India Union Budget 2016-17


Union Budget 2016-17Inclusive Incrementalism


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Prelude

Budget 2016-17 (“the Budget”) of the BJP led Indian government was being followed closely for several reasons. Some of the reasons were political, while some could have been based on the larger sense of disillusionment with the government on the part of businesses. Hence, there was an expectation that the Budget would contain some cogent proposals, which would give a fillip to the much needed demand cycle gone stagnant. However, with the Economic Survey 2015-16 (“Economic Survey”) clearly making case for the coupling of the Indian economy with the global market, and having outlined a felt need for larger consumption in the rural sector, it was clear that this was going to be a tight rope walk for the FM.

It was felt upon a read of the Economic Survey that it was advocating, atleast via implication, that this was a ripe time to throw caution to the winds and make the Budget an exercise in aggressive demand creation. To this end, there was some discussion regarding the importance or lack thereof, of the fiscal deficit, and the possibility that the Budget would not stick to the FRBM targets formulated.

In this backdrop, the Budget announcements clearly confused a lot of us. In the end, the Budget exercise proved to be what one dreads the most – with several devils in the detail. Also, it was a Budget after a long time, which laid out road maps for several legislations that would drive this Government’s policies in the coming years. There are several changes that this Budget proposes, however, in the end, one does get a feeling that there was more that was sought to be achieved but a conservative thought process was adopted to live to fight another day – in a manner of speaking. Having noted this, there are several proposals in the Budget documents that assuage various requirements of the businesses in India, and one may even perceive a design that this Budget seeks to achieve.

We at Aureus Law Partners are privileged to be able to bring you this seminal presentation on Budget 2016 -17, assured in the knowledge that you would find it as instructive to read as we found it enjoyable to prepare.


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A Comfortable Deficit

2014-15 2015-16 (BE) 2015-16 (RE) 2016-17 (BE) -

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Deficit Scenario

Revenue Deficit Effective Revenue DeficitFiscal Deficit Primary Deficit

The Budget rather unexpectedly threw up a comfortable fiscal deficit figure. As the chart on the left would show, the deficit figures were on a decline – the FM had managed to achieve the FRBM target and appeared to have enough leg room to move forward decisively. But for the global trends, which were anything but encouraging. Given this scenario, and given that there was no escaping the fact that India is now, more than ever, coupled with the global trends, it was understood that the Budget would perhaps not be the harbinger Indian businesses hoped for.

However, in our view these Proposals are unique in a way that there are widespread proposals from a legal framework perspective, while attempting to balance the need for inclusiveness. In the following pages is our detailed evaluation of the Proposals.


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Extensive Legislative Framework for Change

Normally, a budget analysis would begin with a threadbare understanding of the Budget speech, trying to decipher the intent behind the words. However, we have taken a different view on this occasion. This Budget lays down some cogent policy anchored via introduction of various laws – some of these laws have been made a part of the Finance Bill, 2016 (“the Finance Bill”), and yet some others have been kept on the anvil by the FM to be introduced in the Parliament within this Budget session.

So, before we deep dive into the Budget proposals, and more importantly the tax technical aspects, we feel it would be instructive to look at some of these legislative changes proposed.

Statutory backing for the Aadhar Platform

• The Aadhar framework was sought to be made compulsory by the previous dispensation in India only to be thwarted by the Supreme Court. However, this government has continued to set its sight via the prism of Aadhar towards various beneficial measures that the Budget contemplates.

• In doing so, the FM has tried to steer clear of controversy – both judicial and political by stating on the floor of the house that the Aadhar number shall not confer citizenship or domicile. The card would be the basis of the social security platform – and would be voluntary to the extent that if the citizen wishes to claim her benefit, she should be in possession of one.

• As a policy measure, one may not be able to find any fault in this, however, the response of the Supreme Court in this regard remains moot.


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Transport sector reforms

• The Government proposes to make necessary amendments in the Motor Vehicles Act, with a view to open up the road transport sector in the passenger segment. States will have the option to adopt this framework

• The new legal framework proposes to provide a facilitating eco-system boosting road transport, and enable entrepreneurs to operate buses on various routes, subject to certain efficiency and safety norms. Amongst the major benefits expected are an increase in efficient public transport facilities, public convenience, investment in the sector, new jobs and growth of start-ups / entrepreneurs

• The amendments are likely to pertain to existing permit laws enabling entry of the Private Sector. The Motor Vehicles Act currently poses several impediments such as requiring bus operators to get yearly permits to operate, including single district permits, permits for other districts and an all India Permit. The proposed amendments would not only lead to better commuting facilities for the masses, but also provide competition to the State Road Transport Undertakings (SRTUs), which are currently incurring huge losses and need to be more efficient

• This appears to be a low hanging fruit that the government wishes to target as a pilot towards its more ambitious reforms towards enablement


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RBI Act

• The RBI Act is proposed to be amended to provide a statutory basis for a Monetary Policy Framework and a Monetary Policy Committee (“MPC”).

• The MPC would determine the Policy Rate required to achieve the inflation target, currently determined by the RBI Governor.

• The MPC, headed by the Governor of RBI, will consist of 6 members, three of whom will be nominated by the Central Government, subject to certain statutory restrictions, while three others will be from the RBI, including the Governor. Each member will have one vote but RBI governor will get a casting vote in case of equal votes.

• The decision of the MPC would be binding on the RBI.

• The RBI will organize a minimum of four meetings of the MPC in a year.

• The RBI will, once in every six months, publish a document called the Monetary Policy Report explaining the sources and forecasts of inflation.

• Further, the Central Government will, in consultation with the RBI, determine the inflation target in terms of the Consumer Price Index, once in every five years, and notify the same in the Official Gazette. Up till now, said determination was the domain of the RBI alone.


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Resolution of financial firms

A Comprehensive Code on Resolution of Financial Firms will be introduced, providing a specialized resolution mechanism to deal with bankruptcy situations in banks, insurance companies and financial sector entities. Though the Insolvency and Bankruptcy Bill of 2015 is still pending enactment, it does not cover financial institutions, thus necessitating this Code

Amendment to Foreign Contribution (Regulation Act), 2010

Inclusion of a proviso with retrospective applicability from September 26, 2010 in the definitional clause of the Foreign Contribution (Regulation) Act, 2010 defining foreign source. It provides that a company investing more than 50% of the nominal value of share capital would not be considered a foreign source as long as such nominal value is within the limits specified for foreign investment under FEMA or accompanying rules and regulations

SARFAESI

For tackling the problem of stressed assets in the banking sector, the SARFAESI Act 2002 is proposed to be amended to enable sponsors of Asset Reconstruction Companies (ARCs) to hold up to 100% stake in ARCs, and permit non-institutional investors to invest in Securitization Receipts

Dispute resolution for PPP projects

Introduction of a Public Utility (Resolution of Disputes) Bill to streamline institutional resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts


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Enforcement and compliance oriented legislations

• Certain other legislations such as prevention of money laundering laws, NDPS laws are sought to be amended ostensibly to provide teeth to the efforts of the government in securing the assets that are part of the parallel economy

FDI Policy

• In the insurance and pension sectors, foreign investment will be allowed in the automatic route up to 49%, from the current 26%, subject to the guidelines on Indian management and control to be verified by the Regulators

• 100% FDI in ARCs will now be permitted through automatic route, as opposed to the existing 49%

• Foreign Portfolio Investors (FPIs) will be allowed up to 100% of each tranche in securities receipts issued by ARCs subject to sectoral caps

• FDI limit in Indian stock exchanges will be increased from 5% to 15% on par with domestic institutions, with a view to enhance global competitiveness and accelerate adoption of best-in-class technology and global market practices

• Investment limit by FPIs in Central Public Sector Enterprises, other than Banks, listed in stock exchanges, will be increased from 24% to 49% to obviate the need for prior approval of Government for increasing the FPI investment


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FDI Policy

• The basket of eligible FDI instruments will be expanded to include hybrid instruments subject to certain conditions

• FDI will be allowed beyond the 18 specified NBFC activities (Financial Consultancy, Venture capital, Stockbroking, etc.) in the automatic route in other activities which are regulated by financial sector regulators

• With a view to promote Make in India and following the practice in advanced countries, subject to certain conditions, foreign investors will be accorded Residency Status. Currently, such investors are granted business visa only up to 5 years at a time

• Proposed Centre State Investment Agreement to ensure effective implementation of Bilateral Investment Treaties signed by India. States that opt to sign these Agreements are likely to be seen as more attractive destinations by foreign investors

• 100% FDI will be allowed through Foreign Investment Promotion Board (FIPB) route in marketing of food products produced and manufactured in India for the benefit of farmers, to give impetus to the food processing industry and to create vast employment opportunities


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Others

• A Model Shops and Establishments Bill, voluntarily adoptable by State Governments, is proposed to be circulated, allowing small and medium shops to remain open all seven days of the week on a voluntary basis, while protecting the interests of the workers in terms of mandatory holidays, number of working hours, etc.

• A bill to amend the Companies Act, 2013 is proposed, seeking to improve the enabling environment for start-ups. Under this, the registration of companies will also be done in one day


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Direct Tax Proposals

Personal taxation

• No change in rates of personal income tax

• Increase in surcharge from 12% to 15% on income tax payable by individuals with total income above INR 10 million

• Several initiatives have been announced for taxpayers at the lower end of the spectrum. Some of these include, additional deduction in respect of interest on loan, increase in limits of deduction towards rent paid, raised ceiling of rebate and pension

• A possible dampener is taxability of employee provident fund at the time of withdrawal to the extent of contributions made post April 1, 2016

Initiative based proposal – Start Up

• Focus on providing tax impetus to start ups in the initial phase of business

• Insertion of Section 80IAC allowing for 100% deduction of profits and gains derived by an eligible start up incorporated before April 1, 2019. The said start up should not be formed by splitting up or reconstruction of a business already in existence subject to certain exceptions viz. revival of business. The proposals also provide for treatment of capital goods imported from outside India as ‘new’ capital goods for start up as long as these have not been previously used in India, and depreciation is not claimed on them


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Initiative based proposal – Start Up (Cont’d…)

• Provisions of Section 54GB providing exemption from long terms capital gains arising on account of transfer of residential property extended to individuals and HUFs investing such gains in the subscription of shares of an eligible start up

Incentives phase out

• Budget 2016-17 made an incremental advance towards rationalization of income tax by proposing to phase out certain key exemptions / deduction

• Sunset clause has been introduced in respect of SEZ Developers, development operation and maintenance of infrastructure facility and production of mineral oil & natural gas, with the benefits ineligible for operations commencing after April 1, 2017

• For SEZ Units, the sunset clause contemplates commencement of operations no later than April 1, 2021

• AD benefit to various sectors (including power generation, renewable energy devices, water treatment plant, etc.) is proposed be capped at 40% from FY 2017-18

• Cold Chain / Warehousing Facility for storage of agricultural produce, Affordable Housing Project, etc. enjoy a weighted deduction of 150% of capital expenditure (other than expenditure on land, goodwill and financial assets). This is proposed to be capped at 100% from FY 2017-18


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DDT exemption on dividend distributed to REITs and / or InvITs

• Exemption from the levy of DDT in respect of distributions made by an SPV to REITs and/or InvITs proposed. Amendment to take effect from June 1, 2016

• The dividend received by the REIT / Invits and the investor shall not be chargeable in their hands as well

• Such exemption from DDT only to be available where the Business Trust holds 100% of the share capital of the SPV or holds all such share capital which is required to be held barring any specific requirement under law

• The exemption to become available in respect of dividends paid out of the current income after the date when such Business Trust holds the required shareholding as mentioned above

Requirement of furnishing PAN by a non-resident service provider

• Absence of PAN of a non-resident service provider attracted a withholding tax at the maximum marginal rate. This requirement has been done away with to the extent that it relates to an unincorporated non-resident

• It appears that the requirement also would not arise in respect of an incorporated non-resident to the extent the payment relates to interest under bond paid by an Indian company

• However, there appears to be an interpretative issue vis-à-vis this provision. Further clarity may be forthcoming via rules drafted by the Revenue


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MAT Benefit to FIIs and FPIs

• Relaxation from MAT has been granted via this Budget retrospectively – FIIs and FPIs not to be saddled with MAT for past period as well as going forward

POEM

• Enactment of POEM rules has been deferred by a year

TDS relaxation for Category I and Category II AIFs

• Treaty rate of withholding applicable to non-resident Category I and II AIFs on all payments

• Absent a Treaty rate, withholding to be effected at 10%

• Payee in such cases can approach the Revenue for a lower / nil withholding certificate

Securitization Trusts

• Income from Securitization Trust continue to be exempt. However, income accrued or received from the securitization trust would be taxable in the hands of the investor

• Withholding tax to apply, with the possibility of obtaining a lower / withholding certificate


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Enabling provision for non-treaty country funds

• Provisions made in the IT Act to enable the possibility of offshore tax residency even in those cases where the fund is based out of a non-treaty country

• Management from India has been excepted in order to determine business connection

Additional DDT

• Additional DDT has been made applicable in the hands of the recipient at the rate of 10% of the gross amount of dividend to individuals, HUFs and firms receiving dividend in excess of INR 10 lakhs per annum

Housing for all Scheme

• A 100% deduction of profits of an assesse developing and building affordable housing projects is provided for

• The housing project should be approved by the competent authority before March 31, 2019 and should:• Be completed within a period of three years from the date of approval • Be built on atleast 1000 sq. mtrs. plot size where the project is within 25 kms from the municipal limits of

Delhi, Mumbai, Chennai or Kolkata. Else, on a plot size of at least 2000 sq. mtrs. Is mandated • Have units with an area of at least 30 sq. mtrs. in case it is located in one of the metros above, else at least

of 60 sq. mtrs.• Be allotted to only one member per household


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Strategic storage of crude oil reserves

• A foreign company storing crude oil in a strategic underground reserve in India would be exempt from income tax on its income arising out of such storage / sale of crude oil within India

• Conditions to be fulfilled include the existence of an agreement between the Indian government and the oil company, as well as a notification specifying such storage to be in the national interest

Alignment of buyback provisions with applicable companies laws

• It has been clarified that for taxation of buy back of shares, the nature of distribution of income is important and not the provision of the law relating to companies

• Hence, buy back under any law applicable on such transactions would be covered under the provisions of IT Act

Tax Incentives to IFSC

• Section 10 is being amended to provide exemption from tax on capital gains to income arising from transactions undertaken in foreign currency on a recognized stock exchange located in an IFSC even when STT is not paid

• MAT under Section 115JB to be chargeable at 9% instead of 18.5% to companies located in IFSC and deriving income solely in foreign exchange


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Tax Incentives to IFSC (Cont’d…)

• No tax on distributed profits to be chargeable in respect of total income of a unit of a company located in IFSC deriving income solely in foreign exchange on any amount declared as dividend

• STT and CTT to not apply to taxable securities/commodities transactions entered into by any person on a recognized stock exchange/association located in an IFSC where the consideration for such transaction is paid in foreign currency

Equalization levy

• Equalization levy is proposed to be introduced to target specified payments made to non-residents without a permanent establishment in India. The levy has been introduced to target the ‘cyberspace’ and persons carrying out business in the digital domain

• The levy is proposed to be applicable on business to business transactions at the rate of 6% on payments exceeding INR 1 Lakh, made to non-residents as consideration for specified services including online advertisement, provision for digital advertising space or any other service to be notified by the government

• The levy shall be deducted at the time of payment to the non-resident, failing which a 100% penalty may be chargeable


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BEPS Action Plan

• The vision of aligning Indian tax system with BEPS Action Plans seems clear

• Elements in relation to CbC reporting requirements proposed to be included in the Act

• CbC reporting for an international group having an Indian parent and having a consolidated group revenue of INR 5,395 crore has been made mandatory

Clarification in relation to ‘unlisted securities’

• Currently Section 112 provides that long term capital gains arising from transfer of unlisted securities shall be chargeable to tax at the rate of 10%. However, The term ‘securities’ was judicially interpreted to exclude shares of a private company

• The Section has been amended to include ‘unlisted securities or the shares of a company not being a company in which the public are substantially interested’ thereby including shares of private companies as well

The Income Declaration Scheme, 2016 (‘the IDS’)

• The Government is providing an opportunity to persons who have not paid taxes/escaped assessment to come forward and declare their undisclosed incomes


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The IDS (Cont’d…)

• The undisclosed income would be taxable at the rate of 30% which shall be increased by a Krishi Kalyan Cess (“KKC”) of 25% and a penalty of 25% (both to apply on the tax payable) thereby taking the total payable to 45% of the income

• The IDS would not be applicable in certain cases such as those covered under the Black Money Act, NDPS Act etc

• No immunity under IDS if income is disclosed and tax is not paid within a specified time limit

• IDS to be brought into effect from June 1, 2016 and shall remain open till a date to be notified

The Direct Tax Dispute Resolution Scheme (“DDRS”)

• DDRS made applicable to ‘tax arrears’ which has been defined to include amount of tax, arrears, interest of penalty determined under the IT/ Wealth Tax Act in respect of which an appeal is pending before the Commissioner (Appeals) IT/ Wealth Tax Act

• The declarant under the DDRS is required to pay tax at the applicable rates plus interest till the date of assessment. In case the disputed tax is above INR 10 lakhs, a mandatory penalty of 25% of the minimum penalty also has to be paid

• Certain categories of taxpayers and cases involving special legislations are excluded from the ambit of DDRS


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Rationalization of Penalties

• New Section 270A introduced under the IT Act instead of Section 271 for levying penalty in cases of under reporting and misreporting with intent to evade tax. Penalty has been prescribed at 50% of the tax due in the former case, while in the latter, penalty could extend to 200% of the tax due

• Section 270A becomes applicable in case of under reporting of income which shall be determined in a specified manner

• A person will be considered to have under reported his income inter-alia if:• His income is greater than the income determined in the Return • In case no return is furnished, the income assessed is greater than the maximum amount not chargeable to

tax • Where income reassessed is greater than the income assessed

• The amount of under-reported income shall be calculated in the following manner:• In case income is assessed for the first time and Return has been furnished the amount shall be the difference

between the income assessed and the income determined under Section 143(1)(a)• In case no Return has been furnished, the amount of income assessed and the difference between the income

assessed and the maximum amount not chargeable to tax • In any other case the difference between the amount of income reassessed and the amount of income

assessed. • Special formula provided for computation of under reported deemed total income under Section 115JB or

Section 115JC


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Immunity from penalty and prosecution in certain cases

• Section 270AA has been added to the IT Act whereby an assesse may make an application for grant of immunity from penalty and prosecution to the AO

• The assesse may file the application within one month from the end of the month in which assessment is received. Such assesse to pay tax and interest payable as per the order of assessment/reassessment within a specified period

• The AO may grant immunity from penalty and prosecution if the penalty proceedings have not been initiated on account of the following:

• Misrepresentation and suppression of facts; • Failed to record investments in books of accounts; • Recording of false entry in books of account; • Failure to record any receipt in books of account; • Failure to report any international transaction or any transaction deemed to be an international transaction or

any specified domestic transaction



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Service tax

• Rate of service tax

• Enhancement in rate of service tax by .5% with the introduction of KKC with effect from June 1, 2016 – effective service tax rate revised to 15% with this addition

• Cenvat credit of KKC to be available against output KKC payable

• Negative list pruned – services removed from Negative list continue to be exempt

• Certain services have been removed from the negative list – however, these have been placed under the Mega Exemption Notification

• Ostensibly, status of these services has been changed for ease of administration, should the Revenue wish to impose a tax upon such services via delegated legislation

• These services are – School and Vocational education, Import cargo by aircraft or vessel

• Services of transportation of passengers (which was a part of the negative list) proposed to be subjected to tax from June 1, 2016

Indirect tax Proposals


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Service tax

• Miscellaneous

• Spectrum assignment (whether by the Government or by any other person holding the spectrum after such assignment) included as a declared service

• Increase in limitation period for non-willful evasion cases from 18 months to 30 months

• Interest on unpaid service tax specified at 15%. However, in cases of unjust enrichment, interest rate at 24% to be applicable. Prosecution to be pursued only if outstanding service tax is in excess of INR 20 million

• Rationalization of provisions to ensure that proceedings against taxpayer’s employees / directors do not continue upon cessation of proceedings fixing service tax liability upon the taxpayer

• Composition rate of 1.4% of the total premium for single premium annuity policy prescribed

• Litigation minimization measures proposed by way of extending service tax exemption retrospectively to all services rendered by taxpayers to government in relation to construction of specific structures (such as dams, canals, government employee housing, airport etc.). In all such cases, • agreement should have been entered into with the government / government agencies prior to specific

dates prescribed and • appropriate stamp duty should have been paid on such agreements• In case of airports, and/or ports, certification from the line ministry has been mandated



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Service tax

• Withdrawal of exemption

• Legal services provided by a senior advocate to an advocate and / or arbitral tribunal made taxable – taxable in the hands of the senior advocate. To be effective from April 1, 2016

• Construction, erection, installation or commissioning of original works pertaining to metro / monorail made taxable, where contracts have been entered on or after March 1, 2016

• De novo exemptions

• Following services are exempted from service tax

• Life insurance services by way of annuity under the National Pension System(NPS) regulated by Pension Fund Regulatory and Development Authority (PFRDA)

• Investor protection and regulatory services by Securities and Exchange Board of India (SEBI)• Services provided by Employees’ Provident Fund Organisation (EPFO) to employees• Services provided by Insurance Regulatory and Development Authority (IRDA)

(with effect from April 1, 2016)



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Service tax

• De novo exemptions

• Services by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of following • Civil structure or original works pertaining to ‘In-situ rehabilitation of existing slum dwellers using land as

a resource through private participation’ under Housing for All (Urban) Mission / Pradhan Mantri Awas Yojana for slum dwellers

• Civil structure or original works pertaining to the ‘Beneficiary-led individual house construction/enhancement under the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana

• Services by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration pertaining to flow cost houses built in less than carpet area of 60 sq. m. per house in a housing project approved by the competent authority under:• “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri

Awas Yojana;• any housing scheme of a State Government.”

(with effect from March 1, 2016)



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Service tax

• De novo exemptions • Information Technology Software:

• In case software is amenable to excise duty on MRP basis, then service tax has been proposed to be exempted with effect from March 1, 2016

• However, in case of those software, which are customized and hence, may not be amenable to excise duty on MRP basis, exemption would only extend to the value of the medium on which it is provided, while the software loaded on to such media would be taxable

• Change in person liable to pay tax – reverse charge withdrawn• Mutual fund agent or distributors’ services to a mutual fund or an asset management company converted to

forward charge • Legal services provided by a senior advocate to be taxable in the hands of the senior advocate (as noted

earlier)

• Reverse charge introduced • Services provided by the government taxable on reverse charge basis except when the government provides:

• Services of renting of immovable property • Service of department of posts • Services in relation to an aircraft or vessel• Transportation of goods or passengers • Service by a foreign shipping line to a business entity



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Service tax

• Abatement scheme for certain services (effective from April 1, 2016)


Service % abatement ConditionTransport of goods by rail by Indian Railways 70 Non-availment of Cenvat credit on inputs and

capital goodsTransport of goods by rail in a container (not by Indian Railways)

60 Non-availment of Cenvat credit on inputs and capital goods

Transport of passengers, with or without accompanied belongings by rail

70 Non-availment of Cenvat credit on inputs and capital goods

Tour operator services for the sole purpose of booking accommodation

90 • Invoice should include cost of accommodation

• Cenvat credit has not been taken aside from pass through tour operator services

Services of goods transport agency in relation to transportation of goods other than used household goods

70 Non- availment of Cenvat credit

Services of goods transport agency in relation to transportation of used household goods

60 Non-availment of Cenvat credit


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Service tax

• Abatement scheme for certain services (effective from April 1, 2016)


Service % abatement ConditionTransport of passengers, with or without accompanied belongings, by-a. a contract carriage other than motorcab.b. a radio taxi.c. a stage carriage

60 Non-availment of Cenvat credit


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Customs

• Rationalisation Measures

• Warehousing provisions simplified to move from physical control to record based control. Public and private warehouses no longer to be under the physical control of the custom authorities. However provisions introduced for new class of warehouses requiring physical control of customs authorities

• Facility of deferred payment of custom duty extended to class of importers and exporters to be specified

• Clarificatory amendment issued to provide exemption from safeguard duty levied under section 8B of the Customs Tariff Act, 1975 (“CTA”) for imports made under advance license and DFIA schemes

• Levy of transitional product specific safeguard duty on imports from China has been abolished

• Interest rates on delayed payment of customs duty rationalized at 15%

• Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 have been simplified by substitution of Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2016. Duty exemption to be based on self-declaration



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Customs

• Miscellaneous

• First schedule to CTA aligned with certain editorial changes in the Harmonised System of Nomenclature (“HSN”) to be effective from January 1, 2017

• Customs exemption to be effective from the date of its publication in the official gazette. The requirement for publishing and offering for sale of CBEC notifications by the Directorate of Public and Public Relations is no longer mandated

• Normal period of limitation for issuance of SCN increased to two years

• Rate Revisions under Customs

There have been widespread rate revisions under the Customs laws. Some of these changes are inspired by the Government’s vision of Make in India, such that a fillip appears to have been given to specific industries, by imposing customs duties on the import of finished goods, while exempting inputs and parts for manufacture of such finished goods. There have also been several rationalization measures brought about by rising complexity in the current rate structure. Given that these are fairly voluminous, we have provided these via an Annexure to this presentation. You may refer to the annexure to this presentation to take a look at the specific of the rate revisions, and the goods that stand impacted by it



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Excise

• Rationalisation Measures• Interest rates on delayed payment of excise duty rationalized at 15%• Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods)

Rules, 2001 have been simplified by substitution of Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable and Other Goods) Rules, 2016. Duty exemption is to be based on self-declaration

• Facility of revision of central excise returns to be permitted till the end of the calendar month in which the original return was filed

• Miscellaneous• Excise duty exemption to be effective from the date of its publication in the official gazette. The requirement

for publishing and offering for sale of CBEC notifications by the Directorate of Public and Public Relations no longer mandated

• Normal period of limitation for issuance of SCN increased to two years• CBEC empowered to issue instructions/orders/directions for all matters relating to implementation of Central

Excise Act, 1944



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Excise

• Miscellaneous

• In case of finalization of provisional assessment the interest on differential duty would be chargeable from the original date of payment of duty. To be effective from March 1, 2016

• Annual return prescribed under central excise in place of annual financial information statement, annual installed capacity statement and statements relating to principal inputs prescribed under the Cenvat Credit Rules, 2004 (“CCR”). Annual return would be required to be filed by November 30th of the succeeding financial year. These provision would be applicable from a date to be notified

• Third Schedule of the Central Excise Act, 1944 and the Central Excise Tariff Act, 1985 aligned with certain editorial changes in the HSN to be effective from January 1, 2017

• MRP based valuation prescribed for the following goods:• All goods falling under CETH 3401 and 3402-Abatement of 30 percent• Aluminium foil of thickness not exceeding 0.2mm--Abatement of 25 percent• Wrist wearable devices (commonly known as smart watches)-Abatement of 35 percent• Accessories of motor vehicle and certain other specified goods falling under Chapter 87 of Central Excise

Tariff Act, 1985-Abatement of 30 percent



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Excise

• Additional Resource Mobilization Measures

• Infrastructure Cess to be levied with immediate effect on motor vehicles of heading 8703, as under:

• Specific exemptions provided to the following: • Three wheeled vehicles • Electrically operate vehicles • Hybrid vehicles • Hydrogen vehicles based on fuel cell technology


Description of goods Rate of duty (%)Petrol / LPG / CNG driven motor vehicle (length not exceeding 4m and engine capacity not exceeding 1200 cc)

1

Diesel driven motor vehicles (length exceeding 4m and engine capacity not exceeding 1500 cc)

2.5

All other motor vehicles falling under Chapter 8703 (including higher engine capacity vehicles and SUVs)

4


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Excise

• Specific Exemptions• Specific exemptions provided to the following:

• motor vehicles which after clearance have been registered for use solely as taxi• cars for physically handicapped persons• motor vehicles cleared as ambulances or registered for use solely as ambulance

• No Cenvat credit of infrastructure cess to be available. Cenvat Credit cannot be utilized for payment Infrastructure Cess

Clean Energy Cess• Clean Energy Cess proposed to be renamed as ‘Clean Environment Cess’ with effective rate to be increased from

`200 per tonne to `400 per tonne on all goods covered under the Tenth Schedule of the Finance Act, 2010

Oil Cess • The rate of cess / excise duty on Crude Oil under the Oil Industry (Development) Act, 1974 has been amended from

INR One Thousand per tonne to “twenty percent ad valorem”



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Excise Rates Revision

• Food Processing • Excise duty on refrigerated containers reduced from 12.5% to 6%

• Textiles• Branded readymade garments and made up articles of textiles of RSP > 1000 and having a brand name to be

charged to 12.5% duty with credit, with an option to pay 2% duty without availing Cenvat credit• Tariff value of readymade garments and made up articles of textiles is also being increased from 30% to 60%• PSF / PFY manufactured from plastic scrap or plastic waste including PET bottles increased from 6% to 12.5%

(with CENVAT credit)

• Renewable energy• Excise duty on Unsaturated Polyester Resin (polyester based infusion resin and hand layup resin), Hardens /

Hardener for adhesive resin, Vinyl Easter Adhesive (VEA) and Epoxy Resin used for manufacture of rotor blades and intermediates, parts and sub parts of rotor blades for wind operated electricity generators has been prescribed at 6%

• Rate of excise duty on Carbon pultrusion used for manufacture of rotor blades and intermediates, parts and sub parts of rotor blades for wind operated electricity generators has been reduced to 6%

• Nil excise duty has been prescribed for solar lamps



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• Automobiles• Excise duty on Engine for xEV (hybrid electric vehicle) has been decreased to 6%• Excise duty on Specified parts of Electric Vehicles and Hybrid Vehicles prescribed at 6% (Sunset clause

removed)

• Consumer goods• Excise duty on rubber sheets & resin rubber sheets for soles and heels has been decreased to 6%

• Civil Aviation• Excise duty on Aviation Turbine Fuel [ATF] other than for supply to Scheduled Commuter Airlines (SCA) from

the regional connectivity scheme airport has been increased to 14%

• Electronics & IT Hardware• 2% excise duty without CENVAT credit and 12.5% excise duty with CENVAT credit on Charger / adapter, battery

and wired headsets/speakers for supply to mobile phone manufacturers as original equipment manufacturer has been prescribed

• 4% excise duty without CENVAT credit and 12.5% excise duty with CENVAT credit on Routers, broadband Modems, Set-top boxes for gaining access to internet, set top boxes for TV, digital video recorder (DVR) / network video recorder (NVR), CCTV camera / IP camera, lithium ion battery [other than those for mobile handsets] manufacturer has been prescribed



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• Nil excise duty has been prescribed on: • Inputs, parts and components, subparts for manufacture of charger / adapter, battery and wired headset /

speakers of mobile phone, subject to actual user condition• Parts and components, subparts for manufacture of Routers, broadband Modems, Set-top boxes for gaining

access to internet, set top boxes for TV, DVR / NVR, CCTV camera / IP camera, lithium ion battery [other than those for mobile headsets]

• Machinery• Excise duty on Electric motor, shafts, sleeve, chamber, impeller, washer required for the manufacture of

centrifugal pump has been decreased to 6%• Maintenance, Repair and Overhaul (MRO) of aircrafts

• Nil excise duty has been prescribed on Tools and tool kits when procured by MROs for maintenance, repair, and overhauling of aircraft subject to a certification by the Directorate General of Civil Aviation

• Miscellaneous• Excise duty on sacks and bags of all plastics is being rationalized at 15%• Nil excise duty has been prescribed on disposable sterilized dialyzer and micro barrier of artificial kidney• Nil excise duty has been prescribed on ready mix concrete manufactured at the site of construction for use in

construction work at such site



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• The excise duty on parts of railway or tramway locomotives or rolling stock and railway or tramway track fixtures and fittings, railway safety or traffic control equipment, etc. has been decreased to 6%

• Nil excise duty has been prescribed on remnant kerosene, presently available for manufacture of Linear alkyl Benzene(LAB) and heavy alkylate (HA) to N-paraffin



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Indirect Tax Disputes Resolution Scheme

• Scheme to come into force on June 1, 2016• Application for settlement of any dispute in relation to customs, excise and service tax laws pending before

Commissioner (Appeals) as on March 1, 2016 can be filed by the taxpayer• Application to be filed before December 31, 2016 • Taxpayer required to pay tax along with interest and 25% of the penalty imposed• Taxpayer to get immunity from prosecution and closure of all proceedings under the respective legislations• Scheme not to be applicable in the following cases:

• Impugned order relates to search and seizure proceedings• Prosecution has already been launched before June 1, 2016• Relating to narcotic drugs and other prohibited goods; offences punishable under IPC, NDPS or Prevention of

Corruption Act; detention order under COFEPOSA

• Amounts paid under this scheme would not be refunded



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Cenvat Credit

Definitional changes

• Capital goods include the following:

• Train Wagons • Equipment or appliance used in an office

• Cenvat credit on capital goods and inputs used outside the factory for pumping of water for captive use within the factory allowed

• All capital goods having value upto INR 10,000 per piece included in definition of inputs

(Above amendments effective from April 1, 2016)

• Service by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India does not qualify as exempted service

(Above amendments effective from March 1, 2016)


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Cenvat Credit

Cenvat credit utilisation and allowance

• Cenvat credit of service tax paid on charges for services of assignment by the Government or any other person of the right to use any natural resource to be spread over the time for which the rights have been assigned. Formula to determine amount of credit: Cenvat credit available in a financial year = Service tax paid on charges payable for assignment of right to use / no. of years for which rights assigned

• In case the manufacturer or the service provider further assigns such right to use assigned by the Government of any other person in any financial year to another for a consideration then the balance Cenvat credit that does not exceed the service tax payable on the service tax charged by him for further assignment to be allowed in same financial year.

• Cenvat credit of annual or monthly user charges payable in respect of service of assignment of right to use natural resources to be allowed in the same financial year in which they are paid

(Above amendments effective from April 1, 2016)

Common service credit utilization rejigged

• New formula prescribed for allocating Cenvat credits towards exempt and common services – interest at 15% on wrongful availment of credit. Special dispensation for banking companies of option to pay 50% of Cenvat credit

• Notably, option of maintenance of separate books of accounts removed and formula geared towards one to one allocation in the first instance towards taxable and exempt supplies & services, before arriving at the common Cenvat credit to be allocated towards these on a pro-rata basis


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Cenvat Credit

Input Service Distributor scheme re-cast

• Input service distributor scheme has been tightened to ensure minimal loss of credit

• Rules have been re-cast to ensure that input credit pertaining to a certain unit is only allocated to such unit – specific rules regarding job worker also restated

• Rules now prescribe that pro-rata distribution of credit would be per the turnover of each unit, provided that such unit is operational

Scope of export goods

• Transportation services and inputs used during such transportation covered within the Cenvat scheme


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It has been specified under the CST Act that the sale of gas would be considered as an interstate sale if it is• transported through a common carrier or pipeline, or • any other common transport or distribution system, • becomes comingled and fungible with other gas in the pipeline • is infused in one state and taken out in another state

Thus, all gas sales which are undertaken through pipeline would be liable to CST in the state from where it is introduced into the pipeline

Central Sales Tax


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Glossary

AD Accelerated DepreciationAIFs Alternate Investment FundsBCD Basic Custom DutyBEPS Base Erosion Profit ShiftingCAD Current Account DeficitCbC Country by CountryCBDT Central Board of Direct TaxesCBEC Central Board of Excise and Customs

COFEPOSA Conservation of Foreign Exchange and Prevention of Smuggling Activities

CTT Commodities Transaction TaxCVD Countervailing DutyDDT Dividend Distribution TaxEVA Ethylene Vinyl AcetateFCRA Foreign Contribution Regulation Act, 2010FDI Foreign Direct InvestmentFEMA Foreign Exchange Management Act, 1999FII Foreign Institutional InvestorFIPB Foreign Investment Promotion BoardFM Finance MinisterGAAR General Anti-avoidance RulesGDP Gross Domestic ProductGTA Goods Transport Agency

HSD High Speed DieselHUF Hindu Undivided FamilyIFSC Indian Financial System CodeINR Indian National RupeesInvIT Infrastructure Investment TrustsIPC Indian Penal CodeMAT Minimum Alternate TaxNBFC Non Banking Financial CorporationNDPS Narcotic Drugs and Psychotropic SubstancesNPS National Pension SchemePMLA Prevention of Money Laundering Act, 2002PPP Public Private PartnershipPSF Polyester staple fibrePSY Polyester filament yarnRBI Reserve Bank of IndiaREIT Real Estate Investment TrustSAD Special Additional Duty

SARFAESI Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests

SEBI Securities and Exchange Board of IndiaSEZ Special Economic ZoneSPV Special Purpose VehicleSTT Securities Transaction Tax


[email protected]

Thank you


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Customs

• Rate changes

The current rates per various amendments to the Customs tariff and Notification are clubbed per the resultant treatment under the provisions of the Finance Bill, 2016 and the attendant notifications issued thereunder


Goods for which BCD of 2.5% has been prescribed• All acyclic hydrocarbons and all cyclic hydrocarbons [other than para-xylene which attracts Nil BCD and

styrene which attracts 2% BCD]• Brass scrap• Coal; briquettes, ovoids and similar solid fuels manufactured from coal• Denatured ethyl alcohol (Ethanol) subject to actual user condition• Lignite, whether or not agglomerated, excluding jet • Neodymium Magnet (before Magnetization) and Magnet Resin (Strontium Ferrite compound/before

formed, before magnetization) for manufacture of BLDC motors, subject to actual user condition• Oils and other products of the distillation of high temperature coal tar similar products in which the

weight of the aromatic constituents exceeds that of the non-aromatic constituents• Peat (including peat litter), whether or not agglomerated• Pulp of wood for manufacture of sanitary pads, napkins & tampons• Silica sand• Specified fibres and yarns


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Customs

• Rate changes

The current rates per various amendments to the Customs tariff and Notification are clubbed per the resultant treatment under the provisions of the Finance Bill, 2016 and the attendant notifications issued thereunder.


Goods for which BCD of 5% is prescribed • Aluminium Oxide for use in the manufacture of Wash Coat, which is used in the manufacture of catalytic

converters, subject to actual user condition• Cashew nuts in shell• Coal gas, water gas, producer gas and similar gases, other than petroleum gases and other gaseous

hydrocarbons• Coke and semi-coke of coal, of lignite or of peat, whether or not agglomerated; retort carbon• Cold Chain including pre-cooling unit, packhouses, sorting and grading lines and ripenening chambers• Parts of E-readers• Pitch and pitch coke, obtained from coal tar or from other mineral tars• Refrigerated Containers• Solar tempered glass / solar tempered (anti-reflective coated) glass, subject to actual user condition• Super Absorbent Polymer when used for the manufacture of sanitary pads, napkins & tampons• Tar distilled from coal, from lignite or from peat and other mineral tars, whether or not dehydrated or

partially distilled, including reconstituted tarsGoods for which BCD of 7.5% is prescribed• E-Readers


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Customs

• Rate changes



Goods for which BCD of 10% is prescribed • Other aluminium products• Preform of silica for manufacture of telecom grade optical fibre /cables• Specified telecommunication equipment [Soft switches and Voice over Internet Protocol (VoIP)

equipment namely VoIP phones, media gateways, gateway controllers and session border controllers, Optical Transport equipment; combination of one / more of Packet Optical Transport Product/Switch (POTP/POTS), Optical Transport Network(OTN) products, and IP Radios, Carrier Ethernet Switch, Packet Transport Node (PTN) products, Multiprotocol Label Switching Transport Profile (MPLS-TP) products, Multiple Input / Multiple Output(MIMO) and Long Term Evolution (LTE) Products.

• Industrial solar water heaterGoods for which BCD of 60% is prescribed• Golf carsGoods for which BCD of 7.5 is prescribed• Primary aluminium• Zinc Alloys


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Customs

• Rate changes



Goods on which BCD of 15% is prescribed• Imitation JewelleryGoods on which BCD of 20% is prescribed • Natural Latex rubber made balloons falling under specified headings2% SAD• Populated PCBs for manufacture of mobile phone/tablet computer4% SAD• Populated PCBs for manufacture of personal computers (laptop or desktop)Applicable BCD, CVD @ 12.5% & SAD @ 4%• Charger / adapter, battery and wired headsets / speakers for manufacture of mobile phone. Applicable BCD, CVD & SAD• Direct imports of specified goods by Government of India or State Governments,• Imports of specified goods for defence purposes by contractors of the Government of India, PSUs or sub-

contractors of PSUs.


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Customs

• Rate changes



Applicable BCD• Magnetic - Heads (all types), Ceramic / Magnetic cartridges and stylus, Antennas, EHT cables, Level

meters/level indicators/ tuning indicators/ peak level meters/ battery meter/VC meters / Tape counters, Tone arms, Electron guns

BCD-Nil, CVD – 6%, (Sunset clause removed)• Specified parts of electric and hybrid vehiclesCVD @ 12.5%• Specified machinery required for construction of roadsNil• Braille paper• Capital goods and spare thereof, raw materials, parts, material handling equipment and consumable for

repairs of ocean-going vessels by a ship repair unit subject to actual user condition• Medical Use Fission Molybdenum-99 imported by Board of Radiation and Isotope Technology (BRIT) for

manufacture of radio pharmaceuticals


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Customs

• Rate changes



Nil BCD• Electrolysers, membranes and their parts required by caustic soda / potash unit using membrane cell

technology• Magnetron of capacity of 1 KW to 1.5 KW for use in manufacture of domestic microwave ovens subject to

actual user condition.• Polypropylene granules / resins for the manufacture of capacitor grade plastic films• Specified capital goods and inputs for use in manufacture of Micro fuses,

Sub-miniature fuses, Resettable fuses, and Thermal fuses • Specified fabrics [for manufacture of textile garments for export] of value equivalent to 1% of FOB value

of exports in the preceding financial year subject to the specified conditions. The entitlement for the month of March 2016 shall be one twelfth of one per cent of the FOB value of exports in the financial year 2014-15.

Nil BCD & Nil SAD• Machinery, electrical equipment and instrument and parts thereof (except populated PCBs) for

semiconductor wafer fabrication / LCD fabrication units• Machinery, electrical equipment and instrument and parts thereof (except populated PCBs) imported for

Assembly, Test, Marking and Packaging of semiconductor chips (ATMP)


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Customs

• Rate changes



Nil BCD and CVD• Goods required for exploration & production of hydrocarbon activities undertaken under Petroleum

Exploration Licenses (PEL) or Mining Leases (ML) issued or renewed before 1st April 1999Nil BCD with 6% CVD• Engine for xEV (hybrid electric vehicle)Nil BCD, Nil CVD & Nil SAD• “Foreign Satellite data” on storage media when imported by National Remote

Sensing Centre (NRSC), Hyderabad• Inputs, parts and components, subparts for manufacture of charger / adapter, battery and wired headsets

/ speakers of mobile phones, subject to actual user conditions• Parts and components, subparts for manufacture of Routers, broadband Modems, Set-top boxes for

gaining access to internet, set top boxes for TV, digital video recorder (DVR) / network video recorder (NVR), CCTV camera / IP camera, lithium ion battery [other than those for mobile handsets]

• Tools and tool kits when imported by MROs for maintenance, repair, and overhauling [MRO] of aircraft subject to a certification by the Directorate General of Civil Aviation

SAD @ 2%• Orthoxylene for the manufacture of phthalic anhydride subject to actual user conditions

India Union Budget 2016-17

Economy & Finance

Transcript of India Union Budget 2016-17