BUDGET 2017-18

FEBRUARY 2, 2017

MACRO-ECONOMIC INDICATORS (1/2)

Budget 2017 I Page 2

• GDP growth rate

• 2015-16: provisional 7.6%

• 2016-17: estimated 7.1% (April-Nov)

• 2017-18: projected 6.75% to 7.5%

• Fiscal deficit

• 2016-17: revised estimate 3.5%

• 2017-18: estimated 3.2%

• 2018-19 & 2019-20: targeted at 3.0%

7.2 7.6 7.1

0

2

4

6

8

2014-15 2015-16 2016-17

3.5

3.23 3

2.5

3

3.5

4

2016-17 2017-18 2018-19 2019-20

MACRO-ECONOMIC INDICATORS (2/2)

Budget 2017 I Page 3

• Revenue deficit

• 2016-17: revised estimate at 2.1%

• 2017-18: estimated at 1.9%

• 2018-19 & 2019-20 : targeted at 1.6% & 1.4%

• Inflation (WPI)

• 2015-16: revised estimate at (-) 2.5%

• 2016-17: estimated at 2.9% (Apr-Dec)

2.1 1.91.6 1.4

0

1

2

3

2016-17 2017-18 2018-19 2019-20

2

-2.5

2.9

-4

-2

0

2

4

2014-15 2015-16 2016-17

FDI & OTHER REGULATORY ANNOUNCEMENTS

(1/3)

Budget 2017 I Page 4

FDI related announcements

• FDI policy to be liberalized further

• Phasing out of FIPB in 2017-18 – Roadmap to be announced

Other regulatory announcements

• Proposal to create an integrated public sector oil major to match performance of international and domestic private sector oil and gas companies

• Proposal to extend use of Oil Industry Development Fund for meeting expenditure a) incurred by CPSU in Oil & Gas sector on behalf of CG; and b) on any scheme by the CG relating to Oil & Gas sector

FDI & OTHER REGULATORY ANNOUNCEMENTS

(2/3)

Budget 2017 I Page 5

• Revised mechanism to ensure time bound listing of identified CPSEs on stock exchanges to be put in place to foster greater public accountability

• Legal framework for dispute resolution in infrastructure related construction contracts, PPP and public utility contracts to be introduced in Arbitration and Conciliation Act, 1996

• Listing and trading of security receipts by a securitization company or reconstruction company under the SARFAESI Act to be permitted in SEBI registered stock exchanges

FDI & OTHER REGULATORY ANNOUNCEMENTS

(3/3)

Budget 2017 I Page 6

• Proposal to categorize high worth systemically important NBFCs regulated by RBI as Qualified Institutional Buyers (QIBs)

• Amendment in RBI Act, 1934 proposed to enable issuance of electoral bonds

DIRECT TAX PROPOSALS (1/13)

Budget 2017 I Page 7

• Lower tax rate introduced for domestic companies

• No change in tax rate for foreign companies

Particulars Existing tax

rate

Proposed tax

rate

Total turnover or gross receipt in FY 2014-15 does

not exceed INR 50 mn29% -

Total turnover or gross receipt in FY 2015-16 does

not exceed INR 500 mn- 25%

Manufacturing companies incorporated on or after

March 1, 2016 (if exemptions are not claimed)25% 25%

Others 30% 30%

Tax rates – Corporates*

*No change in surcharge and education cess

DIRECT TAX PROPOSALS (2/13)

Budget 2017 I Page 8

Capital Gains tax

• Indirect transfer provisions not applicable for investments held by non-resident, directly or indirectly, in FII registered as Category-I or Category II FPI

• Retroactive applicability from AY 2012-13

• Clarification on non applicability for redemption of shares outside India awaited

• Conversion of preference shares to equity shares to be tax neutral

• Period of holding of equity shares to include holding period of preference shares

• Cost of acquisition of equity shares deemed to be cost of preference shares

• Amendment is prospective. This may raise concerns on past transactions

• Concessional tax rate of 10% on LTCG on transfer of shares of private limited company by non-resident available retrospectively from AY 2013-14 onwards

DIRECT TAX PROPOSALS (3/13)

Budget 2017 I Page 9

Capital Gains tax

• FMV deemed to be sale consideration if transfer of unquoted shares for less than FMV

• Change in base year from April 1, 1981 to April 1, 2001. For assets acquired prior to April 1, 2001 either cost or fair value on April 1, 2001, whichever is higher will be treated as cost of acquisition

• Exemption for sale of long term shares on stock exchange restricted to shares acquired after October 1, 2004, on which STT, as applicable, has been paid at the time of purchase

• In case of tax neutral foreign demerger, cost of acquisition of Indian company’s share for resulting company to be same as for demerged company

DIRECT TAX PROPOSALS (4/13)

Budget 2017 I Page 10

Non-residents

• Scope of Equalisation levy not expanded

• Tax treaty amendments carried out recently, ahead of GAAR implementation

• Beneficial 5% tax rate on interest payable on rupee denominated bonds issued to FPIs / QFIs and on ECBs / foreign currency bonds extended till June 30, 2020

• Masala bonds:

• Beneficial tax rate of 5% extended to Masala Bonds till June 30, 2020; Retroactive applicability from FY 2015-16

• No capital gain implication on transfer by non-resident to non-resident

• Sale consideration not to include appreciation of rupee against foreign currency in case of rupee-denominated bonds acquired by means of transfer

DIRECT TAX PROPOSALS (5/13)

Budget 2017 I Page 11

Non-residents

• Offshore Investment Funds wound-up not required to fulfil the condition for monthly average corpus of fund for purpose of safe-harbour

• Retroactive applicability from FY 2015-16

• Clarification provided for meaning of terms used in tax treaty

• Term defined in treaty to mean as defined therein;

• Terms not defined in the treaty to be interpreted based on definition in the ITA and explanation issued in this regard

DIRECT TAX PROPOSALS (6/13)

Budget 2017 I Page 12

Transfer Pricing

Cap introduced for interest deduction (section 94B)

• Implementation of BEPS Action 4 – Limiting Base Erosion involving Interest Deductions and others

• Where, Indian Company or a Permanent establishment (PE) of Foreign Company borrows money from a non-resident AE and makes interest payments exceeding INR 10 mn

• To also cover cases of interest paid on borrowing guaranteed by AE

• Interest deduction - Limited to 30% of EBITDA

• Excess interest disallowed permitted to be carried forward for 8 years. Set-off restricted to overall ceiling of 30% of EBITDA

• Not applicable to companies engaged in business of banking or insurance

DIRECT TAX PROPOSALS (7/13)

Budget 2017 I Page 13

Transfer Pricing

Secondary adjustments introduced (section 92CE)

• Applicable where primary adjustment has been made to the transfer price: Suo-motu by Assessee, by AO and accepted by Assessee, pursuant to APAs, pursuant to Safe Harbour rules, arising out of MAP or agreement under section 90 / 90A

• As a consequence of primary adjustment, if the adjustment amount is not repatriated to India within prescribed period – to be deemed as advance to AE and interest to be imputed on the same (computation mechanism to be prescribed)

• Secondary adjustment to be applied only where primary adjustment > INR 10 mn

DIRECT TAX PROPOSALS (8/13)

Budget 2017 I Page 14

Transfer Pricing

Specified Domestic Transactions (SDT) – List of transactions curtailed

• Effectively, domestic TP applicable only to units enjoying profit-linked deductions / incentives

• Tax neutral SDT transactions (without tax holiday) now excluded

DIRECT TAX PROPOSALS (9/13)

Budget 2017 I Page 15

Measures to boost Real Estate

• Capital gains for land owner entering into a joint development agreements (JDA) deferred to year in which project is completed

• Stamp duty value of project share + monetary payment treated as sale consideration

• If interest transferred prior to completion – normal capital gains tax provisions apply

• TDS of 10% on monetary consideration under JDA

• Period of holding of immovable property to qualify as long-term asset reduced to 24 months

• Tax on deemed rent on property held by builders / developers now applicable after the property has been held for more than 1 year

DIRECT TAX PROPOSALS (10/13)

Budget 2017 I Page 16

Other proposals

• Income of foreign companies from sale of leftover stock of crude oil from a facility in India exempt from tax; conditions to be notified

• MAT and AMT credit can now be carried forward for 15 years (up from 10 years)

• MAT provisions aligned with IND AS and Companies Act, 2013

• Carbon credits to be taxed at 10 percent

• Gift tax provisions expanded to cover wider class of assets received by any person

DIRECT TAX PROPOSALS (11/13)

Budget 2017 I Page 17

Other proposals

• Relaxation for startups

• Profit linked deductions can be for 3 out of 7 years (instead of 5 years)

• Losses do not lapse if initial shareholders continue to hold their shares

• Dividend income in excess of INR 1 mn taxable in the hands of the shareholders, except for domestic company and notified entities; this is in addition to DDT

DIRECT TAX PROPOSALS (12/13)

Budget 2017 I Page 18

Tax returns, assessments etc - Timelines

Particulars Existing timelines Proposed timelines

Filing of revised return Within 12 months from the end of assessment year (AY) / completion of assessment, whichever earlier

End of AY / completion of assessment, whichever is earlier

Completion of assessment proceedings 21 months from the end of therelevant AY

Orders pertaining to • AY 2018-19, within 18 months• AY 2019-20 onwards, within

12 months

Issuance of reassessment order or fresh assessment order pursuant to Tribunal / CIT’s order

9 months 12 months

Time limit for order giving effect to appellate authorities' order

3 months 3months; If further submissions sought, 12 months

Fee prescribed on filing of return of income post due date

DIRECT TAX PROPOSALS (13/13)

Budget 2017 I Page 19

Measures to curb black money

• Contributions to political parties

• Cash contributions restricted to INR 0.002 mn

• Electoral bonds introduced as a measure to safeguard identity of the donor while ensuring electronic / bank mode donations

• Cash expenses exceeding INR 0.01 mn not permitted as a deductions or cost of acquisition for capital assets

• To promote digital payments, lower rate of tax of 6 percent prescribed for presumptive taxation if revenue received by cheque or digital mode

• Restriction on cash transactions in excess of INR 0.3 mn

- If received in cash, penalty equal to amount received in cash

INDIRECT TAX PROPOSALS (1/4)

Budget 2017 I Page 20

Goods and services tax

• Finance Minister gave account of substantial progress vis-à-vis GST implementation:

• Setting up of GST council and 9 progressive meetings thereafter

• Consensus based decision making by the Council

• IT preparedness on track

• Awareness programs planned wef April 1, 2017

• No categorical re-affirmation of July 1, 2017 start date

• Proposed repeal of Research and Development Cess Act, 1986, wef April 1, 2017

INDIRECT TAX PROPOSALS (2/4)

Budget 2017 I Page 21

Service tax – key changes

• Exemption on long term lease by State Corporations to industrial units

• Coverage period – June 1, 2007 through September 21, 2016

• Provision for refunds

• Applicability of general provisions including unjust enrichment to be examined

• Valuation for real estate transactions (wef June 1, 2010)

• Value of land or undivided share of land to be excluded

• Value to be determined at abated rate (prevalent in relevant period) where value of land is unascertainable

INDIRECT TAX PROPOSALS (3/4)

Budget 2017 I Page 22

Customs duty – key changes

• Concept of ‘Beneficial owner’ inserted (person on whose behalf goods are being imported or exported or who exercises effective control over such goods)

• Position vis-à-vis obligations and entitlements of importer / exporter needs to be evaluated

• Unjust enrichment conditions not to apply in certain cases of excess customs duty paid prior to clearance for home consumption

• Timelines for filing bill of entry and payment of duty revisited - Penal provision for delay beyond revised timelines

• Disposal of goods imported for eligible oil and gas operations to be on payment of customs duty on depreciated value

INDIRECT TAX PROPOSALS (4/4)

Budget 2017 I Page 23

Miscellaneous

• No change in peak rate of customs duty & median rate of excise duty / service tax

• Change of customs and excise duty rates – push to flagship schemes, enabling equipmentsfor digital payments and correction of inverted duty structures in certain cases

• Basic customs duty on LNG imports reduced from 5% to 2.5%

• Authority for Advance Rulings (AAR) for customs / excise / service tax combined with that under ITA

• Period for pronouncing ruling extended from 90 days to 6 months

• Scope of eligibility for Chairman of the AAR extended to cover Former Chief Justice of a High Court, or a High Court Judge who has served for at least 7 years

• Settlement commission provisions extended to Co-noticee(s)

KEY TAKEAWAYS

Budget 2017 I Page 24

• Balanced budget to promote socio-economic growth

• Tax proposals focused to clear our ambiguities and interpretation concerns

• Impetus to Government’s flagship programs

• Government committed to fiscal consolidation

• Convergence with BEPS Action Plans