Tuesday, 3 March 2015

Highlights of Union Budget 2015

In our view the Union Budget 2015 on the whole is a favorable budget. The budget has been presented with the following objectives:

A.         Measures to curb black money;

B.          Job creation through revival of growth and investment and promotion of domestic manufacturing and ‘Make in India’;

C.          Minimum government and maximum governance to improve the ease of doing business;

D.         Benefits to middle class taxpayers;

E.          Improving the quality of life and public health through Swachch Bharat initiatives; and

F.          Stand alone proposals to maximise benefits to the economy.

Budget Highlights

a.    Corporate Tax:

The corporate tax has been reduced from 30% to 25%. However, various kinds of tax exemptions and incentives for corporate taxpayers have been removed.

Exemptions to individual taxpayers will, however, continue since they facilitate savings which get transferred to investment and economic growth.

Comments: would there be a large number of tax disputes due to the removal of tax exemptions and incentives?

b.    Individual tax payers benefit

Tax benefit upto Rs 4,44,200 as detailed below:

-             No change in the rate of personal income-tax and the rate of tax for companies in respect of income earned in the financial year 2015-16, assessable in the assessment year 2016-17.

-             Surcharge @12% on individuals, HUFs, AOPs, BOIs, artificial juridical persons, firms, cooperative societies and local authorities having income exceeding Rs 1 crore. 

-             Domestic companies income exceeding Rs 1 crore upto Rs 10 crore @ 7%

-             Domestic companies income exceeding Rs 10 crore. @ 12 %

-             Foreign companies the surcharge will continue to be levied @2% if the income exceeds Rs 1 crore and is upto Rs 10 crore, and @5% if the income exceeds Rs 10 crore.

-             Surcharge @12% (current 10%) on additional income-tax payable by companies on distribution of dividends and buyback of shares, or by mutual funds and securitisation trusts on distribution of income

-             Education cess and 1% of additional surcharge called ‘Secondary and  Higher Education Cess’ on tax proposed to be continued for the financial year 2015-16 for all taxpayers.

c.    Benefits to middle class tax payers.

-          Health Insurance increased from Rs 15,000 to Rs 25,000.
-          For senior citizens

o   Increase in limits from 20,000 to 30,000
o   Senior citizens of age 80 yrs or more, who are not covered by health insurance, deduction of Rs 30,000 towards expenditure incurred on their treatment will be allowed.

o   Very senior persons:  for specified diseases of serious nature the health insurance is enhanced from 60,000 to Rs 80,000.
o   For differently abled persons: addition deduction of Rs. 25,000. (under Section 80DD and Section 80U of the Income-tax Act).

-          Deduction on account of contribution to a Pension Fund and the New Pension Scheme is increased from Rs 1 lakh to Rs 1.5 lakh.

-          To provide social safety net and the facility of pension to individuals, an additional deduction of Rs 50,000 is proposed to be provided for contribution to the New Pension Scheme under Section 80CCD. 

-          Investments in Sukanya Samriddhi Scheme is already eligible for deduction under Section 80C.  All payments to the beneficiaries including interest payment on deposit will also be fully exempt.

-          Transport allowance exemption is being increased from Rs 800 to Rs 1,600 per month.

-          For the benefit of senior citizens, service tax exemption will be provided on Varishta Bima Yojana.

d.    Employee Benefit

1.      The employees may opt for either

Employees Provident Fund (EPF)
New Pension Scheme (NPS).

2.     Employees below a certain threshold of monthly income: contribution to EPF should be optional, without affecting or reducing the employer’s contribution.

3.     With respect to ESI, the employee should have the option of choosing either ESI or a Health Insurance product, recognized by the Insurance Regulatory Development Authority (IRDA).

e.    Foreign Investment

The Foreign portfolio investments and foreign direct investments is proposed to be replaced with composite caps.  

Note: The sectors which are already on a 100% automatic route would not be affected.

f.    Quoting of PAN for purchase or sale exceeding the value of Rs. 1 Lakh

The Finance Bill includes a proposal to amend the Income-tax Act to prohibit acceptance or payment of an advance of Rs 20,000 or more in cash for purchase of immovable property.  Quoting of PAN is being made mandatory for any purchase or sale exceeding the value of Rs 1 lakh.  To improve enforcement, CBDT and CBEC will leverage technology and have access to information in each other’s database.

Comment: will all the customers have a PAN. Does that mean the company cannot carry on the transaction with such customers who do not have a PAN? If yes, would’int it affect the business of a company?

g.    GAAR

The applicability of General Anti Avoidance Rule (GAAR) has been deferred by two years.   Further, it has also been decided that when implemented, GAAR would apply prospectively to investments made on or after 01.04.2017.

h.    Income tax on royalty and fees for technical services

Reduction on rate of income tax on royalty and fees for technical services from 25% to 10%.

i.     Reduction in customs duty

The customs duty on certain inputs, raw materials, intermediates and components (in all 22 items) is proposed to be reduced. 

j.   Abolition of wealth tax and imposition of 2% additional surcharge on certain class of rich people

The existing wealth tax is proposed to be abolished and replaced with an additional surcharge of 2% on the super-rich people.

k.   Domestic transfer pricing limits increased

Increase in threshold limit from Rs 5 crore to Rs 20 crore.

l.    Central Excise Duty hiked

The general rate of Central Excise Duty of 12.36% including the cess is being rounded off to 12.5%. 

m.  Domestic leather footwear

To give a boost to domestic leather footwear industry, the excise duty on footwear with leather uppers and having retail price of more than Rs 1000 per pair is being reduced to 6%.

n.   Central Excise and Service Tax registration

-          Online central excise and service tax registration will be done in two working days. 
-          The assessees under these taxes will be allowed to issue digitally signed invoices and maintain electronic records. 
-          Time limit for taking CENVAT credit on inputs and input services is being increased from six months to one year.

o.   GST

-          Increase in the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%.

-          Introduction of place of effective management concept.

-          GST will be put in place by 1st April, 2016. 

p.   100 % deduction Swachh Bharat Abhiyan (Not covered under CSR)

100% deduction for contributions for non-CSR contributions, to the Swachh Bharat KoshWill be  made available.

q.   NBFC

NBFCs registered with RBI and having asset size of Rs 500 crore and above will be considered for notifications as ‘Financial Institution’ in terms of the SARFAESI Act, 2002.

r.   Stand alone proposals relating to taxation

-          Service tax exemption has been extended to certain pre cold storage services in relation to fruits and vegetables so as to incentivize value addition in this crucial sector. 

-          An additional investment allowance (@15%) and additional depreciation (@15%) to new manufacturing units set-up during the period 01.04.2015 to 31.03.2020 in notified areas of Andhra Pradesh and Telangana.

s.   Yoga included in the ambit of Charitable purpose under Sec 2 (15) of IT Act

Yoga is now considered to be within the ambit of charitable purpose under Section 2(15) of the Income-tax Act.  Further, the ceiling on receipts from activities in the nature of trade, commerce or business is being extended to 20% of the total receipts from the existing ceiling of Rs 25 lakh. 


i.    Gold Monetization Scheme

In order to monetize gold lying idle in various forms,  the Gold Monetization Scheme has been introduced.

Features of the scheme:

(i) This scheme would allow the depositors of gold to earn interest in their metal accounts and the jewelers to obtain loans in their metal account.  Banks/other dealers would also be able to monetize this gold.

(ii) Also develop an alternate financial asset, a Sovereign Gold Bond, as an alternative to purchasing metal gold.  The Bonds will carry a fixed rate of interest, and also be redeemable in cash in terms of the face value of the gold, at the time of redemption by the holder of the Bond.

(iii)  Developing an Indian Gold Coin, to reduce the demand for coins minted outside India and also help to recycle the gold available in the country.

Comments: Will the consumers be willing to park the gold in the metal accounts. Over a period of time what would happen to the gold that which they park?

ii.      Curbing Black Money

Concealment of income and assets and evasion of tax in relation to foreign assets will be prosecutable with punishment of rigorous imprisonment upto 10 years.  Further,

· this offence will be made non-compoundable;

·  the offenders will not be permitted to approach the Settlement Commission; and

· penalty for such concealment of income and assets shall be levied at 300% .

(2) Non filing of return or filing of return with inadequate disclosure of foreign assets will be liable for prosecution with punishment of rigorous imprisonment up to 7 years.

(3) Income in relation to any undisclosed foreign asset or undisclosed income from any foreign asset will be taxable at the maximum marginal rate.  Exemptions or deductions which may otherwise be applicable in such cases, shall not be allowed.

(4) Beneficial owner or beneficiary of foreign assets will be mandatorily required to file return, even if there is no taxable income.

(5) Abettors of the above offences will be liable for prosecution and penalty.

(6) Date of Opening of foreign account would be mandatorily required to be specified by the assessee in the return of income.

(7) The offence of concealment of income or evasion of tax in relation to a foreign asset will be made a predicate offence under the Prevention of Money-laundering Act, 2002 (PMLA). This provision would enable the enforcement agencies to attach and confiscate unaccounted assets held abroad and launch prosecution against persons indulging in laundering of black money.

(8) The definition of ‘proceeds of crime’ under PMLA is being amended to enable attachment and confiscation of equivalent asset in India where the asset located abroad cannot be forfeited.

(9) The Foreign Exchange Management Act, 1999 (FEMA) is also being amended to the effect that if any foreign exchange, foreign security or any immovable property situated outside India is held in contravention of the provisions of this Act, then action may be taken for seizure and eventual confiscation of assets of equivalent value situated in India.  These contraventions are also being made liable for levy of penalty and prosecution with punishment of imprisonment up to five years.

iii.     Benami Transactions (Prohibition) Bill

A new and more comprehensive Benami Transactions (Prohibition) Bill will be introduced in the current session of the Parliament which will enable confiscation of benami property and provide for prosecution especially in real estate.

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