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ANALYSIS OF

UNION BUDGET 2015

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UNION BUDGET---------------------------

2015-16

Slide

Foreword 3

State of the Economy 4-7

Key Policy Announcements 8-10

Budget Financials 11-12

Direct Tax Proposals 13-30

Indirect Tax Proposals 31-36

Contents

UNION BUDGET---------------------------

2015-16Foreword

The 9 months of new Government has come with a budget which lays emphasis on a great vision for future India withmany forward looking at well intended plans and programs. Strong macro economic fundamentals are depicted both inthe economic survey and the budget. Budget 2015 is a bold attempt to foster growth whilst managing fiscal deficit.

Increased allocations have been made to priority sectors such as infrastructure, rural development and more impetusgiven on socio-economic schemes. Laudable measures has been taken in the direction of empowering MSME who arethe back bone of the economy. The labor welfare scheme in the form of NPS is clearly directed at the future.

Major Steps have been taken to usher in GST, future progressive tax code, good governance and stable tax regime. Lessfiscal headroom has led to missed popular expectation (MAT Reduction, Personal Taxes, etc.)

Bringing the corporate tax rates down to 25% gradually (at par with China) over the next four years, reiterating thatdoing business in India would be made easy by giving a fundamental framework, compliance of which would beadequate to commence operations subject to formal approvals, bolsters India’s position as a favored investmentdestination in the coming days. Every budget is a balancing act and this one is no exception. On the whole, with an eyeon fuelling growth in the economy without losing sight of its investments in the social sector, this budget seems to havedone well on all scores!

The roadmap is clear and the key is –

- State Centre Relationship- Continuity of favorable external factors such as oil prices; and- Relentless execution

This document envisages to bring out an analysis of the amendments and its impacts, and has broadly covered Budgetproposals.

UNION BUDGET---------------------------

2015-16State of the Economy

Summary

• One of the redeeming features has been the emergence of India among the few largeeconomies with propitious economic outlook, amidst the mood of pessimism anduncertainties that engulf a number of advanced and emerging economies.

• Brighter prospects in India owe mainly to the fact that the economy stands largelyrelieved of the vulnerabilities associated with an economic slowdown, persistentinflation, elevated fiscal deficit, slackening domestic demand, external accountimbalances, and oscillating value of the rupee in 2011-12 and 2012-13. From themacroeconomic perspective, the worst is clearly behind us.

• The latest indicators point to the fact that the revival of growth had started in 2013-14and attained further vigor in 2014-15.

• Factors like:- the steep decline in oil prices,- plentiful flow of funds from the rest of the world, and- potential impact of the reform initiatives of the new government at the center

along with its commitment to calibrated fiscal management and consolidationbode well for the growth prospects and the overall macroeconomic situation.

UNION BUDGET---------------------------

2015-16State of the Economy

Summary…

• Encouraged by the greater macro-economic stability and the reformist intent andactions of the government, coupled with improved business sentiments in the country,institutions like the IMF and the World Bank have presented an optimistic growthoutlook for India for the year 2015 and beyond.

• The possible headwinds to such promising prospects, however, emanate from factorslike inadequate support from the global economy saddled with subdued demandconditions, particularly in Europe and Japan, recent slowdown in China, and, on thedomestic front, from possible spill-overs of below normal agricultural growth andchallenges relating to the massive requirements of skill creation and infrastructural upgradation.

• The encouraging results from the Advance Estimates for 2014-15 suggest that thoughthe global sluggishness has partly fed into the lacklusture growth in foreign trade; yetthis downward pressure has been compensated by strong domestic demand, keepingthe growth momentum going.

UNION BUDGET---------------------------

2015-16State of the EconomyEconomic Performance

Data Categories Units FY 13-14 FY 14-15

GDP and Related Indicators- GDP (constant market prices)- Growth Rate- GVA at Basic prices (2011-12 prices)- Saving Rate- Capital Formation Rate

INR Crore%

INR Crore% of GDP% of GDP

99,21,1066.9

91,69,78730.632.3

106,56,9257.4

98,57,672NANA

ProductionIndex of Industrial Production (growth) (The IIP has been revised since 2005-06 on base (2004- 05=100)

% -0.1 2.1

Prices- Inflation (WPI) (Average)- Inflation CPI - IW) (average)

6.09.7

3.46.2

External Sector- Export growth ( US$) % - Import growth (US$) % - Current Account Balance (CAB)/GDP

%%%

4.7-8.3-1.7

4.03.6

-1.9 (H1)

Fiscal Indicators (Centre)- Gross Fiscal Deficit % of GDP 4.5 4.1

UNION BUDGET---------------------------

2015-16State of the EconomyPerformance of the three sectors – industry, agriculture and services*

Data Categories FY 13-14 FY 14-15

Agriculture, forestry & fishing3.7 1.1

Industry - Mining & quarrying - Manufacturing - Electricity, gas, water supply,& other utility services - Construction

5.45.34.82.5

2.36.89.64.5

Services - Trade, hotels & restaurants, transport & communication- Financing, insurance, real estate & business services - Community, social,& personal services

11.17.97.9

8.413.79.0

*Growth in GVA at Constant (2011-12) Basic Prices (per cent)

UNION BUDGET---------------------------

2015-16Key Policy Announcements

Financial Services & Capital Markets• Comprehensive Bankruptcy Code of global standards to be brought in fiscal 2015-16 towards ease of

doing business.• Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of INR 20,000 crores, and

credit guarantee corpus of INR 3,000 crores to be created. In lending, priority will be given to SC/STenterprises. It shall be responsible for refinancing all Micro-finance Institutions which are in thebusiness of lending to such small entities of business through a Pradhan Mantri Mudra Yojana.

• NBFCs registered with RBI and having asset size of INR 500 crore and above may be considered fornotifications as ‘Financial Institution’ in terms of the SARFAESI Act, 2002.

• Forward Markets commission to be merged with SEBI.• For Consumer Protection, Indian Financial Code to be introduced soon in Parliament.

Socio-Economic security• To allow employee to opt for EPF or New Pension Scheme. For employee’s below a certain threshold of

monthly income, contribution to EPF to be optional, without affecting employees’ contribution.• Pradhan Mantri Suraksha Bima Yojna to cover accidental death risk of INR 2 Lakh for a premium of just

INR 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 INR 1,000 eachyear, for five years, in the new accounts opened before 31st December 2015.

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

UNION BUDGET---------------------------


Manufacturing & Industry• 5 new Ultra Mega Power Projects, each of 4000 MW, in the Plug-and-Play mode.• Government to bear major part of Risk in PPP.• Target of renewable energy capacity revised to 175000 MW till 2022, comprising 100000 MW Solar,

60000 MW Wind, 10000 MW Biomass and 5000 MW Small Hydro.• National Investment and Infrastructure Fund (NIIF) to be established with an annual flow of INR

20,000 crores to it.• Tax free infrastructure bonds for the projects in the rail, road and irrigation sectoINR• Atal Innovation Mission (AIM) to be established in NITI to provide Innovation Promotion Platform

involving academicians, and drawing upon national and international experiences to foster a cultureof innovation, research and development. A sum of INR 150 crore will be earmarked.

• (SETU) Self-Employment and Talent Utilization) to be established as Techno-financial, incubation andfacilitation program to support all aspects of start-up business. INR 1000 crore to be set aside asinitial amount in NITI.

• Ports in public sector will be encouraged, to corporatize, and become companies under theCompanies Act to attract investment and leverage the huge land resources.

Gold Monetization• Gold monetization scheme to allow the depositors of gold to earn interest in their metal

accounts and the jewelers to obtain loans in their metal account to be introduced.

UNION BUDGET---------------------------


Social & Human Development• INR 1000 crores to the Nirbhaya Fund.• Visas on arrival to be increased to 150 countries in stages.• An IIT to be set up in Karnataka and Indian School of Mines, Dhanbad to be upgraded in to a full-

fledged IIT.• New All India Institute of Medical Science (AIIMS) to be set up in J&K, Punjab, Tamil Nadu,

Himachal Pradesh and Assam. Another AIIMS like institutions to be set up in Bihar.• The first phase of GIFT to become a reality very soon.• Special assistance to Bihar & West Bengal to be provided as in the case of Andhra Pradesh.

Agriculture• INR 5,300 crore to support micro-irrigation, watershed development and the ‘Pradhan Mantri Krishi

Sinchai Yojana’. States urged to chip in.• INR 25,000 crore in 2015-16 to the corpus of Rural Infrastructure Development Fund (RIDF) set up in

NABARD; INR 15,000 crore for Long Term Rural Credit Fund; INR 45,000 crore for Short TermCooperative Rural Credit Refinance Fund; and INR 15,000 crore for Short Term RRB Refinance Fund.

• Target of INR 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.

UNION BUDGET---------------------------

2015-16Budget Financials

20%

14%

9%

10%9%

10%

4%

24%

Corporation Tax

Income Tax

Customs

Union Excise Duties

Service Tax & OtherTaxes

Non-Tax Revenue

Non-Debt CapitalReceipts

Borrowings and OtherLiabilities

23%

5%

9%

11%20%

11%

10%

11%

State's Share ofTaxes & Duties

Non-Plan Assistanceto States & UTs

Plan Assistance toStates & UTs

Central Plan

Interest Payments

Defence

Subsidies

Other Non-PlanExpenditure

Where the Rupee comes from Where the Rupee goes to

UNION BUDGET---------------------------

2015-16Budget FinancialsBudget at a GlanceSl.no. Particulars FY 13-14

ActualsFY 14-15Budget

Estimates

FY 14-15Revised

Estimates

FY 14-15Budget

Estimates

1. Revenue Receipts 10,14,724 11,89,763 11,26,294 11,41,575

2. Capital Receipts 5,44,723 6,05,129 5,54,864 6,35,902

3. Total Receipts (1 + 2) 15,59,447 17,94,892 16,81,158 17,77,477

4. Non Plan Expenditure 11,06,120 12,19,892 12,13,224 13,12,200

5. Plan Expenditure 4,53,327 5,75,000 4,67,934 4,65,277

6. Total Expenditure (4 + 5) 15,59,447 1794892 1681158 17,77,477

7. Revenue Expenditure 13,71,772 15,68,111 14,88,780 15,36,047

8. Capital Expenditure 1,87,675 2,26,781 1,92,378 2,41,430

9. Revenue Deficit (7-1) 3,57,048 378348 3,62,486 3,94,472

10. As a percentage of GDP 3.10% 2.90% 2.90% 2.80%

11. Fiscal Deficit {6-(1+Recoveries of Loans + Other Receipts)} 5,02,858 5,31,177 5,12,628 5,55,649


13. Primary Deficit {10- Interest Payments} 1,28,604 1,04,166 1,01,274 99,504


In Rupees Crore

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsIndex

Sl.No.

Budget Proposals impacting Slide

1. Personal Taxation 14-17

2. Curbing Black Money 18

3. Corporate Taxation 19-23

4. International Taxation 24

5. Transfer Pricing & GAAR 25

6. Other Entities Taxation – REITs, AIF & Trust 26-27

7. General 28-30

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsPersonal Taxation

Sl.no. Clause & Section Reference

Proposal Impact

1. No change in basic personal tax rates & slabs

2. Clause 2 - UnderChapter II

Rate of surcharge on Income exceeding INR 1crore is to be increased to 12% from 10%

This will increase Maximum Marginal rateof Tax from 33.99% to 34.61% for the superrich.

3. Under Rule 2BB of Income Tax Rules

Exemption Limit for transport allowance is tobe increased to INR 1600 per month from INR800 per month

This will enable tax savings

4. Clause 18 – Undersection 80D

Deduction for medical insurance premium paidfor self and family is proposed to be increasedto INR 25,000 from INR 15,000. Similardeduction for premium paid for parents is alsoproposed to be increased to INR 25,000 fromINR 15,000. Where premium is paid for seniorcitizens (aged 60 years and above), thededuction is proposed to be increased fromINR 20,000 to INR 30,000.For uninsured verysenior citizens (aged 80 years and above), thededuction within the above ceiling of INR30,000 is available for medical expensesincurred.

This will enable tax savings

UNION BUDGET---------------------------



Proposal Impact

5. Clause 17 – Undersection 80CCD

Deduction for contributions to the New PensionScheme is currently capped at INR 1 lakh. It isproposed to remove such cap and allow deductionup to the overall ceiling of INR 1.5 lakh (as availablefor deduction in various savings instruments).Further, an additional deduction of INR 50,000 forcontributions to the NPS is proposed.

Taxpayer can claim deductions forcontributions to the New Pension Scheme upto the overall ceiling of INR 1.5 lakh. Further, anadditional deduction of INR 50,000 will enabletax savings

6. Clause 16 – Undersection 80CCC

Cap for the deduction for contributions toprescribed annuity pension plan such as that of LifeInsurance Corporation has gone up from INR 1 lakhto INR 1.5 lakh.

This will enable a taxpayer to claim deductionfor contributions to such plans up to the overallceiling of INR 1.5 lakh.

7. Clause 7 & 15 – Undersection 80C

To be introduced retrospectively from FY 2014-15for subscriptions made towards Sukanya SamriddhiScheme, relating to education of the girl child.Further, any payment received from such a schemeis proposed to be exempt from tax.

This will enable the parent/legal guardian of girlchild to not only claim deduction on investmentbut also save tax on payments received fromthe scheme.

8. Clause 7 & 21 – Undersection 80G

To be introduced retrospectively from FY 2014-15for donation made to Swachh Bharat Kosh andClean Ganga Fund to the extent of 100% of thedonation. Similar deduction is available fordonations made to National Fund for Control ofDrug Abuse from 2015-16.

This will enable tax saving on the full amount ofdonation made to these funds.

UNION BUDGET---------------------------



Proposal Impact

9. Clause 79 – Undersection 3 of Wealth Tax Act, 1957

It is proposed to abolish wealth tax from financialyear 2015-16.

This will lower the compliance burden ontaxpayers who will not have to value theirtaxable assets and file a separate wealth taxreturn. It will also ease the administrativeburden on the tax department. However, theassets will now have to be disclosed in theincome tax return.

10. Clause 40 – Undersection 192

It is proposed to make the employer responsiblefor obtaining evidence ofdeductions/exemptions/set-off of certain losses ofemployees for computing the amount of taxdeductible at source.

This will increase the administrative burden foremployers

11. Clause 41 & 49 –Under section 194A & 197A

It is proposed to deduct tax @ 10% on prematuretaxable withdrawal from the provident fundwhere such payment exceeds INR 30,000. Wherethe employee has not quoted his PAN, thededuction of tax will be required to be made at theapplicable maximum marginal rate.

This will enable tax authorities to ensure taxcompliance on such premature withdrawalsfrom the provident fund

UNION BUDGET---------------------------



Proposal Impact

12. Clause 19, 20 & 23 –Under Section 80DDB, 80 DD & 80U

Section 80U which seeks to provide deductionto disabled resident individual is proposed tobe amended to raise the limit of deduction toINR 75,000 in case of person suffering withdisability and to INR 1,25,000 in case of personsuffering with severe disability.

Section 80DD to give additionaldeduction of INR 25,000 to differently-abledpersons. As per the proposedamendment additional deduction would beavailable for medical treatmentof dependent persons with disability or severedisability

Additional deduction of INR 20,000 underSection 80DDB to Super Senior Citizens (80years or above), for sum incurred onmedical treatment of prescribed disease orailment. The new deduction fora super senior citizen shall be INR 80,000under this provision.

This will enable more tax savings.

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsCurbing Black Money


Proposal Impact

1. Clause 66, 67, 69 & 70 – Under Section 269SS & 269T

It is proposed that no person will accept fromany person any loan deposit/advance, inrelation to transfer of an immovableproperty, in cash for INR 20,000 or more.Also, it is proposed that no person will repayany loan deposit/advance, in relation totransfer of an immovable property, in cash forINR 20,000 or more.

This move is intended to curb generation ofblack money by way of dealings in cash inimmovable property transactions.

New Law to deal with Black Money… COMING SOON• Undisclosed income from foreign assets taxable at the Maximum Marginal Rate• Evasion of Tax: rigorous imprisonment up to 10 years, a penalty rate of 300% and no settlement

commission route available• All assesses liable for prosecution and penalty• Beneficiary of foreign asset to file returns, even if there is no taxable income• Non-filing/filing of returns with inadequate disclosures – rigorous imprisonment up to 7 years• Benami Transactions (Prohibition) Bill to curb domestic black money to be introduced.• Foreign exchange/security/immovable property suspected to be held in contravention of FEMA –

power to authorized officer to seize equivalent value situated within India.• Power to regulate Capital Account Transactions proposed to be transferred to Govt. from RBI

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsCorporate Tax


Proposal Impact

1. Clause 4 – Under Section 6

Crew MembersRules are proposed to be prescribed for determinationof residential status of an Indian Citizen who is amember of crew of a foreign bound ships where thedestination of such voyage is outside India.

CompanySection 6 is proposed to be amended to provide that acompany shall be said to be resident in India if its placeof effective management, at any time in that year, is inIndia.

This would give clarity

In other words, the concept of Control orManagement (wholly in India) is replaced withPlace of Effective Management(at any time in India).

2. Rate of Income Tax Rate of surcharge for domestic companies having totalincome exceeding INR 1 crore but not exceeding INR 10crore to be increased from 5% to 7%. Similarly, rate ofsurcharge for domestic companies having incomeexceeding INR 10 crore to be increased from 10% to 12%

The effective corporate tax rate for domesticcompanies having income exceeding INR 1 crore butnot exceeding INR 10 crore would increase from32.445% to 33.063% and effective rate of MATwould increase from 20.01% to 20.38%. Theeffective corporate tax rate for domestic companieshaving income exceeding INR 10 crore wouldincrease from 33.99% to 34.60% and effective rateof MAT would increase from 20.96% to 21.34%

3. Rate of Income Tax Increase in surcharge on DDT and tax on incomedistributed by mutual funds from 10% to 12%

Effective increase in tax outflow from DDT and fromtax on income distributed by mutual funds, willconsequentially reduce the dividend incomereceived by the shareholder / unit holder

UNION BUDGET---------------------------



Proposal Impact

4. Rate of Income Tax Increase in surcharge on buy back tax from 10% to 12% The effective tax rate would increase from 22.66%to 23.07% thus creating further additional burdenon the companies buying back its shares

5. Clause 27 & Under section 115A

The rate of tax on royalty and fees for technicalservices reduced from 25% to 10%

The finance minister has brought back the lowertax rate of 10% (instead of 25%) on income offoreign entities in the nature of royalty and feesfor technical services. This move would attractforeign technology in India, providing muchneeded technological advancement for Indianstartups. The effective tax rate would reduce from27.04% to 10.82% (where income of the foreignentities exceeds INR 10 crore). A few tax treaties,such as those with Netherlands and Singaporealready provided for a tax rate of 10%. Thisreduction of 10% in the I-T Act will also helpsuppliers in other countries such as US and UKwhere the tax rate under the treaty was muchhigher

6. Clause 22 & under section 80JJAA

Limit on number of new workmen required for claimingadditional deduction for wages of new workmen(available to manufacturing companies) reduced from100 to 50

This would boost the employment inmanufacturing companies who can now claimadditional deduction for wages on employment ofeven 50 or more workmen

UNION BUDGET---------------------------



Proposal Impact

7. Clause 5,13,14,72,75,76 & Under section 9

Indirect transferClarity relating to indirect transfer provisions providedby explaining the meaning of “substantial interest“. Aforeign entity is said to be deriving substantial value ofits shares from assets located in India if the value ofIndian assets held directly/indirectly by it exceeds INR10 crore and represent at least 50% of the value of allthe assets owned by it.

Payment by PE to HOIt is proposed that, in the case of a non-resident, beinga person engaged in the business of banking, anyinterest payable by the PE in India, of such non-resident, to the head office or any PE or any other partof such nonresident outside India shall be deemed toaccrue or arise in India and shall be chargeable to tax inaddition to any income attributable to the PE in India

The PE in India shall be deemed to be a personseparate and independent of the non-resident personof which it is a PE and the provisions of the Act relatingto computation of total income, determination of taxand collection and recovery would apply.

This provision is a welcome move for the foreigninvestor community as it provides the muchneeded clarity by removing the uncertainty andlitigation surrounding the issue of taxability ofindirect transfer of shares

Decision of the ITAT in Sumitomo Mitsui BankingCorporation {136 ITD-66 TBOM} nullified

Accordingly, the PE in India shall be obligated todeduct tax at source onany interest payable to either the head office orany other branch or PE,etc. of the non-resident outside India.

UNION BUDGET---------------------------



Proposal Impact

8. Under Clause 13 & section 47

Capital gain exemption has been provided in respect ofcertain transfers arising from amalgamation demergerof two foreign companies where the shares of thetransferor company derives its value substantially fromassets located in India, on fulfilment of certainconditions

This amendment would facilitate global internalreorganization of companies deriving substantialvalue from assets located in India

9. Under Clause 72 & section 271GA

Indian company to furnish information in the income-tax return relating to modification of its ownershipstructure or control, penalty leviable in case of non-compliance to the tune of 2% of the value oftransaction or INR 5,00,000, as the case may be.

This could increase the compliance and reportingburden on the companies as they would have toreport any change in the global ownershipstructure as a result of direct indirect transfer ofshares interest by its holding company

10. Clause 29 & under section 115 JB

Long term capital gains of FIIs on which STT is paid areexcluded while computing the MAT liability

This would further augment the foreigninvestment in India

11. Clause 10 & 11 & under section 32

Clarification has been provided on availability ofbalance additional depreciation (i.e. 10%) granted tomanufacturing companies in case where the assets areput to use for less than 180 days

Incentives for investment in backward areas of AndhraPradesh & Telangana.

This would bring in the much needed clarity andrationalize the provisions relating to availability ofadditional depreciation in case where the assetsare put to use for less than 180 days

Fiscal Measures to promote investment.

UNION BUDGET---------------------------



Proposal Impact

12. Under Clause 5 & section 9A

Presence of fund manager in India not to result inexistence of business connection of foreign investmentfunds in India

This would bring in the requisite clarity on theongoing litigation existing on this issue

13. Under Clause 12 & section 35(2AA) & 35(2AB)

To insert reference of the Principal Chief Commissioneror Chief Commissioner in section 35(2AA) and section35(2AB) of the Act so that the report regardingfeasibility of research may also be sent to the PrincipalChief Commissioner or Chief Commissioner havingjurisdiction over the assessee claiming the deductionunder the said section.

To ensure a better and meaningful monitoringmechanism for deductions

14. Clause 29 & under section 115 JB

No MAT on share of income received by a Company-member from AOP/ BOI if such AOP/BOI is chargeableto tax at maximum marginal rate.

Excluded since no income–tax is payable on suchincome in accordance with the provisions ofsection 86 of the Act

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsInternational Taxation


Proposal Impact

1. Clause 78 & under section 295

The Income-tax Act does not provide the manner forgranting credit of taxes paid in any country outside India.Accordingly, it is proposed to amend Section 295(2) ofthe Act so as to provide that CBDT may make rules toprovide the procedure for granting relief or deduction, asthe case may be, of any income-tax paid in any country.

To provide Clarity on Foreign Tax Credit

2. Clause 28 & under section 115ACA

The definition of GDR is proposed to cover residentemployee-investor as well, however, the currentprovision extends benefits to only non-residentemployees. Further, it is proposed that only GDRsissued by the listed companies are covered for benefitunder the provisions of Section 115ACA.

Currently the provision is applicable to GDRsissued by any company. So, this benefit isrestricted to listed companies.

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsTransfer Pricing & GAAR


Proposal Impact

1. Clause 24 & under section 92BA

Threshold limit of domestic transfer pricing provisionsenhanced to INR 20 crore from the existing limit of INR5 crore

This would reduce the compliance burden onsmaller corporate tax payers

2. Clause 25 & under section 95

Implementation of GAAR is proposed to be deferred bytwo year. Further, clarity has been provided thatinvestment made up to 31 March 2017 would beprotected from its application

This move would provide additional time toresolve certain contentious issues existing in thecurrent GAAR provisions. Further, as GAAR wouldapply only to new investment transactions, theexisting investments stand protected

Pending Promises on Transfer Pricing• Broad-brush announcements made last year not seen light of day:

1. APA rollback rules2. Use of multi-year data for comparability3. Range based arm’s length determination

• No Clarity on TP applicability for transactions which does not give rise to income• Where fund manager is now located in India – whether cost plus model would be

acceptable

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsOther Entities Taxation –Trust, REITs & AIF


Proposal Impact

1. Clause 3 & under section 2(15)

TrustThe Finance bill has proposed to include ‘Yoga’ asan independent limp of charitable purpose.

Further, a proviso is proposed to be inserted inSection 2(15) to replace the existing provisos inregard to the term advancement of any otherobject of general public utility. It is provided thatadvancement of any other object of general publicutility shall not be a charitable purpose, if itinvolves the carrying on of any activity in thenature of trade, commerce or business, for a cessor fee or any other consideration unless:

a) Such activity is undertaken in the course ofactual carrying out of suchadvancement of any other object of general publicutility; andb) the aggregate receipts from such activity oractivities during the previous year, do not exceed20% the total receipts, of the trust undertakingsuch activity.

This shall remove undue hardship to the charitable institutions.

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsOther Entities Taxation –Trust, REITs & AIFs

Sl.no. Clause & SectionReference

Proposal Impact

2. Clause 3,7.26,31,44 & 45 Pass-through Status = REIT’sclarifies following issues:a) Pass through status for rental income: It is proposedto provide an exemption to REITs for rental income ifthey invest directly in the properties and not throughSPV.b) Exemption of capital gain: Where sponsor ortransferor disposes the units of REITs which wereacquired by virtue of exchange of shares of SPV thenthe same will now be covered under section 10(38) andwill be exempt if subjected to STT and if qualified to bea long term capital asset.c) Reduced tax rate on short-term capital gain: Section111A has been proposed to be amended to provide thebenefit of taxation of short-term capital gain at areduced rate of 15% to the transferor or sponsor.

Clarification is welcomed

3. Clause 3,7.26,31,44 & 45 Pass-through Status = AIFsAt present, Section 10(23FB) read with section 115Uprovides complete pass through status to venturecapital funds or venture capital companies which areregistered under SEBI (VCF) Regulations, 1996.

Now, Finance Bill, 2015 is proposed to introduce a newdirect tax regime to provide complete pass throughstatus to Category I and Category II alternativeinvestment funds.

Alternative Investment Funds (AIFs) are privately-pooled investment vehicles, which collects fundsfrom Indian / foreign investors and madeinvestment in accordance with a definedinvestment policy for the benefit of its investorsSEBI has categorized alternative investment fundsinto 3 categories, viz. Category I AIF, Category IIAIF and Category III AIF, which covers VentureCapital Fund/Venture Capital Company, Privateequity funds, Debts funds etc.Changes are in line with SEBI Categorization.

UNION BUDGET---------------------------

2015-16Direct Tax ProposalsGeneral


Proposal Impact

1. Clause 77 & undersection 288

AuditorAn auditor who is not eligible to be appointed as anauditor under Companies Act, 2013 shall not be eligiblefor carrying out audit in respect of corporateassessees.

To protect the interest of the revenue


Filing of ReturnEducational Institutions or Hospitals 10(23C)The Finance Bill, 2015 proposes that return filing shallbe mandatory for universities or educationalinstitutions and hospitals wholly or substantiallyfunded by the Government.

Investment FundsResultantly, a new clause (4F) is inserted in Section 139to make it mandatory for the investment fund to filereturn of income.

Exemption withdrawn

Since, a new chapter XII-FB is being introduced totax income of investment funds and incomereceived from such funds.

3. Clause 68 & undersection 271(1)(iii)

Concealment penalty to be imposed even in caseswhere additions disallowance are made under thenormal provisions of the Income-tax Act and the taxesare paid under MAT.

This amendment seek to nullify the ratio laid downby various courts that such addition to totalincome would not be liable to imposition ofpenalty and the proposal is harmful to thetaxpayer's interest

4. Clause 39 & undersection 158 AA

Option provided to the tax authorities to make anapplication to apply the result of Supreme Courtdecisions to other cases instead of filing appeal in everycase.

This would help in reducing the multiplicity ofproceedings before lower judicial authoritiesthereby reduce the burden of judiciary

UNION BUDGET---------------------------



Proposal Impact

5. Clause35,56,57,58,59,60 & 61

Settlement Commission1. Once the reassessment notice is issued to theassessee for one year, it can approach the settlementcommission for other years involving similar issues aswell.2. An individual who has approached the SettlementCommission once can subsequently approach againthrough an entity controlled by him.

3. Scope of levy of interest u/s234B for default inpayment of advance tax extended on income declaredbefore settlement commission

1. This provision would open the doors ofsettlement commission to the companies formultiple years

2. The Finance Bill, 2015 has proposedamendments to plug this loophole.

3. This proposal will increase tax burden of thecompanies who have already filed applicationbefore the settlement commission for earlieryears


A favorable order passed by the tax officers can nowbe revised by the Commissioner of Income tax (higherauthority) under the circumstancesThe order is passed without making inquiries orverification which, should have been made;(b) the order is passed allowing any relief withoutinquiring into the claim;(c) the order has not been made in accordance withany order, direction or instruction issued by the Boardunder section 119; or(d) the order has not been passed in accordance withany decision, prejudicial to the assessee, rendered bythe jurisdictional High Court or Supreme Court in thecase of the assessee or any other person.

Thus, taxpayers who had obtained favorable taxorders from the lower authorities, may find thieirorders being amended

UNION BUDGET---------------------------



Proposal Impact

7. Clause 43 & undersection 194C

The exemption from deduction of tax at source frompayments to contractors engaged in the business oftransport by submitting PAN to be eligible only if thecontractor does not own more than ten goodscarriages at any time during the year

The benefit is restricted to small transport vendors

UNION BUDGET---------------------------

2015-16Indirect Tax ProposalsExcise, Customs & Service Tax

Sl.no. Act & Section Reference

Proposal Impact

1. Customs ActSection 28 & 28AA ; 111 & 114Service TaxSection 76 & 78Central Excise ActSection 11AC

• No penalty is payable if, Duty and Interest paidwithin 30 days of serving Notice

• Reduction in Penalty from 25% to 15% in caseswhere Notice is issued citing Collusion or wilfulmisstatement or suppression of facts

• In above cases, Duty along with Interest &Penalty if paid within 30 days of Order thenpenalty reduces to 25% of penalty determined

Catalyst for compliance and adherence toNotices from the Department

2. Customs ActSection 127ECentral Excise ActSection 32H

This section empowered the SettlementCommission to reopen any completedproceedings connected with a case pendingbefore it. This section has been omitted

Any completed proceedings under this act,before application for settlement shall not bereopened by Settlement Commission

3. Customs Tariff ActChapter 27

2701 12 00 – Bituminous Coal – Customs Duty ratereduced from 55% to 10%

4. Customs Tariff ActChapter 72 & 73

Rate of Duty on all the items under Chapter 72 &73 has been increased from 10% to 15%

Base metals & Articles of Base metal such asPig Iron, Ferro-alloys, Ferrous waste and scrap,Iron & Steel Alloy products, Stainless steel,Articles of Iron or Steel to become costly ifimported

5. Customs Tariff ActChapter 8702 & 8704

Rate of Duty on all the items under Chapter 8702 &8704 has been increased from 10% to 40%

Import of Motor vehiclesi) meant for carrying 10 or more people andii) for Transport of Goods will become costly

UNION BUDGET---------------------------



Proposal Impact

6. Central Excise ActSection 37 (4) & (5)

General contraventions viz., unauthorised removalof goods or manufacturing without registration orconcealing details etc. are liable for higherminimum penalty

Minimum penalty increased from INR 2,000 toINR 5,000

7. Central Excise, Customs & Service Tax

Education Cess & Secondary and Higher EducationCess• EXEMPTED in case of Central Excise Duty &

Service Tax• Continues in case of Customs Duty• Swacch Bharat Cess enabling provision

introduced in Service Tax• Excise Duty rates increased to 12.5% as against

current 12.36% subsuming Education Cess &Secondary & Higher Education Cess

• Service Tax rate increased from 12.36% to 14%• Clean Energy Cess on coal, lignite and peat

increased from INR 100 per tonne to INR 300tonne

• Excise duty change would come into forceby 1st March 2015

• Service Tax rate change would come intoforce when the Finance Bill receivesPresidents assent

• ‘Swacch Bharat Cess’, though termed asCess, it has been proposed on the Grossvalue, hence if introduced it would pushService Tax rate to 16%

8. Service TaxSection 66D & 68

• Support Services received from Government,scope expanded to ANY SERVICE received fromGovernment

• ‘Government’ defined under Section 65B

• Service Tax becomes applicable for anyService received from Government which isnot Sovereign in nature

• Tax is payable under Reverse ChargeMechanism

UNION BUDGET---------------------------



Proposal Impact

9. Central Excise Tariff Act • Additional Duty of Excise on Petrol & High SpeedDiesel increased

• Condensed Milk , Lemonades & Iced Tea broughtunder MRP based valuation under Section 4A

• Duty on chassis of Ambulances reduced from 24% to12.5%

• Excise duty on Cigarettes and other Tobaccoproducts increased

• Tablet computers manufacturers given option ofpaying 2% without CENVAT credit or 12.5% withCENVAT credit

• Duty on leather footwear with Retail price morethan INR 1,000 per pair reduced from 12% to 6%

10. Service TaxSection 66D (Negative List)

Following changes made to Negative list which makesthese Services taxable subject to exemptions proposed• Lottery Distributor• Chit Funds• Aggregator (online market place providers like

Uber)

Exclusion of Chit Funds from Negative List is tospecifically nullify the Delhi HC Judgement on‘Delhi Chit Fund Association’ case


Entertainment services excluded from Negative Listbut an exemption for such entertainment eventsincluded in ‘Mega Exemption’

Entrance to any entertainment facility charging upto INR 500/- is exempt


For the purpose of Manufacture or Production ofgoods under negative list, activities which are involvedin manufacture or production of Alcoholic Liquor forHuman consumption has been excluded

Service tax shall therefore shall be levied oncontract manufacturing/ job work for productionof alcoholic liquor

UNION BUDGET---------------------------



Proposal Impact

13. Service TaxReverse Charge Mechanism

• Services by Mutual fund agent or distributor toAsset Management Company

• Lottery ticket distributor or agent

Recipient of Service is liable to pay Service tax

14. Service TaxReverse Charge Mechanism

• Manpower supply service and Security Servicewhich were earlier covered under Joint Charge isnow subject to 100% Reverse Charge

• This becomes applicable from 1st March 2015

Recipient of Service is liable to pay total Servicetax

15. Service TaxGoods Transport Agency

• Current abatement of 75% has been reduced to 70%• This becomes applicable from 1st March 2015

Higher outflow of Service tax since taxability hasbeen increased

16. Service TaxTransport of Passengers by Air

If travel by Other than Economy class, abatementreduced to 40% from 60%

Travel by other than economy class to becomecostly

17. Service TaxTransport of goods in a vessel

Abatement increased from 60% to 70% This now ensures that any transport by Rail, Roador Vessel the Taxable amount is 30% uniformly

18. Service TaxSection 67

• Definition of ‘Consideration’ widened• Lottery agency service specifically brought under

section 67

• Section 67 read with Section 94 (2) (aa) makes‘Reimbursements’ also taxable under servicetax. This is to nullify the Delhi HC Judgement in‘International Consultants and Technocrats Pvt.Ltd.’

• This inclusion of Lottery agency service nullifiesthe Judgement of Sikkim HC in ‘Future GamingSolutions Pvt. Ltd’ case law

UNION BUDGET---------------------------



Proposal Impact

19. Service TaxComposition SchemeRule 6(7), 6(7B) & 6(7C)

• Air Travel ticket booking Service tax increased,• Domestic Bookings from 0.6% to 0.7%• International Bookings from 1.2% to 1.4%

• Sale and Purchase of foreign exchange, Service taxincreased as follows (Rule 6(7B))

• Up to INR 100,000, 0.14% of gross amountsubject to minimum of INR 35 (Currently0.12% & INR 30)

• Amount exceeding INR 100,000 up to INR10,00,000, 0.07% plus INR 140 (Currently0.06% & INR 120)

• Amounts exceeding INR 10,00,000, 0.014%plus INR 770 (Currently 0.012% & INR 660)

• Lottery distributor or selling agentEarlier slab rates of INR 7,000 & INR 11,000 changed

to INR 8,200 & INR 12,800 respectively

Changes carried out only to corresponding withthe proposed change in Rate from 12% to 14%

20. Service TaxSection 73(1A)

Authorities empowered to recover tax due withoutIssue of Notice in case the tax paid falls short of thedeclared tax as per the ST-3 return

ST-3 return need to be filed with utmost care andcaution

21. Service TaxSection 73(4A)

Simple penalty of 1% p.m. of tax due when shortpayments are identified by Audit party has beenomitted

Provides some relief to the Assesse

22. Service TaxSection 80

Discretionary power to Assessing Officers for reductionof Penalty under this section has been omitted

No great impact since this was very rarely used bythe Officers

UNION BUDGET---------------------------



Proposal Impact

20. Service Tax Facility of Advance Ruling has been extended to allresident firms

Advance ruling benches to be created in majorstates

21. CENVAT Credit Rules • Time limit for availing CENVAT credit has beenincreased form 6 months to 1 year. Thisbecomes applicable from 1st March 2015

• CENVAT credit on capital goods are allowedeven if it is used in the Job workers premises(provided it is returned within 2 years)

• CENVAT credit on capital goods is allowedeven if it is received directly at the Jobworkers premises

• For the purpose of Rule 6, ‘Non-excisablegoods’ shall also be treated as ‘Exempted’goods

From 1st March 2015, CENVAT credit shall betaken for any Invoice raised within the past 1year

Increase in ‘Tax Reversal’ since denominator isincreased

Disclaimer:The analysis in this booklet is solely for information purposes. We are not offering it as a legal advice. While best efforts have been madein its preparation, we assume no liabilities of any kind with respect to the accuracy or completeness of the contents, and specificallydisclaim from any loss caused, is alleged to have been caused directly or indirectly, by the information contained herein. Readers areadvised to take expert opinion prior to acting upon any contents in this presentation.

For client service & internal use only.

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