this booklet contains corrected page no 63 of wirc · pdf fileto promote the honourable prime...

This Booklet contains Corrected Page no 63

of WIRC Publication "The Union Budget

2015 -An Analytical Overview" which is

misprinted in the physical Booklet.

i

FOREWORDThe main thrust of this Union Budget presented by the Hon’ble Finance Minister, Shri Arun Jaitley, is on “Make in India” that will promote inclusive growth and consistent economic development.

With the Indian economy headed towards 8% growth next year and on course for a further increase in the near future, coupled with the highly optimistic general sentiment and euphoric mood of investors and business community, there was high expectation that there will be announcements on “big bang reforms”. Although the recent economic survey tried to moderate this expectation, the Hon’ble Finance Minister, still carried the weight of high expectations of the entire nation on his shoulders.

The Finance Minister, in his budget speech, mentioned that the world is expecting this to be “India’s chance to fly” and in this backdrop, he made announcements in this budget that is aimed at high growth, reducing the gap of the fiscal deficit, thus seeking to boost investment and also provide benefit to the common man. The emphasis for the first time on social security is a great step forward that will immensely benefit the marginalised sections of our society.

The highlights of this budget, as announced, was that the Corporate Tax Rate will be reduced to 25% over the next four years from the current rate of 30% with a view to boost spending and job creation. The announcement of the Finance Minister that a new law will be enacted for black money, is a welcome step, as also the announcement to defer GAAR by 2 years, which again will boost overseas investor sentiments. To promote the Honourable Prime Minister’s dream project of “Swachh Bharat Abhiyan”, the Finance Minister’s announcement of 100% deductions allowed for all contributions made towards this cause, is highly laudable. Another highly commendable announcement is allocation of ` 8,50,000 crore to be given as loan to the farmers. This will immensly boost the agricultural sector of the country.

The announcement to increase the Service Tax from 12.36% to 14% has slightly dented the overall buoyant sentiments. Overall, the budget seems to aspire to balancing the Government’s priorities towards growth, inclusiveness and fiscal deficit.

I sincerely thank CA. Priti Savla, Chairperson, Direct Taxes Committee; CA. Sandeep Jain, Chairman, Indirect Taxes Committee; and contributors CA. A. R. Krishnan, CA. S. S. Gupta, CA. Anil Sathe, CA. Sanjeev Lalan, CA. Paras Savla, CA. Ketan Ved, CA. Bhavin Shah and CA. Shyam Nori for their invaluable contributions.

I am sure that this publication will help everybody – professionals, non-professionals and students – to get a better understanding of the budget.

CA. Sunil Patodia Chairman, WIRC of ICAI

ii

PREFACEThe 2015 Budget is the first full Budget of the Government led by Hon’ble Prime Minister Shri Narendra Modi. The expectations were very high as the Hon’ble Prime Minister often describes his Government as ‘round-the-clock, round-the-year Government’. This budget is presented with the view to energise the economy and to lay a long-term foundation for the Government’s agenda.

Hon’ble Finance Minister Shri Arun Jaitley announced two game changing reforms viz. GST and JAM Trinity (Jan Dhan, Aadhar and Mobile). Year 2022, will be the Amrut Mahotsav, marking the 75th year of India’s Independence. The vision of “Team India” to be led by the State Government and guided by the Central Government shall include a house for each family with all basic amenities, elimination of poverty, electrification, good health, education, increase in agricultural prosperity and providing employment and growth for entrepreneurship.

The Hon’ble Finance Minister has not announced any changes in personal and corporate income-tax rates, except increase in surcharge for 2015-16 in case of individuals having taxable income above ` 1 Crore. In order to increase savings various tax incentives have been proposed, with particular stress on Health Insurance.

The Hon’ble Finance Minister has also proposed 5% reduction in Corporate Tax Rate over the next four years and has abolished Wealth Tax. There is also a plan to levy ‘Swachh Bharat Cess’ upto 2% on services, in future. Further increasing service tax will result in higher cost of variety of services.

The Hon’ble Finance Minister has also proposed series of comprehensive measures to tackle the evils of black money, by enforcing punishment with rigorous imprisonment of 10 years in case of concealment of Income and Assets held abroad. Quoting of Permanent Account Number on the transaction of purchase and sale exceeding ` 1 Lac is also proposed. The Hon’ble Finance Minister has also proposed to introduce new legislations for ease of doing business in the country.

Further in order to consolidate multiple regulators it is proposed to merge Forward Market Commission with SEBI. Monetising of gold is another important move, which will have positive impact in the long run.

The Budget has paved a path to bring the Nation back to the growth track in the coming years.

We are sure that analytical review of the Budget proposals shall provide insight to professionals and layman alike. It would also be a handy guide to them. I thank all the contributors and reviewer for providing their analysis in a very short time.

CA Priti Savla Chairperson, Direct Tax Committee of WIRC of ICAI

iii

PREFACEWith the presentation of the Union Budget, 2015, by the Honourable Finance Minister Shri Arun Jaitley, the writing is clear on the wall - India needs to grow at a steady pace and public investment is key to the growth momentum.

The net effect of the Indirect tax proposals over the Direct Tax proposals are expected to yield a robust ₹ 15,068 crores during FY 2015-16.

The mantra of “Swachh Bharat” is here to stay and is gaining root.

The budget has put a very strong impetus on Social Security and Old age support through various insurance, health & medical and pension reforms.

To promote Minimum Government Maximum Governance, the Hon’ble Finance Minister has promoted ease of operations by promising Online registrations within two days on one hand and increasing the time limit for taking cenvat credit from 6 months to One year on the other hand, clearly giving the message of pledging his support to manufacturing and employment generation.

One of the biggest amendments is the increase in the service tax rate from 12.36% to 14% and the Excise Duty from 12.36% to 12.50% and an incremental Swachh Bharat cess of 2% proposed to be levied on services. The levy of twin education cesses have been subsumed in the principal tax itself.

In a gradual and progressive move towards GST, the Hon’ble Finance Minister has done away with exemptions on certain services i.e, amusements, entertainment events, construction contracts for ports/airports and services of mutual fund agents and distributors.

A basket of various tax sops and reliefs given to the agriculture, and its allied and ancillary activities, is a welcome move. However, the challenge lies in executing the reforms in the unorganised sector in the country. The intent is there, we are sure the way will follow.

On various occasions the Hon’ble Finance Minister has reduced duties and levies to promote the indegenious manufacturing sector.

On behalf of the WIRC of ICAI, sincere thanks to all the contributors who have put their expert analysis on the subject within limited time.

We hope this compilation shall be useful and a handy referencer for all.

CA. Sandeep K. C. Jain Chairman, Indirect Tax Committee of WIRC of ICAI

iv

INDEX

Sr. No. Particulars Page Nos.

Foreword ...................................................................................................... i

Preface — Chairperson, Direct Tax Committee of WIRC of ICAI .............................. ii

Preface — Chairman, Indirect Tax Committee of WIRC of ICAI .............................. iii

DIRECT TAXES1. RATES OF TAX ...................................................................................................1

2. INDIVIDUAL TAXATION .................................................................................... 6

3. CORPORATE TAXATION ................................................................................... 9

4. CAPITAL GAINS .............................................................................................. 12

5. INTERNATIONAL TAXATION .......................................................................... 14

6. REAL ESTATE INVESTMENT TRUST & ..........................................................20 INFRASTRUCTURE INVESTMENT TRUST

7. TRUSTS ............................................................................................................ 22

8. TAX DEDUCTION AND COLLECTION AT SOURCES ......................................23

9. ANTI AVOIDANCE PROVISIONS .................................................................... 27

10. OTHER IMPORTANT AND PROCEDURAL PROVISIONS ...............................28

INDIRECT TAXESCENTRAL EXCISE ...................................................................................................... 35

CHANGES IN CENVAT CREDIT RULES, 2004 ............................................................ 44

BUDGET CHANGES IN CUSTOMS DUTY .................................................................. 47

SERVICE TAX ............................................................................................................ 51

1

THE FINANCE BILL, 2015DIRECT TAX

Unless otherwise specifically mentioned, the amendments proposed are effective from the Assessment Year (“A.Y.”) 2016-2017 and are, therefore, applicable to income arising on or after 1st April, 2015. Specific mention is made at the relevant places, when the effective date of the proposed amendment is other than A.Y. 2016-17. Reference to the existing provisions means the provisions of the Income-tax Act, 1961 (“Act”) prior to the amendments proposed in the Finance Bill, 2015 (“Bill”). Any reference to sections, unless otherwise stated, is to the sections of the Act.

1. RATES OF TAX

1.1 The tax rates for individuals (including senior and super senior citizens), HUF, Firms, Local Authorities and Co-operative Societies remain unchanged.

The only change proposed in the Finance Bill 2015 is the additional surcharge to be levied in case of a person having a total income in excess of Rs 1 crore. This additional surcharge is proposed as a consequential revenue offsetting measure to abolishing of wealth-tax.

A policy intent to bring down the corporate rates to a global competitive rate of 25% in the next four years was announced by the Finance Minister in his budget speech. It is not explicitly detailed as to how the present corporate tax rate of 30% would be scaled down to 25% in the next four years.

The tax rate for various categories are as under

SeniorCitizen: In the case of every individual, being a resident in India, who is of the age of sixty years or more but less than eighty years at any time during the previous year

Income Range Tax Rate

Surcharge EducationCess

Secondary and higher educationcess

Up to ` 3,00,000 NIL NIL NIL NIL` 3,00,000 – ` 5,00,000

10% NIL 2% of Income tax

1% of Income Tax

2




` 5,00,000 – ` 10,00,000


1% of Income Tax

` 10,00,000 – ` 1,00,00,000


1% of Income Tax

Above ` 1,00,00,000*

30% 10%** 2% of Income tax and surcharge

1% of Income tax and surcharge

SuperSeniorCitizen:In the case of every individual, being a resident in India, who is of the age of eighty years or more at any time during the previous year




Up to ` 5,00,000 NIL NIL NIL NIL` 5,00,000 – ` 10,00,000


1% of Income Tax

Rs 10,00,000 – Rs 1,00,00,000


1% of Income Tax

Above Rs 1,00,00,000*



All other individuals, Hindu undivided family or association of persons or body of individuals:

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Surcharge Education Cess

Secondary and higher education cess

Up to Rs 2,50,000 NIL NIL NIL NILRs 2,50,000 – Rs 5,00,000


1% of Income Tax

Rs 5,00,000 – Rs 10,00,000


1% of Income Tax

Rs 10,00,000 – Rs 1,00,00,000


1% of Income Tax

Above Rs 1,00,00,000*



* The total amount payable as income-tax and surcharge on such income shall not exceed the total amount payable as income-tax on a total income of one crore rupees by more than the amount of income that exceeds one crore rupees

** The surcharge is increased from 10% to 12% in the case of super-rich

Firms:

Normal Tax Rate

AMT Surcharge EducationCess*

Secondary and higher educationcess*

30% 18.5% 10%* 2% of Income tax and surcharge

1% of income tax and surcharge

* Surcharge applicable if income exceeds Rs 1 crore

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4

Companies:

Income Range

Normal Tax Rate*

Surcharge EducationCess**

Secondary and higher educationcess**

Below Rs 1 crore


1% of income tax

Rs 1 crore – Rs 10 crore

30% 5%*** 2% of Income tax and surcharge


Above Rs 10 crore

30% 10%*** 2% of Income tax and surcharge


* The MAT rate is 18.5%

** are calculated on the normal tax or MAT as the case may be

*** Surcharge in the case of a foreign company is 2% and 5% respectively

Co-operativesocieties:

Income Range

Normal Tax Rate*

Surcharge EducationCess**

Secondary and higher educationcess**

Up to Rs 10,000


1% of income tax

Rs 10,000 – Rs 20,000


1% of Income tax

Rs 20,000 – Rs 1 crore


1% of Income tax

Rs 1 crore and above

30% 10% 2% of Income tax and surcharge


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LocalAuthorities:

Normal Tax Rate

AMT Surcharge EducationCess*

Secondary and higher educationcess*

30% 18.5% 10%* 2% of Income tax and surcharge


*Surcharge applicable if income exceeds Rs 1 crore:

OtherSpecifiedratesintheIncomeTaxAct:

No changes are proposed in the Bill to the existing rates including surcharge and cess on MAT (18.5%), AMT (18.5%), and dividend distribution tax (15%), Income distributed by money market mutual fund or liquid fund (25%/30%), Income distributed by a fund other than money market mutual fund or liquid fund (12.5%/30%), Interest received from Infrastructure debt fund referred to in Section 10(47) (5%), Interest income referred to in Section 194LC (5%) and 194LBA (5%), and Income referred to in Section 115AD (various incomes at 5%,10%,15%,20%,30%).

The STCG tax rate in Section 111A and LTCG rate in Section 112 which remain unchanged are set out below

Category LTCG STCG Surcharge EducationCess*

Secondary and higher educationcess *

Individuals, HUF, AOP & BOI, Firm

20% 15% 10%* 2% of Income tax and surcharge


Domestic Company

20% 15% 5%/10%** 2% of Income tax and surcharge


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Category LTCG STCG Surcharge EducationCess*

Secondary and higher educationcess *

Company other than Domestic Company

20% 15% 2%/5%*** 2% of Income tax and surcharge


* surcharge applicable to income above Rs 1 crore

** surcharge is 5% for income in the range of Rs 1 crore to Rs 10 crore and is 10% for income above Rs 10 crore

*** surcharge is 2% for income in the range of Rs 1 crore to Rs 10 crore and is 5% for income above Rs 10 crore

1.2 Taxability of “ROYALTY” or“FEESFORTECHNICALSERVICES”:

The high rate of 25% effected by the Finance Act, 2013 heads created lot of hardships to many assessees, where they had to incur additional cost for grossing up with the non-resident recipient unwilling to suffer a WHT of 25%. Considering these difficulties and to facilitate ease of business it is proposed in the Bill to reduce the rate from 25% to 10%. This amendment will take effect from 1st April, 2016 and accordingly apply in relation to assessment year 2016-17 and subsequent assessment years. This would help the Indian entities in lowering the cost of importing technology. However there is no reduction in the withholding tax rate of 20% where PAN is not obtained by the non-resident.

2. Individualtaxation:

There was huge expectation among the individual tax payers regarding increase in basic exemption, increased deduction for savings and medical expenses. The Finance Minister has kept the basic exemption unchanged and tried to achieve a lower tax burden for individual tax payers by extending the following benefits.

2.1 Sukanya Samridhi Scheme: This scheme was notified vide Notification No. G.S.R. 863(E) dated 02-12-2014 as a special small savings instrument for the welfare of the girl child. The Finance Bill, 2015 proposes to amend Section 80C to allow deduction to

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the parent or legal guardian of the girl child for the sum paid or deposited during the year in the scheme in the name of any girl child of the individual or in the name of any girl child for whom such individual s the legal guardian. The Bill proposes to amend Section 80C retrospectively from 1st April, 2015 and will apply for assessment year 2015-16 and subsequent assessment years.

It is also proposed to amend section 10 by inserting new clause (11A) for exempting the interest earned thereon.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

2.2 ContributiontoNationalPensionScheme: The existing provisions of section 80CCD provide for a deduction of an amount not exceeding ten percent of salary and not exceeding Rs 1, 00,000, towards contribution to National Pension Scheme.

In order to encourage contribution to National Pension scheme, the Bill proposes an additional deduction of Rs 50,000.


2.3 Increased deduction towards contribution to annuity plan for pension:The existing provisions of section 80CCC allow a deduction of Rs 1,00,000 towards amount paid to any annuity plan of Life Insurance Corporation of India or any other insurer for receiving pension from a fund set up under a pension scheme.

The Bill proposes to increase the deduction from Rs 1,00,000 to Rs 1,50,000 within the overall limit provided in Sec 80CCE.


2.4 HealthInsurancePremiumandMedicalexpenses: Under the existing provisions of the Section 80D an individual can claim a dedcution towards the insurance on the health of the assessee or his family or towards any contributions made to the Central Government Health Scheme or any payment for towards preventive health check-up an aggregate amount not exceeding Rs 15,000 with a limited deduction of Rs 5,000 for preventive health check-up. Similarly under the

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existing provisions of Section 80D an individual can claim a further deduction of Rs 15,000 towards insurance on the health or towards preventive health check-up of the parents of the assessee with a limited deduction of Rs 5,000 for preventive health check-up. Further the existing provisions of Section 80D provide for a deduction of Rs 20,000 where the payment is for an insurance on the health of a senior citizen.

It is proposed in the Bill that the aggregate deduction for insurance on the health of the assessee or his family or any payment for towards preventive health check-up will be increased from Rs 15,000 to Rs 25,000 and further the limit of Rs 20,000 for senior citizens including payment for parents is increased to Rs 30,000.

It is also provided that a deduction up to Rs 30,000 will be allowable towards medical expenditure of a very senior citizen, an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year, provided no payment is made to keep in force an insurance on the health of such person.


2.5 Deductioninrespectofmedicaltreatmentforspecifieddiseases:The existing provisions of section 80DDB provide for a deduction of Rs 40,000 towards medical treatment for specified diseases incurred by the Individual on himself or his dependent and a deduction of Rs 60,000 is allowed if paid for a senior citizen. In order to claim this deduction a certificate in prescribed form is required from a specialist doctor working in a Government hospital.

2.6 Enhancedreliefforpersonswithdisability: The Bill proposes to enhance the existing limit of deduction under section 80U from Rs 50,000 to Rs 75,000 for a person suffering from disability and from Rs 1,00,000 to Rs 1,50,000 for a person with severe disability.


2.7 Exemption in respectofSukanyaAccount: It is provided that any payment made from an account open in accordance with the Sukanya Smruddhi Account Rules, 2014 under the Government Saving Bank Act 1873 shall be exempt u/s. 10.

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3. CorporateTaxation:

3.1 Allowanceofadditionaldepreciation:

Presently, additional depreciation of 20% of the cost of new plant or machinery acquired and installed by certain assessee’s is allowed as per section 32(1) (iia) of the Act. Also, following the allowability of general depreciation, the additional depreciation is restricted to 50% when the new plant or machinery is put to use for a period of less than 180 days in the previous year.

It is proposed to provide that the balance 50% of the additional depreciation on new plant or machinery used for less than 180 days, which has not been allowed in the year of acquisition and installation of such plant or machinery shall be allowed in the immediately succeeding previous year.

This proposal is to remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and that used for 180 days or more,

Comment

The proposed amendment seeks to give statutory effect to the decision of the various benches of the Income-tax Appellate Tribunal, notable amongst those being, DCIT v/s. Cosmo Films Ltd. (2012) 139 ITD 628 (Delhi), ACIT v/s. Sil Investment Ltd. (2012) 54 SOT 54 (Delhi) and MITC Rolling Mills P. Ltd. v/s. ACIT (2789/Mum/12). It also puts to rest the concerns which were raised in professional and industrial circles on the issue due to an adverse decision of the Chennai Bench of the Income-tax Appellate Tribunal in CRI Pumps (P.) Ltd. v/s. ACIT (2013) 58 SOT 154.

3.2 Investments in theStateofAndhraPradeshand theStateofTelangana–SpecialIncentives

Further, the Bill also proposes to insert a new section 32AD to provide that higher additional depreciation at the rate of 35% (instead of 20%) shall be allowed in respect of the actual cost of new plant or machinery, as defined therein, acquired and installed by a manufacturing undertaking or enterprise which is set up in the notified backward area of the State of Andhra Pradesh or the State of Telangana on or after 1st April 2015.

This higher additional depreciation shall be available in respect of acquisition and installation of any new machinery or plant during the

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period beginning on the 1st April 2015 and ending before the 1st day of April 2020.

The balance 50% of the higher additional depreciation is also proposed to be allowed in the immediately succeeding previous year on the new plant or machinery mentioned above which is used for a period of less than 180 days in the year of acquisition and installation.

It is also proposed that in case the new asset is sold or otherwise transferred (except in connection with a specified amalgamation or demerger) within a period of 5 years from the date of its installation, the deduction allowed will be deemed to be the income in the year of such sale or transfer.

This deduction, it is proposed, will be over and above the existing deduction available under section 32AC of the Act. Accordingly, an undertaking which is set up in the notified backward areas in the States of Andhra Pradesh or Telangana by a company, shall be eligible to claimdeclaimed duction under the existing provisions of section 32AC of the Act as well as under the proposed section 32A Difit fulfills the conditions (such as investment above as pecified threshold) specified in the said section 32A Candconditions specified under the proposed section 32AD.

3.3 Prescribedconditionsrelatingtomaintenanceofaccounts,auditetc.tobefulfilledbytheapprovedin-houseR&Dfacility: Presently, a weighted deduction of 200% under section 35(2AB) of the Act is allowed to a company engaged in the business of bio-technology or manufacturing of goods for the expenditure incurred by it on scientific research carried out in an approved in-house research and development facility. For availing this weighted deduction, the company is required to enter into an agreement with the Secretary, Department of Scientific and Industrial Research (“DSIR”) and is also required to obtain his approval.

The Secretary, DSIR is required to send the report regarding approval to DGIT (Exemption) in the prescribed Form who generally does not have jurisdiction over the assessee company. Further, the company is required to maintain separate books of account for approved R&D facility and is also required to get the account audited. However, the copy of audit report is required to be submitted to the DSIR only.

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It is proposed to amend the said section 35(2AB) of the Act to provide that the deduction shall be allowed if the company enters into an agreement with the prescribed authority for cooperation in such research and development facility and fulfills prescribed conditions with regard to maintenance and audit of accounts and also furnishes prescribed reports.

It is also proposed to insert reference of the Principal Chief Commissioner or Chief Commissioner in section 35(2AA) and section 35(2AB) of the Act so that the report referred to therein may be sent to the Principal Chief Commissioner or Chief Commissioner having jurisdiction over the company claiming the weighted deduction under the said section.

3.4 Raisingthethresholdforspecifieddomestictransaction:

Presently, section 92BA of the Act defines the term ‘specified domestic transaction’ in case of an assessee to mean any of the specified transactions, not being an international transaction, where the aggregate of such transactions entered into by the assessee in the previous year exceeds a sum of five crore rupees.

It is proposed to amend the said section 92BA of the Act to provide that the aggregate of specified transactions entered into by the assessee in the previous year should exceed a sum of twenty crore rupees for such transaction to be treated as ‘specified domestic transaction’.

3.5 Deductionforemploymentofnewworkmen:

Presently, section 80 JJAA of the Act provides a deduction to an Indian Company deriving profits from manufacture of goods in a factory equal to 30% of additional wages paid to new regular workmen employed by the assessee in such factory, in the previous year, for three assessment years including the assessment year relevant to the previous year in which such employment is provided. Explanation to the said section defines “Additional wages” to mean the wages paid to the new regular workmen in excess of hundred workmen employed during the previous year.

It is proposed to amend this section to include all assessee’s having manufacturing units and not only corporate assessee’s. It is also proposed to amend the definition of additional wages to mean the wages paid to the new regular workmen in excess of fifty workmen employed during the previous year.

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3.6 MAT:

Section 115JB provides that certain income and expenditure shall be excluded while computing book profits for determining Minimum Alternate Tax (MAT). In terms of the provisions of section 86, tax on share of income of the member of AOP, is paid by AOP and such member is usually not liable to pay tax on such share separately. It is proposed to be provided that share of income of AOP on which tax is payable u/s. 86, shall be excluded while computing MAT. It is also provided that expenses incurred to earn said income shall be added to book profits. In other words share of income of AOP on which tax is payable u/s 86 shall be excluded from book-profits net of expenses.

Foreign Institutional Investors making investments in securities as per the SEBI regulations is considered as capital assets. As per the judicial pronouncements it has been held the foreign companies are liable for MAT. Under current provisions MAT is applicable even on long term capital gains which is subject to STT even though it is otherwise exempt.

It is now proposed that that Foreign Institutional Investors earning income from securities (other than short term capital gain which is not subject to STT) shall be excluded the book-profits. It is also provided that expenses incurred to earn such income would be allowed as deduction from book-profits.Thus the net capital gain shall stand excluded from book profit.

4. CAPITALGAINS:

4.1 Transactionsnotregardedastransfer:

Section 47 of the Act provides that capital gains are not applicable to the transfers specified in the said section. Clause (via) and (vib) of the said section 47 provides that transfer of capital asset being shares of an Indian company by a foreign company to another foreign company under scheme of amalgamation and under a scheme of demerger respectively, shall not be treated as transfer subject to conditions provided therein.

It is now to amend the said section 47 to provide that the following transfers too shall not be regarded as transfer:

a. any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred to in Explanation

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5 to clause(i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the amalgamating foreign company to the amalgamated foreign company if:

i. at least twenty-five per cent. of the shareholders of the amalgamating foreign company continue to remain shareholders of the amalgamated foreign company; and

ii. such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated;

b. any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in Explanation 5 to clause(i) of sub-section (1) of section 9, which derives, directly or indirectly, its value substantially from the share or shares of an Indian company, held by the demerged foreign company to the resulting foreign company if:

i. the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign company, continue to remain shareholders of the resulting foreign company; and

ii. such transfer does not attract tax on capital gains in the country in which the demerged foreign company is incorporated

4.2 Costwithreferencetocertainmodesofacquisition:

It is proposed to amend section 49 of the Act [relating to cost with reference to certain modes of acquisition] to expressly include therein a transfer under clause (vib) of section 47 [viz., transfer of any capital asset from a demerged company to a resulting company in a scheme of demerger] and to provide that the cost of acquisition of a capita asset acquired by resulting company shall be the cost for which the demerged company acquired the capital asset as increased by the cost of improvement incurred by the demerged company.

It is also proposed to amend the said section 49 to provide that where the capital asset, being a unit or units in a consolidated scheme of a mutual fund, became the property of the assessee in consideration of a transfer referred to in clause (xviii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost

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of acquisition to him of the unit or units in the consolidating scheme of the mutual fund.

5. InternationalTaxation:

5.1 Taxationof“Indirecttransfers”:

Section 9 of the Income-tax Act, 1961 deal with cases of income which are deemed to accrue or arise in India. Clause (i) of sub-section (1) of the aforesaid section provides a set of circumstances in which income accruing or arising, directly or indirectly, is taxable in India. The Explanation 5 to section 9(1)(i) of the Act (inserted by the Finance Act, 2012 with retrospective effect from 01 April 1962) provides that an asset or capital asset, being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India.

It is proposed to insert Explanations 6 to the aforesaid section 9(1)(i) of the Act to provide further clarity as under:

• The share or interest shall be deemed to derive its value substantially from the assets (whethertangibleorintangible)locatedinIndia,ifonthespecifieddate:

o the value of such assets is more than ` 10 crores;and

o represents atleast 50% of the value of all the assets owned by the company or entity.

• For this purpose, value of an asset shall mean the fair market value of such asset without reduction of liabilities, if any, in respect of the asset.

• For this purpose, the specified date of valuation shall be the date on which the accounting period of the company or entity, as the case may be, ends preceding the date of transfer. However, if the book value of the assets of the company on the date of transfer exceeds by at least 15% of the book value of the assets as on the last balance sheet date preceding the date of transfer, then instead of the date mentioned above, the date of transfer shall be the specified date of valuation.

It is proposed to insert Explanations 7 to the aforesaid section 9(1)(i) of the Act so as to provide that:

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A. Income shall not accrue or arise to a non-resident in case of transfer of any share or interest referred to in the Explanation 5, unless the non-resident alongwith its associated enterprises,

— Neither holds the right of control or management,

— Nor holds voting power or share capital or interest exceeding 5% of the total voting power or total share capital; in the foreign company or entity directly holding the Indian assets (direct holding company).

Further, in case the transfer is of shares or interest in a foreign entity which does not hold the Indian assets directly then the exemption shall be available to the transfer or (being a non-resident) if he alongwith its associated enterprises,-

— neither holds the right of management or control in relation to such company or the entity,

— nor holds any rights in such company which would entitle it to either exercise control or management of the direct holding company or entity or entitle it to voting power exceeding five percent in the direct holding company or entity.

B. In cases where all the assets owned, directly or indirectly, by a company or an entity referred to in the Explanation 5, are not located in India, the income of the non-resident transferor taxable in India shall be only such part of the income as is reasonably attributable to assets located in India and will be determined in a manner to be prescribed.

5.2 FundManagersinIndianottoconstitutebusinessconnectionofoffshorefunds:

The Bill proposes to insert a new section 9A to provide that subject to the fulfillment of certain conditions by the fund and the fund manager:

• the tax liability in respect of income arising to the Fund from investment in India will be neutral to the fact whether the investment is made directly by the fund or through engagement of Fund manager located in India; and

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• that income of the fund from the investments outside India would not be taxable in India solely on the basis that the Fund management activity in respect of such investments have been undertaken through a fund manager located in India.

The specific exception from the general rules for determination of business connection and ‘resident status’ of off-shore funds and fund management activity undertaken on its behalf is subject to the following:-

i. Conditions to be fulfilled by the offshore fund, during the relevant year, for being an eligible investment fund are:

a. the fund is not a person resident in India;

b. the fund is a resident of a country or a specified territory with which an agreement referred to in sub-section (1) of section 90 or sub-section (1) of section 90A has been entered into;

c. the aggregate participation or investment in the fund, directly or indirectly, by persons being resident in India does not exceed 5% of the corpus of the fund;

d. the fund and its activities are subject to applicable investor protection regulations in the country or specified territory where it is established or incorporated or is a resident ;

e. the fund has a minimum of 25 members who are, directly or indirectly, not connected persons;

f. any member of the fund along with connected persons shall not have any participation interest, directly or indirectly, in the fund exceeding 10%;

g. the aggregate participation interest, directly or indirectly, of ten or less members along with their connected persons in the fund, shall be less than 50% ;

h. the investment by the fund in an entity shall not exceed 20% of the corpus of the fund;

i. no investment shall be made by the fund in its associate entity;

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j. the monthly average of the corpus of the fund shall not be less than ` 100 crore if the fund has been established or incorporated in the previous year, the corpus of fund shall not be less than ` 100 crore at the end of such previous year;

k. the fund shall not carry on or control and manage, directly or indirectly, any business in India or from India;

l. the fund is neither engaged in any activity which constitutes a business connection in India nor has any person acting on its behalf whose activities constitute a business connection in India other than the activities undertaken by the eligible fund manager on its behalf.

m. the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken on its behalf is not less than the arm’s length price of such activity.

ii. Conditions to be fulfilled by the Fund manager are:

a. the person is not an employee of the eligible investment fund or a connected person of the fund;

b. the person is registered as a fund manager or investment advisor in accordance with the specified regulations;

c. the person is acting in the ordinary course of his business as a fund manager;

d. the person along with his connected persons shall not be entitled, directly or indirectly, to more than twenty percent of the profits accruing or arising to the eligible investment fund from the transactions carried out by the fund through such fund manager.

It is also proposed that every eligible investment fund shall, in respect of its activities in a financial year, furnish within 90 days from the end of the financial year, a statement in the prescribed form to the prescribed authority containing information relating to the fulfillment of the above conditions or any other prescribed information or document. Non furnishing of

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the prescribed information, etc, would attract a levy of penalty of ` 5 lakhs on the fund.

The Bill also proposes to clarify that this regime shall not have any impact on taxability of any income of the eligible investment fund which would have been chargeable to tax irrespective of whether the activity of the eligible fund manager constituted the business connection in India of such fund or not.

Further, the proposed regime shall not have any effect on the scope of total income or determination of total income in the case of the eligible fund manager.

5.3 MannerofcomputingtheperiodofstayinIndiaincaseofIndiancrewmembersofaShiptobeprescribed:

Presently, the residential status of an individual in India is determined based on the number of days during which such individual has stayed in India during the previous year. In the case of foreign bound ships where the destination of the voyage is outside India, there is uncertainty with regard to the manner and basis of determination of the period of stay in India for crew members of such ships who are Indian citizens.

It is proposed to amend the Act to provide that in the case of an individual, being a citizen of India and a member of the crew of a foreign boundship leaving India, the period or periods of stay in Indiasha ll, inrespect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.

5.4 Incomebywayofinterestinthecaseofnon-resident:

The Bill proposes to insert explanations to clause (v) of section 9(1) to provide that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment [“PE”] in India of such non-resident to the head office [“HO”] or any PE or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the PE in India and the PE in India shall be deemed to be a person separate and independent of the non-resident person of which it is a PE and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery would apply .

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Accordingly, the PE in India shall be obligated to deduct tax at source on any interest payable to either the head office or any other branch or PE, etc. of the non-resident outside India. Further, non-deduction would result in disallowance of interest claimed as expenditure by the PE and may also attract levy of interest and penalty in accordance with relevant provisions of the Act.

Note:

This amendment is to overcome the decision of the 5 Member Bench of the Income-tax Appellate Tribunal in the case of Sumitomo Mitsui Banking Corporation v/s. DDIT reported in (2012) 136 ITD 66.

5.5 DefermentofprovisionsrelatingtoGeneralAntiAvoidanceRule(“GAAR”):

The General Anti Avoidance Rule (GAAR) was introduced in the Act by the Finance Act, 2012. These provisions were to come in to force with effect from 1st April, 2016 i.e. for the Assessment Year 2016-2017 and subsequent years.

It is proposed that implementation of GAAR be deferred by two years and GAAR provisions be made applicable to the income of the Financial Year 2017-18 (i.e. Assessment Year 2018-2019) and subsequent years.

This deferment is in light of the concerns expressed regarding certain aspects of GAAR and the Base Erosion and Profit Shifting (BEPS) project undertaken by the Organisation of Economic Cooperation and Development (OECD) in which project India is an active participant in the project. It is felt that it would be proper that GAAR provisions are implemented as part of a comprehensive regime to deal with BEPS and aggressive tax avoidance.

It also proposed that the investments made up to 31st March 2017 will be protected from the applicability of GAAR by amendments which will be made in the relevant Rules.

5.6 AmendmentsrelatingtoGlobalDepositoryReceipts(GDRs):

The Depository Receipts Scheme, 2014 which has been notified by the Department of Economic Affairs (DEA) vide Notification F.No.9/1/2013–ECB dated 21st October, 2014 replaces the “Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt mechanism) Scheme, 1993”.

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Further, as per the new scheme, DRs can be issued against the securities of listed, unlisted or private or public companies against underlying securities which can be debt instruments, shares or units etc.; Further, both the sponsored issues and unsponsored deposits and acquisitions are permitted. DRs can be freely held and transferred by both residents and non-residents.

However, the current section 115ACA of the Act is aligned with the earlier scheme which was limited to issue of Depository Receipts (DRs) based on the underlying shares of the company issued for this purpose (i.e. sponsored GDR) or FCCB of the issuing company and where the company was either a listed company or was to list simultaneously. Further, the same was applicable only to holder of such DRs who were non-residents only.

Since the tax benefits under the Act were intended to be provided only in respect of sponsored GDRs and listed companies only, it is proposed to definition of the term “Global Depository Receipt” in section 115ACA to mean an instrument in the form of a depository receipt or certificate created by the Overseas Depository Bank outside India and issued to investors against the issue of,–

i. ordinary shares of issuing company, being a company listed on a recognised stock exchange in India; or

ii. foreign currency convertible bonds of issuing company.

6. RealEstateInvestmentTrust&InfrastructureInvestmentTrust

Tax Regime in the case of Real Estate Investment trust (REIT)/Infrastructure Investment trust (Inv IT) And Alternative investment fund (AIF) amendments to sections 2(13A)/10(23FBA)/10(23FCA)/111A /115UA/194L/194LBA and insetion of chapter XII-FB

Though REIT and Inv IT taxationregimes were introduced last year, there were some teething problems. The finance bill 2015 seeks to iron them out.The changes in brief are

• Capital gains on transfer of units of Inv ITs and REITs by Sponsor

At the time of disposal (under an IPO listing or sale thereafter) of the units of the REIT / Invit (i.e. Business Trust), the sponsor

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of REITs / InvIT would be eligible for concessional STT-based capital gains tax regime on par with other investors (i.e. LTCG on transfer of units would be exempt and STCG would be taxable at the rate of 15 per cent provided STT @ 0.2 per cent is paid on the sale of such units).

• Tax treatment of the rental income arising to REIT from real estate property directly held by the REIT

The rental income arising to REIT from the real estate property directly held by the REIT eligible for pass through status. Accordingly, such income will be exempt for the REIT and chargeable to tax in the hands of the REIT unit holders on distribution. The tenant or lessee is not required to withhold tax on payment of rent to the REIT but the REIT in turn would withhold tax at 10 per cent on distribution of such income to the resident unit holders and at applicable rates on the distribution to the non-resident unit holders.

PassthroughstatusgrantedtoSEBIregisteredCategory-IandCategory-IIAlternativeInvestmentFund(‘AIF’),subjecttofollowingkeyconditions:

• All income earned by AIF (except business income) would be taxable on pass through basis in the hands of the investors as if they had made the investment directly.

• Any business income earned by the AIF would be taxable at the fund level. Such business income would be exempt in the hands of the investors.

• Any income credited or paid by the AIF to its investors would be deemed to be of the same nature and in the same proportion in the hands of the investors as in the hands of the AIF.

• AIF to deduct tax at 10 per cent on all income (except business income) payable to investors at the time of credit or payment, whichever is earlier. No Dividend Distribution Tax tax on distributed income would be applicable to the income paid by AIF to its investors.

• Any loss at AIF level would not be allowed to be passed through to the investors but would be carried forward at fund level to be set-off against income of the next year.

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• Income of the AIF would not be subject to withholding tax requirements (per notification to be issued).

• AIF would mandatorily be required to file their return of income and also furnish the details of components of income, etc. in a prescribed form to the investors and the income-tax department.

The existing tax pass through regime would continue to apply to VCFs registered under the SEBI (VCF) Regulations, 1996.

7. Trusts:

7.1 Definitionoftheterm“CharitablePurpose”:

Currently, the term ‘Charitable Purpose’ includes relief of the poor, education, medical relief, preservation of the environment (including watersheds forest, wildlife) and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.

It is now proposed to include ‘yoga’ as a specific category in the definition of charitable purpose on the lines of education.

It is also proposed to amend section to provide that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless:

• such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and

• the aggregate receipts from such activity or activities during the previous year, do not exceed twenty per cent. of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.

7.2 Amendmentinsection11relatingtoaccumulation:

Presently, under section 11 of the Act, the main condition for grant of exemption to a trust is that the income derived from property held under trust should be applied for the charitable purposes in India.

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Where such income cannot be applied during the previous year, it has to be accumulated and applied for such purposes in accordance with various conditions provided in the section. While 15% of the income can be accumulated indefinitely by the trust or institution, 85% of the income can only be accumulated for a period not exceeding 5 years subject to the conditions that such person submits the prescribed Form 10 to the Assessing Officer in this regard and the money so accumulated or set apart is invested or deposited in the specified forms or modes. If the accumulated income is not applied in accordance with these conditions, then such income is deemed to be taxable income of the trust or institution.

It is proposed to amend the Act to provide that Form 10 shall be filed before the due date of filing return of income specified under section 139 of the Act for the fund or institution. In case the Form 10 is not submitted before this date, then the benefit of accumulation would not be available and such income would be taxable at the applicable rate. Further, the benefit of accumulation would also not be available if return of income is not furnished before the due date of filing return of income.

7.3 Ordersrejectingapprovalsofuniversity,etc.madeappealable:

It is proposed to provide an appeal to the Income Tax Appellate Tribunal against an order passed by the prescribed authority denying the approval to any university or other educational institution or any hospital covered u/s. (vi) and (via) of section 10(23C).

This Amendment will take effect from 1 June, 2015

8. TaxDeductionandCollectionatSources:

8.1 TDSonSalaries:The existing provisions of section 192 require the employer to allow certain deductions, exemptions and set-off of specified losses. The existing provisions do not contain any guidance regarding the nature and type of documents to be obtained by the employer. There is no uniformity in practice as well. In order to bring clarity the Bill proposes to amend section 192 to provide that the person responsible for making the payment shall obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.

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8.2 SimplificationofTDSmechanismforEPFS:Rule 9 of Schedule IV-A of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (EPF & MP Act, 1952) provides that the tax on withdrawn amount is required to be calculated by re-computing the tax liability of the years for which the contribution to such recognized fund has been made by treating the same as contribution to unrecognized provident fund. Considering the difficulty in getting information regarding taxability of the employee such as year-wise amount of taxable income and tax payable for the purposes of computation of the amount of tax liability under rule 9 of the Schedule-IV-A of the Act, it is proposed to o insert a new provision in Act for deduction of tax at the rate of 10% on pre-mature taxable withdrawal from EPFS. No deduction will be made where the amount of such payment or, as the case may be, the aggregate amount of such payment to the payee is less than thirty thousand rupees. The actual shortfall in the actual tax liability will be required to be paid by the employee himself by way of advance tax and self-assessment tax. If PAN is not furnished by the employee the tax shall be deducted at the maximum marginal rate.

8.3 TDSonInterestotherthan‘Interestonsecurities’: The existing provisions of section 194A exempt payment of interest to members by a co-operative society. It is proposed to amend the section to provide for TDS in respect of interest paid by a co-operative banks to its members. This sets at rest the controversy in this regard.

Another significant amendment is that the limit of ` 10,000 in regard to non deduction from interest on deposits will apply qua a bank and not qua a branch.

It is further proposed in the Bill that the provisions of sub-section (1) of section 194A shall not apply to income paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income paid during the financial year does not exceed fifty thousand rupees.

These amendments will take effect from 1st June, 2015.

8.4 TDSonpaymentstotransporters: Under the exiting provisions of section 194C payment made to any transporter during the course of business of plying, hiring or leasing goods carriages, irrespective of his size, is exempt on furnishing of his Permanent Account Number.

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It is proposed to amend section 194C to provide for such exemption only to small transporters owning ten or less than ten goods carriages at any time during the previous year provided they furnish a declaration to that effect along with his Permanent Account Number, to the person paying or crediting such sum.


8.5 TDSonrent:As pass through status is proposed to be provided to REITs in respect of income earned from letting out any real estate asset directly owned by the REITs, an amendment to section 194I is proposed by inserting a proviso that no deduction shall be made where the income by way of rent is credited or paid to a business trust, being a real estate investment trust, in respect of any real estate asset, referred to in clause (23FCA) of section 10, owned directly by such business trust


8.6 TDSoncertain incomefromunitsofabusiness trust: In view of the proposal by way of new section 10(23FCA) providing pass-through status in respect of income from renting, leasing or letting out any real estate asset owned directly by such business trust, an amendment is made to section 194LBA for deducting tax on distribution of rental income to resident unit holders at the rate of 10% and at the rate of 5% for non-resident (not being a company) or a foreign company.

8.7 Lower(Witholdingtax)WHTrateonInteresttoFIIorQFI:Under the existing provisions of section 194LD a lower rate of WHT of five percent on interest payable of investments in government securities and rupee denominated corporate bonds, if the interest is payable on or before June 1, 2015.

The Bill proposes to extend such concessional withholding tax rate on interest payable up to June 30, 2017.

This amendment will take effect from 1st June, 2015.

8.8 TDSonpaymentstonon-residents: In order to further scrutinize the payments to non-residents, the Bill proposes to substitute sub-section (6) of section 195 to provide that person responsible for paying shall furnish information relating to payment of such sum, in such form and manner, as may be prescribed whether or not chargeable under the provisions of the Act. Non-furnishing of

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information or furnishing of incorrect information to attract a penalty of Rs 1 lakh unless there is a reasonable cause.

8.9 Rationalisationmeasures:The following measures are proposed in the Bill aimed at rationalizing the provisions relating to TDS and TCS

ProcessingofTDSstatements:The existing provisions of section 200A do not provide any mechanism for determining the late fee at the time of processing of TDS statements. The Bill proposes to amend section 200A to provide that statement of tax deduction at source or correction statement made under section 200 shall be processed and sum deductible under Chapter XVII shall be computed after also taking into account the fee, if any, payable in accordance with the provisions of section 234E.

The sum payable or refundable shall be determined after adjusting the aforesaid computed sum against any amount paid under section 200 or section 201 or section 234E and any amount paid otherwise by way of tax or interest or fee.

This amendment will take effect from 1st June, 2015

CorrectionofTCSstatement:The existing provisions of section 206C do not contain any provision that enable the collector to file a correction to the TCS statement. The Bill propose to amend section 206C accordingly to enable the collector to furnish a correction to the TCS statement for rectification of any mistake or to add, delete or update the information furnished.


Processingofstatementsoftaxcollectedatsource: The existing provisions of the Act provide for processing of TDS statements and there are no specific provisions for processing of TCS statements. In order to correct this anomaly the Bill proposes to insert a new section 206CB to provide that statement of tax collection at source or a correction statement made under section 206C shall be processed on the similar lines of processing of TDS statements under section 200A and the proposed provision also incorporate the mechanism for computation of fee payable under section 234E of the Act.

Further intimation generated after processing of TCS statement will be treated at par with an intimation generated for TDS and is subject to rectification under section 154 of the Act, appealable under section 246A of the Act and is deemed as a notice under section 156

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of the Act and attracts interest under section 220(2) of the Act for any failure to pay the tax specified in the intimation.

In order to avoid charging of interest under section 206C(7) and as well as section 220(2) the Bill further provides for amending section 220 by inserting new sub-section 206(2C) to provide that where interest is charged for any period under section 206C(7) no interest will be levied again under section 220(2) on the same amount.


8.10 TCSIntimationsmadeappealablebeforeCIT(A):

Under the existing provisions of the Act, after processing of TDS statement, an intimation is generated specifying the amount payable or refundable. This intimation generated after processing of TDS statement is also appealable u/s. 246A of the Act. However, no such parallel provision existed for intimations received after processing of TCS statements.

It is therefore proposed to provide that intimation generated after processing of TCS statement shall also be appealable u/s. 246A.


9. AntiAvoidanceProvisions:

Loans or advance for immovable property or repayment thereof

The existing provisions of the Act prohibits any person to take loan or advance of ` 20,000 or more, otherwise than by an account payee cheque / demand draft or using electronic clearing system of a bank. Section 269SS . This section is proposed to be replaced by a new section w.e.f. 1-6-2015. In order to curb unaccounted transactions involving immovable property, it is proposed to provide that any sum of money received in relation to transfer of an immovable property would also be covered under this section. It is also provided that restriction would apply irrespective of fact whether the transfer of immovable property takes place or not.

Section 269T is also proposed to be amended to so as include repayment of sum received in relation to transfer of immovable property. It provides that repayment of aggregate advance of ` 20,000 or more in relation to transfer of immovable property either received by himself or jointly with any other person need to be made

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by payee cheque / demand draft or using electronic clearing system of bank.

Consequential amendments have been provided under penalty sections viz. 271D & 271E.

It is pertinent to note that these sections cover transactions in relation to transfer of immovable property and not merely that of land or building. Both the words ‘in relation to transfer’ and ‘immovable property’ have not in defined and hence general meaning needs to be applied.

The impact of these provisions is significant. If it is established that consideration for proposed transfer of immovable property is received in cash it could result in a penalty equivalent to the consideration received in cash. The defence of reasonable cause in section 273B would of course be available.

10. Otherimportantandproceduralprovisions:

10.1 PaymenttoSwachhBharatKoshandCleanGangaFund:

The existing provisions of section 80G provide for deduction at 100% the donations to certain specified funds and charitable institutions formed for social purpose of national importance. The Bill proposes to include,’Swachh Bharat Kosh’ and ‘Clean Ganga Fund’ under this category and accordingly proposes that donations made by any donor to the Swachh Bharat Kosh and donations made by domestic donors to Clean Ganga Fund will be eligible for a deduction of hundred per cent from the total income. However, any sum spent in pursuance of Corporate Social Responsibility under sub-section (5) of section 135 of the Companies Act, 2013, will not be eligible for deduction from the total income of the donor.

These amendments will take effect retrospectively from 1st April, 2015 and will, accordingly, apply in relation to assessment year 2015-16 and subsequent assessment years.

10.2 Provisions of section 151 relating to sanction for issue ofreassementnoticeu/s.148arerevamped:

Hitherto, under the provisions of section 151, in a case where the assessment u/s. 143(3) or 147 has been made for a relevant assessment year, within four years from the end of such assessment year, no notice couldbe issued u/s. 148 by an Assessing Officer,

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who was below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner was satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice. In case of expiry of four years, the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner had to be satisfied with thereasons recorded by the Asessing Officer. Sanction was required depending on whether the earlier assessment was under 143(3) and 147, the rank of the assessing officer seeking to issue notice, and the period elapsed from the end of the assessing officer.

It is now proposed to simplify the provision in as much as the satisfaction of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is required in a case which is to be reopened after the expiry of four years and Joint Commissioner in a case which is to be reopened within four years from the end of the relevant assessment year. Further, it is also clarified that the authority assigning the satisfaction himself need not issue notice u/s. 148.

10.3 SettlementCommission

It is proposed that where a notice under section 148 of the Act is issued for any assessment year, the assessee can approach the Settlement Commission for other assessment years as well even, if notice under section 148 for such other assessment years has not been issued. However, a return of income for such other assessment years should have been filed under section 139 or in response to a notice under section 142.

Currently, the Settlement Commission can amend its order within a period of six months from the date of such order. However, there is no provision for additional time wherein an application for rectification is filed towards the end of the limitation period. It is proposed that where a rectification application has been filed, the order can be rectified within a period of six months from the end of the month in which such application for rectification has been filed. However, no rectification application can be filed after the expiry of six months from the end of the month in which the order was passed by the Settlement Commission.

Currently, the Settlement Commission has the power to grant immunity from prosecution. It is now proposed that while granting immunity from prosecution to any person, the Settlement

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Commission shall record the reasons in writing in the order passed by it.

Currently, in certain situations, proceedings before the Settlement Commission shall abate. It is proposed that where an order has been passed without providing the terms of settlement, the proceedings shall abate on the day on which such order was passed by the Settlement Commission.

Currently, in certain situations a person is barred from making subsequent application before the Settlement Commission. It is now proposed to provide that any person related to such a person who has been barred from approaching the Settlement Commission can also not approach the Settlement Commission. For this purpose, the term “related person” has been defined as:

• where such person is an individual, any company in which such person holds more than 50% of the shares or voting power at any time, or any firm or association of person or body of individual in which such person is entitled to more than 50% of the profits at any time, or any Hindu undivided family in which such person is a karta;

• where such person is a company, any individual who held more than 50% of the shares or voting power in such company at any time before the date of application before the Settlement Commission by such person;

• where such person is a firm or association of person or body of individual, any individual who was entitled to more than 50% of the profits in such firm, association of person or body of individual, at any time before the date of application before the Settlement Commission by such person;

• where such person is an Hindu undivided family, the karta of that Hindu undivided family.

The above amendments are proposed to take effect from 01 June 2015.

Interestforshortfallinpaymentofadvancetax

Currently, in case of reassessment under section 147 or assessment in case of search or requisition under section 153A, interest under section 234B for shortfall in payment of advance tax is charged from the date of intimation under section 143(1) or the date of the regular

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assessment till the date of reassessment under section 147 or section 153A. The interest on the additional tax is not charged for the period from the first day of assessment year to the date of intimation or regular assessment.

Also, in case an application is filed before the Settlement Commission declaring an additional amount of income-tax, there is no provision in section 234B for charging interest on the additional amount of income tax declared in such application from the first day of assessment year to the date of such declaration.

It is proposed that interest will be charged on the additional tax determined in course of reassessment from the first day of the relevant assessment year till the date of reassessment under section 147 or assessment under section 153A. As regards the application before the Settlement Commission, it is proposed that interest will be levied on the additional amount of income tax declared from the first day of the assessment year to the date of making an application to the Settlement Commission.

If the amount of total income disclosed in the application is increased by an order of the Settlement Commission, then interest will be payable from the first day of the assessment year to the date of such order of the Settlement Commission.

The proposed amendments will take effect from 1st June 2015.

10.4 ScopeofapplicationofresizedassetextendedtoapplicationmadebeforeSettlementCommission:

Under the existing provisions of section 132B, as a part of recovery, the assets seized u/s. 132 or requisitioned u/s. 133A were allowed to be adjusted against the amount of existing liability under the Income Tax Act, the Wealth-tax Act, etc. and the amount of liability determined on completion of assessment. The said provision, however, did not permit such assets to be adjusted against the liability arising on an application made before the Settlement Commission.

It is therefore proposed to include the amount of liability arising on an application made before the Settlement Commission for the purpose of recovery out of assets seized u/s. 132 or requisitioned u/s. 133A.

This Amendment will take effect from 1 June, 2015.

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10.5 ScopeofSection153Crelatingtoassestmentbyanyotherpersonwidened:

Under the existing provisions of section 153C, a person other than the person referred to in section 153A, was covered by virtue of any money, bullion, jewellery or other valuable article or thing or books of account or documents seized or requisitioned belonged to that person was found in the course of search.

It is now proposed to extend the scope of this provision so as to also include the person other than the person referred to in section 153A even where any books of account or documents, seized or requisitioned, pertains or pertain to or any information contained therein relates to such other person. The said amendment overrules the judgment of Hon’ble Gujarat High Court in the case of Vijaybhai N Chandrani v. ACIT reported in (2010) 231 CTR 474 (Guj.) which had been later followed by various Tribunals.


10.6 Interestu/s.234Bincasesofreassessments:

Under the existing provision of section 234B(3), where as a result of an order of reassessment or recomputation u/s. 147 or u/s. 153A, the amount on which the interest was payable in respect of any shortfall in payment of advance tax for any financial year is increased, the assessee was liable to simple interest @1% for every month or part of a month following the date of determination of total income u/s. 143(1) and where a regular assessment is made, following the date of such regular assessment and ending on the date of the reassessment or recomputation u/s. 147 or u/s. 153A, on the amount by which the tax on the total income determined on the basis of reassessment or recomputation exceeds the tax on the total income determined u/s. 143(1) or 143(3).

It is now proposed to levy interest for the period commencing from the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation u/s. 147 or u/s. 153A.


10.7 Provisionsofsection263onrevisionoforderselucidated:

The existing provisions contained in section 263(1) provides that if the Principal Commissioner or Commissioner considers that any

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order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and making any inquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment.

In order to provide clarity on the contentious issue of “erroneous in so far as it is prejudicial to the interests of the revenue” It is now proposed to provide that the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue if, the said order, in the opinion of the Principal Commissioner or Commissioner is passed:-

(a) The order is passed without making inquiries or verification which should be made;

(b) The order is passed allowing any relief without inquiries into the claim

(c) The order has not been made in accordance with any order, direction or instruction issued by the board under section 119; or

(d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person


10.8 CasestobeheardbySingleMemberBenchofITAT:

The present section 255(3) provides that single member bench may dispose of any case which pertains to an assessee whose total income as computed by the Assessing Officer does not exceed ` 5 lakhs

It is proposed to amend the section 255(3) to provide that a bench constituted of a single member may dispose of a case where the total income as computed by the Assessing Officer does not exceed ` 15 lakhs.


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10.9 InsertionofanewSection158AAtoavoidrepetitiveappealsbydepartment:

Hitherto, there were provisions under the Income Tax Act u/s. 158A for the assessee to avoid repetitive appeals. However, no such parallel provision was available for the department.

In order to bring in parity, it is proposed to insert a new section 158AA to provide that where a Principal Commissioner or Commissioner is of the opinion that the case of the assessee is identical to a question of law for another assessment year which is pending before the Supreme Court or in a SLP, against the order of the High Court in favour of the assessee, he may, instead of directing the Assessing Officer to file an appeal in ITAT, direct him to make an application to the ITAT within 60 days from the date of receipt of the order of the Commissioner (Appeals) stating that an appeal on the question of law arising in the relevant case may be filed when the decision on the question of law becomes final in the other case. Prior acceptance from the assessee to the effect that the issue is identical also needs to be obtained before such direction is given to the Assessing Officer.


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11. Changeswithimmediateeffect(witheffectfrom1.03.2015):

11.1 The Standard Ad Valorem rate of duty [Central Excise Duty] is increased from 12.36% to 12.5%.

11.2 Education Cess & SHE Cess levied on excisable goods is fully exempted vide Notification No. 14/2015 & 15/2015 dated 1st March, 2015. Therefore there is no cess payable on 12.5%.

11.3 There is no change in the concessional rate of 2% and 6% as applicable under Notification No. 1/2011 and 2/2011 or tariff rate. Therefore, there is no cess payable on duty of 2% and 6%.

11.4 The concessional rate of Excise duty applicable to goods covered by Medicinal and Toilet Preparations Act, 1955 is being increased from 12% from 12.5% Ad Valorem.

11.5 Changes in the rate of duty of certain goods due to amendment in notifications:

Sr. No.

DescriptionofGoods

ChapterHeading

Ratetill 28.02.2015

Ratefrom1.03.2015

1 Peanut Butter 2008 11 00 Nil 2% (Without Cenvat Credit)

6% (With Cenvat Credit)

2 Condensed Milk put up in Unit Containers

0402 Nil 2% (Without Cenvat Credit) 6% (With Cenvat Credit)

INDIRECT TAXESCENTRAL EXCISE

36

Sr. No.

DescriptionofGoods

ChapterHeading

Ratetill 28.02.2015

Ratefrom1.03.2015

3 Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored

2202 10 12% 18%

5 Leather footwear with Retail Sales Price exceeding ` 1,000/-

6403 & 6405

12% 6%

6 Solar Water Heaters & Systems

8419 19 Nil Nil (Without Cenvat Credit) 12.5% (With Cenvat Credit)

7 Tablet Computers

8471 Nil 2% (Without Cenvat Credit)12.5% (With Cenvat Credit)

8 Mobile handsets including cellular phones

8517 6% 12.5% (With Cenvat Credit)

(This list of changes in rates of duties is illustrative and not exhaustive)

11.6 Amendments have been made vide notification 4/2015 to provide that the maximum speed of packing machine will be considered as a factor for determining excise duty payable under the Compounded Levy Scheme presently applicable to pan masala, gutkha and chewing tobacco.

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37

12. DeemedManufacture: The Third Schedule of Central Excise Act, 1944 specifies the goods wherein the process of packing or repacking of goods in a unit container or labelling or re-labelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer is deemed to be manufacture:

Following goods have been further incorporated in the Third Schedule of the Central Excise Act, 1944

Sr. No.

ChapterHeading Descriptionofgoods

1. 210120 Extracts, essences and concentrates, of tea or mate, and preparations with a basis of these extracts, essences or concentrates or with a basis of tea or mate

2. 2202 Waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored

3 85 or 94. Goods falling under heading 8539 (except lamps for automobiles), LED lights or fixtures including LED lamps falling under Chapter 85 or heading 9405.

The abovegoodshavealsobeennotifiedundersection4AandthereforethevalueofsuchgoodswillbedeterminedonMRPassessment.

13. Notification No. 11/2015 has been issued to provide that a ‘resident firm’ is also eligible to apply for advance rulings. The term ‘resident firm’ is defined as follows:

a. Firm as defined under section 4 of Indian Partnership Act, 1932

b. LLP defined under section 2(1)(n) of LLP Act, 2008

c. LLP which has no company as its partner

d. The sole proprietorship

e. One person company as defined u/s 2 (62) of Companies Act, 2013.

The residential status of the firm will be determined in terms of Income tax provisions.

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14. AmendmentsinRegistrationProcess: Changes have been made for simplification of Central Excise Registration. The amended procedure is as follows:

i. Application for registration or de-registration or amendment of the registration application will only be filed online on the website www.aces.gov.in and in the forms provided on the website.

ii. PAN is mandatory for obtaining registration (except government departments)

iii. Applicant is required to quote e-mail address and mobile number in application as well as Business Transaction Numbers obtained from other Government departments or agencies such as Customs Registration No (BIN No), Import Export Code (IEC) Number, etc.

iv. Registration Number and Certificate to be issued without any verification of premises. registration application shall be approved by the Deputy Commissioner or Assistant Commissioner within two days of the receipt of duly completed online application form.

vi. A Registration Certificate containing registration number will be issued online and a printed copy of the Registration Certificate which was issued online through the website www.aces.gov.in shall be adequate proof of registration. The signature of the issuing authority is not required on the said Registration Certificate.

vi. Physical Verification is to be carried out within 7 days of receipt of application subsequent to grant of registration. The self attested copies of the documents are to be submitted at the time of verification of the premises.

vii. Application for De-registration also to be made online and is required to be approved within 30 days from the date of filling of online registration where there are no dues pending recovery from the assessee

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15. CentralExciseRules,2004.

i. Amendments have been made to provide that Section 11 of Central Excise Act, 1944 will be the provisions for recovery of penalty under Rule 8 (3A) for delay in payment of tax.

ii. Amendments have been made to specify that the records of finished goods can now be preserved in electronic form and every page of the record shall be authenticated by digital signature.

iii. Amendments pertaining to invoicing:

a. Amendments have been made to provide that the details of manufacturer or provider of output service is required to be mentioned as buyer and details of job worker as the consignee, when goods are directly sent to the job worker on the direction of a manufacturer or the provider of output service.

b. In cases where the goods are sent to any other person on the instructions of the registered dealer, then the supplier of the goods is required to mention the name of the registered as buyer and the person to whom goods are being sent as consignee. It has been specified the credit will have to be availed on the invoice of registered dealer.

c. In cases where the goods are sent by the importer directly from the port or place of import, then the invoice issued by the importer is required to mention that the goods have been directly sent from port or place of import.

d. The provisions pertaining to invoicing as applicable to First stage and second stage dealer have been made applicable to the importer also.

e. Changes have been made to enable the manufacturer to authenticate the excise invoice by digital signature. However transporter copy of the invoice has to be in hard copy and shall be self attested by the manufacturer.

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40

iv. Late fees of an amount of ` 100 per day shall be payable for delayed filing of return/statements under rule 12 such as ER-1, ER-3, ER-4, ER-7, etc and rule 17 such as ER-2,(return filed by EOU) subject to a maximum amount of ` 20,000.

v. Amendments have been made to make applicable the following Central Excise Rules to a registered importer:

a. Invoicing requirements under Rule 11.

b. Power of Chief Commissioner of Central Excise to impose restrictions under Rule 12CCC.

c. Access to a registered premises by the officer empowered by the Commissioner under Rule 22.

d. Confiscation & penalty provisions under Rule 25.

e. Restrictions prescribed under notification no. 16/2014-C.E. (N.T.), dated 21-3-2014 for preventing evasion of duty of Excise and misuse of Cenvat Credit has been extended to the registered importer.

vi. Rule 18 provides for rebate of duty. In the said rule, definition of ‘export’ has been amended to provide that “export”, with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India and includes shipment of goods as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft.

vii. Minimum Penalty prescribed of ` 2,000 under rule 25 has been increased to ` 5,000.

viii. A manufacturer, can procure goods at concessional rate of duty under Central Excise (Removal of goods at Concessional rate of duty for Manufacture of Excisable goods) Rules, 2001 by providing a letter of undertaking instead of bond/security to the jurisdictional Assistant Commissioner/Deputy Commissioner if No show cause notice has been issued to manufacturer by invoking extended period (i.e. 5 years) under section 11A(4) &(5) and No action is proposed against manufacturer under any notification issued in pursuance of rule 12CCC of Central Excise Rules, 2002 (Restrictions) or rule 12AAA of CENVAT Credit Rules, 2004 (restriction of credit)

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41

16. ChangesproposedinCentralExciseAct,1944videFinanceBill,2015fromthedateofreceiptofassentonFinanceBill,2015byPresident

16.1. Section 11A.

a. The provisions of penalty equivalent to 50% of duty (Section 11(5)) where there was mala-fide intent but the transactions are available in the ‘specified records’ is proposed to be deleted. Thus full penalty will be levied in such cases.

b. Provisions will be incorporate to compute the time-limit to issue SCN from the date of payment of duty relating to such interest in cases where only recovery of interest is involved.

c. Provisions have been proposed to provide that in respect of any Show cause notice issued on or after enactment of Finance Act, 2015, the amended Section 11A provisions will apply. Thus the SCN issued on or after such date will be subject to the amended provisions.

d. Amendments have been made to specify that issue of SCN is not required when short payment of duty has been reflected in the return and thus recovery proceedings can be initiated suo motto by department.

16.2. ChangeinSection11AC-Penaltyprovisions.

Section 11AC is proposed to be amended to provide following penalties:

a. in cases not involving fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of excise duty,

• in addition to the duty a penalty not exceeding 10% of the duty so determined or ` 5,000 whichever is higher shall be payable;

• if duty and interest payable is paid either before issue of show cause notice or within 30 days of issue of show cause notice, no penalty shall be payable and all proceedings shall be deemed to be concluded;

• if duty and interest payable is paid within 30 days of the date of communication of order of the Central Excise

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Officer the amount of penalty shall be equal to 25% of the penalty so imposed,

• The reduced penalty is also required to be paid within 30 days of the date of communication of such order.

b. In cases involving fraud or collusion or wilful mis-statement of suppression of facts or contravention of any provision of the Act or Rules with the intent to evade payment of excise duty, in the following manner,-

• In addition to the duty, penalty equal to the duty is leviable.

• In respect of cases where the details relating to such transactions are recorded in the specified record for the period beginning with 8th April, 2011 and upto the date of assent to the Finance Bill, 2015, the penalty payable shall be 50% of the duty so determined.

• if duty and interest payable is paid within 30 days of communication of show cause notice, the amount of penalty payable shall be 15% of the duty demanded, provided that such reduced penalty is also paid within 30 days of communication of show cause notice and all proceedings in respect of said duty, interest and penalty shall be deemed to be concluded;

• if duty as determined and interest payable is paid within 30 days of the date of communication of order of the Central Excise Officer who has determined such duty, the amount of penalty shall be equal to 25% of the duty so determined, provided that such reduced penalty is also paid within 30 days of the date of communication of such order; and

• If the duty amount gets modified in any appellate proceeding, then the penalty amount shall also stand modified accordingly. And benefit is available if penalty in relation to such increased amount is paid within 30 days of such appellate order.

• It has been specifically provided that in cases where no show cause notice has been issued prior to the date

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43

on which the Finance Bill, 2015 receives the assent of the President, it shall be governed by the provisions of section 11AC, as amended.

• Proceedings in respect of pending show cause notices (as on date of assent of Finance Bill, 2015) can be closed on (i) payment of duty, interest and penalty @ 15% of the duty in cases involving fraud, collusion, willful mis-statement, etc. or (ii) on payment of duty and interest in cases not involving fraud, collusion, willful mis-statement, etc, within 30 days of the Finance Bill, 2015 receiving the assent of the President.

• In all cases where show cause notices are adjudicated after the Finance Bill, 2015 receives the assent of the President, penalty has been reduced to 25% of the duty in cases involving fraud, collusion, willful mis-statement, etc. and 25% of the penalty imposed in cases not involving fraud, collusion, willful mis-statement, etc. can be paid within 30 days of communication of the adjudication order if the duty, interest and penalty is also paid within such time.

16.3 The Finance Bill, 2015 has made various amendments in the provisions relating to Settlement Commission to provide that the benefit of Settlement is not available when any case is referred back by any Court, Appellate Authority or any other Authority, back to the Adjudicating Authority for fresh adjudication or decision.

16.4 Minimum Penalty has been increased From ` 2,000/- to ` 5,000/- Under Section 37 (4) & (5)

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CHANGESINCENVATCREDITRULES,2004

17. Changeswitheffectfrom1stMarch,2015.

17.1 The Time Limit to avail the Cenvat Credit of excise duty on inputs has been increased from six months to ONE year. Credit can now be availed on purchase invoices for inputs within one year from the date of invoice. (Rule 4(1))

17.2 Amendments with respect to availment of credit in respect of Goods sent for Job-work. (Rule 4(1), Rule 4 (2) & Rule 4 (5) of Cenvat Credit Rules, 2004)

a. The Cenvat Credit can be immediately taken after the date the goods are received in the Job workers premises in case of dispatch of inputs or capital goods directly to the job-worker for further processing, testing, repairing or production of intermediate goods. The said provisions clarify that cenvat credit will be eligible even if the First job worker sends the processed material to second job-worker and like-wise for further processing.

b. Time-limit for reversal of cenvat credit in circumstances of non-receipt of capital goods from job worker has been increased from 180 days to TWO years.

c. The Central Excise Rules are being appropriately amended to provide that the details of manufacturer or provider of output service is required to be mentioned as buyer and details of job worker as the consignee, when goods are directly sent to the job worker on the direction of a manufacturer or the provider of output service.

17.3 Rule 6 of Cenvat Credit Rules, 2004 is being amended to provide that the non-excisable goods manufactured in the factory will now be treated as exempted goods for the purpose of availing the cenvat credit.

17.4 Rule 14 has been amended to clearly specify that interest is not payable in cases where the cenvat credit wrongly taken remains unutilised and it is not adjusted against the Duty liability. The interest will be payable in cases where the wrongly taken credit is utilised.

45

The prescribed mechanism to determine the credit utilisation is as follows:

a. The opening balance of the month will be deemed to have been utilised first,

b. Thereafter the eligible credit taken during the month will be deemed to have been utilised,

c. Thereafter the wrongly availed credit taken during the month will be deemed to have been utilised.

17.5 Rule 5 has been amended to specify that the term Export means “taking of goods outside India”.

17.6 Rule 9(4) which provided for allowing the credit only if first stage dealer or second stage dealer has maintained records indicating the fact that the input or capital goods was supplied from the stock on which duty was paid by the producer of such input or capital goods and only an amount of such duty on pro-rata basis has been indicated in the invoice issued by him, has also been made applicable to registered importer.

17.7 Rule 12AAA of the Cenvat Credit Rules, 2004 which provides for power to Central Government to impose restrictions in order to prevent the misuse of the provisions of cenvat credit has been extended to “registered importer”.

18. ChangesforInputservicecredit.

18.1 Effective from 1st March, 2015 - Time Limit to avail the cenvat credit of service tax paid on input services has been increased from six months to ONE year. Credit can now be availed on input services invoices for inputs within one year from the date of invoice. (Rule 4(7))

18.2 Effective from 1st April 2015 - Presently, in cases where service tax has been paid under partial reverse charge mechanism, the credit was available only after payment of value of service to vendor. The provisions are now been amended to provide that the Cenvat credit with respect to service tax paid on reverse charge can be availed immediately after payment of such service tax irrespective of the fact whether payment of value of service has been made to the service provider or not. Further there is no need to reverse such credit even

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if the payment of value of service is not made to the input service provider after three months.

19. ChangeseffectivefromtheAssentofFinanceBill,2015.

Amendment in Rule 15 – Penalty on wrong availment of credit. The penal provisions under section 11AC of the Central Excise Act, 1944 and Section 76 and 78 of the Finance Act, 1994 have been proposed.

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BUDGETCHANGESINCUSTOMS

20. NochangeinPeakRate.Itremainsatrateof10%.

21. Changes indutyrateswith immediateeffect (witheffect from1.03.2015)ofmajoritemsareasfollows:

Sr. No.

ChapterHeading

Descriptionofgoods EffectiveRate

Till28.02.2015

From01.03.2015

BCD BCD1 28070010 Sulphuric Acid for the

manufacture of Fertilizers10.00% 5.00%

2 7325 Metal Parts for use in the manufacture of electrical insulators falling under heading 8546

10.00% 7.50%

3 8419 Evacuated tubes with three layers of solar selective coating for use in the manufacture of solar water heater and system

10%, 7.5% 0.00%

4 8504 Active Energy Controller (AEC) for use in the manufacture of Renewable Power System (RPS) inverters

7.5%, 10% 5.00%

5 90 or any other Chapter

Artificial Heart (left ventricular assist device)

5.00% 0.00%

*BCD = Basic Customs Duty

(This list of changes in rates of duties is illustrative and not exhaustive)

(a) The benefit of Nil duty rate for import of LCDs and LEDs has been extended to import of Organic Light Emitting Diode (OLEDs) also. (serial number 432 of Notification No. 12/2012)

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22. It has been clarified that goods viz parts and components of cash dispensers and automatic bank note dispensers were covered under exemption under serial number 408 of Notification No. 12/2012 and that the exemption was always available. (Clarifications issued vide D.O.F. letter 334/5/2015-TRU dated 28/2/2015)

23. Otheramendments(witheffectfrom1-03-2015):

1) The effective Additional Duty of Customs (Motor Spirit) on Petrol and High Speed Diesel Oil classified under chapter heading 2710 has been increased from ` 2 per litre to ` 6 per litre.

2) Notification No. 27/2015 (NT) has been issued to provide that a ‘resident firm’ is also eligible to apply for Advance Rulings. The term ‘resident firm’ is defined as follows:

a. Firm as defined under section 4 of Indian Partnership Act, 1932

b. LLP defined under section 2(1)(n) of LLP Act, 2008

c. LLP which has no company as its partner

d. The sole proprietorship

e. One person company

The residential status of the firm will be determined in terms of Income tax provisions.

24. ChangesinstatutoryprovisionseffectivefromdateofenactmentofFinanceBill,2015.

24.1 Amendments proposed in penal provisions:

(a) The section 28(2) of Customs Act is being amended to provide that in cases not involving fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision of the Act or rules with the intent to evade payment of duty, the proceedings will be deemed to be concluded if the amount of duty along with interest has been paid within

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thirty days from date of receipt of notice and no penalty will be payable by noticee in such cases.

(b) Section 28(5) is being amended to provide that proceedings shall be deemed to be concluded in cases where:

(i) the notice has been served to demand duty on account of fraud, collusion, suppression of facts and

(ii) noticee has paid amount of duty accepted by him along with interest and penalty equivalent to 15% of duty within thirty days of receipt of notice and informed the proper officer accordingly.

(c) Explanation 3 has been proposed to be inserted in section 28 to provide that the benefit of conclusion of proceedings and reduced penalty (subsequent to amendments mentioned in (a) and (b) above) will also be available in cases where the show cause notice is pending as on the date on which the Finance Bill, 2015 receives the assent of the President. The amounts of tax, interest and penalty will be required to be paid within 30 days from the date on which such assent is received.

(d) Maximum Quantum of penalty under section 112 imposed for improper importation of goods (other than prohibited goods) is being reduced from 100% of duty to 10% of duty sought to be evaded. Further the penalty levied in such cases will be reduced to only 25% of penalty in case amount of duty determined in order along with interest and reduced penalty is paid within thirty days of receipt of order.

(e) Maximum Quantum of Penalty under section 114 imposed for improper exporter of goods (other than prohibited goods) is being reduced from 100% of duty to 10% of duty sought to be evaded. Further the penalty levied in such cases will be reduced to only 25% of penalty in case amount of duty determined in order along with interest and reduced penalty is paid within thirty days of receipt of order.

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24.2 Various amendments have been made in Settlement Commission provisions.

The power of Settlement Commission to re-open a completed proceeding which is connected to any application pending before it for proper disposal of such application has been proposed to be revoked. (Section 127E )

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1. PREAMBLE

1.1 The Finance Bill, 2015 (“Bill”) has proposed to make certain changes in Chapter V of the Finance Act, 1994 (“Act”), the law governing service tax, some of which are effective on the enactmentoftheBill, and some thereafter from a datetobenotified. In addition to the above, the Central Government has also issued notifications making some changes in the Service Tax Rules, abatements, existing exemption notifications and also providing for certain new exemptions. Most of the notifications are effective from 01.04.2015 and a few from 01.03.2015.

1.2 However, the most important change is that the effective rate of service tax has been increased from 12.36% (including education cess and secondary and higher education cess) to an all inclusive rate of 14%. The effective rate of service tax will go up by another 2% if and when the Central Government exercises its power to introduce a ‘Swachh Bharat cess’ of 2% on all or any of the taxable service.

2. CHANGESEFFECTIVEFROMADATETOBENOTIFIEDAFTERTHEENACTMENTOFBILL

2.1 IncreaseinRateofServiceTax–from12.36%to14%

2.1.1 Presently rate of service tax is 12.36% consisting of Service Tax of 12%, Education cess of 2% on service tax and Secondary and Higher Education cess of 1% on service tax.

The Bill seeks to abolish both the cesses and increase the Service Tax rate to 14%.

BUDGET 2015-16 PROPOSALS AND CHANGES

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2.1.2 Pursuant to the above increase, the rate of tax that would be applicable in certain situations as per the Point of Taxation Rules, 2011 (“POT Rules”) would be as under:-

SlNo.

TaxableServiceProvided

IssueofInvoice

ReceiptofPayment

PointofTax

Rate applicable

1. Before After After Earlier of date of payment/issue of invoice

14%

2. Before Before After Date of issue of invoice

12.36%

3. Before After Before Date of payment

12.36%

4. After Before After Date of payment

14%

5. After Before Before Earlier of date of payment/ Issue of invoice

12.36%

6. After After Before Date of issue of invoice

14%

Note:

1. The words ‘Before’ and ‘After’ in the above table mean before/after the date to be notified.

2. In case of Sl. No. 3 and Sl. No. 5 above, if the payment is not credited in the bank within 4 working days from the date when there is change in effective rate of tax, the new rate of 14% would apply.

3. In Sl. Nos. 4 and 6 above, Service Tax would have already been paid at the old rate (12.36%) when the invoice was issued or payment received before the change of rate of tax applying the general

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rule (Rule 3 of POT Rules). Subsequently, the rate would increase. Accordingly, there would be a short payment which the assessee may have to deposit. No interest may apply if the assessee deposits it within the due date reckoned from the point of taxation i.e., date of payment in case of 4 and date of issue of invoice in case of 6 above.

2.1.3 Consequent changes in the presumptive/composition rate of tax

(i) Composition scheme for air travel agents

Particulars ExistingRateoftax

RevisedRateoftax

Domestic bookings 0.6% of Basic Fare

0.7% of Basic fare

International bookings

1.2% of Basic Fare

1.4% of Basic Fare

“Basic Fare” means that part of the airfare on which commission is normally paid to the air travel agent by the airline.

(ii) Composition schemes for life insurance business

Particulars ExistingRateoftax

RevisedRateoftax

(i) On gross premium less amount allotted for investment/ savings, if such amount intimated to policy holder

12% 14%

(ii) In the other cases – 3% 3.5%a) On first year premium 1.5% 1.75%b) On subsequent year premium

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(iii) Composition scheme of money changing services

Grossamountofcurrencyexchanged.

AmountofTaxapplicableatexistingrate

AmountofTaxapplicableatrevisedrate

Up to ` 1,00,000/-

0.12% of gross amount of currency exchanged subject to a minimum tax of ` 30/-.

0.14% of gross amount of currency exchanged subject to a minimum tax of ` 35/-.

` 1,00,001 to ` 10,00,000/-

` 120 + 0.06% of gross amount of currency exchanged in excess of ` 1,00,000/-.

` 140 + 0.07% of gross amount of currency exchanged in excess of ` 1,00,000/-.

` 10,00,001 and above

` 660 + 0.012% of gross amount of currency exchanged in excess of ` 10,00,000/- subject to a maximum tax of ` 6,000/-

` 770 + 0.014% of gross amount of currency exchanged in excess of ` 10,00,000/- subject to a maximum tax of ` 7,000/-

(iv) Composition schemes for the selling agent of lottery tickets

Sl.No.

Condition Taxpayableatexistingrate

Taxpayableatrevisedrate

1. If the lottery or lottery scheme is one where the guaranteed prize payout is more than 80%.

` 7,000/- on every ` 10 lakh (or part of ` 10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw

` 8,200/- on every ` 10 lakh (or part of ` 10 lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw

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Sl.No.

Condition Taxpayableatexistingrate

Taxpayableatrevisedrate

2. If the lottery or lottery scheme is one where the guaranteed prize payout is less than 80%.

` 11,000/- on every ` 10 lakh (or part of ` 10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw.

` 12,800/- on every ` 10 lakh (or part of ` 10 lakh) of aggregate face value of lottery tickets printed by the organising State for a draw.

In case of online lottery, aggregate face value of the tickets sold shall be taken instead of aggregate face value of lottery tickets printed.

2.2 SWACHHBHARATCESS–2%ofvalueoftaxableservice

2.2.1 Further, the Bill seeks to enable the Government to impose a ‘Swachh Bharat cess’ as service tax on all or any of the taxable services at the rate of 2% on value of such taxable services.

2.2.2 Thus, the effective rate of Service Tax could be 16% on certain services which would be a phenomenal increase of almost 33%.

2.2.3 The clause introducing ‘Swachh Bharat cess’ has also provided that the provisions of Chapter V of the Finance Act, 1994 and the Rules made thereunder would also apply to ‘Swachh Bharat cess’ on taxable services. Accordingly, Rule 4 of the Point of Taxation Rules, 2011 (“POT Rules”) providing for change in effective rate of tax as explained in para 2.1.2 would also be applicable to Swachh Bharat cess.

NB:The phenomenal increase in Service Tax from 10% (pre 2012) to a likely 16% (going forward) would have a cascading effect in spite of the Input Tax Credit since in many cases credit is either not available or restricted. This would result in a phenomenal increase in the cost of goods and services thereby leading to a cost push inflation.

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2.3 ChangesinNegativeList

The Finance Act, 2012 w.e.f. 1.7.2012 made a paradigm shift in the law governing service tax one of which was the introduction of what is popularly known as ‘Negative List of Services’. The services enumerated in the Negative List are not subjected to service tax.

The Bill seeks to make the following amendments in the Negative List as under.

AllservicesprovidedbyGovernmentoralocalauthoritytobusinessentitytobetaxed(exceptafew).

2.3.1 Presently, services by Government or a local authority except a few specified services are covered by the Negative List [s. 66D(a)]. One of the specified services excluded from the negative list is ‘support services’ provided to business entities. Thus, services provided by Government or local authority to business entities other than ‘support services’ are covered in the negative list and hence not liable to service tax. The definition of support service is as under:

“Interpretations

65BIn this Chapter, unless the context otherwise requires, -

(1) to (48) ………

(49) “Support services” means infrastructural, operational, administrative, logistic, marketing or any other support of any kind comprising functions that entities carry out in ordinary course of operations themselves but may obtain as services by outsourcing from others for any reason whatsoever and shall include advertisement and promotion, construction or works contract, renting of immovable property, security, testing and analysis;

………”

Support services are essentially functions carried out by entities in their normal course of operations themselves but which are ‘outsourced’ by them and got done from others.

The Bill seeks to replace the words ‘supportservices’ in s. 66D(a) by the words ‘anyservice’. Consequently, all services provided by Government or local authority to businessentities would be liable for service tax unless they are specifically exempt.

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Production of alcoholic liquor for human consumption to be taxed.

2.3.2 Presently, any ‘process amounting to manufacture or production of goods’ is covered in the Negative List [s.66D (f)]. The Bill seeks to amend clause (f) of s. 66D to exclude manufacture or production of alcoholic liquor for human consumption from the Negative List thereby making it liable for service tax.

Organising a lottery not to be covered in Negative List.

2.3.3 (a) Presently, betting, gambling or lottery is covered in the Negative List [s. 66D(i)] and accordingly outside the ambit of Service Tax, presumably since it is under the State list.

(b) In Future Gaming Solutions India Pvt. Ltd. v. UOI (2014) 36 STR 733 (Sikkim) where a person purchased lottery tickets at discounted price and sold them to the customers through his agents and stockist, the High Court held that transaction in the lottery tickets are not liable for Service Tax for the reason that:

(i) Lottery being an actionable claim1 would be excluded from the definition of ‘service’; and

(ii) The service of ‘betting, gambling or lottery’ was included in the Negative List.

(c) The Bill seeks to overcome the above decision by making two changes –

(i) A transaction in money or actionable claim shall not include any activity relating to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind; and

(ii) ‘Betting, gambling or lottery’ in the Negative List shall not include the activity mentioned in (i) above.

N.B.: The change mentioned in 2.3.5(c)(i) above would be effective on enactment of the Bill

1 The definition of service excludes transaction in money or actionable claim [s. 65B(44)]

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Admission toentertainmenteventsoraccess toamusementfacilitiestobetaxedexceptasexempted(para6.3.1).

2.3.4 The Bill seeks to omit the following entry in the Negative List viz., ‘admission to entertainment events or access to amusement facilities’ [s. 66D(j)]. However, an exemption is provided vide Notification No. 25/2012 in respect of certain admissions which are given in para 6.3.1.

3. CHANGESEFFECTIVEFROMTHEDATEOFENACTMENTOFTHEBILL

3.1. Theactivitybyaforemanofchitfundforconductingororganisingachitspecificallyexcludedfromthedefinitionof ‘transaction in money or actionable claim’ [s.65B(44)]soastomakeitliableforservicetax.

3.1.1 The definition of service excludes ‘transaction in money or actionable claim’ [s. 65B (44)]. In Delhi Chit Fund Association vs. UOI (2013) 30 STR 347 (Del.), the Delhi High Court held that services of foreman of chit business being a form of transaction in money falls under the exclusionary part of the definition of service u/s. 65B(44) and hence is not liable for service tax.

3.1.2 The Bill seeks to counter the above decision by providing inter alia that the definition of ‘a transaction in money or actionable claim’ shall not include any activity relating to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out by a foreman of chit fund for conducting or organising a chit.

3.2 Nature of service to be determined by the nature of output service and not by the nature of input service - Section 66F

3.2.1 Section 66F of the Act provides for determination of nature/ description of service. This is relevant to interpret whether the service falls in the negative list or declared service list or exemption list and is also relevant for Place of Provision of Services Rules, 2012 (“POP”) i.e. determining the place where service is provided depending on the nature of service especially in case of cross border transactions.

3.2.2 In this context Section 66F(1) provides that, unless otherwise specified, reference to a service shall not include reference to any

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input service used to provide such service. Thus, the nature of service (main service) would be governed by the service per se and not by any of the input used to provide such service.

3.2.3 The Bill seeks to provide an illustration to explain this provision. The illustration explains that though the services provided by RBI (main service) is in the Negative List, any agency services provided by any bank to RBI, is actually an input service to RBI and would not take the character of services provided by RBI so as to be covered under the Negative List and accordingly such agency services would be liable to service tax.

3.2.4 The above Principles of Interpretation are very relevant since in many cases the nature of service provided i.e., output service is incorrectly determined by the nature of service availed.

3.3 Expenditure/costrecoveredfromservicerecipient includible inValueofTaxableService[s.67].

3.3.1 Under the existing dispensation, Rule 5 of the Service Tax (Determination of Value) Rules, 2006 issued pursuant to s. 67 provides that any reimbursable expenditure or cost incurred by service provider on behalf of service recipient and recovered from him shall be includable in value of taxable services except in cases where some conditions are satisfied. The Delhi High Court in Intercontinental Consultants & Technocrats Pvt. Ltd. vs. UOI (2013) 29 STR 9 (Del.)] has struck down these provisions as ultra vires by opining that Rule 5(1) runs counter and is repugnant to s. 66 (Charging section) and s. 67 (Valuation section) of the Act. It further commented that what is brought to charge under the relevant sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and hence cannot be upheld. In the above case, the department’s SLP has been admitted in Supreme Court.

3.3.2 The Bill seeks to overcome the above proposition by amending the explanation to s. 67 which provides for what is ‘consideration’ by stating that consideration would include reimbursable expenditure/ cost incurred by the service provider and charged in the course of providing taxable services except in such circumstances and subject to such conditions as may be prescribed. Thus, the intention is to

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provide what is stated in Rule 5 in the Valuation section [s. 67] itself so that the provision to include the reimbursable expenses/ cost in value of taxable services is provided in the main provision itself instead of by way of a rule. Presumably, Rule 5 will be suitably amended on enactment of the Bill.

3.4 MarginordiscountreceivedbyLotterydistributor/sellingagentisaconsiderationforservices-Liableforservicetax.

3.4.1 The Bill also seeks to amend the explanation to section 67 which provides for ‘what is consideration’ by stating that consideration would also include ‘any amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets.’ Thus the margin or discount received by Lottery distributor/selling agent is a consideration for services which is liable for service tax.

3.4.2 This amendment is to overcome the decision in Future Gaming Solutions India Pvt. Ltd. v. UOI (2014) 36 STR 733 (Sikkim) wherein the High Court inter alia while holding that the transaction in lottery tickets are not liable to Service Tax also held that the distributor or selling agent who purchases the lottery tickets in bulk from the State Government at a discounted price and sells the same to the customer, in absence of any privity of contract between the Government and customer, cannot be held to be acting as an agent of the Government in selling and promoting the lottery tickets. It was merely buying and selling the lottery tickets and the discount received by it was a normal discount provided as per trade practice in any transaction of sale and purchase.

3.5 ExpansionofCentralGovernment’srulemakingpowerforvaluation

3.5.1 Under the existing dispensation, the Central Government is empowered to make Rules for determining the amount and value of taxable services u/s. 67 [s. 94(2)(aa)] pursuant to which Service Tax (Determination of Value) Rules, 2006 have been issued.

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3.5.2 The Bill seeks to expand the above rule making power pursuant to which the Central Government will have power to frame rules for –

(a) Determination of the amount and value of taxable service;

(b) The manner thereof, and the circumstances and conditions under which an amount shall not be a consideration, under section 67.

3.6 Service tax determined on self-assessment but not paid isrecoverablewithoutissuanceofSCN.

3.6.1 Sub-rule (6A) to rule 6 of Service Tax Rules, 1994 was inserted effective from 1.4.2011 to provide that where the assessee has not paid the service tax as determined by him by way of self- assessement i.e. while filing the Service Tax returns, such tax shall be recoverable along with interest in the manner prescribed under section 87 of the Act. However, whether there is a requirement to issue show cause notice u/s. 73 was in doubt. The TRU circular No. D.O.F. No. 334/3/2011-TRU dated 28.2.2011 clarified that there shall be no need to issue a show cause notice and adjudicate under section 73 of the Act for the recovery of such self-assessed amounts. To put the matter beyond doubt, the Bill seeks to insert a new sub-section (1B) in section 73 of the Act to provide for –

(i) The provisions as in Rule 6(6A) i.e. recovery of service tax determined on self-assessment but not paid; and

(ii) Further also that there shall be no need to issue a show cause notice and adjudicate under section 73 of the Act for the purpose of recovery of such self-assessed amounts not paid.

Consequently rule 6(6A) of the Service Tax Rules, 1994 providing for the same is proposed to be deleted.

3.7 Provisionforconclusionofproceedingswheretax, interestandprescribedpenalty[upto25%]ispaidduringaudit, investigationorverificationproposedtobedeleted–Section73(4A).

3.7.1 The Finance Act, 2011 inserted a new provision viz., clause (4A) to section 73 which is explained as follows. In cases where no show cause notice has been issued and –

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(a) The said defaults are found during the course of audit, investigation or verification;

(b) The true and complete details of transactions are available in the “specified records”. ‘Specified records’ means records including computerised data as required to be maintained by the assessee in accordance with any law or where there is no such requirement, the invoices recorded by the assessee in the books of account shall be considered as the ‘specified records’;

(c) The assessee has paid, before the issue of a show cause notice, such Service Tax, ascertained on his own or by the Central Excise Officer, along with interest and penalty equal to 1% of the Service Tax for each month for which the default continues subject to a maximum of 25% of the Service Tax; and

(d) Informed the Central Excise officer of such payment in writing,

then –

(i) The Central Excise officer shall not issue a show cause notice in respect of the said defaults; and

(ii) All the proceedings (including all penalties) in respect of the said defaults shall be deemed to be concluded;

It appears this Facility was applicable to cases where there is a fraud, collusion, wilful misstatement or suppression of facts or contravention of any provisions of the law with an intent to evade payment of service tax since sections 73(3) and (4) did not cater to such cases.

3.7.2 The Bill seeks to delete this option presumably pursuant to the rationalisation of penalty u/ss. 76 and 78 as enumerated below.

3.8 RationalisationofPenalties–Sections76&78

General

3.8.1 The Bill seeks to substantially alter the penalty provisions under the Service Tax law. As per the Annexure to the Finance Minister’s speech, these changes are attempted for encouraging compliance and have an early dispute resolution. However, these changes

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appear to treat penalties as additional tax with no discretion to drop penalties even in bona fide cases.

3.8.2 The main penalty provisions are:

(i) Penalty for failure to pay Service Tax (u/s. 76).

(ii) Penalty for failure to pay Service Tax with an intent to evade (u/s. 78).

The existing provisions and the proposed provisions are given as under.

3.8.3 Penalty for failure to pay Service Tax without an intent to evade tax (section 76).

Existing Penalty

Not less than ` 100/- per day1 during which default continues or 1% of the service tax per month, whichever is higher but restricted to 50 % of the amount of service tax.

1The intention appears to be “` 100/- per day” and not “not less than ` 100/- per day” - see Explanatory Notes on Service Tax dated 28.02.06 issued by Ministry of Finance.

Proposed Penalty

(i) Maximum–upto 10% of tax

(ii) Penalty – Nil, if tax and interest paid within 30 days of service of SCN.

(iii) Penalty – 25% of penalty imposed under an order u/s. 73(2), if the service tax, interest and such reduced penalty is paid within 30 days of receipt of the order2.

2 The maximum penalty imposable u/s. 76 is up to 10% of the tax. Hence the maximum penalty payable in such cases would be 2.5% of Service Tax i.e. [25% of 10%].

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3.8.4 Penalty for non-payment of tax with an intent to evade tax (section 78).

Existing Penalty

(i) Penalty – 100% of the service tax.

(ii) Penalty – where true and complete details of transactions are available in the “specified records”:

(a) 25% of tax, where the tax, interest and penalty of 25% of the tax is paid within 30 days (90 days in case of assesses having value of taxable services less than 60 lakhs) from the date of receipt of order.

(b) 50% of tax in all other cases.Proposed Penalty

(i) Penalty - 100% of service tax

(ii) Penalty - 15% of the service tax amount if tax, interest and such reduced penalty is paid within 30 days of service of SCN.

(iii) Penalty - 25% of the service tax amount determined if the service tax, interest and such reduced penalty is paid within 30 days of receipt of order.

3.8.5 The following points are to be noted as regards the above proposed changes in penalties:

(a) If the service tax amount gets modified in any appellate proceeding, then the benefit of reduced penalty (i.e. 25%) shall be admissible if Service Tax, interest and reduced penalty (i.e. 25% of the modified penalty) is paid within 30 days of receipt of such appellate order. However, it appears that the above concession would be applicable only if the appellate authority modifies the service tax amount.

(b) Further, the assessee can file an appeal and he can keep the matter alive even if he opts for the above options proposed.

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(c) Transitional provisions have been made to provide that the proposed penalties in paras 3.8.3 and 3.8.4 would be applicable in case of existing defaults i.e. failure to pay Service Tax where —

(i) No SCNs are issued before the enactment of the Bill; and

(ii) SCNs have been served but no orders have been passed before the enactment of the Bill.

subject to (d) below.

(d) Where there is a non-payment of service tax in cases enumerated in para 3.7.1,

and

(i) No SCN has been served invoking the extended period of limitation before the enactment of the Bill; or

(ii) No order has been issued u/s. 73(2) before the enactment of the Bill.

then the penalty imposable shall not exceed 50% of Service Tax.

3.9 Discretiontocondonepenaltiesu/ss.76and77on“reasonablecause”ground[sec.80]proposedtobedispensedwith.

3.9.1 Under the existing dispensation, the service tax law had a provision viz. sec. 80 which provided that no penalty u/s. 76 (failure to pay tax) or u/s. 77 (certain procedural infractions) shall be imposable if the assessee adduces “reasonable cause” for such failures.

3.9.2 The Bill seeks to delete section 80 pursuant to the so stated rationalisation of penalty provisions u/ss. 76 and 78.

3.9.3 This is a great let down to a bona fide assessee who while being guilty of some unintentional default would be still subject to the penal provisions. Section 80 was the only window for such bona fide assessee which is now proposed to be taken away.

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3.9.4 In fact there is a good case to delete the penalty u/s. 76 in view of the following reasons –

(i) In case of delayed payment there is already a steep rate of interest provided u/s. 75 [peak rate 30%].

(ii) Penal provisions are relevant only in cases where there is an intent to evade tax which is already provided u/s. 78.

(iii) All the other revenue laws such as the Income-tax, Excise etc., provide for interest on delayed payment which is compensatory in nature as well as penalty for suppression or concealment. But there is no penalty where there is no concealment or suppression analogous to section 76.

3.10 Allcases involvingexportrebatetobedealt inaccordancewiththeprovisionsofsection35EEviz.,RevisionapplicationtoCentralGovernment.

3.10.1 An issue prevailed whether the remedy against the order of the Commissioner (Appeals) in matters relating to grant of rebate on inputs or input services used for export of services was only by way of a revision application to the Central Government u/s. 35EE of the Central Excise Act or an appellate remedy by way of an appeal u/s. 86 of the Act also lay before the Tribunal. W.e.f. 28.5.2012 section 35EE of the Central Excise Act was made applicable to service tax with a view perhaps to resolve the issue. However, the Delhi High Court in Glyph International Ltd. vs. UOI, (2014) 34 STR 727 (Del.) held that the appellate remedy was still available even after section 35EE of the Central Excise Act was made applicable to service tax since section 86 has not expressly curtailed the appellate powers of the Tribunal.

3.10.2 The Bill seeks to amend section 86 to provide that –

(i) In such cases the remedy would only be by way of a revision application to the Central Government u/s. 35EE; and

(ii) All appeals filed after 28.5.2012 but pending up to the enactment of the Finance Bill, 2015 would be transferred to the Central Government and dealt with u/s. 35EE of the Central Excise Act.

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4. CHANGESEFFECTIVEFROM01.03.2015

4.1 AmendmentsinServiceTaxRules1994- RegistrationandDigitalSignature

Registration

4.1.1 Rule 4 of the Service Tax Rules, which deals with registration under Service tax law, empowers the Board for issuing orders specifying the documents that are required to be submitted by the assessee along with the application for obtaining service tax registration [sub-rule (1A)]. Accordingly, the Board had issued Order No. 2/2011 dated 13.12.2011 specifying the following documents viz.,

(i) Copy of Permanent Account Number.

(ii) Proof of Address.

(iii) Constitution of Memorandum & Articles, Partnership deed etc.

(iv) Power of Attorney in respect of authorized person.

4.1.2 The above sub-rule has been omitted and a new sub-rule (9) has been inserted to provide that the CBEC shall, by way of an order, specify the conditions, safeguards and procedure for granting registration in service tax. Consequently the above Order No. 2/2011 has also been substituted by a new Order No. 1/2015-ST dated 28.2.20152 wherein in addition to above documents there are other information/documents required to be submitted some of which are as under –

(a) Identity proof of person filing the application.

(b) Details of Main Bank account.

(c) Business transaction nos. such as VAT Registration No., Customs Registration No., company Information No.; Import Export code etc.

(d) Email ID & Mobile numbers [existing registrants are required to submit this information by 30.04.2015].

2 For further details please refer Order No. 1/2015-ST dated 28.2.2015

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4.1.3 The new order inter alia also states that registration shall be granted within 2 days of filing online application through ACES website and such electronically downloaded registration certificate would be accepted as proof of registration. Physically signed copy of registration certificate is not required.

Digitally signed invoice and maintenance of records permitted.

4.1.4 A new Rule 4C has been introduced which prescribes that an invoice/challan issued by a service provider or a consignment note issued by a goods transport agency may be authenticated by a digital signature.

4.1.5 Rule 5 of the Service Tax Rules which deal with maintenance of records by the assessee states that the records (including computerised data) maintained by assessees for accounting of transactions relating to provision of service, receipt and payment of input/input services etc., and all other financial records shall be preserved for a period of 5 years. An amendment has been made in the said rule whereby it is stated that records maybe preserved in electronic form in such manner that every page of the record so preserved shallbe authenticated by means of digital signature.

4.1.6 However, the Board shall by notification specify the conditions, safeguards, procedure to be followed by person for issuing digitally signed invoices and maintaining digitally signed records.

4.2 AdvanceRulingMechanismextendedto‘residentfirm’.

4.2.1 Chapter VA of the Finance Act, 1994 (sections 96A to 98) provides for Advance Ruling mechanism in Service Tax. Under the existing provisions, the advance ruling can be obtained only in relation to services proposed to be provided by –

(i) (a) A non-resident setting up a joint venture in India in collaboration with a non-resident/resident; or

(b) A resident setting up a joint venture in India in collaboration with a non-resident; or

(c) Wholly owned Indian subsidiary company, of which the holding company is a foreign company.

(ii) A joint venture in India wherein one or more participant/partner/ equity holder having substantial interest in the venture is a non-resident.

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(iii) Any such class or category of residents notified by the Central Government.

4.2.2 Pursuant to the powers mentioned in para 7.1(iii) above, the Central Government had notified –

(i) ‘Public sector companies’ w.e.f. 20.8.2009; and

(ii) ‘Resident public limited companies’ w.e.f. 1.3.2013.

(iii) Resident private limited companies’ w.e.f. 11.7.2014.

4.2.3 Now the Central Government has Vide Notification No. 9/2015 – ST dated 01.3.2015 notified ‘resident firm’ as eligible to avail the benefit of advance ruling.

(A) ‘Firm’ would mean a ‘firm’ as per section 4 of the Indian Partnership Act, 1932; and shall include

(i) Limited Liability Partnership as defined in section 2(l)(n) of Limited Liability Partnership Act, 2008.

(ii) Limited Liability Partnership which has no company as its partner.

(iii) Sole proprietorship or an individual.

(iv) One person company as defined in 2(62) of the Companies Act, 2013.

(B) ‘Resident’ shall have meaning assigned in 2(42) of Income-tax Act, 1961.

5. CHANGESEFFECTIVEFROM1.4.2015

5.1 ExemptionofGTAservicestoanexporter-Expanded

5.1.1 Notification No. 31/2012 dated 20.06.2012 exempts services rendered by a Goods Transport Agency (GTA) to an exporter of goods in relation to transportation of export goods from –

(a) ICD3/ CFS4 to Port/ Airport;

(b) The place of removal to ICD/CFS/Port/Airport

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3 ICD = Inland Container Depot; 4 CFS = Container Freight Station

70

In both the scenarios transportation to Land Custom Station has also now been exempted vide Notification No. 4/2015 – ST dated 1.3.2015. This exemption shall come into effect from 1.4.2015.

5.2 ChangesinAbatements

5.2.1 The Central Government vide notification no. 26/2012-Service Tax dated 20.6.2012 had granted to certain service providers exemption in the form of abatement/rebates some of which are being amended vide notification no. 8/2015 dated 01.3.2015. The above amendments, effective from 1.4.2015, would be as under:

Sl. No

Nature of service

Existing Change Effective Rate @ 12%

Effective Rate @ 14%*Rebate

AllowedTaxable value

Rebate Allowed

Taxable value

1 Transport of goods by rail

70% 30% No change in rates But new condition introduced viz., no CENVAT on inputs, capital goods & input services is taken

3.6% 4.2%

2 Transport of passengers with or without accompanied belongings by rail

70% 30% 3.6% 4.2%

3 Transport of passengers by air with or without accompanied belongings by any class changed to

60% 40%

(i) Economy Class

60% 40% 4.8% 5.6%

(ii) Other than Economy Class

[Existing Cenvat Credit restrictions to remain]

40% 60% 7.2% 8.4%

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Sl. No

Nature of service

Existing Change Effective Rate @ 12%

Effective Rate @ 14%*Rebate

AllowedTaxable value

Rebate Allowed

Taxable value

4 Services of Goods Transport Agency in relation to transportation of goods

[Existing Cenvat Credit restrictions to remain]

75% 25% 70% 30% 3.6 4.2

5 Services provided in relation to chit

70% 30% Deleted 12 14

6 Transport of goods in a vessel

[Existing CENVAT Credit restrictions to remain]

60% 40% 70% 30% 3.6 4.2

* Effective rate of 14% shall apply only w.e.f. a date to be notified after the enactment of the Finance Bill

6. CHANGESEFFECTIVEFROMMULTIPLEDATES

6.1 AmendmentsinServicetaxRules,1994–Listof‘personsliabletopayservicetax’expanded

6.1.1 Amendments have been made in Rule 2(1)(d) of Service Tax Rules, 1994 which defines ‘person liable for paying Service Tax’ by including therein following services where the liability to pay Service Tax is on the person other than service provider viz.,

SlNo

Descriptionofservices PersonliabletoServicetax

Effectivedate

1. Services by a mutual fund agent/distributor to mutual fund/asset management company

Recipient of service 1.4.2015

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SlNo

Descriptionofservices PersonliabletoServicetax

Effectivedate

2. Service by a selling / marketing agent of lottery tickets to a lottery distributor/selling agent

Recipient of service 1.4.2015

3. Services provided by a person involving an ‘aggregator’ in any manner.

(See Note below)

(a) aggregator of service if it has a physical presence in taxable territory; or

1.3.2015

(b) in cases other than (a) above, any representative of such aggregator in taxable territory; or(c) in cases other than (a) and (b) above, a person appointed by such aggregator in taxable territory for payment of service tax.

Note:1. The term ‘aggregator’ has been defined to mean a person who

• Owns or manages a web based software application; and • By means of such application and communication device enables

potential customer to connect with service provider providing service under the brand name or trade name of aggregator.

2. Brand name or a trade name has been defined as a name/mark/invented word or writing/symbol/monogram/logo/label/signature which is used to indicate a connection in course of trade, between the service and some person using the name or mark with or without any indication of the identity of that person.

6.2 Changes in payment of Service Tax under Reverse Chargemechanism.

6.2.1 The Government had issued Notification No. 30/2012 dated 20.06.2012 notifying certain services where the liability to pay

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Service Tax is on a person other than the service provider and also the extent to which Service Tax would be payable by such other person. Certain amendments have been made in this Notification vide Notification No. 7/2015 dated 1.3.2015 which are summarized below:

Sl.No.

DescriptionofTaxableService

%ofServiceTaxPayable EffectiveDateofchange

ServiceProvider

PersonliabletopayservicetaxotherthanServiceProvider5

A.Changesinexistingentries

% Person

1. Services provided by way of supply of manpower for any purpose or security service.

Existing rate

Changed to25%

Nil

75%

100%

Service recipient

01.04.2015B.NewEntriesIntroduced

1 Services provided by a Mutual Fund agent / distributor to a mutual Fund / asset management co.

Nil 100% Service recipient

01.04.2015

2 Services provided by selling / marketing agent of lottery tickets to a lottery distributor / selling agent.

Nil 100% Service recipient

01.04.2015

3 Services provided by a person involving an aggregator in any manner

Nil 100% Aggregator 1.3.2015

6.3 ChangesinMegaExemptionNotification

When the Negative List regime was introduced w.e.f. 01.07.2012, the Central Government had issued a Mega exemption Notification No. 25/2012 – ST dated 20.6.2012 conferring several exemptions. Some changes to the exemptions have been made vide Notification No. 6/2015 dated 1.3.2015 as explained below.

5 Currently the person liable to pay service tax other than service provider is the service recipient. However, pursuant to changes in Rule 2(1)(d) of the Service Tax Rules, 1994 and above notification it would also consist of cases other than the service recipient.

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6.3.1 Exemptions newly introduced

(i) EntryNo.43–Servicesofcommoneffluenttreatmentplantoperator:Services provided by common effluent treatment plant operator by way of treatment of effluent.

(ii) Entry No. 44 – Specified services in respect of fruitsandvegetables: Services by way of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables which do not alter the essential characteristic of fruits and vegetables.

(iii) EntryNo.45–Admissiontomuseum,zooetc.:Services by way of admission to museum, zoo, national park, wildlife sanctuary and tiger reserve.

(iv) EntryNo.46–MovieExhibitionServices:Services by way of exhibition of a movie by the exhibitor (theatre owner) to the distributor or to an association of persons wherein such exhibitor is a member.

(v) EntryNo.47–Admissiontoentertainmentevents:Services by way of right to admission to –

(a) Exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet;

(b) Recognised sporting event;

(c) Award function, concert, pageant, musical performance or any sporting event other than a recognised sporting event, where the consideration for admission is not more than Rs 500/- per person.

The above amendments except Sl. No (v) shall come into force w.e.f. 1.4.2015. Exemption mentioned in Sl. No. (v) shall come into force from a date to be notified by the Government after the enactment of the Finance Bill.

6.3.2. Exemptions withdrawn:

(i) EntryNo12–SpecifiedconstructionservicesrenderedtoGovernment:Services provided to the Government, local authority or governmental authority by way of Construction, Erection, Commissioning, Installation, Completion, fitting out, repair, maintenance renovation or alteration of

1) Civil structure or any other original work meant predominantly for use other than commerce or industry or any other business or profession

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2) Structure meant predominantly for use as (i) Educational; (ii) Clinical; or (iii) art or cultural establishment

3) A residential complex predominantly meant for use of employees or other specified persons (MPs, MLAs, etc.)

(ii) EntryNo14–Constructionofports&airports:Services by way of Construction, Erection, Commissioning or Installation of original works pertaining to an airport or port.

(iii) EntryNo29–Servicesinrelationtomutualfundandlottery:Services provided by

a) A mutual fund agent to a mutual fund or assets management company;

b) Distributor to a mutual fund or Asset Management Company;

c) Selling or marketing agent of lottery ticket to a distributor or selling agent.

(iv) EntryNo32–Specified Telephone Services: Services of making telephone calls from

a) Departmentally run public telephone;

b) Guaranteed public telephone operating only local calls;

c) Free telephone at airport and hospital where no bills are issued.

The above amendments shall come into effect from 1.4.2015.

6.3.3 Exemptions Curtailed

(i) EntryNo.16–Servicesofperformingartist:Presently services by performing artist in folk or classical art forms of music, or dance, or theatre, excluding services provided by such artist as a brand ambassador, are exempt from payment of service tax. This exemption has now been modified so as to restrict the availability of exemption only to such cases where the amount charged for such performances is not more than Rupees one lakh. The above amendment shall come into effect from 1.4.2015.

(ii) EntryNo.20–Transportationofgoodsby rail/vessel&EntryNo.21–Transportationofgoodsbyroad:Presently transportation by rail, vessel and through a GTA of foodstuff including flours, tea, coffee, jaggery, sugar, milk products, salt

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and edible oil have been exempted from payment of service tax. The said exemption has now been curtailed so as to restrict exemption only in respect of transportation of milk, salt, foodgrains, including flours, pulses and rice. The above amendment shall come into effect from 1.4.2015.

(iii) EntryNo. 30–Exemption for Intermediateproductionprocessas jobworknownotapplicableformanufactureorproductionofalcoholic liquor: Presently carrying out an intermediate production process as job worker in relation to any goods on which appropriate duty is paid by principal manufacturer has been exempted from payment of service tax. Since the activity in the nature of carrying out any process amounting to manufacture or production of alcoholic liquor for human consumption has been excluded from the negative list (see para … hereinafter) so as to levy service tax thereon the exemption for intermediate production process as job work is now not applicable to manufacture or production of alcoholic liquor. The above amendments shall come into effect from a date to be notified by the Government after the enactment of the Finance Bill.

6.3.4. Exemptions Expanded

(i) EntryNo2–HealthCareServices:Presently, healthcare service provided by way of a clinical establishment and the authorized medical personal (including transportation of patients) is exempt from Service Tax. The scope of this exemption has now been widened so to exempt transportation of patient in an ambulance by any person also.

(ii) EntryNo.26A–SpecifiedLifeInsuranceservices:Presently, services of life insurance business provided under specified schemes viz., Janashree Bima Yojana, Aam Aadmi Bima Yojana and IRDA approved life micro–insurance products are exempt from levy of service tax. The above exemption has now also been granted to ‘Varishtha Pension Bima Yojana’.

The above amendments shall come into effect from 1.4.2015.

7. Conclusion7.1 The increase in rate of service tax to 14%, additional 2% Swachh

Bharat Cess and mandatory penalty with no discretion to drop the penalty-all will not only cause heartburn to the Service Tax assessees but may also result in increase in cost of goods and services – thus affecting the Common Man also.

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this booklet contains corrected page no 63 of wirc · pdf fileto promote the honourable prime...

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