Achieving together INDEX. India - Budget 2015 Analysis of Tax Changes on Business. 1. Foreword. 2. Budget Review. 3. Budget Impact

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1 Achieving together India - Budget 2015 Analysis of Tax Changes on Business INDEX 1. Foreword 2 2. Budget Review 3 3. Budget Impact 3.1 Direct Tax 3.2 Indirect Taxes 5 12

2 1. FOREWORD After the landslide majority received by the present Union Government last year, it was widely expected that the Union Budget 2015 presented by the Indian Finance Minister on 28 February 2015 would make significant changes in tax laws to increase investments in India. In line with the expectations, the budget proposals actually have made significant changes and have laid down the future path of this Government. Importantly, the budget has a significant imprint of the main projects of the Prime Minister Narendra Modi. Firstly, to provide a boost to the Make in India campaign, there were measures such as rationalizing the inverted duty structure in select sectors which results in accumulation of CENVAT Credit. Also, focus was to amend provisions relating to registrations and preservation of records for improving the ease of doing business in India. On India s most awaited tax reform, the Goods and Services Tax, the Finance Minister looked firm on assuring its arrival on 1 April 2016, having already introduced a Constitutional Amendment Bill in the Parliament. In his budget speech, the Finance Minister said: GST is expected to play a transformative role in the way our economy functions. It will add buoyancy to our economy by developing a common Indian market and reducing the cascading effect of the cost of goods and services. We are moving in various fronts to implement GST from the next year. Lastly, the Swatchh Bharat (Clean India) Campaign which is another important project of the Prime Minister found its way in the budget provisions by way of insertion of provisions aiming at levying an additional Cess of 2% on certain services. With an increase in the Service Tax rate from the existing 12.36% to 14%, introduction of this Cess would result in services being taxed at the rate of 16%. Apart from increase in the service tax rate, the Government also hopes for an increase in revenue from Service Tax by increasing the tax base and reduction of services mentioned in the negative list. Not much has been included in the budget from Customs and Excise perspective apart from minor increase in effective rate of taxes. However, rationalization of certain procedural provisions widely seen as a trade facilitation measure was undertaken. On the direct tax front, the highlight was abolishing Wealth Tax which was more of a hassle to comply with for many, and replacing the same with an additional surcharge of 2% on the Super Rich. The corporate tax rates are also proposed to be reduced from the existing 30% to 25% over four years starting 1 April However, this may predictably be accompanied by the removal of many exemption provisions. The two year deference of General Anti Avoidance Rules and an increased focus to curb the menace of black money in the Indian economy are a welcome step. Given the uncertainty of taxation in case of indirect transfer of assets located in India, the proposed amendments bring in much needed clarity. However, the change in the residency criteria of foreign companies could be a highly debatable topic especially for Indian corporates having subsidiaries abroad. Reduction of withholding tax on payments of fees for technical services to foreign entities from 25% to 10% would be a big relief to many multinationals. The requirement of obtaining a Permanent Account Number to avoid withholding tax of 20% remains unchanged. On the personal Income Tax front, no major changes have been proposed apart from addition deductions especially on medical insurance and contribution towards pension fund.

3 2. BUDGET PREVIEW Income Tax Tax rates for corporates and foreign companies (including permanent establishments of non-resident entities in India) remain unchanged. Surcharge on domestic companies increased: From 5% to 7% where income exceeds INR 10 million From 10% to 12% where income exceeds INR 100 million. Surcharge on foreign companies remains unchanged. Wealth Tax has been abolished and replaced by an additional surcharge of 2% on taxable income of over INR 10 million in case of domestic tax payers. Tax rate for income by way of royalty and Fees for Technical Services (FTS) has been reduced from 25% to 10% in case of non-resident tax payers (including foreign companies). Treaty rates continue to apply. Clarifications introduced on taxability of indirect transfers of shares deriving substantial value from assets in India. Substantial clarified to mean 50% of value of all assets owned by foreign entity and minimum value of Indian assets of INR 100 million. Transfer of shares of a foreign company deriving substantial value from shares in India on account of an amalgamation or demerger of foreign companies shall be exempt from capital gains tax subject to fulfilment of certain conditions. Tax Residency Rules of a Company amended; concept of Place of Effective Management introduces to determine residency status of a foreign company. The applicability of General Anti-Avoidance Rules ( GAAR ) deferred by 2 years and will now be applicable from Financial Year An eligible Fund Manager acting on behalf of an Eligible Investment Fund in India not to constitute business connection in India subject to satisfaction of certain conditions. New law on Black Money to be enacted providing for comprehensive penalty and prosecution provisions Additional deductions and incentives in respect of contributions in notified securities/ instruments in the name of girl child, medical treatment / health insurance of senior citizens, pension scheme. Special Tax Regime proposed for Alternate Investment Funds (specified Venture Capital Funds)

4 Service Tax The effective rate of service tax is proposed to be increased from 12.36% to 14% effective from a date to be notified. Enabling provisions introduced to levy Swatchh Bharat Cess on the value of all or selected taxable services at a rate of 2% from a date to be notified. This would increase the effective rate of service tax from 14% to 16%. Broadening of service tax base by including new services and pruning down the list of services entitled for exemptions. Clarity provided on taxability of reimbursement of expenditure recovered by the service providers from service receivers. Central Excise The effective rate of excise duty is increased from 12.36% to 12.5%. Exemption from excise duty on parts and components used in manufacture of tablet computers. Customs Increase in effective rate of customs duty from 25.85% to 26.43% in respect of capital goods and from 28.85% to 29.44% for other goods. Boost to the manufacturing sector by exempting inputs required for manufacture of electronic and medical sectors. Exemption from Special Additional Customs duty in specified sectors to avoid problem of inverted duty structure and accumulation of CENVAT credit. CENVAT Credit Rationalization of provisions with respect to time limits for availing CENVAT Credit and receipt of Capital goods sent for job work. Trade facilitation measures for direct dispatch of goods from the premises of manufacturer/ port to the customer for availing CENVAT Credit. Penalty provisions even in case of availment of inadmissible CENVAT Credit without utilization.

5 3. BUDGET IMPACT This segment discusses significant direct and indirect tax amendments and reforms announced in the Union Budget Most direct tax proposals contained in the Finance Bill are effective 1 April 2016, i.e. for the Financial Year , unless otherwise specified in the respective amendments. However, in case of indirect taxes, the changes in the rates of Excise and Customs Duties would be effective from 1 March 2015 itself while the rate of Service Tax would change from a date to be notified by the Government. Other legislative changes would be effective from the date of enactment of the Finance Bill 2015 unless otherwise prescribed in the Notifications. The First Draft of the Finance Bill is discussed in both the houses of the Parliament (Rajya Sabha and Lok Sabha) and could be amended based on these discussions. The Finance Bill is enacted when it receives the Presidential assent. 3.1 DIRECT TAX Income Tax Income Tax Rates Personal tax rates No change has been proposed in personal income tax slabs / rates and the existing slabs / rates will continue. The rate of surcharge has been enhanced from 10% to 12% on income-tax in case the total income exceeds INR 10 Million. Wealth Tax has been abolished with effect from 1 April Corporate Tax Rate There has been no change in the basic corporate tax rate (domestic as well as for foreign company). Rate of Surcharge has been enhanced in case of domestic companies: If income exceeds INR 10 Million: rate has been enhanced from 5% to 7% If income exceeds INR 100 Million: rate has been enhanced from 10% to 12% Rate of surcharge in case of foreign company remain unchanged: If income exceeds INR 10 Million: rate is surcharge is 2% If income exceeds INR 100 Million: rate is surcharge is 5% Education Cess will continue at 3% of the amount of income tax plus surcharge in all cases. Abolishing Wealth Tax Presently wealth tax is levied on all taxpayers if the net wealth (defined to include specified assets) exceeds the prescribed threshold. It was noted that only a nominal amount of revenue is collected from the levy of wealth tax, whereas the cost of administration and compliance is high. Therefore it is proposed that Wealth Tax be abolished with effect from Assessment Year The loss of revenue is proposed to be compensated by levying a surcharge of 2% on taxable income of over INR 10 Million.

6 Further, the information relating to assets currently required to be furnished in the wealth tax return will be captured by suitably modifying the Income tax return. Key proposals relating to International Tax Determination of Residential Status in case of companies Presently, apart from an Indian company, a foreign company is considered to be resident in India if the control and management of its affairs is wholly situated in India during that year. It is proposed to introduce the internationally recognized concept of Place of Effective Management ( POEM ) for determination of residential status of a company in India. It is proposed that apart from Indian companies, a company will be considered to be Resident in India if its POEM is in India at any time in that year. POEM is defined to mean a place where key management and commercial decisions that are necessary for the conduct of the business as a whole are in substance made at any time in that year in India. Tax on Indirect transfers The Indian Tax Laws were amended retrospectively by the Finance Act 2012 to provide for taxation of capital gains arising from transfer of shares of or interest in foreign entity whose value was derived substantially from assets located in India directly or indirectly. Insertion of these provisions had resulted in several ambiguities on the applicability of these provisions, thereby impacting investor sentiments. With an objective to provide clarity on taxation of indirect transfers, it is proposed to clarify that the share or interest of the foreign entity shall be deemed to derive its value substantially from assets located in India if on the specified date: Value of Indian assets exceeds INR 100 million and Indian assets represent at least 50 per cent of value of all the assets owned by such company or entity Value of assets would include value of both tangible as well as intangible assets (without reduction of liabilities) as on the specified date. Specified valuation date is the accounting year end date preceding the date of transfer. However, if there is an increase in book value of the assets between the accounting year end date and date of transfer, by 15% or more, then date of transfer would be considered to be the valuation date. It has also been clarified that where all assets owned by the concerned foreign entity are not located in India, tax on capital gains would be proportional to the value of assets located in India. Specific Rules will be prescribed for determining the proportional value of assets. To provide relief to minority shareholders, it is proposed to grant capital gains exemption to the transferor of share or interest of the foreign entity ( which directly or indirectly owns assets in India) if such transferor (along with its associated enterprises) does not hold: right of control or management, and voting rights or share capital or interest exceeding 5% in the foreign company or entity at any time in the 12 months preceding the date of transfer.

7 Certain reporting requirements have been prescribed for such transactions. Further, penalty is proposed to be levied for non-furnishing of prescribed information. General Anti-Avoidance Rules ( GAAR ) GAAR was introduced vide Finance Act 2013 and was to come into effect from 1 April Applicability of GAAR has been deferred to Assessment Year The objective of this deferral is to bring its implementation in line with the overall regime of Base Erosion and Profit Shifting (BEPS) of the Organization of Economic Cooperation and Development (OECD) and tax avoidance. Indirect transfer on account of amalgamation or demerger of foreign company The transfer of shares of a foreign company, which derives its value substantially from shares of an Indian company, on account of amalgamation or demerger is proposed to be specifically exempted subject to the following conditions: In case of amalgamation: At least 25% of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and The transfer does not attract capital gains tax in the country of the amalgamating company In case of demerger: In value terms, 3/4 th of shareholders of demerged foreign company become shareholders in resulting foreign company; and The transfer does not attract capital gains tax in the country of the demerged company Consequential amendment has also been proposed for availability of cost of acquisition of shares of the foreign company in the hands of amalgamating / demerged company to the amalgamated / resulting company. Tax Rate on Royalty It is proposed to reduce the tax rate on royalty and fees and technical services from the present 25% to 10%. Nevertheless, this rate will be subject to the rates prescribed under the respective tax Treaties. Also, wherever the non-resident does not have an India tax registration (PAN), the higher rate of withholding of 20% will continue to apply. Interest paid by Indian Branch of Foreign Bank to Head Office It is clarified that interest paid by the Permanent Establishment (for instance an Indian Branch) of a Non-resident engaged in the business of banking to its head office or any other Permanent Establishment of the Non-resident in India will be deemed to accrue or arise in India and shall be chargeable to tax in India. It is further clarified that the Permanent Establishment will be deemed to be a person separate and independent of the Non-resident for the purpose of computation of income, determination of tax and collection and recovery. Reporting requirements for payments to non-residents Presently, any person responsible for making a payment of an amount taxable in India to a nonresident is required to withhold tax at the appropriate rates. Such person is also required to furnish certain information of such payments to the tax authorities. However, the existing Rules prescribed furnishing of information only in case of the payment was taxable in India.

8 In order to identify and scrutinize payments on which there is a failure to withhold taxes and to ensure compliance with the withholding tax requirements, it is proposed that the payer shall be under an obligation to furnish prescribed information in the prescribed forms in respect of all payments irrespective of whether such payments are taxable in India or not. Additionally, penalty is proposed to be imposed on non-furnishing of information / furnishing of inaccurate information relating to payment to non-residents. Power to notify rules for granting Foreign Tax Credit Credit is available to resident taxpayers in respect of taxes paid outside India (in a foreign jurisdiction) on doubly taxed income. It is proposed to amend the Indian tax laws to empower the Central Board of Direct Taxes to prescribe appropriate Rules and Procedures for granting relief / deduction on account of taxes paid by resident taxpayers in any foreign country / specified territory outside India. Raising the threshold for specified domestic transactions The existing provisions for applicability of transfer pricing define specified domestic transactions to mean any specified transactions (other than international transactions) where the aggregate of such transactions exceed a sum of INR 50 million. In order to address the issue of compliance cost in case of small businesses, it is proposed to increase the threshold for applicability of transfer pricing to specified domestic transactions from INR 50 million to INR 200 million. Fund Managers not to constitute business connection of offshore funds In order to incentivize offshore funds to locate their fund managers in India, a specific regime of taxation is proposed in terms of which in case of an Eligible Investment Fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund from India shall not constitute a business connection. Further, the Investment Fund shall not be considered as Resident in India merely because the fund manager is undertaking fund management activities situated in India. Comprehensive conditions have been laid down to avail the specific exception from the general rules for determination of business connection and residential status of offshore funds and fund manager s activity. Concessional Tax Rate on interest payable to Foreign Institutional Investor (FII) and Qualified Foreign Investor (QFI) It has been proposed to extend the concessional withholding tax rate of 5 per cent on interest payable to FIIs and QFIs on debt instruments (rupee denominated bonds of Indian companies / Government securities) by two years i.e. until June 30, Key proposals relating to Domestic Tax MAT Provisions In case a company is a member of an Association of Persons (AOP) or Body of Individuals (BOI), no income tax is payable on its share of income in the AOP or BOI ; however such company is liable to MAT on its share of income.

9 As a rationalization measure and correct this anomaly, it is proposed to amend MAT provisions to provide that the company s share of income in an AOP / BOI credited to its profit and loss account (on which no income tax is payable as per normal provisions), shall be reduced from the book profits for the purposes of MAT provisions. Correspondingly, the book profits shall be increased by the amount of expenditure relatable to that income. On a similar note, amendments have been made in respect of computation of MAT of Foreign Institutional Investors (FII). Finance Act 2014 provided that securities held by FII will be deemed to capital assets. Consequently income arising to such FII would be capital gains. It is proposed that MAT provisions will not be applicable to capital gains income of FIIs (other than short-term capital gains on which STT is not chargeable). Consequently, in computing book profits, such capital gains would be reduced if credited to the profit and loss account. Correspondingly, it is proposed that the book profit shall be increased by the amount of expenditure relatable to that income. Allowance of additional depreciation Under the existing provisions, additional depreciation is restricted to 50% if the new asset is put to use for a period less than 180 days. Since the non-availability of 50% additional depreciation lead to deferment of investment to the next financial year by taxpayers, it is proposed that balance additional depreciation of 50% shall be allowed in the subsequent year. Deduction for employment of new workmen With a view to encourage generation of employment for workmen, it is proposed to extend the benefit of deduction to all taxpayers having manufacturing units (earlier deduction was available to corporate taxpayers only). Further, to enable smaller units to claim this deduction, it is proposed to extend the benefit to units employing even 50 regular workmen (from the existing number of 100). Additional Funds / Institutions notified for deduction under section 80G Donation made to charitable institutions and notified funds formed for the purpose of national importance are eligible for 100%. It is proposed to include additional funds namely, Swachh Bharat Kosh (for improving sanitation facilities in rural / urban areas and school premises) and Clean Ganga Fund (for rejuvenation of river Ganga) and National Fund for Control of Drug Abuse in the list. It has been further clarified that amounts spent in pursuance of Corporate Social Responsibility under the Companies Act will not be eligible for deduction under this section. Key proposals relating to Assessment Procedures, Compliance, Penalties etc Modes of accepting loans, deposits and specified sums and mode of repayment of loans, deposits and specified sums The existing provisions Act provide that no person shall take any loan or deposit otherwise than by an account payee cheque / bank draft or online transfer through a bank account, if the amount of such loan or deposit is twenty thousand rupees or more. Similar requirement also exists for repayment of loans and deposits. In order to curb generation of black money, it is proposed that the above requirements will also apply to transfer of an immovable property if the amount of such loan or deposit or such specified sum is twenty thousand rupees or more. Consequential amendments made in penalty provisions to include the above default.

10 Compliance in case of withholding tax on salary Under the present provisions, a person responsible for making a payment of salaries is authorized to allow deductions / exemptions / set offs / allowances at the time of withholding tax of salaries. The existing provisions do not contain guidance regarding the nature of evidences / documents to be maintained by such person. Accordingly, it is proposed that the person responsible for estimating the income of the tax payer or computing salary tax deductible is required to obtain from the assessee evidence or proofs of the prescribed claim in the manner and form as may be prescribed. Provisions to avoid repetitive appeals It is proposed to introduce a new section to provide that where a question of law arising in case of an tax payer for any tax year is identical to the one pending before the Supreme Court for another tax year for the same taxpayer (due to an appeal or a special leave petition filed by the revenue authorities), then the Commissioner or Principal Commissioner of Income Tax may direct the Tax Officer to make an application to the Appellate Tribunal for filing the appeal after the decision of the Supreme Court becomes final and the order is in favour of the revenue. This is subject to the acceptance from the tax payer that the question of law is identical. This provision is introduced to avoid repetitive filing of appeals by the revenue on the same issue resulting in needless litigation. Clarification with regard to revision proceedings The Principal Commissioner or Commissioner of Income-tax can direct a tax officer to conduct a fresh assessment of taxpayer s income if he considers that the order passed by the tax officer is erroneous in so far as it is prejudicial to the interests of the revenue after giving an opportunity of hearing to the taxpayer. The interpretation of expression erroneous in so far as it is prejudicial to the interests of the revenue has been a contentious one. This term has now been clarified Certain accountants not to issue reports / certificates In order to ensure the independence of an auditor, it is proposed to provide that an auditor who is not eligible to be appointed as auditor of a company as per the Companies Act, 2013 shall not be eligible for carrying out any audit or furnishing of any report/certificate under any provisions of the ITA as well in respect of that company. On similar lines, ineligibility for carrying out any audit or furnishing of any report/certificate in respect of non-company is also proposed to be provided. As such a chartered accountant cannot act as accountant for a taxpayer if he is related to the taxpayer in any manner. The meaning of related party for different classes of the tax payer has been defined separately. Further, a person who has been convicted by a court for an offence involving fraud will be disqualified to act as an Authorized Representative for a period of ten years from the date of conviction. Penalties on Minimum Alternate Tax Presently, courts have held that concealment penalty cannot be levied in cases where the concealment of income occurs under the income computed under general provisions of the ITA whereas a Minimum Alternate tax (MAT) is paid In order to rationalize this, it is proposed to clarify the meaning of tax sought to be evaded for purpose of levy of concealment penalty, especially where tax is paid as per MAT i.e. it shall be the summation of tax sought to be evaded under the general provisions and the tax sought to be evaded under MAT provisions. However, if an amount of concealed income is considered both, under general provisions and for MAT purposes, then such amount shall not be considered in computing tax sought to be evaded under MAT provisions.

11 Penalties for non-furnishing of information in relation to direct / indirect transfer It is proposed that where a foreign entity derives its value directly or indirectly substantially from Indian assets (through an Indian concern), such Indian concern is required to provide certain information. Failure to do so will attract penalty as under: 2% of value of transaction which had the impact of transferring the right of management or control of the Indian concern. INR 0.5 Million in other cases No penalty is leviable if there was reasonable cause for such failure. Penalties for non-furnishing of information in relation to payment to non-residents Penalty of INR 0.1 Million is leviable for non-furnishing of or furnishing inaccurate particulars in relation to payment to non-resident or foreign company. No penalty is leviable if there was reasonable cause for such failure. Other changes New law on Black Money Salient Features (compiled based on the Budget Speech): Concealment of income and assets and evasion of tax in relation to foreign assets to be prosecutable with punishment of rigorous imprisonment upto 10 years. Further: this offence will be made non-compoundable; the offenders will not be permitted to approach the Settlement Commission; and penalty for such concealment of income and assets at the rate of 300% of tax shall be levied. Non filing of return or filing of return with inadequate disclosure of foreign assets will be liable for prosecution with punishment of rigorous imprisonment up to 7 years. Income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset will be taxable at the maximum marginal rate. Exemptions or deductions which may otherwise be applicable in such cases, shall not be allowed. Beneficial owner or beneficiary of foreign assets will be mandatorily required to file return, even if there is no taxable income. Abettors of the above offences, whether individuals, entities, banks or financial institutions will be liable for prosecution and penalty. Date of Opening of foreign account would be mandatorily required to be specified by the taxpayer in the return of income. Simultaneous amendments in Prevention of Money-laundering Act, 2002 (PMLA) and The Foreign Exchange Management Act, 1999 (FEMA) for providing for related penalties and prosecutions as well as for enabling confiscation of assets of equivalent value situated in India.

12 3.2 INDIRECT TAX Service Tax Rate of Tax As a step towards GST where the service sector could see a substantial rise in the tax rate, the Service Tax rate has been increased from 12% to 14%. However, exemption from Education Cess and Secondary and Higher Education Cess has resulted in increase of effective rate of Service Tax from 12.36% to 14%. The revised rate of Service Tax would be applicable from a date to be notified after the enactment of the Finance Bill. Till such time, the existing rate of 12.36% (including cess) would continue. Enabling provisions have been introduced under Chapter VI of the Finance Act, 2015 for levy of Swatchh Bharat Cess at a rate of 2% from a date to be notified, on the value of all or selected taxable services. This would in effect, increase the tax applicable on provision of services from 14% to 16%. On introduction, regulatory provisions relating to the scope, valuation, collection and compliance of the said Cess may be introduced. With the increase in the Service Tax rate, composite rate of Service Tax applicable on the following services have also been changed: Description of service Existing rate Revised rate Air travel agent For domestic bookings For international bookings Life insurance services For first year of policy For subsequent years 0.6% of the basic fare 1.2% of the basic fare 3% of premium charged 1.5% of premium charged 0.7% of the basic fare 1.4% of the basic fare 3.5% of premium charged 1.75% of premium charged Similar rate changes have been made in services provided by Foreign exchange dealers and lottery ticket distributors/ selling agents. Broadening of Service Tax base From a date to be notified, the following services in the entertainment sector have been made liable to Service Tax which is expected to give rise to complications such as double taxation in the form of parallel levy of Service Tax and the State governed Entertainment Tax and other valuation related disputes: Services provided by way of admission to amusement facility providing fun or recreation by means of rides, gaming devices or bowling alleys in amusement parks, arcades, water parks, theme parks or such other places. However services provided by admission to museum, zoo, national park, wild life sanctuary and tiger reserve have been kept outside the purview of tax. Services provided by way of admission to entertainment event of concerts, non-recognized sporting events, pageants, music concerts, award functions is proposed to be taxable from a date

13 to be notified, if the amount charged for right to admission is more than INR 500. However, the existing exemption to service by way of admission to entertainment events, namely, exhibition of cinematography films, circus, recognized sporting events, dance, theatrical performances including drama and ballets has been continued. Service tax is proposed to be levied from a date to be notified, on process for intermediate production or manufacture of alcoholic liquor for human consumption. Consequently, along with the existing State Excise Duty, contract manufacturing and job work for production of potable liquor would also be liable to Service Tax. Except for certain specified services such as renting of immovable property and postal services, all services provided by the Government or local authority to a business entity are proposed to be taxable from a date to be notified. The said change is expected to raise doubts over taxability of consideration such as license fee, statutory levies, approval fee etc received by the Government while performing its sovereign functions. It is to be noted that the tax on such services would be payable by the business entity, being the receiver of service under reverse charge mechanism. The definition of term Government has been introduced to avoid interpretative issues. Withdrawal of exemptions and restriction in the scope of existing exemptions under service tax Exemption from service tax on following services is proposed to be withdrawn with effect from 1 April 2015: Services provided to Government or local authorities by way of construction, erection, installation, commissioning, completion, repairs, maintenance, renovation or alteration of building or civil structure meant predominately for use other than business or commerce such as school, hospital, residential complex for use by employees, historical monuments, archaeological sites, etc. Construction, erection, commissioning or installation of original works pertaining to airport and port. However, exemption on similar services for railways, metro and monorail continue. Services provided by mutual fund agents and distributors to a mutual fund or asset management company Services provided by selling or marketing agent of lottery ticket to a distributor. The scope of the existing exemptions under service tax has been restricted with effect from 1 April 2015: Services provided by performing artist in folk or classical art from of music, dance or theater will now be taxable in case the consideration charged for such services exceeds INR 100,000 per performance. Earlier, the said services were exempted without any consideration limit. Existing exemption on transportation of food stuff including flours, tea, coffee, milk products, salt and edible oil by rail, vessel or road is proposed to be restricted only on milk, salt, food grains, pulses, rice and flour. Therefore transportation of other food stuff such as tea, coffee, jiggery, edible oil, etc. would be taxable.

14 New Exemptions and extension in the scope of existing exemptions under Service Tax Following services would not be liable to Service Tax with effect from 1 April 2015: Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables. Services provided by common effluent treatment plant operator for treatment of effluent. Services by way of admission to a museum, national park, wildlife sanctuary, tiger reserve or zoo. The scope of the following exemptions under service tax has been expanded with effect from 1 April 2015: Extension of exemption to all persons providing services of transportation of patients through ambulance in addition to existing exemption to clinical establishments and medical practitioners. Exemption to services by way of transportation of export goods in a goods carriage from the place of removal to a land customs station in addition to existing exemption till port, airport, inland container depot or a container freight station. Change in the rates of prescribed abatements with effect from 1 April 2015 The rates of abatement on following transportation services have been rationalized: SN Transportation Services Existing Proposed Abatement % Abatement % taxable taxable 1. For goods and passengers by Rail (with 70% 30% 70% 30% credit) 2. For goods by road provided by Goods 75% 25% 70% 30% Transport Agency (without credit) 3. For goods supplied in a vessel (with 60% 40% 70% 30% credit) 4. For passengers by air, with or without accompanied baggage (without credit): - Economy class 60% 40% 60% 40% - Any class higher than economy 60% 40% 40% 60% Changes in provisions relating reverse charge mechanism with effect from 1 April 2015 Introducing a paradigm shift in taxability of services under reverse charge mechanism, it is proposed that in respect of services provided by any person to another using an aggregator in any manner, such aggregator shall be liable to pay service tax instead of service provider or service receiver. An aggregator is defined to mean a person who owns and manages web based software application enabling potential customers to connect with the person providing the service under the brand or trade name of the aggregator using a connecting device. It has been further provided that in case of aggregator not having physical presence in India, any person representing the aggregator shall be liable to pay service tax. In absence of any such

15 representative, the aggregator shall be required to appoint a representative for the said purposes. This change would have a significant impact on foreign aggregators such as OLA/UBER Cabs, Air Travel agents and E-Commerce Service platforms. The portion of Service Tax payable by a body corporate on receipt of manpower supply and security services from an individual/ partnership firm has been increased from 75% to 100%. Services provided by mutual fund agent or distributer to a mutual fund and services provided by agents of lottery tickets to a lottery distributor are being brought under reverse charge mechanism with 100% of tax payable by the service receiver. Change in provisions relating to Valuation with effect from enactment of the Finance Bill The term Consideration for the purpose of valuation has been amended to provide that any reimbursable expenditure or cost incurred by the service provider and charged to service receiver during the course of providing the taxable service, would also be liable to service tax. It has been clarified in the TRU Circular that the intention of the legislature was always to include such reimbursements in the value of taxable services. However, the specific amendment was required to overcome the decision of the Delhi High Court in case of Intercontinental Consultants & Technocrats Ltd vs. Union of India [2013 (29) STR 9 (Del.)]. Other relevant amendments (with effect from enactment of the bill) Notification No. 42/2012 which provided an exemption to services provided by commission agents (intermediaries) located outside India facilitating export of goods from India has been withdrawn. It has been clarified that the withdrawal of exemption is due to the fact that the said notification had become redundant in view of change in the definition of the term Intermediary with effect from October 2014 due to which the place of provision of such services is now outside India and consequently, not liable to service tax. The above change further clarifies the Government stand of applying service tax on commission received by agents of foreign companies located in India. Recovery of unpaid tax which is self-assessed and declared in the return shall be made without issuing notice in the prescribed manner. Service tax Rules Simplified procedure has been issued for obtaining registration of service tax for a single premise which shall be issued within 2 working days with post facto verification of documents. Registration shall be PAN based and providing and mobile number would be mandatory. Provisions for issuing digitally signed invoices would be introduced along with option to preserve statutory records in electronic form. CENVAT Credit No clarity on unutilized balances of Education Cess and Secondary and Higher Education Cess due to exemption of such taxes on the output liability. The provisions relating to availment of CENVAT Credit under partial reverse charge mechanism have been amendment to provide that the said credit can be taken by the service receiver immediately

16 on payment of service tax instead of taking credit only after making the payment of the invoice to the service provider. Time limit for availing CENVAT Credit on inputs and input services has been increased from 6 months to 1 year from the date of the invoice. Time limit for receiving back Capital goods sent to a job worker has been increased from existing 180 days to 2 years. There is no change in the time limit for inputs sent to job workers premise. As a trade facilitation measure, in case of direct dispatch of goods by a registered dealer/ importer from the premises of manufacturer or the customs port to its customer, without first bringing the goods in his premises, the customer would be eligible to take CENVAT Credit subject to the relevant conditions. CENVAT Credit of inputs and capital goods sent directly to the premises of job-worker on the direction of manufacturer or service provider can be taken by the manufacturer or service provider, on receipt of goods in the premises of job-worker. Non excisable goods which are cleared for a consideration from the factory shall be considered as exempted goods for the purpose of reversal of CENVAT Credit. Methodology by way of which, CENVAT Credit shall be deemed to be utilized has been prescribed. Penalty has been prescribed for availing inadmissible CENVAT credit which has not been utilized. It has been clarified that the place of removal in case of manufacturer exporter shall be deemed to be the Port/ Airport/ ICD if the shipping bill is also filed by such manufacturer exporter. This would enable the manufacturers to avail CENVAT Credit of taxes paid upto such place of export. Excise Duty Policy Change The rate of Excise Duty has been increased from 12% to 12.5% with effect from 1 March However, exemption from Education Cess and Secondary and Higher Education Cess has resulted in marginal increase of effective rate of Excise Duty from 12.36% to 12.5%. No change in the rate of excise duty on products which were chargeable to excise duty at the rate of 2% or 6%. Simplified procedure for registration and provisions for issuing digitally signed invoices/ preservation of statutory records in electronic form as under service tax have also been proposed under Central Excise. Important Rate changes under Central Excise Following goods have been fully exempted from payment of Excise Duty: Pig iron SG grade and Ferro-silicon-magnesium for manufacture of cast components of wind operated electricity generators. Round copper wire and tine alloys for use in the manufacture of PV ribbon (tinned copper interconnect) for manufacture of solar PV cells and modules to Certification by Department of Electronics and Information Technology.

17 Railway or tramway track construction material of iron and steel, subject to the condition that such rails have suffered Excise Duty and no corresponding credit of duty is availed. Parts, components and accessories for use in manufacture of tablet computer and sub-parts of such parts, components and accessories used in manufacture of tablet computers. Specified raw materials for use in the manufacture of pacemakers. Excise duty on mobile handsets including cellular phone is being changed from 1% without CENVAT credit or 6% with CENVAT credit to 1% without CENVAT credit or 12.5% with CENVAT credit. Excise duty of 2% without CENVAT credit or 12.5% with CENVAT credit is being provided to tablet computer. Basic Excise Duty rate on cigarettes increased varying from 15% to 25%. Clean Energy Cess, levied on coal, lignite and peat, has been effectively increased from Rs.100 per tonne to Rs.200 per tonne. Excise duty exemption is being withdrawn on solar water heater and system. Further, optional excise duty of Nil without CENVAT credit / 12.5% with CENVAT credit is being extended to solar water heater and system. Excise duty exemption on parts for use in manufacture of solar water heater and system is being continued. The validity period of concessional excise duty of 6% granted to specified goods used in the manufacture of electrically operated vehicles and hybrid vehicles is being extended by one more year up to 31st March, Goods manufactured domestically and supplied against International Competitive Bidding are eligible for full Excise Duty exemption provided that such goods when imported, should attract not attract BCD and CVD and that the conditions prescribed for exemption from customs duty shall also apply mutatis mutandis to such goods domestically manufactured. Excise Duty is exempted on goods meant for setting-up of Mega or Ultra Mega Power Project specified in prescribed List subject to safeguards. Some products on which rate of Excise duty has been increased are: Item/ Product Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured (However, Additional Excise duty commonly known as Health Cess has been reduced from 5% to NIL) Ordinary portland cement, dry, coloured, Portland pozzolana cement Basic Excise Duty (%) Existing Proposed Rs. 900/tonne Sacks and bags of polymers of ethylene other than for industrial use Rs. 1,000/tonne

18 Some products on which rate of Excise duty has been decreased are: Item/ Product Basic Excise Duty (%) Existing Proposed Leather footwear of Retail Sale Price exceeding Rs.1000 per pair 12 6 Wafers for use in the manufacture of IC modules for smart cards 12 6 All inputs for use in manufacture of LED driver and MCPCB for LED 12 6 lights and Fixtures & LED Lamps Chassis for ambulance Customs Duty Change in the effective rate of Customs Duty on import of goods in India Tax Capital Goods Other than Capital Goods Before Proposed Before Proposed Assessable Value Basic Customs Duty (7.5%/ %) Additional Customs Duty (increased from 12% to 12.5%) Cess on ACD (3%) NIL NIL NIL NIL Customs Cess (3%) Special Additional Duty (4%) Effective rate of Customs Duty Important changes in Rates under Customs (with effect from 01 March 2015) Items fully exempted from BCD Parts and components of cash dispensers and automatic bank note dispensers Parts, components and accessories for use in the manufacture of tablet computer and sub-parts for use in manufacture of such parts, components and accessories Black Light Unit Module for manufacture of LCD/LED TV panels, subject to actual user condition Evacuated tubes with three layers of solar selective coating for use in the manufacture of solar water heater and system, subject to actual user condition Lifesaving drugs and medicines imported by an individual for personal use, subject to specified condition Items fully exempted from CVD Parts, components and accessories for manufacture of tablet computer and sub-parts used for manufacturing parts, components and accessories used in manufacturing tablet computers Specified raw materials for use in the manufacture of pacemakers

19 Items fully exempted from SAD to avoid problem of inverted duty structure and accumulation of CENVAT credit Parts, components and accessories for manufacture of tablet computer and sub-parts used for manufacturing parts, components and accessories subject to actual user condition All inputs for use in the manufacture of LED driver or Metal Core Printed Circuit Board for LED lights and fixtures or LED Lamps, subject to actual user condition Battery, titanium, palladium wire, eutectic wire, silicone resins and rubbers, solder paste, reed switch, diodes, transistors, capacitors, controllers, coils (steel), tubing (silicone) for use in the manufacture of pacemakers, subject to actual user condition Other Concessional changes Concessional BCD rate of 5% is being extended to AEC (Active Energy Controller) for manufacture of Renewable Power System (RPS) inverters, subject to certification by Ministry of New and Renewable Energy Validity period of concessional duties granted to specified goods for use in the manufacture of hybrid and electrically operated vehicles is being extended to March 31, Some important products on which rate of Basic Customs Duty has been decreased are: Item/ Product Existing Proposed Bituminous coal Metal parts for use in manufacture of electrical insulators subject to actual user condition Certain category of Digital Still Image Video Cameras and parts used 10 Nil for manufacturing such cameras Original LED TV Panels 10 Nil C-block compressor, crank shaft, overload protector, positive thermal coefficient for manufacture of refrigerator compressor Specified components of CNC lathe machine and machine centers namely, ball screws, linear motion guides, and CNC systems subject to actual user condition Parts and components of certain category of Digital Still Image Video Cameras and parts used for manufacturing such cameras 5 Nil Some products on which only the Tariff rate of Basic Customs Duty has been increased are (effective rate continues to be the same): Item/ Product Existing Proposed Commercial vehicles under Chapter 8702 and Iron & steel and articles of iron & steel under Chapter 72 and

20 Common amendments under Customs, Excise and Service Tax Payment of duty/ tax, interest and reduced penalty, if applicable Cases not involving fraud or intention to evade payment of tax Cases involving fraud or intention to evade payment of tax Maximum penalty 10% of duty/ tax 100% of duty/ Tax Before issuance of Show No penalty payable No Option provided Cause Notice Within 30 days of issuance of No penalty payable Show Cause Notice Within 30 days of the date of communication of Order Penalty reduced from 25% to 15% (proceedings deemed to be concluded) Reduced penalty of 25% Reduced penalty of 25% Amendments in Penalty provisions under Customs, Excise and Service Tax effective from the date of enactment of the Finance Bill Other specific changes with respect to co-noticee, modification of duty in appellate proceedings and certain transitional provisions have also been provided in respective statutes. Under Service Tax, provisions relating to reduced penalty, in case where true and complete information was available on specified records have been withdrawn. Further, immunity from penalty due to reasonable causes for non-payment of tax has also been discontinued. Under Customs, the maximum penalty for improper import/ export of goods, other than prohibited goods has been capped to 10% of duty amount (earlier 100% of duty) or INR 5,000, whichever is higher. Settlement Commission It is proposed that any proceeding which is referred back to the adjudicating authority for a fresh adjudication/ decision would not be entitled for dispute resolution under settlement commission. Advance Ruling Scope of Advance Ruling has been widened by covering residents like partnership firm, LLP, proprietary concern and one person company, who can now seek advance ruling along with Indian and Foreign companies.