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March 7, 2017

German Business Network (GBN)Webcast - India presents its new Union Budget 2017-2018: Impact on German companies

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GBN Webcast - India presents its new Union Budget 2017 (c) 2017 EYGM Limited

Dirk EgbersPartnerGlobal Leader of the German Business Network (GBN)

Phone: +49 211 9352 18500Mobile: +49 160 939 18500Mail: [email protected]

Aashish KasadPartnerDirect Tax

Phone: +91 226 192 0630Mobile: +91 9820 346073Mail: [email protected]

Sanket DesaiSenior ManagerIndirect Tax

Phone: +91 226 192 1753Mobile: +91 98206 36375Mail: [email protected]

I. India’s attractiveness


India’s attractiveness (1/4)


“A Bright spot”

Fastest growing economy in the world

3rd most attractive Foreign Direct Investment destination

Largest youth population in the world with more than half the population below 25 years of age

To grow at consistently higher rates (>7%) and retain its position as one of the fastest growing economies till 2020

Significant jump by 12 places in Ease of Doing Business rankings between 2014 and 2015

‘Make in India’ to raise the contribution of the manufacturing sector to 25% of the GDP by the year 2025 from its current 16%.



By 2020, India expects to be among the top three pharmaceutical markets in terms of incremental growth

Indian chemical industry is the 3rd largest producer in Asia and 8th largest worldwide

Automobile

Pharmaceuticals

By 2026, India expects to be the 3rd largest automotive market by volume in the world

Aviation

By 2020, India expects to be the 3rd largest aviation market

Renewable energy

India has the 5th largest power generation portfolio in the world

Chemicals Telecommunication

In March 2016, with a subscriber base of nearly 1058.86 million, India accounted for the second-largest telecom network in the world

Automotive



►Third-largest agricultural producer by value behind only China and the US.

►Among the 15 leading exporters of agricultural products in the world

►It is expected that India will become 5th largest consumer market in the world by 2025

►India’s retail market is expected to nearly double to US$ 1 trillion by 2020 from US$ 600 billion in 2015

►India is expected to become the world’s fastest growing e-commerce market

Agriculture Defense manufacturing

► India has the third largest armed forces in the world

► 60% of defence related requirements are met by imports which offers a huge opportunity for import substitution

Consumer Products and Retail



►India has the fourth largest rail freight carrier in the world and has the largest passenger carrier

►Indian Railways envisages a prospective investment of USD 130.76 billion in the next five years

IT-BPM sector accounts for 56% of the total global outsourcing market

IT and BPM Textiles

► Second largest textile manufacturing capacity globally

► 5% share in global textiles and apparel trade

► India accounts for 18% of world's spindles and 9% of world's rotor

Railways

Source: makeinindia.com, ibef.org

II. Key macro economic indicators


Key macro economic indicators – India continues to be a bright spot


Several domestic and international historic economic and political developments – Brexit, US Elections, GST constitutional amendment, Demonetization, move towards digital economy

Growth rate estimates for 2017 and 2018: IMF - 7.2%/ 7.7% and World Bank 7.6%/7.8

Fiscal deficit target at 3.2% of GDP for FY 2017-18 and at 3% for the following year

Consumer price inflation declined from 6% in July 2016 to 3.4% in December 2016

Industrial production rose by 5.7% in Nov 2016 fastest in 13 months

Foreign exchange reserves at highest ever levels of USD 361 billion (as on January 2017)

III. India Budget 2017


Key policy announcements (1/3)


The Union Budget 2017 revolved around the theme of ‘Transform’, ‘Energize’ and ‘Clean’ India

Ten distinct themes:

Theme Additional allocation to the Long Term Irrigation Fund INR 200 billion Dedicated Micro Irrigation Fund - an initial corpus of INR 50 billion Dairy Processing and Infrastructure Development Fund - corpus of INR 80 billion over 3 years New mini labs for soil sample testing

FarmersFocus on doubling farmers’ income in five years

Aim to bring 10 million households out of poverty Target to complete 10 million houses by 2019 for the houseless 100% village electrification by May 2018 Mason training to 0.5 million by 2022 Budget allocation for rural agriculture and allied sectors increased by 24%

Rural sectorEmphasis on rural employment and infrastructure

IT platform to be launched for atleast 350 online courses 100 India International skills centers to be established to offer advanced training and courses

in foreign languages Next phase for Skills Strengthening for Industrial Value Enhancement to be launched at

INR 40 billion Scheme to boost employment in leather and footwear to be announced Launch of Incredible India 2.0 to promote tourism and employment

YouthEnergizing them through education, skills and jobs

Key policies announced



Theme

Various policies announced for strengthening social security, health care and affordable housing

Poor and Un-derprivileged

Railways policies announced with focus on safety, capital works and cleanliness Expert international assistance will be harnessed to improve safety preparedness and

maintenance practices Railway lines of 3,500 kms will be commissioned in 2017-18 To feed solar power at 7,000 railway stations Bio-toilets at railway stations and coaches Railways to provide end to end transportation for select commodities through partnership with

logistics players Emphasis on Metro rail in India – New Metro Rail Policy to be announced Increase budget allocation by 10% for highways To set up Strategic Crude Oil Reserves Developing an eco-system to make India a global hub in electronics manufacturing

InfrastructureEfficiency, productivity and quality of life


Various policies announced for effective governance and efficient service delivery through people’s participationPublic Service



Theme

Various policies announced for growth and stability through stronger institution e.g. ► FIPB to be phased out;► process of registration of financial intermediaries to be made fully online;► Cyber security - Computer Emergency Response Team to be established for financial

sector

Financial sector reforms

Digital Mission to be set up with a target of 25 billion digital transactions in FY 2017-18

Target to achieve high speed broadband connectivity on optical fibre in more than 150,000 gram panchayats

Digital economy For speed, accountability and transparency


Optimal deployment of resources and preserve fiscal stabilityPrudent Fiscal Management

Objective to increase the tax base, promote digital economy and move towards e-assessmentsTax AdministrationHonouring the honest

Key direct tax proposals – corporate tax rates


Particulars Current effective rate1

(Upto AY 2017-18)

Proposed effective rate1

(AY 2018-19)Domestic company:A. Where total turnover or gross receipts

in FY 2015-16 ≤ 500 million #► Income > 10 mn, but <100 mn► Income > 100 mn

33.06%34.61%

27.55%2

28.84%

B. Optional tax rate for new manufacturing companies set up/ registered on or after 1 March 2016 (s.115BA)

► Income > 10 mn, but <100 mn► Income > 100 mn

27.55%28.84%

27.55%28.84%

C. Other companies ► Income > 10 mn, but <100 mn► Income > 100 mn

33.06%34.61%

33.06%34.61%

Company other than domestic company ► Income > 10 mn, but <100 mn► Income > 100 mn

42.02%43.26%

42.02%43.26%

MAT rate for domestic companies:A. Unit in International Financial Service

Centre solely earning in forexB. Others

► Income > 10 mn, but <100 mn► Income > 100 mn► Income > 10 mn, but <100 mn► Income > 100 mn

9.92%10.38%20.39%21.34%

9.92%10.38%20.39%21.34%

A. DDT rate under section 115-OB. Buyback tax rate under section 115QA

20.36%23.07%

20.36%23.07%

1. With applicable surcharge and 3% Education Cess 2. Tax rate reduced from 30% to 25% (surcharge unchanged)

Mn = Million

Key direct tax proposals – concessional rates and foreign tax credit


Particulars Proposals in budget (applicable from FY 2017-18)

Income from transfer of carbon credits

► To be taxed at concessional tax rate of 10% (plus surcharge and cess) on the gross amount

► Benefit of the concessional 5% tax rate on interest on foreign currency borrowings to be extended on loans taken before 1 July 2020

Interest on foreign currency borrowing

Foreign tax credit

► Foreign tax credit in respect of foreign tax under dispute to be given by the Assessing officer

► Proof of settlement to be furnished within 6 months from the end of the month in which the dispute is settled

Key direct tax proposals – capital gains



Conversion of preference shares to equity

► Conversion of preference shares to equity prospectively not chargeable to tax

► Period of holding of preference shares to be included in holding of equity shares

► Cost of acquisition of equity shares to be cost of acquisition of the preference shares

Capital gains rate on transfer of unlisted securities

► Reduced capital gains rate of 10% chargeable to non-residents on transfer of unlisted securities

► Applicable from FY 2012-13

Foreign company demerger – cost of acquisition to resultant foreign company

► Cost of acquisition of shares in an Indian company transferred pursuant to foreign company demerger shall be available to the resulting foreign company

Key direct tax proposals – promoting digital economy


Restriction on cash receipt

Particulars

► Restriction on cash receipt of > INR 300,000 for a single transaction or relating to one event or occasion from a person

► Penalty equal to the amount of cash received

Proposals in budget (applicable from FY 2017-18)

Restriction on cash payment

► Cash payment exceeding INR 10,000 not eligible for deduction if incurred towards ► capital expenditure for any specified business► any expenditure► acquisition of capital assets; depreciation not to

be allowed

Key direct tax proposals – thin capitalization and secondary transfer pricing adjustment



Introduction of interest limitation rules

► Interest payment in excess of INR 10 mn by an Indian company or PE of foreign company in India towards debt issued / guaranteed by a non resident AE deductible only upto 30% of EBIDTA

► Excess interest not deductible can be carried forward for 8 subsequent AYs

Introduction of secondary transfer pricing adjustment

► Secondary adjustment introduced in cases where a primary transfer pricing (exceeding INR 10mn) has been made:

► Voluntarily by the taxpayer in the tax return ► By the Assessing officer and such adjustment is

accepted by taxpayer► As a result of an APA / MAP / safe harbour rules

► Unless the differential profits arising due to such secondary adjustment are repatriated to India within the time limit (to be prescribed), deemed to be an advance by the taxpayer to the AE and interest shall be computed

Key direct tax proposals – others


Particulars Applicable from/proposal

General Anti-Avoidance Rules ► 1 April 2017

► 1 April 2016Place of Effective Management

Income-tax Computation Disclosure Standards ► 1 April 2016

Income-tax assessments► Time limits for completion of assessment reduced

► Move towards e-assessments

Goods and Services Tax GST


► FM announced substantial progress towards implementation of GST

► Status-quo in Excise Duty, Customs Duty and Service Tax rates indicative of GST roll out as per schedule

► Development of GSTN also on schedule

► Extensive industry reach-out efforts planned from April 2017

Indirect tax proposals


► No change in median rate of CD and ED

► Reduction in customs and excise duty rates of certain products to incentivize “Make in India” campaign (effective 2 February 2017)

► Authority for Advance Ruling for Customs, Excise and Service tax merged with the Authority under Income-tax regulations (effective from assent of the Finance Bill)

► Procedural changes - Customs

► Bill of Entry to be filed within 1 day of arrival vessel / aircraft (excluding holidays)

► Customs duty to be paid on presentation of Bill of Entry – Time limit reduced from the existing period of 2 days from date of Bill of Entry (effective from assent of Finance Bill)

► Service tax

► Effective rate of tax on services maintained at 15%

► Levy of R&D Cess repealed wef 1 April 2017

► CENVAT Credit

► Transfer of CENVAT credit in case of business transfers, sale, etc., shall be allowed within three months of receiving application (effective from 2 February 2017)

IV. Q & A/Wrap-Up


Thank you!

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