1)(c)

As per Section 271(1)(c) of the Act, a penalty for concealment of income or for furnishing inaccurate particulars of income is levied on the “amount of tax sought to be evaded”, which has been defined as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income.

However, difficulties have arisen in the computation of amount of tax sought to be evaded where the concealment of income or furnishing inaccurate particulars of income occurs in the computation of income under provisions of Section 115JB or 115JC of the Act and also under the provisions other than the provisions of Section 115JB or 115JC of the Act (hereafter referred as general provisions). In the case of CIT v. Nalwa Sons Investments Ltd. (327 ITR 543)(Del), CIT v. Jindal Polyester & Steel Ltd. (ITA No. 73 of 2001)(All), Harshvardhan

Chemicals & Minerals Ltd. v. DCIT (39 TTJ 212)(Jai) [confirmed in 259 ITR 212(Raj)], it has been held that penalty under Section 271(1)(c) cannot be levied in cases where the concealment of income occurs under the income computed under general provisions but the tax is paid under the provisions of Section 115JB or 115JC of the Act.

In order to remove the above anomaly after taking cognisance of the fact that the assessee gets MAT credit once it is assessed to tax in future years under the general provisions of the Act certain amendments have proposed to Section 271(1)(c).

Accordingly, it is proposed to amend Section 271 of the Act so as to provide that the amount of tax sought to be evaded shall be the summation 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. However, if an amount of concealment of income on any issue is considered both under the general provisions and provisions of Section 115JB or 115JC, then such amount shall not be considered in computing tax sought to be evaded under the provisions of Section 115JB or 115JC. Further, in a case where the provisions of Section 115JB or 115JC are not applicable, the computation of tax sought to be evaded under such provisions shall be ignored. This proposition has been illustrated in the Section by using a formula.

[Clause 68]

Withholding tax from Salaries

Employer to obtain evidence or proof of claim for estimating income or computing tax deductible of the employee – Section 192The Supreme Court in the case of Larsen & Toubro Limited (Civil Appeal 992 and 993 of 2005) in respect of obtaining supporting documents for claim of leave travel allowance had noted that the beneficiary of exemption under Section 10(5) is an individual employee and in the absence of a circular



from the Central Board of Direct Taxes (CBDT) the employer was not required to collect and examine the supporting evidence to the claim made by an employee. However subsequently the CBDT vide CIRCULAR NO. 8/2012 [F.No. 275/192/2012-IT(B)], Dated 5 October 2012 provided that the employer has to satisfy the obligation that leave travel (fare) concession is not taxable in view of Section 10(5) and is required to obtain and preserve the evidence in support thereof. It is now proposed to insert Sub-clause (2D) to provide that the person responsible for making the payment referred to in Section 192(1) i.e. Salary, shall for the purposes of estimating income of the assessee (i.e. employee) or computing tax deductible at source under Sub-section (1), obtain from the assessee evidence or proof or particulars of prescribed claims (including claims for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.

Increase in exempt transport allowance For salaried individuals exemption on account of transport allowance is proposed to be doubled to ` 1,600 per month from the existing limit of ` 800 per month.This amendment is proposed to take effect from 1 June 2015.

[Clause 40]

Tax @ 10% required to be deducted on payment of taxable accumulated balance due to employee participating in recognized provident fund in specified cases – Section 192A and Section 197A

As per Rule 8 of part A of the Fourth Schedule of the IT Act, accumulated balance due and payable to an employee participating in a Recognized Provident Fund (RPF) is taxable if the employee makes a withdrawal before continuous service of five years (other than cases of termination due to ill health, closure of business etc.) and does not opt

for transfer of accumulated balance to the new employer. Rule 9 of the above Fourth schedule provides that where the amount to be withdrawn from a RPF are taxable in view of the provisions contained in Rule 8, the trustees of the RPF are required to calculate and deduct tax in the specified manner from the payment of the accumulated balance to the employee. Considering the practical difficulties for obtaining the information regarding the taxability of the employee it was not possible for the Trustees of the RPF to comply with the aforesaid provisions.

It is now proposed to insert new Section 192A to provide that in a case where the accumulated balance due to an employee of RPF is includible in his total income on account of provisions of Rule 8 of part A of the Fourth Schedule of the IT Act not being applicable, tax at the rate of 10% is to be deducted at the time of payment of the accumulated balance due to the employee in a sum exceeding ` 30,000.

Further, it is also proposed that the person / employee entitled to receive any amount of accumulated balance from the RPF on which tax is deductible should furnish his PAN to the person responsible for deducting such tax. In case where such person / employee fails to provide his PAN, tax would be deducted at the maximum marginal rate.

However, a corresponding amendment is also proposed in Section 197A to allow person / employee receiving the balance due from a RPF to file a self-declaration in form no. 15G stating that his total income including taxable pre-mature withdrawal from RPF does not exceed the maximum amount not chargeable to tax. On furnishing of such declaration no tax would be deducted by the trustees of the RPF on payment of dues to such person / employee.


[Clause 41 & 49]



Amendments relating to Global Depository Receipts (GDRs) – Section 115ACAThe Depository Receipts Scheme 2014 has been notified by the Department of Economic Affairs (DEA) vide Notification F.No. 9/1/2013-ECB dated 21 October 2014. The scheme replaced Issues of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipts mechanism) Scheme, 1993.

As per the new scheme 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. DRs can be freely held and transferred by both residents and non-residents.The tax benefits however are intended to be provided in respect of sponsored GDRs and listed companies only and therefore amendment is proposed to continue tax benefits only in respect of GDRs defined in the earlier depository scheme.

[Clause 28]

Concessional Tax regime for Real Estate Investment Trust and Infrastructure Investment Trusts – Section 111A

The taxation of capital gains arising to the sponsor at the time of exchange of shares in a Special Purpose Vehicle (SPV) with units of the business trusts which indirectly hold income generating assets of the SPV is deferred under the existing provisions.

Such a deferral places the sponsor at a disadvantageous tax position vis-à-vis direct listing of shares of SPV. In a case where the sponsor decides to exit through initial public offer (IPO) route, the benefit of concessional tax regime viz. 15% tax in case of Short Term Capital Gains (STCG) or tax exemption in case of Long Term Capital Gains (LTCG) under Section 10(38) becomes available to him.

The said benefit of tax of 15% in case of STCG and exemption in case of LTCG is sought to be made available to the sponsor on sale of units of trust received in lieu of shares of SPV subject to levy of the Securities Transaction Tax (STT). The second proviso to Section 111A(1) is proposed to be omitted with effect from 1 April 2016.

[Clause 26]

Subscription to Sukanya Samriddhi Account eligible for deduction and payment received (including interest) from such account is exempt – Section 10(11A) and Section 80C It is proposed to provide deduction under Section 80C for any sum paid or deposited during the year as subscription to Sukanya Samriddhi Account in the name of any girl child of an individual or in the name of any girl child for whom such individual is a legal guardian. Further a new clause (11A) to Section 10 is proposed to be inserted to provide that any payment from an account opened in accordance with Sukanya Samriddhi Account shall not be included in the total income of the assessee. Thus even the interest accruing on deposits and withdrawals from such accounts would be exempt from tax.The amendments are proposed to effect retrospectively from 1 April 2015 and accordingly apply to the AY 2015-16 as well.

[Clause 7 & 15]

Increase in the limit provided under – Section 80CCC

Section 80CCC provides deduction to an individual assessee for amount paid or deposited by him to effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from the fund referred in Section 10(23AAB). It is proposed to increase the limit of deduction ` 100,000 to ` 150,000.

[Clause 16]



Additional deduction in respect of contribution to pension scheme of Central Government – Section 80CCD

Deduction under Section 80CCD is available to an assessee being an individual, employed by Central Government or any other employer or any other individual assessee, in respect of any amount paid or deposited under a notified pension scheme.

Such deduction shall be for the whole of the amount so paid or deposited under the scheme; however it shall not exceed:

YY 10% of his salary in the previous year, in case of an employee and

YY 10% of the gross total income in the previous year, in any other case.

As per the existing provision, the above deduction was limited to ` 1 lakh vide Sub-section 1A of Section 80CCD. The Finance Bill 2015 has now omitted the said Sub-section 1A. Thus the deduction under Sub-section (1) upto 10% of the salary or gross total income as the case may be would be restricted to ` 150,000 as provided in Section 80CCE.

Further a new Sub-section (1B) to Section 80CCD is proposed to be inserted to provide an additional deduction towards contribution to National Pension System (NPS) over and above 10% of the salary or 10% of the gross total income, as the case may be upto ` 50,000 This amendment will be effective from 1 April 2016.

Section 80CCE provides that the aggregate amount of deduction under Section 80C, Section 80CCC and Section 80CCD(1) shall not exceed ` 150,000. Since there is no amendment proposed in Section 80CCE and the additional deduction towards contribution to National Pension System of ` 50,000 is proposed to be provided by Section 80CCD (1B), it may be possible for the individual assessee to claim the additional deduction of ` 50,000 under Section 80CCD

(1B) in addition to aggregate deduction of ` 150,000 as provided in Section 80CCE.

[Clause 17]

Increase in deduction for health insurance premium / expenditure for medical treatment of very senior citizen – Section 80D

It is proposed to increase the deduction from ` 15,000 to ` 25,000 to an assessee for payment of health insurance premium, contribution to the Central Government Health Scheme and payment on account of preventive health check-up relating to the assessee or his family. In a case where the payment is made to effect or keep in force an insurance on health of a senior citizen, the deduction is proposed to be increased from ` 20,000 to ` 30,000.

Similarly, the additional deduction for payment of insurance on health of parents of the assessee is also proposed to be increased from ` 15,000 to ` 25,000. In a case where the payment is made to effect or keep in force an insurance on the health of a senior citizen, the deduction is proposed to be increased from ` 20,000 to ` 30,000.

It is proposed to insert new clauses to provide the deduction upto ` 30,000 for amount paid towards medical expenditure on the health of the assessee or member of his family or parent of such assessee if such person is a very senior citizen (80 years and above) and no amount has been paid towards health insurance of such very senior citizen.

Further it is also provided that the aggregate deduction for payment of health insurance premium and medical expenditure on health of a very senior citizen would not exceed ` 30,000.

It is also proposed to insert a new Sub-section so as to provide similar deductions to Hindu Undivided Family for payment made on health of any member of the HUF.

[Clause 18]



Increase in deduction in respect of medical treatment of dependent who is a person with disability – Section 80DD

It is proposed to increase the amount of deduction allowable for expenditure incurred for medical treatment, training and rehabilitation or an amount paid to LIC under a specified scheme in respect of a dependent with either a disability or severe disability. The deduction would increase from ` 50,000 to ` 75,000 and from ` 75,000 to ` 125,000 respectively in respect of the dependent’s disability or severe disability, as the case may be..

[Clause 19]

Higher deduction for medical treatment of very senior citizen – Section 80DDB

It is proposed to provide higher deduction for expenditure upto ` 80,000 towards medical treatment of specified diseases or ailments in respect of a very senior citizen.

Under the existing provision the assessee was required to obtain and submit with the return of income a certificate from a neurologist, an oncologist, a urologist, a haematologist, an immunologist or such other specialist working in a Government Hospital.. It is now proposed that instead of obtaining the certificate as above, the assessee should obtain a prescription for such medical treatment from a specified specialist. Further, there is no condition for submitting the same with the return of income.

[Clause 20]

Deduction for payment to Swachh Bharat Kosh, Clean Ganga Fund and National Drug Fund – Section 80G

Clause (iiihk) and (iiihl) to Section 80G(1) are proposed to be inserted for allowing 100% deduction for donation paid to Swachh Bharat Kosh and to Clean Ganga Fund two organisations recently set up by

the Central Government. It appears that corporate assessee would not be eligible to claim deduction under Section 80G in cases where the donation is paid in pursuance of Corporate Social Responsibility as per the provisions of Section 135(5) of the Companies Act 2013. These amendment will take effect retrospectively from 1 April 2015 and will apply in relation to AY 2015-16 and subsequent years.

Further, it is proposed to provide that any donor will be eligible for deduction in case of contribution made to Swachh Bharat Kosh. However, in the case of contribution to Clean Ganga Fund, only resident donor would be eligible for deduction.

Clause (iiihm) is also proposed to be inserted for allowing 100% deduction for donations paid to the National Drug Fund for Control of Drug Abuse constituted under Section 7A of the Narcotic Drugs and Psychotropic Substance Act, 1985.

[Clause 21]

Increase in deduction in case of person with disability – Section 80U

It is proposed to increase the amount of deduction allowable to person with disability and person with severe disability from ` 50,000 to ` 75,000 and from ` 75,000 to ` 125,000 respectively.

[Clause 23]

Rationalisation of provisions relating to Accumulation of Income by Charitable Trusts and Institutions – Sections 11 and 13

Under the provisions of Section 11 of the Act, the primary condition for grant of exemption to a trust or institution in respect of income derived from property held under such trust is that the income derived from property held under trust should be applied for charitable purposes in India. Where such income



cannot be applied during the previous year, it has to be accumulated and applied for such purposes in accordance with various conditions provided in the Section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes. If the accumulated income is not applied in accordance with these conditions, then such income is deemed to be taxable income of the trust or institution.

In order to remove the ambiguity regarding the period within which the assessee is required to file Form 10, and to ensure due compliance of the above conditions within time, it is proposed to amend the Act to provide that the Form shall be filed before the expiry of the time for filing the return of income under Section 139(1) of the Act. In case Form no. 10 is not submitted before this date, then the benefit of accumulation would not be available and such income would be taxable at the applicable rate. Further, the benefit of accumulation would also not be available if the return of income is not furnished on or before the due date prescribed under Section 139.

It would appear that the proposed amendment overrides the decisions rendered in the case of CIT v. Nagpur Hotel Owners Association (247 ITR 201)(SC) and Association Of Corporation & Apex Societies Of Handlooms v. ADIT (351 ITR 287) (Del) wherein it was held that Form no. 10 could be furnished by the assessee up to the stage of completion of the assessment or re-assessment, from the AY 2016-17.

[Clauses 8 & 9]

Furnishing of return of income by Certain Universities and Hospitals referred to in Section 10(23C) – Section 139Under the existing provisions entities covered under Sub-clauses (iiiab) or (iiiac) of Clause 23C of Section 10 are not required to furnish a return of income. Amendment is proposed to require such entities to furnish return of income mandatorily.

[Clause 34]

No TDS on payment towards real estate asset owned by real estate investment trust – Section 194IThe existing provisions of Section 194I provides that the specified assessee would be liable to deduct tax at specified rates on any amount paid credited for use of any machinery or plant or equipment and for use of any land or buildings (including factory building) or land appurtenant to a building or furniture or fittings.

It is proposed to provide that no deduction shall be made under this Section where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset referred to in Section 10(23FCA) owned directly by such business trust.

[Clause 44]

Income other than income in nature of business income received by a unit holder on units of investment fund is liable to tax deducted at source – Section 194LBBIt is proposed to introduce a new Section 194LBB to provide that where any income, other than business income, referred to in Section 10(23FBB), is payable to a unit holder in respect of an investment fund specified in clause (a) of the Explanation 1 to Section 115UB, the person making payment shall, at the time of credit of such income or at the time of payment, whichever is earlier, deduct tax at 10%.The amendment will take effect from 1 June 2015

[Clause 46]



Extension of eligible period of concessional tax rate – Section 194LD

The existing provisions provided for lower withholding tax rate of 5% in case of interest payable at any time on or after the 1 June 2013 but before the 1 June 2015 to Foreign Institutional Investor or Qualified Foreign Investor on their investments in Government securities and rupee denominated corporate bonds. The Finance Act, 2014 had extended the period of such lower withholding tax on external commercial borrowings (ECB) under Section 194LC upto 30 June 2017. In line with the above amendment it is now proposed to provide such lower rate of 5% withholding tax even on interest to FII or QIP up to 30 June 2017.

This amendment will take effect from 1 June 2015.

[Clause 47]

Person receiving amount in respect life insurance policy includible in his total income can also file declaration in Form no. 15G – Section 197A

Amendment in Section 197A is proposed to be inserted so as to provide that a person receiving payment in respect of life insurance policy which are taxable can also submit a self-declaration in Form no. 15G stating that his total income including the payment in respect of a life insurance policy does not exceed maximum amount not chargeable to tax.


[Clause 49]

Processing of statements of tax deducted at source – Section 200A

It is proposed to amend Sub-section (1) of Section 200A so as to provide that while processing of a statement of tax deducted at source the fee if any payable on default in furnishing such statement should also

be computed as per Section 234E. Further it is also proposed that the sum payable or amount of refund due to the deductor should be determined after considering the fee computed under Section 234E

The amendment will take effect from 1 June 2015

[Clause 51]

Provision for furnishing TCS correction statement and processing of TCS statement – Section 206C and Section 206CB

The existing provisions enable the deductor to furnish TDS correction statement and consequently, Section 200A of the Act allows processing of the TDS correction statement. However, currently, there does not exist any provision for allowing a collector to file a correction statement in respect of a TCS statement which has been furnished. It is, therefore, proposed to insert Sub-section (3B) to Section 206C so as to allow the collector to furnish a TCS correction statement.

It is also proposed to inset new Section 206CB for processing of a TCS statement on line with existing provision for processing of a TDS statement and mechanism for computation of fee payable under Section 234E.

Further it is also proposed that where interest is charged under Section 206C on intimation issued under the new proposed Section 206CB no interest shall be charged under Section 220(2).

[Clauses 53, 54 & 55]

Dealing in cash in immovable property brought within the ambit of Section 269SS and 269T. Penalty also leviable in cases of contravention – Sections 269SS, 269T, 271D and 271E

The existing provision contained in Section 269SS and 269T provide that no person shall take from any person any loan or deposit or repay the same, otherwise than by an account payee cheque or account payee



bank draft or online transfer through a bank account, where the amount is ` 20,000 or more.

There are various decisions of the Tribunal wherein it has been held that advance given against property could not be treated as loan or deposit covered within the purview of Section 269SS and therefore, no penalty under Section 271D is leviable.

In order to curb generation of black money, it is proposed to amend Section 269SS and Section 269T so as to include money, whether as advance (or repayment thereof) or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place, otherwise than by specified methods.

It is further proposed to make consequential amendments in Section 271D and Section 271E to provide penalty for failure to comply with the amended provisions of Section 269SS and 269T, respectively.


[Clauses 66, 67, 69 & 70]

The expression “erroneous in so far as it is prejudicial to the interests of the revenue” defined by way of Explanation – Section 263

Section 263 deals with the powers of the CIT to revise an order passed by the Assessing Officer as is “erroneous in so far as it is prejudicial to the interests of the revenue”. The CIT can pass an order modifying the assessment made by the Assessing Officer; or cancel the assessment and direct that a fresh assessment be made. The interpretation of said expression has been the subject matter of litigation as there was no clear definition of expression in the Act.

It is proposed to insert an Explanation to Section 263 which lists situation wherein the order passed by the Assessing Officer would be deemed to be erroneous in so far as it is

prejudicial to the interests of the revenue. The situations wherein the power under 263 can be invoked by the CIT are:

YY the order passed by the Assessing Officer is without making inquiries or verification which, should have been made;

YY the order is passed allowing any relief without inquiring into the claim;

YY the order has not been made in accordance with any order, direction or instruction issued by the Board under Section 119; or

YY the order has not been passed in accordance with any decision, prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.

This amendment will take effect from 1 June 2015.

[Clause 65]

Refusal to grant approval to certain university or other educational institution by the prescribed authority made appealable before the Tribunal – Section 253

Any income received by an approved university or other educational institution, not for purpose of profit is exempt from income-tax. Similarly, any income received by any approved hospital or other institution, existing solely for philanthropic purposes, and providing treatment to persons suffering from illness or mental defectiveness or needing convalescence or medical attention, are also exempt from income-tax.

In order to claim exemption from income-tax, approval of the prescribed authority i.e. Chief Commissioner or Director General, is mandatory. The refusal of the prescribed authority to grant such approval can have significant implications for such institutions.



The existing provisions contained in Section 253(1) specify orders that are appealable before the Tribunal. Order passed by the prescribed authority refusing approval to such institutions (which are not financed by the Government and where the income exceeds ̀ 1 crore) was not appealable under the existing provisions. Under a comparable provision, an order for refusal to register a charitable trust was appealable before the Tribunal.

It is proposed to amend Section 253 so as to provide that an assessee aggrieved by the order passed by the prescribed authority would be appealable before the Tribunal.

Thus amendment will take effect from 1 June 2015.

[Clause 63]

Proposed changes in the provisions dealing with settlement of cases – Section 245A, 245D, 245H, 245HA and 254K

Section 245A defines a ‘case’ in respect of which an application can be made to the Settlement Commission for settlement thereof. The basic condition is that the proceeding for assessment in respect thereof must be pending before the Assessing Officer on the date on which such an application is made. The Explanation thereto defines when proceedings for assessment or reassessment can be said to have commenced and/or concluded so as to be deemed to be ‘pending’ before the Assessing Officer at the relevant point of time.

One situation in which proceedings can be said to have commenced in respect of any assessment year is the date on which notice under Section 148 is issued.

It is proposed to amend this provision to deal with assessment year/s, other than for which notice under Section 148 has been issued, but for which years such notice could have been issued on such date provided a return under Section 139 or Section 142 has been filed.

It is proposed that for such other assessment years proceedings shall be deemed to have commenced from the date on which notice under Section 148 for the first mentioned assessment year was issued.

Thus, the benefit of making an application to the Settlement Commission has been extended to cases where no notice under Section 148 has been issued.

In residuary situations not dealt with in other clauses of the Explanation, the definition of a ‘case’ provides that a proceeding for assessment shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made.

It is proposed to provide that in such cases the proceedings shall be deemed to have commenced from the date on which a return is furnished under Section 139 or in response to Section 142 and concluded on the date on which assessment is made or on the expiry of 2 years from the end of the relevant assessment year, in case where no assessment is made.

Thus, the pendency is to be counted from the date on which a return under Section 139 or Section 142 has been filed and not from the 1st day of the relevant assessment year.

Section 245D(6B) permits rectification of mistakes apparent from the record in the order passed by it under Section 245D(4) and the time period within which such rectification can be carried out is six months from the date of the order.

It is proposed to extend the effective time period for rectification by providing that such a rectification can also be made within six months of the end of the month in which an application for rectification has been made either by the Department or by the assessee so however that the application for rectification itself has been made within six months of the date of the order.



Section 245H deals with power of the Settlement Commission to grant immunity from prosecution and penalty. The Settlement Commission is empowered to impose such conditions as it may think fit in this regard.

It is proposed to provide that, while granting immunity, the Settlement Commission must record its reasons in writing.

Section 245HA provides for abatement of proceedings before the Settlement Commission in certain circumstances.

It is proposed to provide for abatement of proceedings even in a situation where the Commission passes an order under Section 245D(4) not providing for the terms of settlement. Thus, once an order under Section 245D(4) has been passed the proceedings before the Commission will abate.

Section 245K places a bar on an applicant from making a second application for settlement once his application is allowed to be proceeded with under Section 245D(1). Similarly, there are other situations in which a person is prohibited from making a second application.

It is proposed to extend this bar to even a person ‘related to the person’ making the application in the first place.

A person ‘related to the person’ has been defined in very wide terms to include an individual, a company, a firm, an association of persons, a body of individuals or a Hindu Undivided family, if his shareholding or holding of voting rights or entitlement to share of profits at any time before the date of application before the Settlement Commission, exceeds 50%.

[Clauses 57 to 61, 71]

Definition of charitable purpose – Section 2

Section 2(15) defines a ‘charitable purpose’ to include ‘education’ along with relief of poor, medical relief, advancement of any other object of general public utility etc.

It is now proposed to include ‘yoga’ as one more purpose for which income could be applied so as to qualify for exemption under Section 11 of the Act. Thus, now, activities relating to yoga would not be treated as being in the nature of ‘advancement of any other object of general public utility’ (with attendant additional restrictions thereon) in that yoga would be recognised as a charitable purpose in its own right. This would particularly help activities such as publishing of books etc.

At present, advancement of any other object of general public utility is not regarded as a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business or rendering of any service in relation thereto. The exception to this disqualification was if the aggregate value of the receipts from such activities during the previous year was ` 25 lacs or less.

In order not to attract the disqualification it is now proposed that the aggregate receipts from such activity during the previous year should not exceed 20% of the total receipts of the trust etc. during the previous year and that such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; both conditions having to be satisfied simultaneously.

[Clause 3]

Exemption to income of Core Settlement Guarantee Fund (SGF) of the Clearing Corporations – Section 10

Under the provisions of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (SECC) notified by SEBI, the Clearing Corporations are mandated to establish a fund, called Core Settlement Guarantee Fund (Core SGF) for each segment of each recognized stock exchange to guarantee the settlement of trades executed in the respective segments of the exchange.



Under the existing provisions, income by way of contributions to the Investor Protection Fund set up by recognised stock exchanges in India, or by commodity exchanges in India or by a depository shall be exempt from taxation. On similar lines, it is proposed to exempt the income of the Core SGF arising from contribution received and investment made by the fund and from the penalties imposed by the Clearing Corporation subject to similar conditions as provided in the case of the Investor Protection Fund set up by a recognised stock exchange or a commodity exchange or a depository. However, where any amount standing to the credit of the Fund and not charged to income-tax during any previous year is shared, either wholly or in part with the specified person, the whole of the amount so shared shall be deemed to be the income of the previous year in which such amount is shared.

The specified person for this purpose is defined to mean any recognized clearing corporation which establishes and maintains the Core Settlement Guarantee Fund and the recognised stock exchange being the shareholder of such clearing corporation.

[Clause 7]

Eligibility of the Accountant to give reports / certificates – Section 288

Amendment is proposed in Section 288 to provide that an auditor who is not eligible to be appointed as auditor of a company as per the provisions of Section 141(3) of the Companies Act, 2013 shall not be eligible for carrying out any audit or furnishing of any report / certificate under any provisions of the IT Act in respect of that company.

On similar lines the accountant would not be eligible to carry out audit or furnish any report/certificate under the Income-tax Act is respect of non-corporate assessees.

The accountant would not become ineligible for attending income tax proceedings referred to in Sub-section (1) of Section 288

as authorised representative of the assessee. It is further proposed to provide that a person convicted by a court of an offence involving fraud shall not be eligible to act as an authorised representative for a period of ten years from the date of such conviction.

It is also proposed to revise the definition of ‘accountant’ given in explanation below 288 (2) of the IT Act on the lines of definition of Chartered Accountant given in the Companies Act, 2013.

The amendments are proposed to take effect from 1 June 2015.

[Clause 77]

Approval for issue of notice for reopening under Section 148 – Section 151

Section 151 is proposed to be substituted as follows

(1) Notice under Section 148 shall not be issued after expiry of four years from the end of the relevant assessment year unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice

(2) In a case other than the one falling in said Sub-section 1 no notice shall be issued under Section 148 by an Assessing Officer below the rank of Joint Commissioner unless the Joint Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice.

(3) For the purposes of Sub-section (1) and (2), the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or the Joint Commissioner being satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice, need not issue such notice himself.



The substitution of Section 151 is proposed to take effect from 1 June, 2015.

[Clause 35]

Penalty for failure to furnish information/ documentation – Section 271GA

Penalty of 2% of the value of transactions is proposed in case of an Indian concern’s failure to furnish information/document prescribed in Section 285A if the transaction has the effect of transferring directly or indirectly the right of management or control in relation to the Indian concern; in any other case, penalty of ` 5 lakhs is proposed to be levied under Section 271GA proposed to be inserted with effect from 1 April, 2016.

[Clause 35]

Assessment of income of a person other than a person in whose case search has been initiated or books of account, other documents or assets have been requisitioned – Section 153C

The existing Sub-section (1) of Section 153C provide that notwithstanding anything contained in Section 139, 147, 148, 149, 151 and 153 where the assessing officer is satisfied that any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belong to any other person, then the books of account or documents or assets seized or requisitioned shall be handed over to the assessing officer having jurisdiction over such other person and the assessing officer shall proceed against such other person.

Disputes have arisen as regards the interpretation of words ‘belongs to’.

The wording ‘belongs to’ is proposed to be substituted by ‘books of account or documents seized or requisitioned pertain to or any information contained therein relates to’.

The amendment is proposed to take effect from 1 June, 2015.

[Clause 36]

Enabling provision for rectification of intimation generated after processing of Tax Collected at Source (TCS) Statement – Section 154

The intimation generated after processing of a TCS statement is at par with intimation generated after processing of a TDS statement and therefore an enabling provision is proposed to subject the intimation generated after processing of a TCS statement to rectification under Section 154. Correspondingly the words ‘or by the collector’ are proposed to be inserted in Sub-section (2) in clause (b) and Sub-section 8 and ‘or the collector’ in Sub-sections 3, 5 and 6 of Section 154.

The amendment is proposed to take effect from 1 June, 2015.

Corresponding amendment is also proposed in Section 156 to insert words ‘by the deductor or collector under Sub-section (1) of Section 143 or Sub-section (1) of Section 200A or Sub-section (1) of Section 206CB.’

[Clauses 37 & 38]

Procedure for appeal by Revenue when an identical question of law is pending before Supreme Court – Section 158AA

Presently there is no enabling provision for the Revenue not to file an appeal for subsequent year/s where it is in appeal on the same question of law for an earlier year. As a result appeals are filed by the Revenue year after year on the same question of law until the question is finally decided by the Supreme Court.

A new provision by way of Section 158AA is proposed to be inserted to provide that where any identical question of law in the case of an assessee is pending before the Supreme Court in an appeal or special leave petition, the Commissioner or Principal Commissioner may direct the assessing officer to make an application to the Appellate Tribunal in the prescribed form within sixty days from the



date of receipt of order of Commissioner (Appeals) stating that an appeal on the question of law arising in the relevant casemay be filed, when the decision on the question of law becomes final in the appeal filed for the earlier year.

It is further proposed to provide that the Commissioner or Principal Commissioner shall proceed only if an acceptance is received from the assessee to the effect that the question of law is identical to the one arising in the relevant case.

In case no such acceptance is received, the Commissioner or Principal Commissioner shall proceed in accordance with the provisions contained in Section (2) or (2A) of Section 253 and accordingly may if he objects to the order passed by the Commissioner (Appeals), direct the Assessing Officer to appeal to the Appellate Tribunal.

If the Supreme Court decides the question in favour of the Revenue and the order of CIT (Appeals) is not in conformity with the said final decision, the Commissioner or Principal Commissioner may direct the assessing officer to go in appeal against the order of Commissioner (Appeals) before the appellate tribunal within sixty days from the date on which the order of Supreme Court is communicated to the Commissioner or Principal Commissioner and all other provisions of Chapter XX would apply.


[Clause 39]



INDIRECT TAXESFor the second year running, the Finance Minister (FM) has purposefully avoided any mention of two significant proposals on indirect taxes that were widely anticipated by industry and the markets. Firstly, with exactly 13 months remaining for introduction of Goods and Service Tax (GST), more was expected in the Budget from the FM giving the industry and the other stake holders’ ample clarity on the impending legislation. Also, simultaneously, people were expecting a 1% reduction in Central Sale Tax (CST) rate. However, both these conspicuous omissions seem to arise from the Government’s cautious ‘wait and watch’ approach to the response in both the houses of the Parliament to the Constitution Amendment Bill (CAB) for implementation of the GST regime, that will come up for debate and voting on the floor of the houses of parliament very soon. It is now obvious that only when the States would unequivocally vote in favour of the CAB and also agree to a reduction in the CST rate, would the Government be announcing the road map to GST implementation and loosening its purse for sharing more revenue from central taxes with the States to compensate for loss of CST revenue. The plot on GST thickens, or so it seems.

So what do we have on the table in the latest round of Union Budget proposals on Indirect Taxes? It’s a mixed bag of offerings of some feel good exemptions / reductions and procedural relaxations accompanied by a few bitter pills of rate hikes and enlargement of tax base. And the bag is only half full. There are hardly any proposals or measures which can be seen as bucking the trend in the true sense. Nevertheless, we have covered all the major ones in the Highlights and the detailed ones in the specific paragraphs on amendments or sector specific proposals here below –

Highlights

Rate Changes

YY Standard ad-valorem rate of Central Excise duty increased to 12.5% from 12% w.e.f. 1 March 2015. Rate of Countervailing Duty (CVD) on imported goods will also increase consequently;

YY Full exemption from Education Cess (EC) and Secondary & Higher Education Cess (SHEC) on all excisable goods (effective excise duty w.e.f. 1 March 2015 will be 12.5% as against 12.36% earlier);

YY Service Tax rate proposed to be increased to 14% (change to be effective on enactment of Finance Bill, 2015);

YY EC and SHEC cease to be levied from a date to be notified after enactment of Finance Bill, 2015 (effective service tax rate w.e.f. date enactment of Finance Bill, 2015 will be 14% as against 12.36% earlier);

YY Enabling provisions introduced, empowering the Central Government to impose a new levy, called Swachh Bharat Cess, on any or all of the taxable services at the rate of 2% of the value of taxable services; this can increase the burden of central taxes on specified services to 16%;

YY Concessional rate of CST has been retained at 2%.

Reduction in input stage taxation

YY Basic Customs Duty (BCD) rate on a large number of parts, components and raw materials has been reduced to address the dual issue of high cost of inputs and inverted duty structure;

YY Special Additional Duty of Customs (SAD) on all goods used in manufacture of Information Technology Agreement (ITA) bound goods except populated Printed Circuit Boards (PCBs) has been reduced from 4% to Nil (w.e.f. 1 March 2015);



YY Excise duty on specified inputs for smart cards, LED lights & lamps, renewable energy equipments, specified medical devices & equipments, etc. has been reduced.

Enlargement of Tax base

YY Specified food products like condensed milk, peanut butter, etc made exigible to 6% excise duty – (with cenvat credit);

YY Service tax proposed to be levied on entry fee charged at amusement facilities or for entertainment or sports events if fee charged is in excess of ` 500 per person – this will result in double taxation as such fees may also attract entertainment tax levied by State;

YY It is proposed that services provided by any Government agency to a business entity will be taxable unless specifically exempt;

YY It is proposed that job work for manufacture of alcoholic liquor for human consumption will attract service tax.

Procedural relaxations

YY Scheme of Advance Ruling under respective legislations in Customs, Central Excise & Service Tax is proposed to be extended even to a Resident Firm – presently resident firms are not eligible to apply for advance rulings under Customs, Central Excise & Service tax laws.

CUSTOMS

Tax RateYY Standard ad valorem rate of BCD has

been retained at 10%;YY Levy of EC and SHEC on BCD to continue;YY Effective peak rate of Customs Duty

increased to 29.44% from 28.85% as under –

Rate of duty (%)

Effective rate

BCD 10 10.00

CVD 12.5 13.75

Customs Cess 3 0.71

SAD 4 4.98

Total 29.44

Amendments to the Customs Act, 1962

YY The penal regime has been liberalised for offenders voluntarily paying duty, interest and prescribed penalty either before issue of the notice for recovery or after issue of the notice. The relevant proposals in this regard are summarised below:

Provision to which amendment is proposed

Effect of the amendment

Comments

Section 28(2) of the Customs Act (Cases not involving fraud, collusion or willful misstatement)

The proviso proposed to the Sub-section will enable the proper officer to not impose a penalty against the noticee if the duty and interest thereon has been paid within 30 days from date of receipt of notice and the proceeding shall be deemed to be concluded

Newly introduced provision may reduce prospective litigation

Section 28(5)of the Customs Act (Cases involving fraud, collusion or willful misstatement)

The quantum of penalty mentioned in the Sub-section is proposed to be reduced to 15% of duty demanded in the notice or duty so accepted by the person. (Presently it is 25% of duty determined)

This will reduce the burden of the noticee who voluntarily pays the duty and interest within 30 days of receipt of the notice.



Provision to which amendment is proposed

Effect of the amendment

Comments

Section 112(b)(ii) of the Customs Act (Penalty for acquiring possession of goods improperly imported)

Substantial reduction in penalty proposed – presently an amount as much as the duty sought to be evaded can be imposed as penalty whereas after the amendment, only a maximum of 10% of duty sought to be evaded can be imposed as penalty;

Also, the noticee will have an option to pay only 25% of the penalty imposed, if he pays duty determined and interest thereon within 30 days from date of communication of the order.

There is not only a considerable reduction in the quantum of maximum penalty that can be imposed under the Sub-section but also an incentive to assessee not to pursue further litigation if paid voluntarily within 30 days from communication of the order.

Other Amendments

YY Tariff rate on bituminous coal (CTH No. 2701 12 00) is proposed to be reduced from 55% to 10%.

Sector specific rate changes and exemptions (w.e.f. 1 March 2015)

AutomobilesYY Effective rate of BCD on Commercial

Vehicles (other than in Completely Knocked Down (CKD)) kits increased to 20% from 10%;

YY Concessional customs duty structure of Nil BCD, 6% CVD and Nil SAD on specified parts of electrically operated vehicles and hybrid vehicles, presently available upto 31 March 2015 is being extended upto 31 March 2016.

Chemicals

Description of goods

Existing BCD Rate

Revised BCD Rate

Anthraquinone for manufacture of hydrogen peroxide

7.5% 2.5%

Sulphuric acid for use in the manufacture of fertilizers

7.5% 5%

Ethylene dichloride (EDC), vinyl chloride monomer (VCM) and styrenemonomer (SM)

2.5% 2%

Isoprene and Liquefied butanes

5% 2.5%

Butyl acrylate 7.5% 5%

Consumer Goods (Non-Food)


Existing BCD Rate

Revised BCD Rate

C-Block for Compressor, Over Load Protector (OLP) & Positive thermal coefficient and Crank Shaft for compressor, for use in the manufacture of Refrigerator compressors

10% 5%

Parts and components of Digital Still Image Video Camera capable of recording video with minimum resolution of 800x600 pixels, at minimum 23 frames per second, for at least 30 minutes in a single sequence, using the maximum storage (including the expanded) capacity.

5% Nil

Black Light Unit Module for use in the manufacture of LCD/LED TV panels

10% Nil




Existing BCD Rate

Revised BCD Rate

Digital Still Image Video Camera capable of recording video with minimum resolution of 800x600 pixels, at minimum 23 frames per second, for at least 30 minutes in a single sequence, using the maximum storage (including the expanded) capacity

10% Nil

Evacuated Tubes with three layers of solar selective coating for use in the manufacture of solar water heater and system

7.5% Nil

Magnetron upto 1 kilo watt (KW) for use in the manufacture of microwave ovens

5% Nil

Organic LED (OLED) TV panels

10% Nil

Electronics


Existing Rate Revised Rate

Parts, components and accessories (falling under any Chapter) for use in the manufacture of tablet computers and their sub-parts for use in manufacture of parts, components and accessories

Various rates of BCD, CVD

& 4% SAD

BCD – Nil

CVD – Nil

SAD – Nil

Inputs for use in the manufacture of LED drivers and MCPCB for LED lights,fixtures and LED lamps

SAD – 4% SAD – Nil

Energy (Oil & Gas, Renewable resources, etc.)


Existing BCD Rate

Revised BCD Rate

Metallurgical coke 2.5% 5%

Active Energy Controller (AEC) for use in the manufacture of Renewable Power System (RPS) Inverters

7.5% 5%

YY Clean Energy Cess increased from ` 100 per tonne to ` 200 per tonne.

IT, ITES & Telecommunication



HDPE for use in the manufacture of telecommunication grade optical fibre cable

BCD – 7.5% BCD – Nil

All goods except populated Printed Circuit Board PCBs, falling under any Chapter of the Customs Tariff, for use in manufacture of ITA bound goods

SAD – 4% SAD – Nil

Metals & Minerals



Metal scrap of iron & steel, copper, brass and aluminium

SAD – 4% SAD – 2%

Upgraded Ilmenite Export Duty – 5%

Export Duty – 2.5%

Ulexite ore BCD – 2.5% BCD – Nil

Antimony metal, Antimony waste and scrap

BCD – 5% BCD – 2.5%



Healthcare

Description of goods Existing BCD Rate

Revised BCD Rate

Specified inputs for use in the manufacture of flexible medical videoendoscopes

5% 2.5%

Artificial heart (left ventricular assist device)

5% Nil

YY Artificial heart (left ventricular assist device) mentioned above, also fully exempted from CVD;

YY CVD and SAD fully exempted on specified raw materials (battery,titanium, palladium wire, eutectic wire, silicone resins and rubbers, solderpaste, reed switch, diodes, transistors, capacitors, controllers, coils (steel), tubing (silicone) for use in the manufacture of pacemakers.

Other Rate Changes / Exemptions

YY BCD on ‘Metal parts’ for use in the manufacture of electrical insulators reduced to 7.5% from 10%;

YY BCD on Ethylene-Propylene-non-conjugated-Diene Rubber (EPDM), Water blocking tape and Mica glass tape for use in the manufacture of insulated wires and cables reduced to 7.5% from 10%;

YY BCD on Zeolite, ceria zirconia compounds and cerium compounds for use in the manufacture of washcoats, further used in manufacture of catalyticconverters reduced to 5% from 7.5%.

CENTRAL EXCISE

Tax Rate

YY Standard ad valorem rate of Central Excise Duty has been increased to 12.5% from 12% w.e.f. 1 March 2015.

YY Full exemption from EC and SHEC on all excisable goods (effective excise duty w.e.f. 1 March 2015 will be 12.5% as against 12.36% earlier)

Amendments to the Central Excise Act

YY The penal regime has been liberalised for offenders voluntarily paying duty, interest and prescribed penalty either before or after issue of the notice for recovery of duty or within 30 days from the date of receipt of order from the Central Excise Officer. The relevant proposals in this regard are summarised below:

Cases involving fraud, collusion, mis-representation, suppressionYY Uniform provisions have been made for

imposition of penalty in cases involving fraud, collusion, misrepresentation, suppression of facts, whether or not such transactions are recorded in the specified records maintained by the manufacturer. These are summarised as under –

Payment of duty, interest and penalty when made

Existing provision

Proposed provision

Within 30 days from the date of service of notice

No separate provision for payment of reduced penalty

Penalty equal to 15% of the duty demanded provided duty and interest along with reduced penalty has been paid within such time

Within 30 days of receipt of order from the Central Excise Officer

YY Penalty equal to 25% of the duty determined in case such transactions are recorded in the specified record maintained by the notice;

YY Penalty equal to the amount of duty determined where no such transactions are recorded in the specified record maintained by the noticee



Payment of duty, interest and penalty when made

Existing provision

Proposed provision

YY Penalty equal to 25% of the duty determined provided duty and interest along with reduced penalty has been paid within such time. This is applicable to transactions whether or not recorded in the specified records maintained by the noticee

Where duty, interest and penalty not paid within 30 days of receipt of notice or order from the Central Excise Officer

YY Penalty equal to 50% of the amount of duty determined where such transactions are recorded in the specified record maintained by the noticee

YY Penalty equal the amount of duty determined where no such transactions are recorded in the specified record maintained by the notice

Penalty equal to the amount of duty determined

YY Transitional provisions have also been introduced to provide that the aforesaid proposed provision shall be applicable to existing cases where either notice or order has been issued prior to enactment of the Finance Bill and duty and interest along with reduced penalty has been paid within 30 days from the enactment of Finance Bill.

Cases not involving fraud, collusion, suppression

YY Maximum amount of penalty that can be imposed in cases not involving fraud, collusion, etc has been reduced to 10% of the duty determined to be payable by the Central Excise Officer or ` 5,000/- whichever is higher as compared to the existing provision providing for levy of penalty equivalent to the amount of duty so determined.

Other amendments

YY For the purpose of recovery of interest on duty which has not been paid or has been short paid or short levied the relevant date has been prescribed as the date on which such duty has been paid;

YY Provisions of Section 11A (relating to recovery of duty on short paid or not paid) of the Central Excise Act, 1944 shall not apply to cases where non-payment or short payment of duty has been reflected in the returns, for which separate provisions are proposed to be introduced.

Amendment to CENvAT Credit Rules, 2004

YY Time limit for availment of CENVAT credit on inputs / input service used in or in relation the manufacture of excisable goods has been extended to one year from the date of issue of invoice or any other specified documents;

YY Inputs or capital goods can also be sent directly to the premises of job worker by the manufacturer / provider of output services without first receiving such goods in the factory / premises and avail cenvat credit within the prescribed time line without prejudicing the right to avail the cenvat credit;



YY Time limit for availing cenvat credit on goods received back from the job worker, including cases where goods were sent directly to the job worker, has been enhanced to one year from the date of removal (presently the time limit is 6 months from the date of removal);

YY Time limit for availing cenvat credit on capital goods received back from job worker extended to 2 years from the date of removal.

Other Changes / Exemptions

YY Conditions for grant of exemption from excise duty on goods manufactured in India and supplied against International Competitive Bidding brought at par with conditions imposed under customs for exemption when such goods are imported;

YY The validity period of Bank Guarantee or Fixed Deposit Receipt has been enhanced to 42 months from 36 months where the status of Ultra Mega Power Project is provisional;

YY The validity period of Bank Guarantee or Fixed Deposit Receipt has been enhanced to 66 months from 36 months where the status of Mega Power Project is provisional.

Sector Specific Changes in effective rate of excise duty (effective from 1 March 2015)

Automobiles

Description of Goods


Chassis for ambulances

24% 12.5%

YY Concessional rate of excise duty at 8% on specified parts of electrically operated vehicles and Hybrid Vehicles available upto 31 March 2015, extended upto 31 March 2016.

Consumer Goods (Non-Food)Description of Goods


Mobiles handsets including cellular phones

6% 12.5%

Tablet computers 6% 12.5%

Wafers for use in the manufacture of integrated circuit (IC) modules for smart cards

12% 6%

Inputs for use in the manufacture of LED drivers and MCPCB for LED lights, fixtures and LED lamps

12% 6%

Solar water heater and system manufactured without availing cenvat credit facility

12% Nil

Leather footwear (footwear with uppers made of leather of heading 4107 or 4112 to 4114) of Retail Sale Price of more than ` 1000 per pair

12% 6%

Captively consumed intermediates produced during manufacture of Agarbattis

12% Nil

Ordinary Portland cement, Portland pozzolana cement, Portland slag cement falling under chapter sub-heading 2323 29

` 900/- Per Ton

` 1,000/- Per Ton

Energy (including renewable energy)



Pig iron SG grade and Ferro-silicon-magnesium for use in the manufacture of cast components of wind operated electricity generators, subject to certification by MNRE

12% Nil





Round copper wire and tin alloys for use in the manufacture of Solar PV ribbon for manufacture of solar PV cells subject to certification by Department of Electronics and Information Technology (Deity)

12% Nil

YY The effective rate of Clean Energy Cess on coal, lignite and peat increased from ` 100 per tonne to ` 200 per tonne.

Food & Food Processing



Condensed milk put up in unit containers without availing cenvat credit facility

Nil 2%

Peanut butter manufactured without availing cenvat credit facility

Nil 2%

Waters, including mineral water and aerated waters

12% BED plus 5% AED with

30% abatement on MRP

18% BED, Nil AED with

35% abatement on MRP

YY Iced tea and other goods falling under CETH 2101 20 now brought under MRP valuation with 30 percent abatement from MRP; these products will attract excise duty of 12.5%;

YY Maximum speed of packing machine is being specified as a factor relevant to production for determining excise duty payable under the Compounded Levy Scheme presently applicable to pan masala, gutkha and chewing tobacco. Accordingly, deemed production and duty payable per machine per month with reference to the speed range in which the maximum speed of a packing machine falls has been prescribed;

YY Rate of duty on chewing tobacco (including ‘khaini’ and forms other than ‘khaini’) has also been revised;

YY Excise duty on cigarettes increased by 25% for cigarettes of length not exceeding 65 mm and by 15% for cigarettes of other lengths. Similar increases are proposed on cigars, cheroots and cigarillos. This is summarised below –

Description Tariff Heading

Existing Rate

Revised Rate

Specific Duty per thousand

(in `)

Specific Duty per thousand

(in `)Cigarettes, containing tobacco: other than filter cigarettes <=65 mm

2402 20 10

990 1280

other than filter cigarettes > 65 mm but <=70 mm

2402 20 20

1995 2335

Filter cigarettes including filter length <=65 mm

2402 20 30

990 1280

Filter cigarettes including filter length > 65 mm but <=70 mm

2402 20 40

1490 1740

Filter cigarettes including filter length >70 mm but <=75 mm

2402 20 50

1995 2335

Other 2402 20 90

2875 3375

Pharma & Healthcare

Description of Goods Existing Rate

Revised Rate

Specified raw materials, namely – battery, titanium, palladium wire, eutectic wire, silicone resins and rubbers, solder paste, reed switch, diodes, transistors, capacitors, controllers, coils (steel), tubing (silicone) – for use in the manufacture of pacemakers

Multiple, ranging

from 6% to 12%

Nil



YY The excise duty rate on goods covered by Medicinal and Toilet Preparations Act, 1955 has been increased to 12.5% from 12% w.e.f. 1 March 2015in alignment with increase in Central Excise duty.

SERvICE TAX

Tax Rate

YY Rate of service tax enhanced to 14% from effective rate of 12.36% (including EC& SHEC) w.e.f. enactment of Finance Bill, 2015;

YY A provision has been made for levy of Swachh Bharat Cess at 2% on the value of taxable services with effect from a date as may be notified after the enactment of the Finance Bill; this may take the effective rate of taxes on services to 16%; however presently no clarity being provided whether CENVAT credit on such levy would be available to manufacturers and service providers.

Amendments to the Service Tax Legislation

YY New services brought into service tax net

Yy Any service provided by Government or a local authority to business entities;

Yy Services by way of manufacture or production of alcoholic liquor for human consumption.

YY Admission to entertainment events viz. concerts, sports events other than recognised sports events if fee is charged in excess of ` 500/- per person or access to amusement facilities;

YY The term ‘transaction in money’ has been amended so as to exclude therefrom activity carried out for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim including –

Yy activities carried out by a lottery distributor or selling agent in relation to promotion, marketing, organising or facilitating in organising lottery of any kind;

Yy activities carried out by a foremen of chit fund conducting or organising a chit.

YY The meaning of the term ‘Consideration’ has been widened so as to include therein – Yy any reimbursable expenditure

or cost incurred by the service provider and charged in the course of providing service, except in such circumstances and subject to such provisions as may be prescribed;

Yy any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket;

YY Services provided by a person involving ‘an Aggregator’ who is a person who owns or manages a web based software application and enables a potential customer to connect with a person providing specified service in any manner. Now, Aggregator will be fully liable to pay service tax on services provided by individual service providers to end customers. This will not only bring the fee / charges retained by the Aggregator in service tax net but also the fee charged by individual service provider(s).

Enlargement/curtailment or withdrawal of Service Tax exemptions

Amendments to Mega Exemption (w.e.f. 1 April 2015 unless otherwise specified)YY Exemption introduced

Yy Services provided by way of transportation of patient in an ambulance;

Yy Services provided by way of treatment of effluents by operator of Common Effluent Treatment Plant;



Yy Pre-conditioning, pre-cooling, ripening, waxing, retail packing of fruits and vegetables not involving any change or alteration to the essential characteristic of such fruit or vegetable;

Yy Exhibition of movie by an Exhibitor to the Distributor or an Association of Persons consisting of such Exhibitor as its member;

Yy Admission to a museum, national park, wildlife sanctuary, zoo;

Yy Service by way of right of admission to –

YΗ exhibition of cinematographic film, circus, dance or theatrical performance;

YΗ recognised sporting event;

YΗ award function, concert, pageant, musical performance or any sporting event other than the recognised sporting event where the consideration is less than ` 500 per person.

Yy Life insurance service provided by way of Varishtha Pension Bima Yojna (Senior Citizen Pension Insurance Scheme)

YY Exemption withdrawn (Services now taxable)

Yy Services provided to the Government, local authority or governmental authority by way of construction, erection, installation, completion, fitting out, repair, maintenance, renovation of –

YΗ civil structure or any other original works for use otherwise than for commerce, industry or any other business or profession;

YΗ structures meant for educational, clinical, art or cultural;

YΗ residential complex meant for self use or for use of their employees.

Yy Services by way of construction, erection, commissioning or installation by way of original works pertaining to port or airport.

Yy Services by way of telephone calls from departmentally run public telephone or guaranteed public telephone or free telephone at airport and hospital.

Yy Services provided by –

YΗ mutual fund agent or distributor to mutual fund or asset management company;

YΗ selling or marketing agent of lottery tickets to a distributor or selling agent.

Yy Exemption of service provided by performing artist in folk or classical arts limited / curtailed to an amount of ` 1 lakh per performance (except by a brand ambassador);

Yy Exemption to transportation of food stuff by rail or vessels or road shall be limited only to food grains, flour, milk and salt.

YY Changes under Reverse Charge Mechanism (w.e.f. 1 April 2015)

Description of service

Person liable to pay Service Tax

% of the Service tax payable

Position up to 31 March 2015

Services provided by a mutual fund agent or distributor to mutual fund or asset management service

Service recipient 100% Exempt from service tax



Description of service

Person liable to pay Service Tax

% of the Service tax payable

Position up to 31 March 2015

Services provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent

Service recipient 100% Exempt from service tax

Services provided by a person involving an aggregator

An aggregator, where he has a physical presence in taxable territory; or by a person representing the aggregator, if any or a person appointed by him

100% Not covered under reverse charge

Services provided or agreed to be provided by way of supply of manpower for any purpose

Service recipient 100% 75% of the value of taxable service, if service provider is an individual, firm or HUF

YY Rationalization of penalty provisions

In cases not involving fraud, collusion, suppression (Section 76)

Particulars Existing provision

Revised provision

Service tax and interest paid within 30 days of service of notice

No provision for payment of reduced penalty

No penalty payable

Service tax, interest and reduced penalty paid within 30 day of receipt of order

No provision for payment of reduced penalty

25% of the penalty imposed

Amount of penalty that can be levied in cases not covered above

` 100 per day or 1% per month on the service tax in default whichever is higher subject to a maximum penalty of 15% of the service tax in default

Not exceeding 10% of the service tax amount in default

In cases involving fraud, collusion, suppression (Section 78)

Particulars Existing provision Revised provisionWithin 30 days from the date of service of notice

No separate provision for payment of reduced penalty

15% of the tax demanded provided duty and interest alongwith reduced penalty has been paid within such time

Within 30 days of receipt of order

YY Penalty equal to 25% of the tax determined in case such transactions are recorded in the specified record maintained by the noticee

YY Penalty equal to the amount of tax determined where no such transactions are recorded in the specified records maintained by the noticee

Penalty equal to 25% of the tax determined provided duty and interest alongwith reduced penalty has been paid within such time

Where duty, interest and penalty not paid within 30 days of receipt of notice or order

YY Penalty equal to 50% of the tax determined where such transactions are recorded in the specified record maintained by the noticee

YY Penalty equal to the amount of tax determined where no such transactions are recorded in the specified records maintained by the notice

Penalty equal to the amount of tax determined

YY Transitional provisions have been introduced to provide that the aforesaid provision shall be applicable to cases where no notice has been served or notice has been served but no order has been received before the enactment of Finance Bill;

YY Given that self contained provisions have been introduced for reduction of penalty in cases not involving fraud, collusion, misrepresentation or suppression of facts provision of Section 80 relating to waiver of penalty imposed under Section 76 or Section 77 on grounds of reasonable cause is proposed to be omitted.



Miscellaneous Amendments

Revision in Abatement Rate (w.e.f. 1 April 2015)YY Taxable portion in respect of transport of

passenger otherwise than by economy class has been enhanced to 60%;

YY Taxable portion on services of transportation of goods by rail, services provided by goods transport agency and transport of goods by vessel has been brought at par to 30% of the value of taxable service (w.e.f. date as may be notified).

Other amendments

YY Given the increase in the effective rate of service tax, consequent increase has been made in the optional rate of service tax payable in case of specified services namely booking of tickets by air travel agents service, unit linked investment services provided by persons carrying on life insurance business, foreign exchange currency conversion service and promotion, marketing, organising or assistance in organising lottery tickets;

YY Time limit for availment of CENVAT credit on inputs / input service has been extended to one year from the date of issue of invoice or any other specified documents;

YY Provision has been made for issue of digitally signed invoice, bill or challan under Rule 4A or consignment note under Rule 4B subject to such safeguards and procedures as may be prescribed;

YY Provision has been made for preservation of records in electronic form duly authenticated by way of digital signature subject to such safeguards and procedures as may be prescribed;

YY Central Excise Officer has been empowered to recover the amount of unpaid service tax alongwith interest by any of the modes of recovery specified under Section 87 of the Service Tax Legislation without service of notice in cases of self assessment of tax by the assessee in the return;

YY Provisions of Section 35EE of the Central Excise Act empowering the Central Government to revise the orders passed by Commissioner (Appeals) has been extended to cases involving rebate of service tax paid on input service or duty paid on inputs which are used in the export of service. Further, all appeals filed before the Tribunal on or after 17 July 2012 in this regard and pending before the Tribunal shall be dealt with in line with the amended provision.



NOTES



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- Omkar J. Mohile, Executive

Will the2015 budgetusher in

Achche dinHead O�ce:706/708 Sharda Chambers,New Marine Lines, Mumbai 400020T: +91 22 22007318/0607/6360

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