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February 2015

Finance Minister, Arun Jaitely presented the first full-

year Budget of the NDA Government before the

Parliament on Saturday. In many ways this has been

one of the better conceived and balanced Union

Budget in the recent times, presented amidst better

economic and political environment than what has

been witnessed in India the past few years. The

current overall positive sentiment along with the

gradual recovery from economic slowdown has

given rise to a fresh set of expectations from the new

Government.

The extent of emphasis on agriculture, infrastructure

and social sector spending along with tackling the

menace of black money is rather encouraging.

‘Make in India’ receives the required boost along

with thrusts to the tax reforms with a significant push

towards the proposed introduction of GST from April

2016.

Significant changes for both direct and indirect

taxation regime have been proposed. The proposals

on the Corporate taxes are likely to bring cheer to

the industry.

Though the budget may fall short on the populist

expectations in the short run, this is clearly a forward

looking budget with long-term agenda and its real

impact may be witnessed in the years to come.

Direct tax highlights

No changes in personal income tax rates.

Deduction on account of contribution to pension fund, new pension scheme, payment for any annuity plan of LIC/ any other insurer is proposed to be raised from INR 1 lakh to INR 1.5 lakh.

Proposal to increase the deduction for health insurance premium from INR 15,000 to INR 25,000. In case of senior citizens, the limit is proposed to be increased from INR 20,000 to INR 30,000. Further, for very senior citizens above the age of 80 years, who are not covered by health insurance, to be allowed deduction of INR 30,000 towards medical expenditures annually.

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

2% additional surcharge proposed for all assessees excluding foreign companies.

INDIA BUDGET 2015-16 | Highlights

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Wealth tax to be abolished and the information regarding assets will be captured in the income tax returns.

Proposal to give additional investment allowance equivalent to 15% and additional depreciation of 35%, both on the cost of new assets acquired and installed by manufacturing entities in the notified backward areas of Andhra Pradesh and Telangana.

30% deduction for employment of new workmen is proposed to be extended to all assessees and eligibility threshold to be reduced to 50 employees from existing limit of 100 employees.

Allowance of balance 50% additional deprecation @ 20% on new plant & machinery used for less than 180 days has now been proposed to be allowed in the immediately succeeding year.

Income tax rate on royalty and fees for technical services proposed to be reduced from existing 25% to 10%.

Threshold limit to qualify the applicability domestic transfer pricing provisions has been proposed to increase from INR 5 Crore to INR 20 Crore.

100% deduction for contributions to Swachh Bharat Kosh and Clean Ganga Fund (other than by way of Corporate Social Responsibility contribution) and donation made to National Fund for Control of Drug Abuse (NFCDA) to be eligible u/s 80G of Income Tax Act.

Eligibility period for the benefit of reduced 5% withholding tax on interest on External Commercial Borrowings, Government Securities & Bonds has been extended upto 30th June 2017.

Residential status in case of a company is proposed to be amended to include the “place of effective management” at “any time” during the previous year.

Permanent Establishment (PE) norms to be liberalized to encourage relocation of fund managers to India. Presence of fund managers of offshore funds in India are proposed to be excluded from the PE ambit.

To curb black money generation, provisions relating to acceptance and repayment of cash exceeding INR 20,000 or more are proposed to be extended to immovable property transactions.

Tax evasion in respect of foreign assets to attract non compoundable rigorous imprisonment upto 10 years and a penalty of 300% of tax with no resort to approach the Settlement Commission.

Non filing of return or filing of return with inadequate disclosure of foreign assets will attract prosecution with punishment of rigorous imprisonment upto 7 years.

In the case of a search, seized cash is proposed to be adjusted against the assessee’s tax liability under his settlement application.

Implementation of General Anti Avoidance Rules (GAAR) provisions would be applicable from Assessment Year 2017-18 onwards.

The definition of charitable purpose under section 2(15) of the Income-tax Act, is proposed to be amended to include Yoga in its purview.

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Indirect tax highlights

Service tax:

Rate of service tax increased to 14% from

12.36%, after subsuming the 3% education

cess and secondary and higher education

cess.

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

Enabling provisions created to empower the

Central Government for imposition of ‘Swachh

Bharat Cess’ to be recovered as service tax

at the rate of 2% on the value of specified

taxable services, from a date to be notified by

the Government.

Section 67 of the Finance Act is proposed to

be amended to specifically prescribe that

consideration of a taxable service shall

include all reimbursable expenditure or costs

incurred and charged by the service provider

during the course of provision of taxable

services.

Some of the new services brought under the

service tax net from a date to be notified after

the enactment of the Finance Bill:

Services provided by way of access to

amusement facilities such as amusement

parks, water parks, theme parks, rides,

gaming devices and bowling alleys etc.

Services provided by way of contract

manufacturing or job work for alcoholic

liquor for human consumption.

All services provided by Government or

local authorities to business entities shall

be subject to service tax.

Key Service tax exemptions withdrawn with

effect from April 1, 2015:

Services provided to Government or a

local authority by way of construction,

repair, commissioning, installation,

completion, fitting out, maintenance,

renovation or alteration for:

o Civil structure or original works for

commercial or other use.

o Structure for pre-dominant use as an

educational, clinical or art and cultural

establishment.

Construction, erection, commissioning or

installation for original works pertaining to

ports and airports.

Services provided by a mutual fund agent,

distributor to mutual funds or asset

management companies (AMCs).

Service tax to be paid at a uniform abated

value of 30% for transport by rail, road and

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vessel subject to non-availment of Cenvat

credit, with effect from April 1, 2015.

Service tax to be paid at a higher abated

value of 60% for air travel by other than

economy class, with effect from April 1,

2015. Air travel by economy class would

continue to be taxed at an abated value of

40%.

Following services to be taxed fully under the

reverse charge mechanism, with effect from

April 1, 2015:

Manpower supply and security services

provided by an individual, Hindu unified

family (HUF) or a partnership firm to a

body corporate.

Services provided by a mutual fund

agent, distributor and agent of lottery

distributors to the AMC or the distributor

of lottery, as the case may be.

Services provided by e-commerce portals

(aggregators), owning and managing web-

based software applications enabling a

potential customer to connect with a service

provider under the brand name or trade

name of the aggregator shall be subject to

service tax with effect from March 1, 2015.

In case the aggregator does not have a presence in India, the service tax shall be paid by the agent appointed by the aggregator under the reverse charge mechanism.

The alternate composition rates provided to

the specified service providers have been

amended as follows from a date to be

notified after the enactment of the Finance

Bill:

Excise duty

Cenvat rate of excise duty increased to

12.50% from 12.36%, after subsuming the 3%

education cess and secondary and higher

education cess.

The new rate to apply with effect from 1 March, 2015.

Category of Service

provider

Earlier rate Revised

rate

Air travel agent

- Domestic bookings

0.6% of the

basic fare

0.7% of the

basic fare

- International bookings

1.2% of the

basic fare

1.4% of the

basic fare

Insurer carrying on

life insurance

business

- In the first year 3% of the

premium

3.5% of the

premium

- In the subsequent year

1.5% of the

premium

1.75% of the

premium

Money changing

services

- For an amount up to Rs. 100,000 subject to minimum tax of Rs. 35 (earlier Rs. 30)

0.12% of the

gross value of

currency

exchanged

0.14% of the

gross value

of currency

exchanged

- For amount between Rs. 100,000 up to Rs. 10,00,000

Rs. 120 and

0.06% of the

gross value of

currency

exchanged

Rs. 140 and

0.07% of the

gross value

of currency

exchanged

- For amounts exceeding Rs. 10,00,000 subject to maximum tax

Rs. 660 and

0.012% of the

gross value of

currency

exchanged

Rs. 770 and

0.014% of

the gross

value of

currency

exchanged (earlier Rs. 6,000) of Rs. 7,000

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Key changes in the Excise duty rates:

Increase in Excise duty

Product Old Rate* New Rate

Packaged

Portland cement

manufactured

and cleared:

- From a mini cement plant

6%+

120/MT 6%+125/MT

- Other than from a cement plant

12%+120/

MT 12.5%+125/MT

Clean energy

cess on coal,

lignite and peat

Rs. 100

per tonne Rs. 200 per tonne

Sacks and Bags

(including cones)

of plastics

12% 18%

Sacks and bags

of polymers of

ethylene, other

than for

industrial use

12% 15%

Mobile handsets

including cellular

phones

1%

(if Cenvat

credit not

availed)

6%

(if Cenvat

credit

availed)

1%

(if Cenvat credit

not availed)

12.5%

(if Cenvat credit

availed)

Solar water

heater and

system

Nil

12.5%

(Nil duty if Cenvat

credit not availed)

Tablet Computer 10%

12.5%

(2% if Cenvat

credit not availed)

Reduction in Excise duty

Product Old Rate*

New

Rate

Pig iron SG grade and

ferro-silicon magnesium

for manufacture of cast

components of Wind

Operated Electricity

Generators.

12% Nil

Round copper wire and

tin alloys for use in

manufacture of PV ribbon

used in solar PV cells

and modules

12% Nil

Chassis for ambulances 24% 12.5%

Wafers of Integrated

Circuit (IC) modules for

smart cards

12% 6%

LED Drivers and MCPCB

for LED lights, fixtures

and lamps

12% 6%**

* Old rates are subject to levy of education cess

and secondary and higher education cess of 3%. ** Subject to MRP abatement of 30%

Other changes in Excise duty regime

o Excise duty on petrol and diesel has

been restructured to reflect the

increase in Cenvat rate of excise duty

and increase the funds available for

building roads by increasing the

additional duties (road cess).

However, there is no change in the effective aggregate rate of duties.

o Concessional rate of duty of 6% has

been extended from March 31, 2015 to

March 31, 2016 on specified goods for

use in manufacture of electrically

operated vehicles and hybrid vehicles.

* Old rates are subject to levy of education cess and

secondary and higher education cess of 3%.

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o Parts, components and accessories

including goods used in manufacture

thereof have been fully exempted from

excise duty.

o Excise duty has been increased on

cigarettes by 25% (for length not

exceeding 65 mm), and by 15% (for

others).

o Excise duty has also been increased on cigars, cheroots and cigarillos.

o Excise duty increased on cut tobacco

from Rs. 60 per kg to Rs. 70 per kg.

o Compounded levy scheme under

section 3A of the Central Excise Act,

1944 applicable for pan masala,

gutkha and chewing tobacco has been

amended to specify the maximum

speed of packing machines for

packages of notified goods as a

relevant factor for computation of duty.

Accordingly, deemed production and duty payable per machine per month have been prescribed for levy of excise duty.

Miscellaneous

o Goods manufactured domestically for

supply against International

Competitive Bidding (ICB) are subject

to exemption from excise duty if the

same attract nil rate of customs duty.

It is prescribed that the exemption

from excise duty shall be available

only if the conditions prescribed in the

customs notification are fulfilled.

o Goods supplied to Ultra Mega Power

Project (UMPP) and Mega Power

Projects (MPP) with provisional status

of such projects are eligible for

exemption from excise duty subject to

the CEO of the project furnishing a

bank guarantee or fixed deposit

receipt.

The period for such bank guarantee or fixed deposit receipt have been increased from 36 months to 42 months for UMPP and 66 months for MPP, respectively.

Customs duty

There is no change in the peak rate of basic

customs duty (BCD), which remains at 10%.

However, the general rate of countervailing

duty (CVD) on imports will change to 12.50%

with the change in excise duty rates.

Education cess and secondary and higher

education cess on customs duties to continue

at the earlier rates of 3%.

Customs duty rates reduced with effect from

March 1, 2015 on certain items of industrial

use and raw materials for addressing the

inverted duty structure and reduce the costs

for domestic manufacturers. Some of these

include:

‘Metal parts’ for use in the manufacture of

electrical insulators.

Sulphuric acid for use in the manufacture

of fertilizers.

High density polyethylene (HDPE) for use

in the manufacture of telecommunication

grade optical fibre cables from 7.5% to nil.

Black Light Unit Module for use in the

manufacture of LCD/LED TV panels from

10% to nil.

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Organic LED (OLED) TV panels from 10%

to Nil.

Evacuated tubes with three layers of solar

selective coating for use in the

manufacture of solar water heater

systems.

Active Energy Controller (AEC) for use in

the manufacture of Renewable Power

System (RPS) Inverters, subject to

certification by Ministry of New and

Renewable Energy (MNRE).

Parts, components and accessories for

manufacture of tablet computers and their

sub-parts for manufacture thereof.

Special additional duty of customs (SAD)

exempted / reduced with effect from March 1,

2015 on certain items for avoiding Cenvat

credit accumulation:

All goods (except populated printed circuit

boards) for use in the manufacture of ITA

bound goods exempted from SAD, subject

to actual user conditions.

All inputs for use in manufacture of LED

driver and MCPCB for LED lights and

fixtures & LED Lamps exempted from

SAD, subject to actual user condition

Naphtha, ethylene dichloride (EDC), vinyl

chloride monomer (VCM) and styrene

monomer (SM) for manufacture of

excisable goods from 4% to 2%.

Metal scrap of iron & steel, copper, brass

and aluminum from 4% to 2%.

Rate of BCD increased on following items with

effect from March 1, 2015:

BCD increased from 2.5% to 5% on

metallurgical coke.

BCD increased for commercial vehicles

from 10% to 20%.

The validity period of exemption granted to

specified goods for use in the manufacture of

hybrid and electrically operated vehicles

extended by one more year up to March 31,

2016.

Additional duty (road cess) on petrol and

diesel has been increased from Rs. 2 per litre

to Rs. 6 per litre.

Disclaimer

The information contained in this newsletter is of a general

nature and is not intended to address the circumstances of any

particular individual or entity. The document has been prepared

with the help of various sources believed to be reliable, but no

representation or warranty is made to its accuracy,

completeness or correctness. The facts stated in the newsletter

are based on data currently available and can change when this

data gets updated. The information contained in this newsletter

is in no way meant to be a substitute for professional advice.

Whilst due care has been taken in the preparation of this

newsletter and information contained herein, Mazars takes no

ownership of or endorses any findings or views expressed

herein or accepts any liability whatsoever, for any direct or

consequential loss howsoever arising from any use of this

newsletter or its contents or otherwise arising in connection

herewith.

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