E-Flash
Amendments Proposed by The Finance Bill, 2016
The Institute of Chartered Accountants of India
(Set up by an Act of Parliament)
`ICAI Bhawan', Post Box Number 7100. Indraprastha Marg, New Delhi - 110 002
www.icai.org
The Institute of Chartered Accountants of India
Contents
1 Message from the President 03
2. Message from the Vice-President 03
3. Chairmen Speak (from Committee on Public Finance & Government Accounting; Direct Tax Committee;
Indirect Taxes Committee; Committee on International Taxation) 04
4. State of the Economy: Union Budget 2016-17 Highlights 05
5. Amendments Proposed by Finance Bill, 2016 in Direct Taxes 08
6. Amendments Proposed by Finance Bill, 2016 in Indirect Taxes 12
7. Amendments Proposed by Finance Bill, 2016 in International Taxation 21
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The Institute of Chartered Accountants of India
Message from the President
Hon'ble Union Finance Minister Shri Arun Jaitley presented the
Union Budget 2016-17, i.e. his third Union Budget, on 29th February
2016. Overall, the budget appears to be a progressive and growth-
oriented one while keeping the economic targets realistic and aiming
to provide a level-playing field to domestic manufacturers and
promoting the cause of manufacturing in India. Let us too accept
that our economy is right on track. Quite evidently, the agriculture
and education sectors get an extra boost from the Government.
Banks also get a boost towards recapitalisation of public-sector
banks.
Union Finance Minister has declared the 9 pillars of his budget
as agriculture and farmers' welfare, rural sector, social sector
(including healthcare), education, skill development and job creation,
infrastructure, financial sector reforms, ease of doing business,
fiscal discipline and tax reforms, which will be the focus areas of the
Government this year to boost India's economic growth.
Upholding the cause of inclusive growth, various benefits have
been given to small taxpayers, investors and develop entrepreneurship in the country. With a view
to provide impetus to start-ups and facilitate their growth in the initial phase of their business tax
incentives have been given to eligible start-ups. Things have been made convenient for professionals
with gross receipts up to 50 lakhs also stand to gain with the extention of presumptive taxation.
The Institute of Chartered Accountants of India (ICAI) has always been proactive in disseminating
relevant information to all its stakeholders including its members. Continuing with its endeavours in
this direction, the ICAI has come up with an e-publication on the features of Union Budget 2016-17
that will aptly provide us a crisp highlight of the Budget.
I take this opportunity to sincerely congratulate CA. Naveen N. D. Gupta, Chairman, and CA.
Sanjiv Kumar Chaudhary, Vice-Chairman, Direct Taxes Committee (DTC), CA. Madhukar Narayan
Hiregange, Chairman and CA. Sushil Kumar Goyal, Vice-Chairman, Indirect Taxes Committee (IDTC),
CA. Nihar N. Jambusaria, Chairman and CA. Sanjiv Kumar Chaudhary, Vice-Chairman, Committee
of International Taxation (CITAX), CA. Prafulla Premsukh Chhajed, Chairman, and CA. Manu Agrawal,
Vice-Chairman, Committee on Public Finance and Government Accounting (CPF&GA), and other
members of respective committees in sincere appreciation of their concerted efforts and respective
valuable contribution in bringing out this material in such a short span of time. I am sure this
publication would prove very useful for the members in their endeavours.
Best Wishes
CA. M. Devaraja Reddy
President, ICAI
9th March 2016
Message from the Vice-President
Union Budget 2016-17, presented on 29th February 2016 by
Union Finance Minister of India Shri Arun Jaitley, is indeed a very
progressive and balanced budget. It has set the agenda of growth
before the country while promoting the domestic manufacturing
sector, agriculture and education whilst keeping the fiscal deficit
under control. Citing the example of falling CPI (consumer pricing
index) inflation from 9-plus per cent to 5.4, Union Finance Minister
has rightly declared that the economy is back on track. Govt. of India
has provided additional privilege to senior citizens in healthcare
cover. Union Budget 2016-17 sets its focus to boost irrigation, ground
water sustainability and education scenario of the nation and the
ICAI welcomes these moves of the Government. Entrepreneurship
training, multi-skill development, digital literacy and higher
education get a much-desired boost from the Government. Union
budget aims to bring in economic stability, better governance and
constant development across the sectors whilst focusing on fiscal
management, Tax Regime stability, dispute resolution mechanisms,
ease of doing business and lot more.
Let me sincerely appreciate the concerted efforts of the four Committees--Indirect Taxes
Committee (IDTC), Direct Taxes Committee (DTC), Committee on International Taxation (CITAX) and
Committee on Public Finance and Government Accounting (CPFGA) of The Institute of Chartered
Accountants of India that have put in their best in bringing this e-publication in the interests of all
stakeholders of accountancy profession. I would also like to extend my best compliments to the
Chairmen of all the aforementioned four Committees, respectively, namely CA. Madhukar Narayan
Hiregange, CA. Naveen N. D. Gupta, CA. Nihar N. Jambusaria and CA. Prafulla Premsukh Chhajed,
for their valuable contribution. This e-publication aims to bring out the crux of the Finance Bill, 2016.
I sincerely wish that the e-flash will provide enriching information to all stakeholders (including
members).
Best wishes
CA. Nilesh Shivji Vikamsey
Vice- President, ICAI
8th March 2016
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Chairmen Speak
In the backdrop of Global Economy facing a downturn, the Budget 2016-17 has been presented
with hope and the Indian Economy poised to attain the growth rate of 7.6%. The fiscal deficit and
revenue deficit is pegged at the rate 3.9% and 2.5% respectively for the year 2015-16. The Finance
Minister stress on continuing fiscal prudence, fiscal consolidation and effective expenditure
management policy are steps in the right direction. Stress on Education, Health, Direct Benefit
Transfer in fertilizer on pilot basis and creation of world class educational institutions are some of
the other thrust areas in the Union Budget.
I sincerely hope that the e-Flash will apprise our readers with the broader view of the Union
Budget 2016-17.
CA. Prafulla P. Chhajed
Chairman, Committee on Public Finance and Government Accounting
The Hon'ble Union Finance Minister has announced Union budget 2016-17 on 29th Feb, 2016. The biggest
challenge in this budget was to set aside enough money to kick-start the economy without constraining
the government's finances. The main agenda of the budget is to "Transform India" based on the nine pillars
namely - Agriculture and Farmers' Welfare, Rural Sector, Social Sector including Healthcare, Education,
Skills and Job Creation, Infrastructure and Investment, Financial Sector Reforms, Governance and Ease of
Doing Business, Fiscal Discipline and Tax Reforms. A reform-oriented budget of a stable government can
really deliver the promised good days to the country.
CA. Naveen N. D. Gupta
Chairman, Direct Taxes Committee
The Union Budget 2016-17 has addressed many areas of concern including rural development, education,
social security to include the neglected. This inclusive movement was needed to rejuvenate the farmers and
the villages.
In Indirect tax attempts to make the administration of law simple and minimize the litigations was clear.
Further the attempt to enhance ease of doing business with measures like enabling revision of excise returns,
rationalization of abatement rates under service tax, were seen. Numbers of steps have been taken to reduce
litigations like changes made in the CENVAT Credit Rules and a dispute resolution scheme. Most of these
measures may need to be relooked at as they may have limited or opposite impact.
The real welcome step was the reduction in interest for short payment of taxes/ duties uniformly at 15%
p.a., restriction of arrest powers, increasing the number of CESTAT benches etc. Under customs the increase in products with
inverted duty structure of raw material having a lower customs duty than the finished product would help the Make in India
initiative. The revamping of warehouse provisions, deferred payment of custom duty are also good measures.
The increasing the time limit for issue of notices in bonafide cases from 1 year to 2 years in excise and customs cases and
18 months to 30 months in Service Tax cases is definitely a backward step for which journey was initially started with 6 months
and 12 months period respectively.
This publication is developed with an objective to acquaint the readers with amendments in taxation brought in by Union
Budget 2016-17.
CA. Madhukar N. Hiregange
Chairman, Indirect Taxes Committee
With the increasing cross border trade, the world economies have become more interdependent. This
budget has been placed in the midst of the challenging times being faced by the Government both
nationally and globally due to various reasons like global slowdown, declining exports, increasing
NPAs, declining Rupee, weaker oil/commodity prices, declining real estate sector, loss of investor
confidence and so on. Keeping fiscal stability over growth as a priority, the Honbl'e Finance Minister
has through this budget made a remarkable effort to strive balance amongst all required demands.
Through this e-flash, an ongoing effort has been made to update all members regarding budget
proposals.
CA. Nihar Niranjan Jambusaria
Chairman, Committee on International Taxation
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State of the Economy
Union Budget 2016-17 Highlights
Committee on Public finance and Government Accounting
The Union Budget has been presented when the Global Economy is facing a downturn,
while Indian Economy is poised to attaining the growth rate of 7.6%. The fiscal deficit
is targeted at 3.9% for 2016 while it has been put at 3.5% for 2017. The revenue deficit
is pegged at 2.5% of GDP for the year 2015-16. The Current Account deficit has
declined from 18.4 billion US dollars in the first half of last year to 14.4 billion this year.
It is projected to be 1.4% of GDP at the end of this year. Foreign Exchange Reserve is
at comfortable position at 350billion US dollar.
Nine Pillars for transforming India is identified as
·Agriculture
· Rural Sector
· Social sector
· Education, skill and Job creation
· Infrastructure investment and Investment
· Financial sector reforms
· Governance reforms and ease of doing business
· Fiscal discipline
· Tax reforms
The finance minister stressed upon the need of continuing fiscal prudence and
fiscal consolidation and effective expenditure management Policy. Committee for
review of FRBM Act, removal of Plan /Non Plan classification from 2017-18 are some
of the major highlight of the budget. Plan Expenditure pegged at R5.50 Lakh Crore for
2016-17 an increase at 15.3 %. Non Plan Expenditure is kept at R14.28 Lakh Crore for
2016-17.CPI inflation has come down to 5.4%.
Special emphasis to sector such as agriculture irrigation, social sector including
health, Women and child development, Welfare of SC/ST, minorities and infrastructure.
Another highlight includes rationalising and restructured more than 1500 Central Plan
Scheme into about 300 Central Sector and 30 centrally sponsored scheme. Every
New Scheme will have a sunset date and outcome review.
The Finance Minister said that the Government has also to priorities its expenditure
for the year 2016-17. He also added that the Government shall enact significant
economic reforms like changes in the legislative frame work relating to transport sector,
incentivising gas discovery exploration, enactment of law to deal with resolution with
financial firms, legal frame work dispute resolution in PPP project and public utility
contracts.
The govt dream project Make in India and skill India have been further bolstered in
the present budget .Stress on Education, health DBT in fertilizer on pilot, govt will pay
EPF contribution of 8.33% for all new employee for first three years, 10 public and 10
private educational institutions to be made world class, R9000cr allocated for Swachh
bharat Abhiyan are steps in the right direction.
Major Highlights
· Mobilisation of additional finances to the extent of R31,300 crore by NHAI, PFC,
REC, IREDA, NABARD and Inland Water Authority by raising Bonds.
· A Task Force has been constituted for rationalisation of human resources in various
Ministries.
· RBI to facilitate retail participation in Government securities.
· A Financial Data Management Centre to be set up.
Budget Highlights - State of the economy
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· Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction
Companies, Stock Exchanges.
· 100% FDI to be allowed through FIPB route in marketing of food products produced
and manufactured in India.
· Total investment in the road sector, including PMGSY allocation, would be R97,000
crore during 2016-17.
· Allocation for rural sector R87,765 crore.
· R2.87 lakh crore will be given as Grant in Aid to Gram Panchayats and Municipalities
as per the recommendations of the 14th Finance Commission.
· District Level Committees under Chairmanship of senior most Lok Sabha MP from
the district for monitoring and implementation of designated Central Sector and
Centrally Sponsored Schemes.
· Higher Education Financing Agency to be set-up with initial capital base of R1000
Crores.
· GOI will pay contribution of 8.33% for of all new employees enrolling in EPFO for
the first three years of their employment. Budget provision of R1000 crore for this
scheme.
· Total outlay for infrastructure R2, 21,246 crore.
· Statutory basis for a Monetary Policy framework and a Monetary Policy Committee
through the Finance Bill 2016.
· New derivative products will be developed by SEBI in the Commodity Derivatives
market.
· Allocation of R25,000 crore towards recapitalisation of Public Sector Banks.
· Target of amount sanctioned under Pradhan Mantri Mudra Yojana increased to
R1,80,000 crore.
· General Insurance Companies owned by the Government to be listed in the stock
exchanges.
· Raise the ceiling of tax rebate under section 87A from R2000 to R5000 to lessen tax
burden on individuals with income upto R5 lakhs.
· Allocation for Agriculture and Farmers' welfare is R35,984 crore
· Allocation under Pradhan Mantri Gram Sadak Yojana increased to R19,000 crore.
Will connect remaining 65,000 eligible habitations by 2019.
· 100% village electrification by 1st May, 2018.
· "Stand up India Scheme" to facilitate at least two projects per bank branch. This
will benefit at least 2.5 lakh entrepreneurs.
· Regulatory architecture to be provided to ten public and ten private institutions to
emerge as world-class Teaching and Research Institutions
· National Board for Skill Development Certification to be setup in partnership with
the industry and academia
· Entrepreneurship Education and Training through Massive Open Online Courses
· Reforms in FDI policy in the areas of Insurance and Pension, Asset Reconstruction
Companies, Stock Exchanges.
· A new policy for management of Government investment in Public Sector
Enterprises, including disinvestment and strategic sale, approved.
· Bill for Targeted Delivery of Financial and Other Subsidies, Benefits and Services
by using the Aadhar framework to be introduced.
· Commitment to implement General Anti Avoidance Rules (GAAR) from 1.4.2017.
· Raise the ceiling of tax rebate under section 87A from R2000 to R5000 to lessen tax
burden on individuals with income up to R5 lakhs.
· Increase the limit of deduction of rent paid under section 80GG from R24000 per
annum to R60000, to provide relief to those who live in rented houses.
· 13 cesses, levied by various Ministries in which revenue collection is less than R50
crore in a year to be abolished.
Budget Highlights - State of the economy
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Government of India's Fiscal Balances
Rbillion Growth
2014-15 2015-16 2016-17 2015-16 2016-17
Actual RE BE RE BE
Revenue Receipts 11,014.7 12,060.8 13,770.2 9.5% 14.2%
Tax Revenues$ 9,036.2 9,475.1 10,541.0 4.9% 11.2%
Non Tax Revenues 1,978.6 2,585.8 3,229.2 30.7% 24.9%
Revenue 14,669.9 15,476.7 17,310.4 5.5% 11.8%
Expenditure
Revenue Deficit 3,655.2 3,415.9 3,540.2
% of GDP 2.9% 2.5% 2.3%
Capital Receipts 514.8 442.2 671.3 -14.1% 51.8%
(Non Debt)
Capital Expenditure 1,966.8 2,377.2 2,470.2 20.9% 3.9%
Fiscal Deficit 5,107.3 5,350.9 5,339.0
% of GDP 4.1% 3.9% 3.5%
Source: Gol Budget Documents; CGA; ICRA Research
$ Net of Refunds, Net of States' share in Central Toxes
Union Budget 2016-17
Rupee comes from Rupee goes from
Budget Highlights - State of the economy
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The Institute of Chartered Accountants of India
Amendments Proposed by Finance
Bill, 2016 in Direct Taxes
Direct Taxes Committee
1. Relief to small tax payers
(a)Rebate under Sec 87A: With the objective of providing relief to resident individuals
in the lower income slab i.e. total income not exceeding R5,00,000, section 87A
is proposed to be amended so as to increase the maximum amount of rebate
available from existing limit of R2,000 to R5,000.
(b)Maximum limit of deduction under section 80GG increased: The maximum
limit of deduction under section 80GG, in respect of rent paid by individuals who
do not get any house rent allowance from the employer and who do not own any
house, proposed to be increased from R2,000 p.m to R5,000 p.m.
(c)Increase in threshold limit for persons other than companies /LLP having
income from business opting presumptive taxation under Section 44AD: In
order to reduce the compliance burden of the small tax payers and facilitate the
ease of doing business, the threshold limit for availing the benefit of presumptive
taxation scheme proposed to be increased from R1 crore to R2 crore, in respect
of eligible businesses. The threshold limit proposed to be increased to bring relief
to large number of assesses in the Micro Small and Medium Enterprises (MSME)
category.
(d)Presumptive taxation scheme extended to professionals: In order to
rationalize the presumptive taxation scheme and to reduce the compliance burden
of the small tax payers having income from profession and to facilitate the ease
of doing business, the presumptive taxation regime proposed to be extended to
professionals having gross receipts not exceeding R50 lakhs in the previous year
at a sum equal to 50% of such gross receipts.
(e)Threshold limit increased for tax audit for persons having professional
Income: The threshold limit for tax audit under section 44AB, for getting accounts
audited proposed to be increased from R25 lakhs to R50 lakhs, in case of persons
carrying on profession.
2. Measures to boost growth and employment generation
(a) Corporate Tax proposals:
(i) The Corporate Tax rate was proposed to be reduced from 30% to 25% over a
period, accompanied by rationalization and removal of various tax exemptions
and incentives. The following are some of the tax exemptions and incentives
which are proposed to be withdrawn in phased manner:
· The accelerated depreciation under Income-tax Act will be limited to 40%
from 01.04.2017
· The benefits of deductions for Research would be limited to 150% from
01.04.2017 and 100% from 01.04.2020, in certain cases.
· The benefits of Section 10AA to new SEZ units will be available to those units
which commence activity before 31.03.2020.
· Weighted Deduction under section 35CCD for skill development will continue
up to 01.04.2020
(ii) Manufacturing companies incorporated on or after 1.03.2016 are proposed to
be given an option to be taxed at 25% plus surcharge and cess provided they
do not claim profit linked or investment linked deductions and do not avail of
investment allowance and accelerated depreciation etc.
(iii)For relatively small enterprises i.e., companies with turnover not exceeding R5
crore (in the financial year ending March 2015), the rate of corporate tax reduced
from 30% to 29% plus surcharge and cess, for the next financial year.
(iv) Tax Incentives to start ups: With a view to providing an impetus to start-ups and
Budget Highlights - Direct Taxes
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facilitate their growth in the initial phase of their business, a deduction of 100%
of the profits and gains derived by an eligible start-up from a business involving
innovation development, deployment or commercialization of new products,
processes or services driven by technology or intellectual property proposed
to be provided. Such benefit would be available to an eligible start-up which is
setup before 01.04.2019.
The deduction may, at the option of the assessee, be claimed by him for any
three consecutive assessment years out of five years beginning from the year
in which the eligible start-up is incorporated. MAT will apply in such cases and
Capital Gains will not be taxed if invested in regulated/notified Fund of Funds by
individuals in notified startups, in which they hold majority shares.
(b) Concessional Tax Regime for income from patents: In order to encourage
indigenous research & development activities and to make India a global R &
D hub, the Government has decided to put in place a concessional taxation
regime for income from patents. A concessional rate of 10% proposed for
taxing income from world exploitation of patents developed and registered in
India.
(c)Complete Pass through status securitization trust: In order to encourage more
investment in Asset Reconstruction Companies (ARC), it is proposed to provide
complete pass through of income to securitization trust. Consequently, the
income will be taxed in the hands of investors instead of the trust. However the
trust will be liable to deduct tax at source.
(d)Deferment of POEM: The determination of residency of foreign company on the
basis of place of effective management (POEM) is proposed to be deferred by
one year.
3. Measures for moving towards a pensioned society
(a) (i) Recognised provident fund and superannuation fund: In order to bring greater
parity in tax treatment on different types of pension plans, it is proposed to provide
in respect of the contributions made on or after 1st April 2016 by an employee
participating in a recognised provident fund and superannuation fund, upto 40%
of the accumulated balance attributable to such contribution on withdrawal shall
be exempt from tax. In effect, the 100% exemption has been reduced to 40%.
(ii) Annuity Plan: Any payments in commutation of any annuity purchased out of
contributions made on or after 1st day of April, 2016 which exceeds 40% of the
annuity, to be chargeable to tax.
(iii)National Pension System: It is also proposed to provide any payment from National
Pension System Trust to an employee on account of closure or his opting out of the
pension scheme referred to in Section 80CCD, to the extent it does not exceed 40%
of the total amount payable to him at the time of closure or his opting out of the
scheme, to be exempt from the tax.
Also annuity fund which goes to the legal heir after the death of pensioner will not
be taxable in all the three cases (i.e., (i), (ii) & (iii) above).
(iv) Monetary limit for employer contribution to EPF: Also, a monetary limit for
contribution of employer in recognized provident fund and superannuation fund of
R1.5 lakh per annum for taking tax benefit is proposed.
4. Measures for promoting affordable housing
(a) 100% deduction of the profits of an assessee developing and building
affordable housing projects: With a view to incentivise affordable housing sector
as a part of larger objective of `Housing for All', it is proposed that 100% deduction
of the profits would be allowed to an assessee developing and building affordable
housing projects, if the housing project is approved by the competent authority
before the 31st March, 2019 and completed within 3 years of approval.
(b) Additional deduction of interest to "first home buyers": In furtherance of the
Budget Highlights - Direct Taxes
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goal of the Government of providing `housing for all, it is proposed to incentivise
first-home buyers availing home loans, by providing additional deduction of
R50,000 in respect of interest on loan taken for residential house property from any
financial institution.
This incentive is proposed to be available to a house property of a value less than
R50 lakhs in respect of which a loan of an amount not exceeding R35 lakh has been
sanctioned during the Financial Year 2016-17. Further, this benefit proposed to be
extended till the repayment of loan continues.
(c) SPV would be exempted from Dividend Distribution Tax (DDT) on distribution
made to Business Trust: In order to rationalize the taxation regime for business
trusts (REITs and Invits) and their investors, it is proposed to provide a special
dispensation and exemption from levy of dividend distribution tax. Accordingly, the
SPV would not be liable to pay DDT on the income distributed to business trusts.
Such dividend received by the business trust and its investor shall not be taxable
in the hands of trust or investors.
5. Additional resource mobilization for agriculture, rural economy and
clean environment
(a) Gross Dividend would be taxable in the hands of recipients: The income by way of
gross dividend, to be chargeable to tax in the case of an individual, Hindu undivided
family (HUF) or a firm, who is resident in India @ 10%, if the same is in excess of R10
lakh
(b)Rate of surcharge increased from 12% to 15%: The surcharge rate to be raised from
12% to 15% on persons, other than companies, firms and cooperative societies
having income above R1 crore.
(c)Scope of Tax Collection at Sources (TCS) expanded to include sale of luxury cars
and other goods and services: In order to reduce the quantum of cash transaction
in sale of any goods and services and for curbing the flow of unaccounted money
in the trading system and to bring high value transactions within the tax net, it is
proposed to provide that the seller shall collect the tax @1% from the purchaser
on sale of motor vehicle of the value exceeding R10 lakhs and sale in cash of any
goods (other than bullion and jewellery), or providing of any services (other than
payments on which tax is deducted at source under Chapter XVII-B) exceeding R2
lakhs.
(d) Equalisation levy of 6% on the non-residents from e-commerce transactions:
In order to tap tax on income accruing from e-commerce transactions to non-
residents from India, it is proposed that a person making payment to a non-resident,
who does not have a permanent establishment, exceeding in aggregate R1 lakh in
a year, as consideration for online advertisement, will withhold tax at 6% of gross
amount paid, as Equalization levy. The levy will only apply to B2B transactions.
6. Reducing litigation and providing certainty in taxation
(a)Limited period Compliance Window to be introduced: For domestic taxpayers
to declare undisclosed income or income represented in the form of any asset
and clear up their past tax transgressions, the Income Declaration Scheme, 2016
proposed to be introduced as limited period compliance window for taxing such
undisclosed income paying @ 30%, plus surcharge at 7.5% and penalty at 7.5%,
which is a total of 45% of the undisclosed income. There will be no scrutiny or
enquiry regarding income declared in these declarations under the Income-tax
Act, 1961 or the Wealth-tax Act, 1957 and the declarants will have immunity from
prosecution.
(b)The Direct Tax Dispute Resolution Scheme, 2016: In order to reduce the huge
backlog of cases and to enable the Government to realise its dues expeditiously,
the Direct Tax Dispute Resolution Scheme, 2016 proposed to be introduced in
relation to tax arrear and specified tax. Under this scheme, the declarant would be
Budget Highlights - Direct Taxes
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required to pay tax at the applicable rate plus interest upto the date of assessment
and no penalty would be leviable for disputed tax upto R10 lakhs. However, in case
of disputed tax exceeding R10 lakhs, 25% of the minimum penalty leviable shall
also be required to be paid.
(c)One time Dispute Resolution scheme for cases ongoing under retrospective
amendment: Under the Direct Tax Dispute Resolution Scheme, 2016, person may
also make a declaration in respect of any tax determined in consequence of or is
validated by an amendment made with retrospective effect in the Income-tax Act,
1961 or Wealth-tax Act, 1957, as the case may be, for a period prior to the date of
enactment of such amendment and a dispute in respect of which is pending as
on 29.02.2016, subject to their agreeing to withdraw any pending case lying in any
Court or Tribunal or any proceeding for arbitration, mediation etc.. Consequently,
they can settle the case by paying only the tax arrears in which case liability of the
interest and penalty shall be waived.
(d)Penalty leviable for concealment of income rationalised: The entire scheme of
penalty proposed to be modified by providing different categories of misdemeanour
with graded penalty and thereby substantially reducing the discretionary power of
the tax officers. The penalty rates will now be 50% of tax in case of underreporting
of income and 200% of tax where there is misreporting of facts.
7. Simplification and rationalization of taxation
(a)Exemption from requirement of furnishing PAN under section 206AA to
certain non-resident: In order to reduce compliance burden, section 206AA
proposed to be amended so as to provide that the provisions of this section shall
not apply to a non-resident, on furnishing of alternative documents, subject to such
conditions as may be prescribed.
(b)Rationalization of tax deduction at Source (TDS) provisions: In order to
rationalise the rates and base for TDS provisions, the existing threshold limit for
deduction of tax at source and the rates of deduction of tax at source are proposed
to be revised in the case of Winnings from Horse Race, Payments to Contractors,
Insurance commission, Commission on sale of lottery tickets etc. This would
improve cash flow of small tax payers.
8. Use of Technology for creating accountability
(a)Scope for e-assessment proposed to be expanded: Expansion in the scope of
e-assessments to all assesses in 7 mega cities in the coming years, reducing face
to face contact with the assesses.
(b)Rate of interest on refunds to be increased: The rate of interest on the refunds
to be increased from 6% p.a. to 9% p.a., in case there is delay in giving effect to
Appellate order beyond ninety days.
(c)E-sahyog project to be expanded: Income-tax Department (ITD) will fully expand
the pilot initiative of `e-Sahyog' with a view to reduce compliance cost, especially
for small tax payers. The e-Sahyog' pilot project is to provide an online mechanism
to resolve mismatches in income-tax returns without requiring taxpayers to attend
the Income-tax office.
Budget Highlights - Direct Taxes
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Amendments Proposed by Finance
Bill, 2016 in Indirect Taxes
Indirect Taxes Committee
CENTRAL EXCISE
Amendments made effective immediately
· The Clean Energy cess is to be renamed as Clean Environment cess. The effective
rate of Clean Energy cess proposed to be increased from R200 per tonne to R400
per tonne .
· Infrastructure cess is to be levied on motor vehicles under heading 8703 subject
to certain exceptions. Further, this cess is not CENVATable and CENVAT credit
cannot be utilized for its payment.
Amendments to be effective from the date on which Finance Bill receives the assent
of the President
Amendments in the Central Excise Act, 1944
· Requirement of publishing and offering for sale any notification issued, by the
Directorate of Publicity and Public Relations of CBEC under section 5A proposed
to be done away with.
· The time-limit for issuance of show cause notice under section 11A for recovery of
service tax not levied/paid/short levied/short paid/erroneously refunded, for non-
fraud cases is proposed to be enhanced by 1 year, i.e. from 1 year to 2 years.
· It is proposed to empower the Board under section 37B to issue orders, instructions
and directions for the implementation of any other provision of the Central Excise
Act, 1944.
Amendments effective from 01.03.2016
· Excise duty of 1% without CENVAT credit and 12.5% with CENVAT credit on
articles of jewellery (excluding articles of silver jewellery other than those studded
with diamonds, ruby, emerald or sapphire). With a higher threshold exemption upto
R6 crore in a year and eligibility limit of 12 crore.
· Excise duty of 2% (without CENVAT credit) or 12.5% (with CENVAT credit) is being
levied on readymade garments and made up articles of textiles falling under
Chapters 61, 62 and 63 (heading Nos. 6301 to 6308) of the Central Excise Tariff
except those falling under 6309 and 6310 of retail sale price (RSP) of R1000 and
above when they bear or are sold under a brand name.
· The tariff value for readymade garments and made up articles of textile is also
being increased from 30% to 60%
Amendments effective from 01.04.2016
Amendments in the Central Excise Rules, 2002
The Central Excise Rules, 2002 are proposed to be amended as follows:
(a)Reduction of the number of returns to be filed by a central excise assessee above
CENTRAL EXCISE 12
a specified threshold to 13, from 27, that is, 1 annual return required to be filed by
Amendments made to 13
CENVAT CREDIT RULES
the 30th Day of November of the succeeding financial year and 12 monthly returns.
SERVICE TAX 15 The said annual return is also required to be filed by the service tax assessees
CUSTOMS 19 above a specified threshold. Thus, now three service tax returns need to be filed
instead of two.
(b)Like under service tax, the facility of revision of return to be available under central
excise also.
(c) Manual attestation of copy of invoice, meant for transporter, is not required in
cases where invoices are digitally signed.
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
(d)In case of finalization of provisional assessment, the interest will be chargeable
from the original date of payment of duty
(e)Instructions issued to Chief Commissioner of Central Excise for withdrawal of
prosecution by filling application to courts in those cases which are pending for CENTRAL EXCISE 11
more than 15 years and have duty of less than 5 lakh rupees CUSTOMS 13
COMMON AMENDMENTS 13
UNDER CENTRAL
Amendments made to CENVAT CREDIT RULES EXCISE AND CUSTOMS
Amendments effective from 01.04.2016 SERVICE TAX 13
Amendments in the CENVAT Credit Rules, 2004
The CENVAT Credit Rules, 2004 have been simplified and rationalized with an endeavor
to improve CENVAT credit flow, reduce the compliance burden and associated
litigations, predominantly those relating to apportionment of credit between exempted
and non-exempted final products/services. Primary amendments include:
· Equipment and appliance used in an office located within a factory are being
included in the definition of capital goods so as to allow CENVAT credit on the
same.
· CENVAT credit on inputs and capital goods used for pumping of water, for captive
use in the factory, is being allowed even where such capital goods are installed
outside the factory.
· All capital goods having value up to R10,000 per piece are being included in the
definition of "inputs" which would enable an assessee to take whole credit on such
capital goods in the same year in which they are received.
· In order to allow shipping lines to take credit on inputs and input services, service
by way of transportation of goods by a vessel from customs station of clearance
in India to a place outside India is being excluded from the definition of "exempted
service".
· CENVAT credit on tools of Chapter 82 of the Central Excise Tariff in addition to credit
on jigs, fixtures, moulds & dies, when intended to be used in the premises of job-
worker or another manufacturer who manufactures the goods as per specification
of manufacturer of final products is also being allowed. These tools can be sent
directly to such other manufacturer or job worker without bringing the same to
manufacturers premises.
· Validity of the permission given by an Assistant Commissioner or Deputy
Commissioner to a manufacturer of the final products for sending inputs or partially
processed inputs outside his factory to a job-worker and clearance there from on
payment of duty has been extended to 3 years as against present one year.
· CENVAT credit of Service Tax paid on amount charged for assignment by
Government or any other person of a natural resource such as radio-frequency
spectrum, mines etc. shall be spread over the period of time for which the rights
have been assigned. Further, if in any financial year, the manufacturer of goods
or provider of output service having such rights further assigns them to another
person against a consideration, balance CENVAT credit not exceeding the service
tax payable on the consideration charged by him for such further assignment, shall
be allowed in the same financial year. Also, CENVAT credit of annual or monthly
user charges payable in respect of such assignment shall be allowed in the same
financial year.
· An invoice issued by a service provider for clearance of inputs or capitals goods is
also listed as a valid document for availing CENVAT credit.
· FIFO method of utilizing credit as specified in Rule 14(2) has been done away with.
Now, whether a particular credit has been utilised or not shall be ascertained by
examining whether during the period under consideration, the minimum balance
of credit in the account of the assessee was equal to or more than the disputed
amount of credit.
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
Amendment in Rule 6: Reversal of CENVAT Credit
Rule 6 of CENVAT Credit Rules is being redrafted with the objective of simplifying and
rationalizing the same without altering the established principles of reversal of such
CENTRAL EXCISE 12
credit. The changes are as follows:
Amendments made to 13
· Inputs and input services used in an activity which is not a `service' under the
CENVAT CREDIT RULES
SERVICE TAX 15
Finance Act, 1994 also to attract reversal provisions under rule 6.
CUSTOMS 19 · For the capital goods used for the manufacture of exempted goods or provision of
exempted service, no CENVAT credit shall be allowed for two years from the date
of commencement of commercial production or provision of service.
· CENVAT credit shall not be allowed on such quantity of input and input services as
is used in or in relation to manufacture of exempted goods and exempted service.
· A manufacturer who exclusively manufactures exempted goods for their clearance
up to the place of removal or a service provider who exclusively provides exempted
services shall reverse the entire credit and is not be eligible for credit of any inputs
and input services used.
· When a manufacturer/provider of output service manufactures/provides two
classes of goods/services for clearance upto the place of removal, i.e. exempted
goods/services and final products/output services excluding exempted goods/
services then manufacturer or provider of output service has following 2 options:
i) Pay an amount equal to six per cent of value of the exempted goods and seven
per cent of value of the exempted services, subject to a maximum of the total
credit taken. The purpose of the rule is to deny credit of such part of the total
credit taken, as is attributable to the exempted goods or exempted services and
under no circumstances this part can be greater than the whole credit.
ii) Option (ii) (Rule 3A) provides the procedures and conditions for calculation of
credit allowed and credit not allowed and directs that such credit not allowed
shall be paid, provisionally for each month. The four key steps for calculating
the credit required to be paid are :-
Credit of Inputs/Input Services used exclusively in manufacture of exempted
goods or provision of exempted services is not available
Full credit is available of input or input services used exclusively in final
products excluding exempted goods or output services excluding exempted
services.
Balance Common Credit shall be attributed as follows:
Credit Attributable Value of exempted goods/services
to Exempted == Common X
Goods/ Services Credit total turnover of exempted
and non-exempted goods and
exempted and non-exempted
services in the previous financial
year
Final reconciliation and adjustments are provided for after close of financial
year by 30th June of the succeeding financial year, as provided in the existing
rule.
· On failing to follow the procedure of giving intimation a manufacturer/provider of
output service may be allowed by competent Central Excise Officer to follow the
procedure and pay the amount prescribed subject to payment of interest calculated
at the rate of 15% per annum.
· The existing rule 6 of CCR would continue to be in operation upto 30.06.2016, for
the units who are required to discharge the obligation in respect of financial year
2015-16.
· Banks and other financial institutions are to be allowed to reverse credit in respect
of exempted services, on actual basis also, in addition to the option of 50% reversal.
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
· Credit taken on inputs and input services used in providing a service by way of
"transportation of goods by a vessel from customs station of clearance in India to
a place outside India" shall not be required to be reversed by the shipping lines.
Amendment in Rule 7: Input Service Distributor (ISD)
· An ISD can now distribute the input service credit to an outsourced manufacturing
unit also in addition to its own manufacturing units.
· As against the present method of distribution of Credit based on turnover, now an
ISD will distribute CENVAT credit in respect of service tax paid on the input services
to its manufacturing units or units providing output service or to outsourced
manufacturing units subject to, inter alia, the following conditions:
i) Credit attributable to a particular unit shall be attributed to that unit only.
ii) Credit attributable to more than one unit but not all shall be to attributed to
those units only and not to all units.
iii) Credit attributable to all units shall be attributed to all the units.
· Credit shall be distributed pro rata on the basis of turnover as is done in the present
rules.
· An outsourced manufacturing unit shall maintain separate account of credit received
from each of the ISD and shall use it for payment of duty on goods manufactured
for ISD concerned.
· Provisions of Rule 6 will apply to units availing the CENVAT credit distributed by ISD
and not to the ISD.
· Now, manufacturers with multiple manufacturing units are allowed to maintain a
common warehouse for inputs and distribute inputs with credits to the individual
manufacturing units.
SERVICE TAX
Amendments effective from 01.03.2016
Exemption withdrawn
· Exemption with respect to construction, erection, commissioning or installation
of original works pertaining to monorail or metro in respect of contracts entered
into on/after 01.03.2016, has been withdrawn. Explanation.-The services by way of
construction, erection, commissioning or installation of original works pertaining
to monorail or metro, where contracts were entered into before 1st March, 2016, on
which appropriate stamp duty, was paid, shall remain exempt.
New Exemptions
Following services have been exempted:
· Services by way of construction, erection, commissioning, etc. in respect of-
a) housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri
Awas Yojana (PMAY)
b) low cost houses up to a carpet area of 60 m2 in a housing project under
"Affordable housing in Partnership" component of PMAY
c) low cost houses up to a carpet area of 60 m2 in a housing project under any
housing scheme of the State Government.
· Services provided by the Indian Institutes of Management (IIM) to their students, by
way of the specified educational programmes.
CENTRAL EXCISE 12
Other Amendments Amendments made to 13
· CENVAT credit is being allowed to service providers providing services by way of CENVAT CREDIT RULES
transportation of goods by a vessel from India to abroad SERVICE TAX 15
CUSTOMS 19
· Rule 5 of the Point of Taxation Rules, 2011 has been amended so as to clarify that
this rule shall apply mutatis mutandis in case of new levy on services and new levy
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
or tax shall be payable on all the cases other than specified in said rule.
· Information Technology Software (IT Software) on media bearing RSP is exempted
from service tax provided central excise duty is paid on RSP in accordance with
section 4A of the Central Excise Act.
Further, IT Software recorded on media which is "NOT FOR RETAIL SALE" is
exempted from so much of the Central Excise duty/CVD as is equivalent to the
duty payable on the portion of the value of such IT Software recorded on the said
media, which is leviable to service tax. In such cases, manufacturer/importer
would therefore be required to pay Central Excise duty/CVD only on that portion
of value representing the value of the medium on which it is recorded along with
freight and insurance.
Thus, levy of excise duty and service tax is mutually exclusive.
Amendments effective from 01.04.2016
Exemptions withdrawn
With a view to broaden the tax base, following exemptions are to be withdrawn:
· services provided by-
(i) a senior advocate to an advocate, partnership firm of advocates providing legal
service; and
(ii) a person represented on an arbitral tribunal to an arbitral tribunal.
Service tax would be payable under forward charge on such services. However
when a senior advocate provides a service to an individual who is not in business
or profession, the same shall be exempt.
· transport of passengers, with or without accompanied belongings, by ropeway,
cable car or aerial tramway
New Exemptions
Exemption has been provided with respect to the following services:
· Services of life insurance business provided by way of annuity under the National
Pension System.
· Services provided by SEBI by way of protecting the interests of investors in
securities and to promote the development of, and to regulate, the securities
market.
· Services provided by Employee Provident Fund Organisation (EPFO) to employees.
· Services provided by Biotechnology incubators approved by Biotechnology
Industry Research Assistance Council (BIRAC) approved biotechnology incubators
to the incubatees.
· Services provided by National Centre for Cold Chain Development by way of
knowledge dissemination.
· Services provided by Insurance Regulatory and Development Authority (IRDA) of
India.
· Services of general insurance business provided under Niramaya Health Insurance
scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disability in collaboration with private/public
insurance companies.
· Services provided by way of skill/vocational training by Deen Dayal Upadhyay
Grameen Kaushalya Yojana training partners.
· Services of assessing bodies empanelled centrally by Directorate General of
CENTRAL EXCISE 12 Training, Ministry of Skill Development & Entrepreneurship.
Amendments made to 13
CENVAT CREDIT RULES
Amendments in existing exemptions
SERVICE TAX 15
CUSTOMS 19
· Hitherto, service tax payable on a performance in folk or classical art forms of
music/dance/theatre is exempt provided the consideration therefor exceeds
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
R1,00,000. This limit has been increased to R1,50,000.
Rationalisation of abatements alongwith the conditions for availing such abatements
· Abatement at the existing rate of 70% will continue to be available on transport CENTRAL EXCISE 12
Amendments made to 13
of passengers and goods by rail and on transport of goods by vessel, with the
CENVAT CREDIT RULES
CENVAT credit of input services now to be allowed [presently, the credit of input SERVICE TAX 15
services is not allowed with the abatement being claimed]. CUSTOMS 19
· A lower rate of abatement of 60% for transport of goods in containers by rail by any
person other than Indian railway, with the CENVAT credit of input services being
allowed.
· For renting of motor-cab services, Cost of fuel should be included in the
consideration charged for providing renting of motor-cab services for availing the
abatement.
· Uniform rate of abatement of 70% on services by way of construction of residential
complex, building, civil structure, or a part thereof, irrespective of the carpet area
of the units and amount charged for such units.
· Abatement on services by a tour operator in respect of a tour only for the purpose
of arranging or booking accommodation for any person, retained at the existing
rate of 90%. However, abatement in respect of any other tour is rationalised from
75% and 60% to 70%.
· A lower rate of abatement of 60% on shifting of used household goods by a Goods
Transport Agency (GTA) without CENVAT credit on inputs, input services and
capital goods.
· Abatement of 70% on services of a foreman to a chit fund restored, without CENVAT
credit on inputs, input services and capital goods.
Amendments in Service Tax Rules, 1994
· Rule 6 of the Service Tax Rules, 1994 to be amended to extend the benefit of
quarterly payment of service tax to One Person Company (OPC) whose aggregate
value of services provided is up to R50 lakh in the previous financial year and an
HUF. Further, payment of service tax on receipt basis is also extended to such
OPC.
· With respect to services provided by mutual fund agents/distributor to a mutual
fund or asset management company, service tax to be payable under forward
charge provisions, i.e. service provider to be liable to pay service tax.
· Rule 6(7A) of the Service Tax Rules, 1994 to be amended to provide that an insurer
carrying on life insurance business to have an option to pay tax at 1.4% of the
total premium charged on single premium annuity (insurance) policies, in cases
where the amount allocated for investment/savings on behalf of policy holder is not
intimated to such policy holder at the time of providing of service.
· With effect from 01.04.2016, any service (and not only support services) provided
by Government or local authorities to business entities are leviable to service tax.
Consequently, service tax would be payable on any (and not only support services)
service by the service recipient on reverse charge basis from said date.
Amendments to be effective from the date on which Finance Bill, 2015 receives the
assent of the President
· Finance Act, 2015 had inserted Explanation 2 to the definition of "service" under
section 65B(44) of the Finance Act, 1994 to specifically state that service tax
is leviable on activities undertaken by lottery distributors and selling agents, in
relation to lotteries.
The said explanation is proposed to be amended to clarify that it is the activity
in relation to promotion, marketing, organizing, selling of lottery or facilitating in
organizing lottery of any kind, in any other manner, of the State Government as
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
per the provisions of the Lotteries (Regulation) Act, 1998, carried out by a lottery
distributor/selling agent, which is leviable to service tax.
· The Negative List entry under section 66D(l) covering `educational services is
CENTRAL EXCISE 12
proposed to be omitted. The said benefit would continue by way of exemption
Amendments made to 13 under mega exemption Notification No. 25/2012 ST dated 20.06.2012 (Sl. No. 9)
CENVAT CREDIT RULES · Assignment by the Government of the right to use the radio-frequency spectrum
SERVICE TAX 15 and subsequent transfers thereof is proposed to be declared as a service under
CUSTOMS 19 section 66E(j) so as to state that those are not sale of intangible goods and liable
to service tax.
· Section 67A is proposed to be amended to obtain specific rule making powers in
respect of Point of Taxation Rules, 2011.
· The time-limit for issuance of show cause notice under section 73, for recovery
of service tax not levied/paid/short- levied/short paid/erroneously refunded, for
non-fraud cases is proposed to be enhanced by 1 year, i.e. from 18 months to 30
months. For cases involving fraud etc. the time limit of 5 years is unchanged.
· Interest rates on delayed payment of duty/tax across all indirect taxes are proposed
to be made uniform at 15% p.a. However, under service tax, in case where any
amount is collected as service tax but amount so collected is not paid to the credit
of the Central Government on/before the date on which such payment becomes
due, proposed interest rate is 24% p.a. In case of assessees, whose value of
taxable services in the preceding year/years covered by the notice is less than R60
Lakh, the rate of interest on delayed payment of service tax will be 12%. Power to
arrest under section 91 proposed to be restricted only in case where the tax payer
has collected the tax of more than R2 crore, but not deposited it to Government.
The monetary limit for launching prosecution under section 89 proposed to be
increased to R2 crores from R50 lacs of the amount of service tax collected but not
deposited to the credit of the Central Government beyond a period of 6 months
from the date on which such payment becomes due.
· Section 93A of the Finance Act, 1994 proposed to be amended so as to allow
rebate by way of notification as well as rules.
· Section 101 is proposed to be inserted for granting retrospective exemption for
the service provided to Governmental Authority by way of construction, erection,
maintenance, or alteration etc. of canal, dam or other irrigation works for the period
01.07.2012 to 30.01.2014. This exemption is proposed for that period which had
missed exemption but were believed to be exempted by the industry.
· Section 102 is proposed to be inserted for grating exemption from Service Tax on
services provided to the Government, a local authority or a governmental authority
by way of construction, erection, etc. of
(i) a civil structure or any other original works meant predominantly for use other
than for commerce, industry, or any other business or profession;
(ii) a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii)
an art or cultural establishment;
(iii)a residential complex predominantly meant for self-use or the use of their
employees or other persons specified in the Explanation 1 to clause 44 of
section 65B of the said Act;
under the contract which was entered prior to 01.03.2015 subject to the condition
that appropriate stamp duty was paid on the contract. The exemption is being
restored till 31.03.2020. The services provided during the period from 01.04.2015 to
29.02.2016 under such contracts are also proposed to be exempted from service
tax.
· Section 103 is proposed to be inserted for grating exemption from Service Tax on
services by way of construction, erection, etc. of original works pertaining to an
airport, port was withdrawn with effect from 1.4.2015. The same is being restored
for the services provided under a contract which had been entered into prior to
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
01.03.2015 and on which appropriate stamp duty, where applicable, had been
paid prior to that date subject to production of certificate from the Ministry of Civil
Aviation or Ministry of Shipping, as the case may be, that the contract had been
entered into prior to 01.03.2015. The exemption is being restored till 31.03.2020.
The services provided during the period from 01.04.2015 to 29.02.2016 under such
contracts are also proposed to be exempted from service tax.
Amendments to be effective from 01.06.2016
· Krishi Kalyan Cess
It is proposed to levy a Krishi Kalyan Cess on ANY OR ALL the taxable services at
the rate of 0.5% of the value of taxable services. It is important to note here that
unlike Swachh Bharat Cess, service provider shall be allowed to utilize the CENVAT
credit of Krishi Kalyan Cess paid on input services for payment of such cess on the
output service provided by it. The objective behind implementing KKC is to fund
financing & promotion initiatives to improve agricultural related activities.
· The Negative List entry under section 66D(O) covering `Service of transport of
passengers with or without accompanied belongings by stage carriage' is
proposed to be omitted. However exemption of services by non-air-conditioned
contract carriage would continue vide mega exemption Notification No. 25/2012 ST
dated 20.06.2012
· The Negative List entry under section 66D(P) covering `Services by way of
transportation of goods by an aircraft or a vessel from a place outside India upto
the customs station of clearance' is proposed to be omitted. Service tax would be
payable by the domestic shipping vessels registered in India while a business entity
availing services of foreign shipping lines would be required to pay services tax
under Reverse Charge. Services by an aircraft would continue to to be exempted
under mega exemption Notification No. 25/2012 ST dated 20.06.2012.
CUSTOMS
Amendments to be effective from the date on which Finance Bill, 2015 receives the
assent of the President/Amendments effective from 01.04.2016
· Section 2(43) has been amended so as to include Special Warehouse licensed
under Section 58A for enabling storage of specific goods under physical control
of the department, as control over the other types of warehouses would be only
record based.
· The provision relating warehousing station is now omitted which would resolve
unnecessary compliances to a great extent. Further, by deletion of the said
provision EOU's would be benefited, as every EOU had to make registration of
their premises as warehousing station and thereafter clear goods.
· The provision for transit of goods in the same conveyance without payment of duty
has been amended to state that henceforth only a proper officer may allow the
goods and the conveyance to transit without payment of duty subject and no suo
moto transit can take place. Further conditions may also be prescribed.
· Section 25 is being amended so as to omit the requirement of publishing and
offering for sale any notification issued, by the Directorate of Publicity and Public
Relations of CBEC. For this purpose, it has been proposed to provide that every
notification issued shall unless otherwise provided come into force on the date of CENTRAL EXCISE 12
its issue by the Central Government for publication in the official Gazette. Amendments made to 13
· The period of limitation has been increased from one year to two years in case of CENVAT CREDIT RULES
SERVICE TAX 15
bonafide error assessment.
CUSTOMS 19
· Amendments have been proposed in section 28, 47, 51 and 156 of the Customs
Act to provide for deferred payment of customs duties for importers and exporters
with proven track record. It will reduce the cargo release time and transaction cost
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
of EXIM trade. The details changes in this regard would be prescribed by Rules.
· The Principal Commissioner or Commissioner are proposed to be empowered to
CENTRAL EXCISE 12 license a public and private warehouses in place of Deputy/Assistant Commissioner,
Amendments made to 13 subject to such conditions as may be prescribed. Further, they would also be
CENVAT CREDIT RULES
empowered for licensing of special warehouse wherein dutiable goods may be
SERVICE TAX 15
CUSTOMS 19
deposited and be locked by the proper officer and no person would enter the
warehouse or remove any goods therefrom without his permission.
· The bond amount for the warehousing bonds submitted by importers availing duty
deferred warehousing has been increased to thrice the duty amount as against
earlier requirement of twice the duty amount. In addition to furnishing of bond,
security may also be required. In case of ownership of such goods being transferred
to another person, the transferee would need to execute bond and security
· The provisions of Section 61 relating to period of warehousing has been extended
to all goods used by Export Oriented Undertakings, Units under Electronic
Hardware Technology Parks, Software Technology Parks, Ship Building Yards and
other units manufacturing under bond. Additionally Principal Commissioners and
Commissioners have been empowered to extend the warehousing period upto one
year at a time.
· Provisions relating to control over warehousing goods and payment of rent and
warehousing charges are proposed to be done away with. Further, free samples
from the warehouse can no longer be taken away.
· The payment of fees to Customs for supervision of manufacturing facilities under
Bond is no longer required. Principal Commissioner or Commissioner of Customs
empowered to license such activities.
· As a step towards Make in India, the rates of customs and excise duty have been
changed on certain inputs to reduce costs and improve competitiveness of domestic
industry in sectors like Information technology hardware, capital goods, defence
production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals,
paper, paperboard & newsprint, Maintenance repair and overhauling [MRO] of
aircrafts and ship repair.
· Customs Single Window Project to be implemented at major ports and airports
starting from beginning of next financial year.
· The rate of interest on delayed payment of duty has been revised to 15% from
earlier rate of 18%.
· Increase in free baggage allowance for international passengers. New Simplified
Baggage Rules, 2016 has been notified which would be effective from 1st April, 2016.
Further Customs Baggage declaration regulation 2013 is also being amended so
as to provide for custom declaration only for those passengers who carry dutiable
and/or prohibited goods.
Budget Highlights - Indirect Taxes
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The Institute of Chartered Accountants of India
Amendments Proposed by Finance
Bill, 2016 in International Taxation
Committee on International Taxation
1. Increase in Surcharge
Surcharge is increased from 12% to 15% in case of non-resident individuals
2. Exemption in respect of certain activity related to diamond trading
in "Special Notified Zone". -Exemption u/s 9(1)(i) to Foreign Mining
Companies through or from the activities which are confined to display of
uncut and unassorted diamonds in a Special Zone notified by the Central
Government in the Official Gazette in this behalf
Earlier, the activity of Foreign Mining Companies (FMC) of mere display of rough
diamonds even with no actual sale taking place in India may lead to creation of business
connection in India of the FMC making it taxable u/s 9(1)(i) of the Income Tax Act, 1961.
In order to facilitate the FMCs to undertake activity of display of uncut diamond
(without any sorting or sale) in the special notified zone, it is proposed to amend
section 9 of the Act to provide that in the case of a foreign company engaged in the
business of mining of diamonds, no income shall be deemed to accrue or arise in
India to it through or from the activities which are confined to display of uncut and
unassorted diamonds in a Special Zone notified by the Central Government in the
Official Gazette in this behalf.
This amendment will take effect retrospectively from 1st April, 2016 and will accordingly
apply in relation to assessment year 2016-17 and subsequent assessment years.
3. Exemption u/s 10(48A) in respect of income of Foreign company from
storage and sale of crude oil stored as part of strategic reserves.- Income
accruing or arising to a foreign company on account of storage of crude oil
in a facility in India and sale of crude oil therefrom to any person resident
in India shall not be included in the total income on fulfilment of certain
conditions
Exemption is to encourage foreign national oil companies (NOCs) and multinational
companies (MNCs) storing and selling crude oil from outside India to build up strategic
oil reserves.
Thus it is proposed that any income accruing or arising to a foreign company on
account of storage of crude oil in a facility in India and sale of crude oil therefrom to
any person resident in India shall not be included in the total income, if, -
i. such storage and sale by the foreign company is pursuant to an agreement or an
arrangement entered into by the Central Government or approved by the Central
Government; and
ii. having regard to the national interest, the foreign company and the agreement or
arrangement are notified by the Central Government in this behalf.
Since the storage of oil is expected to begin in the current financial year, this exemption
would be available from the previous year 2015-16, i.e. assessment year 2016-17.
4. Implementation of POEM based residence rule deferred for 1 year and
applicable from AY 2017-18- It is proposed to defer the applicability of
POEM based residence test by one year It is also proposed to provide a
transition mechanism for a company which is incorporated outside India
and has not earlier been assessed to tax in India.
Reasons for such deferment
- A company may be claiming to be a foreign company not resident in India but in
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the course of assessment, it is held to be resident based on POEM being in fact in
India.
- This determination would be well after closure of the previous year and it may
not be possible for the company to undertake many of procedural requirements
relating to
o Advance tax payment,
o applicability of TDS provisions,
o computation of total income,
o set off of losses a
o manner of application of transfer pricing regime
o issues of computation of depreciation also arise when in earlier years it has not
been subject to computation under the Act.
- This may be due to absence of above requirements under tax laws of country of
incorporation of such company.
5. Amendment in section 206AA - Exemption from requirement of
furnishing PAN to certain non-resident- No higher withholding tax if non-
resident does not have PAN but furnishes an alternative document
It is proposed to amend the said section 206AA so as to provide that the provisions of
this section shall also not apply to a non-resident, not being a company, or to a foreign
company, in respect of any other payment, other than interest on bonds, subject to
such conditions as may be prescribed.
This amendment will take effect from 1st June, 2016.
6. Non-Applicability of Minimum Alternate Tax (MAT) on foreign companies
for the period prior to 01.04.2015 subject to conditions
Vide Finance Act, 2015 of the provisions of section 115JB were amended to provide
that in case of a foreign company any income chargeable at a rate lower than the
rate specified in section 115JB shall be reduced from the book profits and the
corresponding expenditure will be added back.
However, since this amendment was prospective w.e.f. assessment year 2016-17,
the issue for assessment year prior to 2016-17 remained to be addressed.
Thus, it is proposed to provide that with effect from 01.04.2001, the provisions of
section 115JB shall not be applicable to a foreign company if -
(i) the assessee is a resident of a country or a specified territory with which India has
DTAA u/s 90(1) or the Central Government has adopted any agreement u/s 90A(1)
and the assesse does not have a permanent establishment in India in accordance
with the provisions of such Agreement;
or
(ii) the assessee is a resident of a country with which India does not have DTAA and
the assessee is not required to seek registration under any law for the time being
in force relating to companies.
This amendment is proposed to be made effective retrospectively from the 1stday
of April, 2001 and shall accordingly apply in relation to assessment year 2001-02 and
subsequent years.
7. Clarification regarding the definition of the term `unlisted securities' for
the purpose of Section 112 (1) (c)- In case of non-resident long-term capital
gains arising from the transfer of a shares of private company, shall be
chargeable to tax @ 10 per cent
Earlier, in case of non-resident if unlisted shares are transferred, the longterm capital
gains is taxable @ 10% from AY 2013-14. A view has been taken by the courts that
shares of a private company are not "securities".
Thus, with a view to clarify the position so far as taxability is concerned, it is
proposed to amend the provisions of secion 112(1)(c) so as to provide that long-
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term capital gains arising from the transfer of shares of private company, shall be
chargeable to tax @ 10 per cent.
These amendments are proposed to be made effective from the 1st day of April, 2017
and shall accordingly apply in relation to assessment year 2017-18 and subsequent years.
8. Proposed Amendment in section 92CA(3) -Extension of time limit to
Transfer Pricing Officer (TPO) in certain cases to 60 days if the time
available to the TPO for making an order is less than 60 days
It is proposed to amend sub-section (3A) of section 92CA to provide that in following
situations, if the time available to the TPO for making an order after excluding the
time for which assessment proceedings were stayed or the time taken for receipt of
information, as the case may be, is less than 60 days, then such remaining period shall
be extended to 60 days.
- where assessment proceedings are stayed by any court or
- where a reference for exchange of information has been made by the competent
authority,
The amendment will take effect from 1st day of June, 2016.
9. Insertion of new section 194LBC- TDS will be deducted on any Income
to non-resident individual or foreign company in respect of investment in
securitisation trust.
Where any income is payable to an investor, being a non-resident individual or a foreign
company, in respect of an investment in a securitisation trust specified in clause (d )
of the Explanation occurring after section 115TCA, the person responsible for making
the payment shall, at the time of credit of such income to the account of the payee or
at the time of payment thereof in cash or by issue of a cheque or draft or by any other
mode, whichever is earlier, deduct income-tax thereon, at the rates in force.
10. Amendment in section 194LBB- Tax is required to be deducted at the
rates in force, where the payee is a non-resident (not being a company) or
a foreign company
Earlier, the tax was required to be deducted @ 10% if a business trust distributed any
income referred to in section 115UB (not being business income of the nature referred
to in section 10(23FBB)) to its unitholders.
Section 194LBB is proposed to be amended to provide that :
Tax is required to be deducted:-
(i) 10%., where the payee is a resident;
(ii) at the rates in force, where the payee is a non-resident (not being a company) or
a foreign company."
11. Insertion of Chapter VIII - EQUALISATION LEVY- Equalisation levy at
the rate of 6% of the amount for any specified service received by a non-
resident from a resident person and non-resident having PE in India
There shall be charged an equalisation levy at the rate of 6% of the amount of
consideration for any specified service received or receivable by a person, being a
non-resident from
(i) a person resident in India and carrying on business or profession; or
(ii) a non-resident having a permanent establishment in India.
No such levy shall be made if the aggregate amount of consideration for specified
services received or receivable by a the above mentioned non-resident does not
exceed 1 lakh rupees in any previous year.
"Specified service" MEANS
a. online advertisement,
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b. any provision for digital advertising space or
c. any other facility or service for the purpose of online advertisement AND INCLUDES
d. any other service as may be notified by the Central Government in this behalf;
Key points to be noted:-
a. Exemption in section 10- In order to avoid double taxation, it is proposed to
provide exemption under section 10 of the Act for any income arising from providing
specified services on which equalisation levy is chargeable.
b. Disallowance if Equalisation levy not deducted and deposited u/s 40(a)(ib)- It
is further proposed to provide that the expenses incurred by the assessee towards
specified services chargeable under this Chapter shall not be allowed as deduction
in case of failure of the asseseee to deduct and deposit the equalisation levy to the
credit of Central government.
c. Deposit of Equalisation levy- The equalisation levy so deducted during any
calendar month shall be paid by every assessee to the credit of the Central
Government by the 7th day of the month immediately following the said
calendar month.
The further provisions in relation to this chapter are provided in detail in Finance
Bill 2016.
This Chapter will take effect from the date appointed in the notification to be
issued by the Central Government.
12. Amendment in 3rd Proviso to Section 48
Forex gain on redemption of rupee denominated bond of an Indian company shall
be ignored for the purposes of computation of full value of consideration under this
section
13. Amendment in Section 92D
Proviso to section 92D(1) is inserted wherein person, being a constituent entity of an
international group, shall also keep and maintain such information and document in
respect of an international group as may be prescribed.
Sub-section 4 to section 92D inserted wherein it is provided that the person referred
in the above mentioned section shall furnish the information and document referred to
in the said proviso to the authority prescribed under sub-section (1) of section 286, in
such manner, on or before the date, as may be prescribed."
Constituent entity is defined u/s 286
14. Amendment in Section 271AA
If any person fails to furnish the information and the document as required under
92D(4) the prescribed income-tax authority referred to in the said sub-section may
direct that such person shall pay, by way of penalty, a sum of 5 lakh rupees.
15. BEPS action plan - Country-By-Country Report and Master file
The OECD report on Action 13 of BEPS Action plan provides for revised standards
for transfer pricing documentation and a template for country-by-country reporting
of income, earnings, taxes paid and certain measure of economic activity. India has
been one of the active members of BEPS initiative and part of international consensus.
In order to implement the international consensus, it is proposed to provide a
specific reporting regime in respect of country by country reporting and also the
master file. It is proposed to include essential elements in the Act while remaining
aspects can be detailed in rules.
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