mazars - india budget (presentation at ifcci event on 12 march 2015)

UNION BUDGET 2015-16KEY TAX PROPOSALS

New Delhi, Ambassade de France, 12th March 2015

1

IFCCI seminar organized under the patronage of Embassy of France

INTRODUCTION

PRESENTED BY NICOLAS RIBOLLETPARTNER & NATIONAL LEADER, TRANSACTION ADVISORY SERVICES

DIRECT TAX PROPOSALS

PRESENTED BY MR. VK AGGARWALTAX PARTNER, NEW DELHI OFFICE

• Proposal to abolish the existing Wealth Tax Act, 1957

• Information relating to the assets will be required to be captured in the Income Tax Return

Wealth Tax

BUDGET HIGHLIGHTS – DIRECT TAX

• No change in the applicable tax rates

• Corporate tax rate to be reduced in phased manner from existing 30% to 25% over the next four years

• Surcharge on income tax to be increased by 2% for all the eligible assessees except for non-domestic companies

Tax Rates


• The existing provisions of the GAAR were to be implemented w.e.f. Financial Year 2015-16

• It is proposed to defer the applicability of GAAR provisions by two years to Financial Year 2017-18

General Anti Avoidance

Rule (GAAR)


• Proposal to increase the threshold limit for applicability of Specified Domestic Transactions from existing INR 50 million to INR 200 million

Domestic Transfer Pricing


• Proposal to reduce the tax rate for income earned by non-residents from Royalty and FTS, from the existing 25% to 10%

Royalty and Fees For Technical Service (FTS)


• “Place of effective management” (POEM) at “any time” as contrary to existing “control and management” situated “wholly” in India

• Proposal to bring the provision in parity with Double Taxation Avoidance Agreements (DTAA) and international standards

New criteria for qualifying a company to be Resident


• Measure to curb black money generated by way of dealing in immovable properties

• Transfer of immovable property in cash of INR 20,000 or more are now subject to penalty like the existing provisions for similar cash loans and deposits

Measure to Curb Black

Money


• Additional investment allowance of 15% (in addition to existing 15%) of the cost of new asset acquired and installed by an assessee, subject to manufacturing specified articles in notified backward areas during specified period (1st April, 2015 to 31st March, 2020)

• Higher additional depreciation of 35% (instead of existing 20%) in respect of the actual cost of new machinery or plant (other than a ship and aircraft) acquired and installed for manufacturing

Incentives for development of

Andhra Pradesh and Telangana


• In the case of plant and machinery acquired after 30 September, additional depreciation was being allowed at 25% of the normal rate, while the eligibility is for 50%

• To remove the hardship, balance 25% will be allowed in the next year

Widening Benefit of Additional

Depreciation


• Existing provisions,- Deduction to an Indian Company, deriving profits from manufacture of goods in a factory, is allowed for 30% of additional wages paid to new regular workmen employed by the taxpayer

• Propose to extend the benefits to all taxpayers having manufacturing units rather than restricting it to corporate taxpayers

• To extend the benefit to units employing even 50 workmen instead of earlier 100 regular workmen

Deduction For Employing

New Workmen


• 2% Deduction of tax at source on life insurance policy payments will not be made, if the recipient of the payment furnishes a self-declaration that the tax on his estimated total income would be Nil

Withholding Tax – Life Insurance

Policy Payments


• No tax will be deducted at source while making the payment to a transporter, who is eligible to compute income under presumptive taxation provisions and who furnishes a prescribed declaration along with its Permanent Account Number (PAN)

Withholding Tax –

Transporters


• Existing provisions - A person making a payment to non-resident has to furnish certain information in relation to the payment. Form 15CA (declaration by the payee) and Form 15CB (CA certificate) have been prescribed detailing the information required

• The provision in its present form read as if the requisite information was required only in cases where the payment is subject to withholding of tax

• Now it is proposed to amend to provide that a person making a payment to a non-resident shall furnish the prescribed information whether or not the tax is deductible at source from such payment

Furnishing of Information for Payments to

Non-Residents


• Central Board of Direct Taxes may make rules to provide the procedure for granting relief or deduction of any income tax paid outside India against the tax payable in India

Rules for Tax Credit


INDIRECT TAX PROPOSALS

PRESENTED BY MR. MANISH MISHRATAX PARTNER, NEW DELHI OFFICE

CONTENTS

1 Service tax

4 Other procedural changes

2 Customs duty

3 Excise duty

5 Goods and Services tax

01SERVICE TAX

Date20 Titre de la présentation

• Rate of service tax increased to 14% from 12.36%.

• Education cess of 2% and Secondary and Higher Education cess of 1% subsumed in the rate.

• The new rate to apply from a date to be notified after the enactment of the Finance Bill.

Rate of Service Tax

• ‘Swachh Bharat Cess’ may be levied at 2% on value of specified taxable services.

• Cess to be levied from a date which Central Government may notify.

• Effective rate of cess may vary between 0.5% to 2%.

Swachh Bharat Cess

BUDGET HIGHLIGHTS - SERVICE TAX

• Service Provided by way of amusement facilities.

• Contract manufacturing or job work for alcoholic liquor.

• All services provided by Government or local authorities to business entities.

• Service provided by E-commerce portals (aggregators). (with effect from March 1, 2015)

New Services made taxable

(from the notified date)

• Common Effluent Treatment Plant operator for Effluent treatment.

• Pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables.

• Road transport of export goods from place of removal to a Land Customs Station.

New Services Exempted

(With effect from March 1, 2015)


BUDGET HIGHLIGHTS – SERVICE TAX

Exemptions withdrawn

(with effect from April 1, 2015)

Services to Government / local authority for construction, repair, commissioning, installation,

completion, fitting out, maintenance, renovation or alteration of civil structure or original works for

commercial or other use.

Construction, erection, commissioning or installation services for original works pertaining to Ports and

Airports.

Services provided by a mutual fund agent and distributor to mutual funds or Asset Management

Company (‘AMC’)

• Uniform abated value of 30% for goods transport by rail, road and vessel subject to non-availment of Cenvat credit.

• Abated value of 60% for air travel by other than economy class. Air travel by economy class would continue to be taxed at an abated value of 40%.

• Alternate composition rates for specific service providers amended accordingly from a date to be notified.

Changes in the rates of abatement


• Manpower supply and security services provided by an individual, HUF or a Partnership Firm to a Body Corporate.

• Service provide by a mutual fund agent to the AMC.

Services to be taxed fully under reverse

charge



02CUSTOMS DUTY


• No change in the peak rate of Basic Custom Duty (‘BCD’) at 10%.

• The rate of Countervailing Duty (‘CVD’) changes to 12.50% due to change in the Excise duty rates.

• No change in the rate of cess applicable on Customs duties.

Rates of Customs Duty

• BCD exempted on Organic LED Televisions Panels.

• BCD exempted on digital still image video cameras.

• BCD and CVD exempted on parts, components and accessories for manufacture of tablet computer.

• BCD exempted on High Density Poly Ethylene (‘HDPE’) for manufacture of telecommunication grade optical fibreor optical fibre cables.

Full exemption from BCD / CVD

BUDGET HIGHLIGHTS – CUSTOMS DUTY

Reduction in the rate of BCD


Product Old Rate New Rate

Liquefied butane, Isoprene;

Antimony metal, including antimony waste and scrap and specified inputs for manufacture of

flexible medical video endoscope.

5% 2.5%

Butyl acrylate;

Sulphuric acid for use in manufacture of fertilizers;

C-Block compressor, Crank shaft and Over load Protector & Positive thermal co-efficient for

manufacture of Refrigerator compressors;

Ceria zirconia compounds, Cerium compounds and Zeolite for use in manufacture of

washcoat used in catalytic converters.

7.5% 5%

Styrene, Ethylene dichloride (EDC) and Vinyl chloride monomer (‘VCM’). 2.5% 2%

Anthraquinone;

Specified components of CNC Lathe machines and Machining Centres.

7.5% 2.5%

Metal parts used in manufacture of electrical insulators;

Water blocking tape, Ethylene-propylene-non-conjugated diene rubber (EPDM) and Mica

glass tape for manufacture of insulated wires and cables.

10% 7.5%

Increase in the rate of BCD

Product Old Rate New Rate

Metallurgical coke 2.5% 5%

Commercial motor vehicles (other than in Completely Knocked Down (‘CKD’) condition) 10% 20%


Special Additional Duty (‘SAD’) reduced to avoid Cenvat credit

accumulation

Goods (except populated Printed CircuitBoards) for use in the manufacture ofInformation Technology Agreements(‘ITA’) bound goods exempted.

Inputs for use in manufacture of LEDdriver and lights, lamps and fixturesexempted.

SAD on Naphtha, EDC, VCM and styrenemonomer for manufacture of excisablegoods reduced from 4% to 2%.

SAD on Melting scrap of iron & steel,copper, brass and aluminum reducedfrom 4% to 2%.


Miscellaneous changes

Exemption to specified goods used in manufactureof hybrid and electrically operated vehiclesextended up to March 31, 2016.

Additional Duty of Customs (Road Cess) onimported Motor Spirit (Petrol) and High SpeedDiesel Oil increased from INR 2 per litre to INR 6per litre.

Export duty on beneficiated Ilmenite (includingIlmenite ground) reduced from 5% to 2.5%.

03EXCISE DUTY


• Rate of Excise duty increased from 12.36% to 12.50%.

• Education cess and Secondary and Higher Education cess subsumed in the rate of Excise duty.

Rates of Excise Duty

• Excise duty exempted on specified raw materials for manufacture of pacemakers .

• Excise duty fully exempted on parts, sub-parts, components and accessories for manufacture of tablet computer.

• Pig iron SG grade and ferro-silicon magnesium for manufacture of cast components of Wind Electricity Generators.

• Round copper wire and tin alloys for use in manufacture of Photo Voltaic (‘PV’) ribbon used in solar PV cells and modules.

Exemption from Excise Duty

BUDGET HIGHLIGHTS – EXCISE DUTY

Reduction in Excise Duty


Product Old Rate* New

Rate

Chassis for ambulances 24% 12.5%

Wafers of Integrated Circuit (‘IC’) modules for use in manufacture

of smart cards

12% 6%

LED Drivers and Metal Core Printed Circuit Boards (‘MCPCB’) for

LED lights, fixtures and lamps

12% 6%**

Leather footwear (having uppers of leather) of Retail Sale Price

exceeding 1,000 per pair

12% 6%***

* Old rates subject to Education cess and Secondary and Higher Education cess at 3%.

** Subject to MRP abatement of 35%.

*** MRP abatement on all footwear decreased from 35% to 25%.

Increase in Excise Duty


Product Old Rate* New Rate

Packaged Portland cement manufactured and cleared:

• From a mini cement plant 6%+ INR 120/MT 6%+ INR 125/MT

• Other than from a cement plant 12%+ INR 120/MT 12.5%+ INR 125/MT

Clean energy cess on coal, lignite and

peat

INR 100 per tonne INR 200 per tonne

Mobile handsets including cellular

phones

1% (if Cenvat credit not

availed)

6% (if Cenvat credit

availed)

1% (if Cenvat credit not availed)

12.5% (if Cenvat credit availed)

Solar water heater systems Nil 12.5% (if Cenvat credit availed)

Nil (if Cenvat credit not availed)

Tablet Computer 10% 12.5% (if Cenvat credit availed)

2% (if Cenvat credit not availed)

* Old rates subject to Education cess and Secondary and Higher Education cess of 3%.


Miscellaneous changes

Concessional rate of duty at 6% on specified goods for manufactureof electrically operated vehicles and hybrid vehicles extended tillMarch 31, 2016

Excise duty increased on cigarettes by 25% (for length notexceeding 65 mm), and by 15% (for other cigarettes).

Compounded Levy Scheme for Pan Masala, Gutkha and Chewingtobacco amended to specify the maximum speed of packingmachines as a relevant factor for computation of duty.

04PROCEDURAL CHANGES


Time limit for taking Cenvat credit on inputs and input services has been increased to

one year from the date of the invoice.

Credit allowed even if inputs and capital goods are despatched directly to the job

worker.

The time limit for receiving such goods back in the factory increased to 2 years for

capital goods. Period for receiving the inputs back remains unchanged at 180 days. The

period shall be counted from the date of receipt of such inputs or the capital goods in

the premises of the job worker.

In case of services where Service tax is required to be paid under the reverse charge,

the recipient of the services can avail the credit after payment of Service tax without

discharge of payment obligation in respect of value of the services.

Rule 6 of the Credit Rules to include non-excisable goods cleared for a consideration.

The valuation to be based on Invoice value.

Rule 14 amended to provide for recovery of credits wrongly availed but not utilized.

BUDGET HIGHLIGHTS – CENVAT CREDIT RULES

Case Quantum of Penalty Maximum Penalty

In case duty and

interest is paid

within 30 days of

receipt of notice

In case duty and

interest is paid

within 30 days of

receipt of order

In case not involving fraud/

suppression of facts

Nil 25% of the penalty

imposed*

10% of the duty evaded

(Minimum penalty of INR

5,000/- except for service tax

cases)

In case involving fraud/

suppression of facts

15% of the duty/

service tax

demanded*.

25% of the duty/

service tax evaded*.

An amount equal to the duty or

tax determined/ evaded.

50% of the Excise duty and

Service tax, in case of disputes

for the period April 8, 2011, till

the assent of Finance Bill 2015.

* Reduced penalty has to be paid within 30 days of communication of Notice / Order, as the case may be.

Rationalization of penal provisions

Penal provisions under the Customs, Excise and Service tax laws have been relaxed to encourage

voluntary compliances and reduce the litigation.

Accordingly, suitable changes have been made under the respective Acts to provide as follows:

BUDGET HIGHLIGHTS – PROCEDURAL CHANGES

Excise duty / Service tax self-assessed and declared in the Return but not paid, may be

recovered without issuance of Notice.

The term ‘export’ defined under the Central Excise and Cenvat Credit Rules to generally

mean, ‘taking goods out of India to a place outside India’, for granting rebates and refund

of Cenvat credit.

‘Place of removal’ for determining the eligibility for Cenvat credit shall be:

The Port/ ICD / CFS in case of exports by the manufacturer-exporter.

Place of transfer of title in property from the manufacturer to the merchant exporter,

in case of exports by the merchant-exporter

Section 67 of the Finance Act proposed to be amended to specifically provide that

reimbursement of expenditure or costs incurred and charged by the service provider to

be included in the gross value.


Proceedings remanded for de-novo adjudication, cannot be filed before the Settlement Commission.

Facility of obtaining Advance rulings extended to all resident firms.

Simplification of registration process under Central Excise and Service tax.

Provisions created in the Central Excise and Service tax Rules for authentication of documents by

digital signature and preservation of records in electronic forms.

Validity period of Bank Guarantee (‘BG’) or Fixed Deposit Receipts (‘FDR’), for MPP (‘Mega Power

Projects’) with provisional status, increased from 36 to 66 months for claiming Customs and Excise

duty exemptions.

For Ultra Mega Power Projects (‘UMPP’), with provisional status for the purposes of claiming Excise

duty exemptions the BG/FDR needs to have a validity period of 42 months, instead of 36 months as

prescribed earlier.


05GOODS AND SERVICE TAX (‘GST’)


Government committed for implementation of GST with effect from April1,

2016.

Increase in the rate of Service tax a step in the direction of aligning the GST

rates.

Consensus reached with the States on the revenue sharing mechanism.

Constitution amendment bill pending before the Parliament and is expected to

be cleared soon.

Alcohol and Petroleum products expected to be kept outside the purview of

GST.

BUDGET HIGHLIGHTS – GST

GST to be made applicable to all transactions of goods and services made for a

consideration.

Concurrent jurisdiction of Centre and States to tax entire value chain and all taxpayers.

GST to consist of two components, namely, GST levied by the Centre(‘CGST’) and GST levied by

the States (‘SGST’). Integrated GST (‘IGST’) to be adopted for inter-state transactions by

appropriately aligning and integrating CGST and SGST.

Credits of taxes paid on procurement of goods and services to be made available across the value

chain.

GST implementation through multiple statutes, one for CGST and a SGST statute for each State,

with uniform basic provisions covering, inter-alia including:

Chargeability

Definition of taxable event and taxable person

Valuation provisions

Basis of classification etc.

GST –taxes to be subsumed

Central Taxes – Excise duty, Additional Excise duty, CVD in lieu of Excise duty, SAD in lieu of

VAT, Service tax, cesses and surcharges

State Taxes – Value Added Tax (VAT), Entertainment tax, Luxury tax, Tax on lottery, betting

and gambling, Entry taxes, State cesses and surcharges,

CONCEPT OF GST

GST – PERCEIVED BENEFITS

GST

Broader

Tax base

Seamless

National

Market

Cheaper

Exports

No

cascading

of taxes

Spend

less to

comply

Ease of

doing

Business

/ planning

projects

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CONTACT

Mazars

Nicolas Ribollet

Partner & National Leader, Transaction Advisory Services

Email : [email protected]

Disclaimer : All information provided in this Mazars India presentation has been prepared for general information and illustration purposes and does not establish, in any form, a business or professional services relationship with the author, Mazars itself, or any related Mazars entities. Although we have taken due care in the preparation of all information contained in this presentation, any reliance on the information is solely at the user’s risk. You should always take professional advice in relation to your circumstances. Mazars accepts no responsibility for any loss (whether personal or business) resulting from reliance on any information contained in this presentation.

mazars - india budget (presentation at ifcci event on 12 march 2015)

Economy & Finance

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