BIG PICTURE

Jan Dhan,

Aadhar and

Mobile

(JAM)

Swacch

Bharat

Programme

Make

In

India

Ease of

Doing

Business

Banking the Unbanked

Funding the Unfunded

Other

Rationalization of Subsidies

JAM to Jan Suraksha (Insurance / Pension)

Health & Sanitation

improvement

2/3rd population under 35 years

Job creation important

Encouragement to new start ups &

entrepreneurship

Plug & Play Model 5 Mega Power

Plants

Integrated 14 regulatory permissions at

one source

Draft Legislation- Multiple prior

permissions cam be replaced by pre

existing regulatory mechanism

MUDRA banks (SC / ST

priority)

Electronic Trade

Receivables discounting

System;

Self Employment and Talent

Utilization (SETU)

particularly in Technology

driven areas

Gold monetization / sovereign bond Incentive: Dr / Cr card transactions encouraged

Coal cess doubles: Focus on renewable energy

Wealth Tax abolished

GST w.e.f 1st April, 2016

INTRODUCTION

The Fiscal deficit for the current year has been contained at 4.1 per cent of GDP and 3 per cent target has been shifted to year 2017-

18. This is more so as out of tax receipts 62% has been transferred to states and there is need to increase public investments..

Given this backdrop, the Finance Minister identified following focus areas in Budget 2015-16:

Job creation through revival of growth and investment and promotion of domestic manufacturing Make in India

Improve ease of doing business - Minimum Government and maximum governance

Improve quality of life and public health Swachh Bharat

Benefit to middle class tax-payers

Indirect Transfer

Permanent Establishment

Measures to curb black money

Focus has been given on improving Agricultural productivity, Investment in infrastructure

Plug & Play (PPP)

Clarifying issues faced by Foreign Investors and new investment vehicles (AIF; REITS) and simultaneously supporting social

subsidy programmes.

We are providing herein the snapshot of the major budget 2015 proposals with our comments

The key Investment environment and Tax aspects proposed in Budget 2015 are summarized below.

S.No.

Proposal Impact

Individual

1 Tax slabs remain same

2

Limit of deduction of health insurance premium increased from INR 15000 to INR 25000, for senior citizens limit increased from INR 20000 to INR 30000

Senior citizens above the age of 80 years, who are not covered by health insurance, to be allowed deduction of INR 30000 towards medical expenditures.

Deduction limit of INR 60000 with respect to specified decease of serious nature enhanced to INR 80000 in case of senior citizen

Marginal, likely to offset by increase in service tax.

3 Additional deduction of INR 50,000 for NPS investment

4 Tax exemption for transport allowance increased from Rs 800 to Rs 1600 per month

5

All investments in Sukanya Samridhi Scheme were already eligible for deduction under Section 80C. Now all the withdrawals and interest accrued on such Scheme will also be exempt from tax with retrospective effect from April 1, 2015.

Corporate

1 Proposal to reduce corporate tax from 30% to 25% over the next four years, starting from next financial year (2016 -17).

To align with international tax rates over 5 years period.

2 Rate of Income-tax on royalty and fees for technical services reduced from 25% to10% to facilitate technology inflow

This will provide tax relief to nonresident technology provider to India.

3 Permanent Establishment (PE) norm to be modified to encourage fund managers to relocate to India subject to prescribed conditions.

This will facilitate reverse brain drain of the highly qualified fund managers who left the country in order to manage offshore funds in a tax efficient manner. Merely by fund managers being in India, foreign fund would not be considered PE & would not be held taxable in India.

4 Dividends paid by foreign companies to their shareholders to be addressed through a circular

One would have to wait for the CBDT circular clarifying the position.

5 In case of FIIs, the income arising from long term capital gains shall not be included in computing book profit for the purpose of MAT.

No MAT on LTCG to FIIs. however This amendment does not address the flaming controversy regarding applicability of MAT on foreign companies.

6 Comprehensive Bankruptcy Code of global standards to be brought in fiscal 2015-16

This step is expected to bring about legal certainty and speed, and has been identified as a key priority for improving the ease of doing business.

7

NBFCs registered with RBI and having asset size of INR 500 crore and above may be considered for notifications as Financial Institution in terms of the SARFAESI Act, 2002

This will help such NBFCs attach the property of willful or intended defaulters and avert losses, results in acceleration in recovery process.

8 GAAR deferred by 2 years (Effects 1st April, 2017 onwards)

Applicable on both Individual / Corporate

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

This will reduce the compliance burden on the taxpayers as well as administrative burden on tax authorities. This surcharge not applicable to foreign companies. Additional surcharge also applicable on MAT / AMT / DDT

2 100% deduction for contributions, other than by way of CSR contribution, to Swachh Bharat Kosh and Clean Ganga Fund

This will encourage people participation in national efforts to improve sanitation facilities and rejuvenation of river ganga.

Capital Market

1 Forward Markets commission to be merged with SEBI This step will boost commodity derivative market.

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

This will streamline entire Government debt structure and promote investment in India.

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

This will help Government to have full control over equity capital flows.

4

Concessional withholding tax rate of 5% on interest paid

on Government securities and corporate bonds to FPIs /

FIIs extended on interest payable up to 30 June 2017.

This will promote investment climate.

MSME / Start-ups

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

This will improve liquidity in MSME sector.

2 Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of INR 20,000 crores, and credit guarantee corpus of INR 3,000 crores to be created. In lending priority will be given to SC / ST

This will ensure that Unfunded are adequately funded.

3

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

Will facilitate startup capital and risk capital for startup companies.

Transfer Pricing

1 Domestic transfer pricing threshold limit increased from INR 5 crore to INR 20 crore

This increase would benefit small companies from unnecessary compliance Hassles.

Foreign Direct Investment (FDI)

1 Foreign investments in Alternate Investment Funds to be allowed.

This will allow private equity firms to invest via a single platform, eliminating the need for using overseas structure like routing investments through Mauritius and Singapore.

REITs

1 Rationalization of capital gains regime for the sponsors exiting at the time of listing of the units of REITs and InvITs

This will provide parity in taxation to sponsor on exchange of shares of SPV for units of business vis--vis the sale of shares of SPV under an IPO, subject to levy of STT (LTCG: Exempt ; STCG: @ 15%)

2

Rental income of REITs from their own assets to have pass through facility. No withholding tax on rental income paid to REITs, However REITs to deduct TDS @ 10% to resident unit holders & applicable rates in force in case of Non resident unit holders.

Alternate Investment Fund (AIF)

1 Tax Pass through provided to category I & II AIF.

With more clarity on taxation of AIF; more such structures are expected to be created.

2 Business Income if any taxable at fund level & exempt for unit holders.

3 Withholding tax @ 10% applicable upon payment by fund to unit holders.

4 Losses carried forward at fund level.

5 DDT not applicable to income paid by fund to unit holders

6

The government has now proposed to allow foreign investment in AIFs. While presenting the Budget, the Finance Minister said that the government would do away with different categories like Foreign Portfolio Investors (FPI) and Foreign Direct Investment (FDI) for such investments with a view to making it easier for overseas investors to invest in AIFs.

Clarification on Indirect transfers of Assets (Section 9)

1

Scope of indirect transfer: Shares of a foreign company deemed to drive

substantial value from Indian assets if the value of Indian assets:

Represents atleast 50% of value of all assets owned by the company and

Exceeds INR 100 million

This will bring much needed clarification on the subject of

indirect transfer, specially on the threshold percentage

and the provisions granting exemptions to minority

shareholders, specified amalgamations, demergers.

Valuation of Indian Asset: Value of an asset shall mean its fair market value

(without deduction of liabilities) manner of computing fair value to be prescribed

Taxability on proportionate basis (manner to be prescribed)

Exemption to (Small shareholders (not having management or control and

holding less than 5 % of voting power / share Capital)

Exemption on account of foreign amalgamations:

atleast 25% shareholders of the amalgamating foreign company continue

to remain shareholders of the amalgamated foreign company;

the transfer does not attract capital gain tax in the country in which the

amalgamating foreign company is incorporated

Exemption on account of foreign demergers:

atleast 3/4th of the shareholders in the value of the shares of the

demerged foreign company continue to remain shareholders of the

resulting foreign company;

the transfer does not attract capital gain tax in the country in which the

demerged foreign company is incorporated

Reporting obligations on the Indian concern, failure to do so may attract

penalty in the hands of the Indian concern @ 2%.

Introduction of the concept of Place of Effective Management

1 A Foreign company can be resident in India, if its Place of Effective Management (POEM), at any time in that year, is in India

In lieu of Control & Management wholly in India; now Place of Effective Management in substance will be relevant as per international standards.

Black Money Provisions

1 Acceptance or re-payment of an advance of INR 20,000 or more in cash for purchase of immovable property to be prohibited.

Discouraging cash transactions will help to bring down black money.

2

A new section 37A is proposed to be inserted in FEMA. It provides that if any person holds any foreign exchange, foreign security or any immovable property outside India in contravention of section 4 of FEMA, the equivalent value of property in India can be seized. This power of seizure under FEMA is in addition to the penal action under Income-tax Act and penal action under FEMA.

Focus to curb black money 3

For concealment of income and assets and tax evasion in relation to foreign assets, following measures are proposed:

Prosecution with punishment of rigorous imprisonment up to 10 years;

Offences will be non compoundable;

Offenders will not be allowed to approach the settlement commission;

Penalty at rate of 300% tax

4 For non filing of return or filing return with inadequate disclosure

Prosecution with punishment of rigorous imprisonment up to 7 years

5 New Benami Transactions Prohibition Act on the anvil

INDIRECT TAXES

In an attempt to boost the domestic manufacture, to encourage new investment in

various sectors and to address inverted duty structure for specified sectors. Key

changes taken are summarized below:

SERVICE TAX

Service-tax plus education cesses increased from 12.36% to 14% to

facilitate transition to GST (effective from date to be notified). Further,

enabling provisions are introduced to levy Swachh Bharat Cess at 2% on

value of services for financing and promoting Swachh Bharat initiative.

Thus, total rate of service tax may come to 16%.

Further, it is proposed to include reimbursable expenses incurred by service

provider in course of providing a taxable service and charged thereon. The

Government may prescribe circumstances in which such expenses shall

not be included in value of taxable service.

The Centre has taken its first steps towards bringing in clarity on the levy of

service tax on certain formats in the e-commerce space. Amending the

service tax rules in the Budget 2015-16, the finance ministry has clarified

that any service provided under aggregator model, will be taxable.

EXCISE

o In general 12.36% to 12.50% (effective from 1st March, 2015)

o Excise duty on chassis for ambulance reduced from 24% to 12.5%.

o Central excise/Service tax assesses to be allowed to use digitally signed

invoices and maintain record electronically.

o Excise duty on footwear with leather uppers and having retail price of more

than INR1000 per pair reduced to 6%.

o Time limit for taking CENVAT credit on inputs and input services increased

from 6 months to 1 year.

CUSTOMS o Increase in basic custom duty:

Metallergical coke from 2.5 % to 5%;

Tariff rate on iron and steel and articles of iron and steel increased

from 10% to 15%;

Tariff rate on commercial vehicle increased from 10 % to 40%.

o Basic custom duty on digital still image video camera with certain

specification reduced to nil.

The 2015 budget had long list of expectations. On one hand; the Government has

addressed major issues surrounding the foreign investors which would certainly boost

capital market inflows and revive the private equity industry (by deferring GAAR by 2 years

and clarifying Permanent Establishment & Indirect Transfer of Assets). On other hand; it

has just rationalized the subsidies. Probably as we see growth coming in and more job

creation; subsidy burden can be better dealt with by the Government. Though there are no

direct benefits for the middle class. However incentives have been introduced to encourage

savings. These savings are expected to fuel the infrastructure and other investment plans

laid out by the Government. Certainly Foreign investors have a reason to cheer for this Pro

Business; Pro Growth Government budget.

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