Union Budget 2015-16 · 2018-09-02 · without affecting employees contribution. • NBFCs...

© Confederation of Indian Industry 3

Union Budget 2015-16

An analysis

28 February, 2015


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Contents

Chapter Title Page No.

Foreword

1 Key Features of the Union Budget 2015-16 1-7

2 Key Budget Trends 11-17

3 Analysis of the Budgetary Proposals 21-32

4 Fiscal Trends 35-40

5 Direct Taxes 43-63

6 Indirect Taxes Sector & Industry Specific Analysis 67-98

7 Annexure-Key Indicators: Economic Survey 2013-14 101



FOREWORD

A comprehensive and reform-oriented Budget

Consolidating on the economic recovery that is now apparent across sectors, the Union Budget 2015-16

took several measures to build a more competitive economy. It outlines a comprehensive vision for

citizens with strong focus on growth, investment, job creation and social security. A forward-looking, counter-cyclical, and pragmatic document, the Budget reassures investors and builds consumer

confidence. CII is encouraged by the GDP growth target of 8-8.5 per cent for 2015-16, and fiscal

consolidation at 3.9 per cent of GDP. The Budget would strengthen the investment cycle and build the savings pipeline while also channelising funds into much-needed infrastructure.

The Finance Minister has placed strong emphasis on public sector role to enhance capital investments through a slew of measures, including extending fiscal deficit targets for a year, adding resources from

public sector enterprises and creation of a National Investment and Infrastructure Fund. CII had

recommended tweaking of Real Estate Investment Trusts and Infrastructure Investment Trusts, revamping

of Public Private Partnership modalities, and placing large projects for bidding after obtaining all

clearances. These are mentioned in the Budget and would help 'crowd in' private sector investments along

with high priority accorded to ease of doing business.

Implementation of a comprehensive GST by April 2016 would be a significant reform in the country’s

indirect tax structure and could boost GDP growth by up to 2 percentage points. The Finance Minister has

suggested that the direct tax rate would be lowered from 30 per cent to 25 per cent over the next four

years while tax exemptions are removed. This would bring Indian tax rates in line with those in other Asian

countries, making it investment in India an attractive proposition. Currently, the effective tax rate is as

low as 23 per cent, given the large number of exemptions, which also leave scope for litigation. CII welcomes Budget 2015-16 and expects it to usher in an era of greater tax certainty.

Chandrajit Banerjee

Director General

Confederation of Indian Industry



Chapter 1

Key Features of the

Union Budget 2015-16


1

Chapter 1

Key Features of the Union Budget 2015-16 • Government has identified five major challenges to our economy namely agricultural income under

stress, increasing investment in infrastructure, decline in manufacturing, resource crunch in view of higher devolution in taxes to states and maintaining fiscal discipline.

• According to the Union Budget, meeting these challenges would require the stepping up of the

public spending to catalyze investment, promotion of ‘ Make in India’ programme to create jobs in manufacturing along with continued support to programmes with important national priorities such

as agriculture, education, health, MGNREGA and rural infrastructure including roads.

Fiscal Road Map

• Government remains committed to fiscal consolidation; fiscal discipline to continue

• Roadmap to achieve fiscal deficit of 3% of GDP in 3 years drawn up; with 3.9% in 2015-16, 3.5% in

2016-17, 3% in 2017-18.

• Disinvestment targets raised to Rs 69,500 crore through disinvestment in public sector undertakings

(PSUs) and strategic sale of equities

• Disinvestment to include both disinvestment in loss making units and some strategic companies.

• Government committed to the process of rationalizing subsidies. Direct Transfer of Benefits to be

extended further with a view to increase the number of beneficiaries from Rs.1 crore to Rs.10.3

crore.

Agriculture

• More steps to address the two major factors critical to agricultural production namely soil and water

proposed to improve soil health, Agriculture Ministry’s organic farming scheme – ‘Paramparagat

Krishi Vikas Yojana’ to be fully supported; Rs 5,300 crore allocated to support micro-irrigation, watershed development and the Pradhan Mantri Krishi Sinchai Yojana. States urged to chip in

substantially in this vital sector.

• Focus on improving the quality and effectiveness of activities under MGNREGA. Rs 34,699 crore

allocated for this purpose.

• To support the agriculture sector with the help of effective agriculture credit and focus on small and marginal farmers, the Finance Minister proposes to allocate Rs 25,000 crore in 2015-16 to the corpus

of Rural Infrastructure Development Fund (RIDF) set up in NABARD; Rs15,000 crore for Long Term

Rural Credit Fund; Rs45,000 crore for Short Term Co-operative Rural Credit Refinance Fund; and Rs15,000 crore for Short Term RRB Refinance Fund.

• Target of agricultural credit during the year 2015-16 set at Rs 8.5 lakh crore.

2

• Need to create a National Agriculture Market for the benefit of farmers, which will also have the

incidental benefit of moderating price rises. Government to work with the States, in NITI, for the

creation of a Unified National Agriculture Market.

Funding the unfunded

• To create a Micro Units Development Refinance Agency (MUDRA) Bank, with a corpus of Rs. 20,000

crore and credit guarantee corpus of 3,000 crore, which will refinance Micro-Finance Institutions

through the Pradhan Mantri Mudra Yojana.

• A Trade Receivables discounting System (TReDS) which will be an electronic platform for facilitating

financing of trade receivables of MSMEs, to be established.

• In lending, SC/ST enterprises to get priority.

• Postal network with 1,54,000 points of presence spread across villages to be used for increasing

access of the people to the formal financial system.

• From Jan Dhan to Jan Suraksha

• Government to work towards creating a functional social security system for all Indians, especially

the poor and the under-privileged.

• Government proposes to launch the following: Pradhan Mantri Suraksha Bima Yojna which would

cover accidental death risk of Rs 2 lakh for a premium of just Rs12 per year, Atal Pension Yojana, to

provide a defined pension. Government to contribute 50% of the beneficiaries’ premium limited to Rs1,000 each year, for five years, in the new accounts opened before 31st December 2015 and a

new scheme for providing Physical Aids and Assisted Living Devices for senior citizens, living below the poverty line.

• Pradhan Mantri Jeevan Jyoti Bima Yojana to cover both natural and accidental death risk of Rs 2 lakh

at premium of Rs 330 per year for the age group of 18-50.

• Unclaimed deposits of about Rs 3,000 crores in the PPF, and approximately Rs6,000 crores in the

EPF corpus. to be appropriated to a corpus, to be used to subsidize the premiums on these social

security schemes through creation of a Senior Citizen Welfare Fund in the Finance Bill.

Infrastructure

• Sharp increase in outlays of roads and railways. Capital expenditure on public sector units raised.

• National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of

Rs20,000 crores.

• Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors to be permitted.

• PPP mode of infrastructure development to be revisited and revitalized.

• Atal Innovation Mission (AIM) to be established in NITI to promote innovation.

3

• Promotion Platform involving academicians, and drawing upon national and international

experiences, to foster a culture of innovation, research and development. A sum of Rs150 crore will

be earmarked for the purpose.

• (SETU) Self-Employment and Talent Utilization) to be established as Techno-financial, incubation and facilitation programme to support all aspects of start-up business. Rs 1000 crore to be set aside

as initial amount in NITI.

• Ports in the public sector will be encouraged to corporatize and become companies under the Companies Act to attract investment and leverage the huge land resources.

• 5 new Ultra Mega Power Projects, each of 4000 MW, to be set up in the Plug-and-Play mode.

Financial Market

• Public Debt Management Agency (PDMA), bringing both external and domestic borrowings under

one roof, to be set up this year.

• Enabling legislation, amending the Government Securities Act and the RBI Act included in the

Finance Bill, 2015.

• Forward Markets commission to be merged with SEBI.

• Section-6 of FEMA to be amended through Finance Bill to provide control on capital flows as equity

will be exercised by Government in consultation with RBI.

• Proposal to create a Task Force to establish sector-neutral financial redressal agency that will address the grievance against all financial service providers.

• India Financial Code to be introduced soon in Parliament for consideration.

• Government to bring enabling legislation to allow employees to opt for EPF or New Pension Scheme.

For employee’s below a certain threshold of monthly income, contribution to EPF to be an option,

without affecting employees’ contribution.

• NBFCs registered with RBI and having an asset size of Rs 500 crore and above may be considered for

notification as ‘Financial Institution’ in terms of the SARFAESI Act, 2002.

• Government proposes to introduce measures that will incentivize credit or debit card transactions, and dis-incentivise cash transactions.

• An autonomous Bank Board Bureau to be set up to improve the governance of public sector bank

Investment

• Foreign investments in Alternate Investment Funds to be allowed.

• Distinction between different types of foreign investments, especially between foreign portfolio

investments and foreign direct investments to be done away with.

• A project development company to facilitate setting up manufacturing hubs in CMLV countries,

namely, Cambodia, Myanmar, Laos and Vietnam.

• Target of renewable energy capacity revised to 175000 MW till 2022.

4

• A need for procurement law to contain malfeasance in public procurement. Malfeasance in public

procurement law and an institutional structure consistent with the UNCITRAL model

• Proposal to introduce a public Contracts (resolution of disputes) Bill to streamline the institutional arrangements for resolution of such disputes.

• Proposal to introduce a regulatory reform Bill that will bring about a cogency of approach across

various sectors of infrastructure.

Monetising Gold

• Gold monetisation scheme, which would allow depositors of gold to earn interest on their metal

accounts and the jewellers to obtain loans in their metal account, to be introduced.

• Sovereign Gold Bond, as an alternative to purchasing metal gold scheme, to be developed.

• Work to commence on developing an Indian gold coin, which will carry the Ashok Chakra on its face.

Ease of Doing Business

• An expert committee to examine the possibility of preparing a draft legislation where the need for

multiple prior permission can be replaced by a pre-existing regulatory mechanism. This will facilitate

India’s quest to emerge as an attractive investment destination.

• To address the concerns of IT industries for a more liberal system of raising global capital, incubation

facilities in our Centres of Excellence, funding for seed capital and growth, and ease of Doing

Business etc. would be addressed for creating hundreds of billion dollars in value.

• Comprehensive Bankruptcy Code of global standards to be brought in current fiscal.

Skill India

• A national skill mission to consolidate skill initiatives spread across several ministries to be launched.

The Mission will consolidate skill initiatives spread across several Ministries and allow us to

standardize procedures and outcomes across our 31 Sector Skill Councils.

• Deen Dayal Upadhyay Gramin Kaushal Yojana with a corpus of Rs 1,500 crore to enhance the

employability of rural youth launched.

• A student Financial Aid Authority to administer and monitor the front-end of all scholarship as well

Educational Loan Schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram.

• An IIT to be set up in Karnataka and Indian School of Mines, Dhanbad to be upgraded into a full-fledged IIT.

• New All India Institute of Medical Science (AIIMS) to be set up in J&K, Punjab, Tamil Nadu, Himachal

Pradesh and Assam. Another AIIMS like institution to be set up in Bihar.

• A post graduate institute of Horticulture Research & Education is to be set up in Amritsar. Three new

National Institute of Pharmaceuticals Education and Research to be set up in Maharashtra, Rajasthan & Chattisgarh and one institute of Science and Education Research is to be set up in Nagaland &

Orissa each.

5

• The National Optical Fibre Network Programme (NOFNP) to be further speeded up by allowing

willing states to execute on reimbursement of cost basis.

Tourism

• Resources to be provided to start work on landscape restoration, signage and interpretation centres,

parking, access for the differently abled , visitors’ amenities, including securities and toilets,

illumination and plans for benefiting communities around them at various heritage sites.

• Visa on arrival to be increased to 150 countries in stages.

Direct Taxes

• Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors.

• Vision of putting in place a direct tax regime, which is internationally competitive on rates, without

exemptions.

• Government to bring enabling legislation to allow employee to opt for EPF or New Pension Scheme. For employee’s below a certain threshold of monthly income, contribution to EPF to be option,

without affecting employees’ contribution.

• Objective of stable taxation policy and a non-adversarial tax administration.

• Fight against the scourge of black money to be taken forward.

• No change in rate of personal income tax.

• Proposal to reduce corporate tax from 30% to 25% over the next four years, starting from next

financial year.

• Abolition of the wealth tax and replacement with additional surcharge of 2% on the super-rich with a taxable income of over Rs 1 crore.

• Surcharge @12% as against current rate of 10%.

• Rationalisation and removal of various tax exemptions and incentives to reduce tax disputes and

improve administration.

• Exemption to individual tax payers to continue to facilitate savings.

• Evasion of tax in relation to foreign assets to have a punishment of rigorous imprisonment upto 10

years, be non-compoundable, have a penalty rate of 300% and the offender will not be permitted to

approach the Settlement Commission.

• Non-filing of return/filing of return with inadequate disclosures to have a punishment of rigorous

imprisonment upto 7 years.

• Undisclosed income from any foreign assets to be taxable at the maximum marginal rate.

• Mandatory filing of return in respect of foreign asset.

• PAN being made mandatory for any purchase or sale exceeding Rupees 1 lakh.

• Leverage of technology by CBDT and CBEC to access information from either’s data bases.

• Tax “pass through” to be allowed to both category I and category II alternative investment funds.

• Rationalisation of capital gains regime for the sponsors exiting at the time of listing of the units of REITs and InvITs.

6

• Rental income of REITs from their own assets to have pass through facility.

• Permanent Establishment (PE) norm to be modified to encourage fund managers to relocate to

India.

• General Anti Avoidance Rule (GAAR) to be deferred by two years.

• GAAR to apply to investments made on or after 01.04.2017, when implemented.

• Additional investment allowance (@ 15%) and additional depreciation (@35%) to new manufacturing units set up during the period 01-04-2015 to 31-03-2020 in notified backward areas

of Andhra Pradesh and Telangana.

• Rate of Income-tax on royalty and fees for technical services reduced from 25% to 10% to facilitate

technology inflow.

• Benefit of deduction for employment of new regular workmen to all business entities and eligibility

threshold reduced.

• Balance of 50% of additional depreciation @ 20% for new plant and machinery installed and used

for less than six months by a manufacturing unit or a unit engaged in generation and distribution of power is to be allowed immediately in the next year.

• Simplification of tax procedures.

• Monetary limit for a case to be heard by a single member bench of ITAT increase from Rs.5 lakh to

Rs.15 lakh.

• Provision of indirect transfers in the Income-tax Act suitably cleaned up.

• Applicability of indirect transfer provisions to dividends paid by foreign companies to their

shareholders to be addressed through a clarificatory circular.

• Domestic transfer pricing threshold limit increased from Rs.5 crore to Rs.20 crore.

• MAT rationalised for FIIs and members of an AOP.

• Tax Administration Reform Commission (TARC) recommendations to be appropriately implemented

during the course of the year.

• Donation made to National Fund for Control of Drug Abuse (NFCDA) to be eligible for 100%

deduction u/s 80G of Income-tax Act.

• Seized cash can be adjusted towards assessees tax liability.

• 100% deduction for contributions, other than by way of CSR contribution, to Swachh Bharat Kosh

and Clean Ganga Fund.

• Limit of deduction of health insurance premium increased from Rs.15000 to Rs.25000, for senior

citizens limit increased from Rs.20000 to Rs.30000.

• Senior citizens above the age of 80 years, who are not covered by health insurance, to be allowed

deduction of Rs.30000 towards medical expenditures.

• Deduction limit of Rs.60000 with respect to specified decease of serious nature enhanced to

Rs.80000 in case of senior citizen.

• Additional deduction of Rs.25000 allowed for differently abled persons.

• Limit on deduction on account of contribution to a pension fund and the new pension scheme

increased from Rs.1 lakh to Rs.1.5 lakh.

• Additional deduction of Rs.50000 for contribution to the new pension scheme u/s 80CCD.

7

• Payments to the beneficiaries including interest payment on deposit in Sukanya Samriddhi scheme

to be fully exempt.

• Concession to individual tax-payers despite inadequate fiscal space.

• Yoga to be included within the ambit of charitable purpose under Section 2(15) of the Income-tax

Act.

• To mitigate the problem being faced by many genuine charitable institutions, it is proposed to modify the ceiling on receipts from activities in the nature of trade, commerce or business to 20%

of the total receipts from the existing ceiling of Rs.25 lakhs.

• Most provisions of Direct Taxes Code have already been included in the Income-tax Act, therefore,

no great merit in going ahead with the Direct Taxes Code as it exists today.

Indirect Tax

• Service tax rate plus education cess increased from 12.36% to 14% to facilitate transition to GST

• Increase in basic custom duty:

o Metallurgical coke from 2.5% to 5%.

o Tariff rate on iron and steel and articles of iron and steel increased from 10% to 15% but

there is no change in the effective rate

o Tariff rate on commercial vehicles increased from 10% to 40%. However effective rate has

increased from 10% to 20% on the commercial vehicles imported other than in CKD

condition.

• Basic custom duty on digital still image video camera with certain specification reduced to nil.

• Excise duty on rails for manufacture of railway or tram way track construction material exempted

retrospectively from 17-03-2012 to 02-02-2014, if no CENVAT credit of duty paid on such rails is

availed.

• Service-tax to be levied on service provided by way of access to amusement facility, entertainment

events or concerts, pageants, non recognised sporting events etc.

• Service-tax exemption:

• Services of pre-conditioning, pre-cooling, ripening etc. of fruits and vegetables.

• Life insurance service provided by way of Varishtha Pension Bima Yojana.

• All ambulance services provided to patients.

• Admission to museum, zoo, national park, wild life sanctuary and tiger reserve.

• Transport of goods for export by road from factory to land customs station.

• Enabling provision made to exclude all services provided by the Government or local authority to a

business entity from the negative list.

• Service-tax exemption to construction, erection, commissioning or installation of original works pertaining to an airport or port withdrawn.

• Transportation of agricultural produce to remain exempt from Service-tax.

• Artificial heart exempt from basic custom duty of 5% and CVD.

• Excise duty exemption for captively consumed intermediate compound coming into existence during

the manufacture of agarbathi.

8

9

Chapter 2

Key Budget Trends

10

11

Chapter 2

Key Budget Trends

Fiscal commitment reiterated but timeline to meet 3% target extended by a year

T: Target

Deficits as a percent of GDP continue to decline

2.5

6.06.5

4.95.8

4.94.4 4.1 3.9

3.53.0

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

2016-17(T)

2017-18(T)

3.3

2.5

6.06.5

4.9

5.8

4.94.4

4.1 3.9

-0.2

-0.9

2.63.2

1.7

2.7

1.8

1.10.8 0.7

1.9

1.1

4.5

5.2

3.6

4.5

3.63.1

2.9 2.8

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Fiscal Deficit (as % of GDP) Primary Deficit (as % of GDP) Revenue Deficit (as % of GDP)

12

Centre’s net revenue receipts expected to moderate in 2015-16

Sources of Revenue: contributions of each segment remain unchanged

Tax-GDP ratio to inch-up

43

4,3

87

54

1,8

64

54

0,2

59

57

2,8

11 78

8,4

71

75

1,4

37

87

9,2

32

1,0

14

,72

4

1,1

26

,29

4

1,1

41

,57

5

10.1

10.9

9.6

8.8

10.1

8.58.8

8.9 8.9

8.1

8.0

8.5

9.0

9.5

10.0

10.5

11.0

11.5

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Revenue receipts (Rs. Crore)- LHS Revenue receipts (as % of GDP)- RHS

Corporation Tax21%

Income Tax 13%

Customs9%

Union Excise Duties10%

Service Tax and others 10%

Non Tax Revenue

10%

Non Debt Capital

Reciepts 3%

Borrowings and other liabilities

24%

2014-15 BE

Corporation Tax20%

Income Tax 14%

Customs9%

Union Excise Duties10%

Service Tax and others

9%

Non Tax Revenue

10%

Non Debt Capital

Reciepts 4%

Borrowings and other liabilities

24%

2015-16 BE

11.011.9

10.89.6 10.2 10.1 10.4 10.0 9.9 10.3

1.9 2.1 1.7 1.82.8

1.4 1.4 1.8 1.7 1.6

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Gross Tax revenue (as % of GDP) Non-tax revenue (as % of GDP)

13

Total debt receipts to increase marginally

Debt-servicing to increase sharply

Disinvestment targets moves up

28

4,3

96 41

9,8

69

36

7,1

62 5

31

,98

0

54

1,2

02

52

2,0

29

52

8,2

99

54

3,6

08

2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 (RE) 2015-16 (BE)

Rs.

Cro

re

Total debt receipts Market loans

36.435.6

36.936.5

40.0

2011-12 2012-13 2013-14 2014-15 (RE) 2015-16 (BE)

Total Interest Payments as a % of Revenue Receipts

40

,00

0

40

,00

0

30

,00

0 55

,81

4

63

,42

5

69

,50

0

22

,14

4

13

,89

4

25

,89

0

25

,84

1

31

,35

0

0

2010-11 2011-12 2012-13 2013-14 2014-15 (RE) 2015-16 (BE)

Rs.

Cro

re

Disinvestment Target (Rs Crore) Disinvestment Actual (Rs Crore)

14

Sources of Expenditure: Share of states in tax increases, correspondingly plan assistance shrinks

Expenditure-GDP ratio shrinks

Plan and non-plan exp. (as % of GDP) decline

Interest Payments

20%

Subsidies12%

Defence Services

10%Other Non

Plan Expenditu

re 11%

States Share of Taxes and Duties

18%

Non plan Assistance to states and UT

3%

Central Plan11%

Plan Assistance for State & UT

Plans15%

2014-15 BE

Interest Payments

20%

Subsidies10%

Defence Services

11%

Other Non Plan Expenditure

11%

States Share of

Taxes and Duties 23%

Non plan Assistance to states and UT

5%

Central Plan11%

Plan Assistance for State &

UT Plans9%

2015-16 BE5

83

,38

7

71

2,6

71

88

3,9

56

1,0

24

,48

7

1,1

08

,74

9

1,3

04

,36

5

1,4

10

,37

2

1,5

59

,44

7

1,6

81

,15

8

1,7

77

,47

7

13.6

14.3

15.7 15.8

14.2

14.814.1

13.713.3

12.6

12.0

12.5

13.0

13.5

14.0

14.5

15.0

15.5

16.0

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Total expenditure (Rs. Crore)- LHS Total expenditure (as % of GDP)- RHS

4.0 4.14.9 4.7 4.8 4.7 4.1 4.0 3.7 3.3

9.610.2

10.8 11.1

9.510.1 10.0 9.7 9.6 9.3

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Plan expenditure (as % of GDP) Non-plan expenditure (as % of GDP)

15

Bigger increase in plan capital exp. as % of total exp., as compared to non-plan exp.

Net transfers of resources to states increase significantly

Drastic change in resource allocation to States

5.8 5.6 5.46.06.0

6.56.0

7.6

2012-13 2013-14 2014-15 (RE) 2015-16 (BE)

Total capital non-plan exp (as % of total exp) Total capital plan exp (as % of total exp)

19

8,8

96

25

6,5

79

28

0,6

52

30

1,0

30

37

8,6

87

42

5,6

49

47

0,6

86

51

5,3

01

68

0,4

59

83

9,3

17

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Rs.

Cro

re

Devolution of State share of

Taxes 49%

Non-Plan Grants and Loans 9%

Central Assistance

42%

2014-15 BE

Devolution of State share of

Taxes 63%Non-Plan Grants

and Loans13%

Central Assistance

24%

2015-16 BE

16

Expenditures on defence and interest rise while those on subsidies fall

Subsidies decline at an overall level

2008-09 2009-10 2010-11 2011-12 2012-13 2013-142014-15

(RE)2015-16

(BE)

Non-plan expenditure- RHS 608,721 721,096 735,657 891,990 996,747 1,106,1201,213,2241,312,200

Interest payments- LHS 192,204 213,093 248,664 273,150 313,170 374,254 411,354 456,145

Total subsidies- LHS 123,581 135,508 109,092 217,941 257,079 254,632 266,692 243,811

Defence expenditure- LHS 73,305 90,669 87,344 103,011 111,277 124,374 140,405 152,139

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Rs.

Cro

re

53

,49

5

67

,49

8

12

3,5

81

13

5,5

08

10

9,0

92

21

7,9

41

25

7,0

79

25

4,6

32

26

6,6

92

24

3,8

11

1.2 1.4 2.2 2.1 1.4

2.5 2.6 2.2 2.1 1.7

9.2 9.5

14.013.2

9.8

16.718.2

16.315.9

13.7

0

50,000

100,000

150,000

200,000

250,000

300,000

0

2

4

6

8

10

12

14

16

18

20

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Total subsidies (Rs. Crore) Subsidies as % of GDP Subsidies as % of total expenditure

17

Petroleum subsidies decline substantially, while others maintain status quo

Infrastructure spending to increase by ~20%

2008-09

2009-10

2010-11

2011-12

2012-13

2013-14

2014-15(RE)

2015-16(BE)

Total Subsidies- LHS 129,333 140,500 173,321 217,941 257,079 254,632 266,692 243,811

Food subsidy- RHS 43,751 58,443 63,844 72,822 85,000 92,000 122,676 124,419

Fertilizer subsidy- RHS 76,603 61,264 62,301 70,013 65,613 67,339 70,967 72,969

Petroleum subsidy- RHS 2,852 14,951 38,371 68,484 96,880 85,378 60,270 30,000

Other subsidy (incl interestsubsidy)- RHS

6,127 5,842 8,805 6,622 9,586 9,915 12,779 16,423

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

0

30,000

60,000

90,000

120,000

150,000

180,000

210,000

240,000

270,000R

s. C

rore

2007-08(RE)

2008-09 2009-10 2010-11 2011-12 2012-13 2013-142014-15

(RE)2015-16

(BE)

Total Spending on Infrastructure(A+B)

63,703 80,300 89,380 101,369 108,869 104,497 116,079 115,767 137,333

Cenral Plan Outlay (BudgetSupport) On Infrastructure (A)

42,523 50,299 61,871 72,406 76,384 77,387 88,259 87,841 117,408

Central Assistance to Stats and Utson Infrastructure (B)

21,180 30,001 27,509 28,963 32,485 27,110 27,820 27,925 19,926

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Rs.

Cro

re

18

19

Chapter 3

Analysis of the

Budgetary Proposals

20

21

Chapter 3

Analysis of the Budgetary Proposals

The Union Budget 2015-16 has delineated a new vision for the economy by charting out a bold, reformist

path which would stimulate demand, boost investment, lift growth and generate employment across

sectors. There has been much anticipation in the industry and investor circles that the Budget would build

further on the pro-business steps taken by the government in the recent past. And the big picture reading

from the Budget statement shows that the policy makers are moving in the right direction on delivering on this expectation.

The Finance Minister has rightly identified fiscal discipline as a key focus area in the Budget and a panacea for improving investor sentiment. Our fiscal deficit has been contained at 4.1% of GDP for the current year

and the government has renewed its commitment to bring it down to 3 per cent within the next three

years. While tracking fiscal consolidation, the Budget has not deviated from the path of promoting inclusive growth. Commendable initiatives have been taken in critical sectors such as agriculture, MSMEs,

manufacturing and services for all round development of the economy.

What is being seen as a major mood elevator is that a clear effort has been made to recast the tax system.

The message that comes across is that the FM is committed to remove the regulatory hurdles to

investment and promote a stable, predictable and non-adversarial tax regime. CII particularly welcomes

the proposed reduction of corporate tax rate, deferral of GAAR, clarity on retrospective tax, changes in

transfer pricing norms, reduction on tax on royalty, abolition of wealth tax, among others. The

government has also revamped the tax structure for individuals with the aim to put more money to their pockets. Measures such as higher deduction for health insurance, transport allowance, deduction on

investment in pension funds, schemes on gold would improve financial savings of households. This is a

land mark budget which demonstrates that the government is firmly committed to changing the governance and regulatory infrastructure. In the following sections, CII analyses the major provisions of

the Budget and their implications across sectors.

Agriculture

With a view to provide an impetus to growth in agriculture, the Budget has proposed the following:

A. Soil and Water health Management

Soil Health Management - Support to Agri-Ministries organic farming scheme “Paramparagat

Krishi vikas yojna.

There has been heavy degradation in soil health due to non-judicious use of inputs and this is

impacting the productivity of crops. The support provided for proper soil health management, in the

Budget, through the Paramparagat Krishi Vikas Yojana, will have a positive impact on agriculture

productivity as well as reduce cost of cultivation for farmers by use of right inputs at the right time.

Water Management - Allocation of Rs 5300 crore to micro irrigation;

22

Water shed programs and Pradhan Mantri Gram Sichai yojna to provide more crop per drop. Another

Rs 3000 crore may be added later during the year.

Approximately 41% of cropped area is still un-irrigated. Hence, providing impetus to irrigation through micro irrigation will significantly increase water-use efficiency and productivity which in turn will boost

growth for the micro irrigation industry

B. Agriculture Credit

A target of Rs 8.5 lakh crore to banks set for FY 2015. A corpus of Rs 25,000 crore created for the

Rural Infrastructure development fund set up by NABARD. Simultaneously, Rs 15,000 crore set aside

for long term rural credit fund and Rs 45,000 crore allocated for short term cooperative rural credit

refinance fund

According to NSSO 70th round data, as much as 40% of the finances of farmers still comes from

informal sources. Usurious moneylenders account for a 26% share of total agricultural credit. Increasing the flow of institutional credit to agriculture will improve the credit access for farmers

leading to easier access to quality inputs and technology thus benefitting the industry as well.

C. Agricultural Marketing

Creation of a Unified National Agricultural Market

CII has long been advocating the need for providing farmers the freedom to sell directly to private

buyers beyond market yards. Creation of a National Unified Agricultural Market will provide for the

establishment of private market yards/private markets which will enable farmers to operate through

the market mechanism and in turn will ensure better returns. For the private sector, as intermediaries

will be reduced, cost to the consumers will go down, thereby benefitting the end users as well.

D. Food Processing

Service Tax exemption extended to certain pre cold storage services in relation to fruits and

vegetables

This will substantially incentivize value addition and would result in reduction of post-harvest losses

from which the industry has been suffering.

Under section 80JJAA of the Income-tax Act, the eligibility threshold of minimum 100 workmen is

proposed is to be reduced to 50.

Food Processing Units employing more than 100 people are eligible for additional 30% deduction as per this section. Owing to the seasonal nature of the food processing units, as the main raw materials

fruits and vegetables are generally available for 3-4 months only and a large workforce cannot be

employed, this step will encourage smaller units also to avail of this deduction.

Investment, Infrastructure and Industry

A. Infrastructure

With a view to incentivize investment in infrastructure, the Budget has proposed a number of

welcome measures which would kick-start investment in infrastructure. Some measures announced

for the infrastructure sector are as under:

Total Investment in Infrastructure to be raised to INR 1.25 Lakh Crores, out of which INR 70,000

Crore is proposed in this Budget

23

Infrastructure Sector has significant economic multiplier and hence this announcement is a boost for

the entire economy. Higher public sector investment would enable greater crowding – in of private

investment.

INR 25,000 Crores to be invested in Rural Infrastructure Development Fund (RIDF) under NABARD.

A very welcome initiative and provide fillip to the continuation with the PURA (Providing Urban

Amenities in Rural Areas) Scheme

INR 14031 Crores to be invested in Roads Sector to sanction 1 Lakh Kilometers, in addition to the

existing 1 Lakh Kilometers.

A significant announcement if we are to achieve the ambitious target of 30 KM construction of Roads

& Highway per day.

Inflow of annual INR 20,000 Crores in National Infrastructure & Investment Fund. Besides, tax – free

infrastructure bonds including Roads Sector have also been announced.

This would be a very positive move as it would enable such entity to raise debt, which, in turn could

be reinvested as equity and thereby provide the much – required liquidity.

PPP Model to be revitalized and realigned with the Sovereign bearing major portion of risk.

This is indeed a welcome initiative as Industry has always felt that there needs to a balanced risk

allocation mechanism and Government has to take responsibility for projects stuck across sectors in various stages due to impending sovereign clearances.

Major Ports to be incentivized to be corporatized and converted in to companies

This was a long pending Industry demand and can help make the public Sector Ports more competitive,

thereby promoting transparency & accountability. Besides, it would also help leverage the huge

amount of unutilized land asset with public sector ports.

Investment of INR 22407 Crores in Housing & Urban Development

This move would go a long way in promoting affordable housing, especially to achieve the stated goal

of ‘Housing for All’ by 2022.

Investment of INR 1200 Crores to Dholera SIR and Shendra-Bidkin Corridor in DMIC to set up basic

infrastructure

This is one of the much awaited Industrial Corridor and this initial move would stimulate greater private investment.

Rental income from Real Estate Investment Trusts (REITs) would be eligible for pass – through

facility

REITs was announced last year and this incentive would help in making this instrument more popular

and stimulate greater private investment.

Pre-existing Regulatory Mechanism and Policies instead of numerous permissions

This Plug and Play mechanism would go a long way in providing a strong impetus to execution of

Infrastructure Projects in the country

Proposal to introduce a Regulatory Reform Law that will bring about a cogency of approach across

various sectors of infrastructure to tackle the lack of common approach and philosophy in the

regulatory arrangements prevailing with different sectors.

24

This announcement would serve as an important milestone in streamlining the regulatory framework

in the infrastructure sector of the economy, provide greater transparency and hence attract more

private investment (including foreign) for the Sector. It has been one of the most eagerly awaited announcement by the Industry.

B. Energy

The Government proposes to set up five ultra megapower projects (UMPPs) of 4000 MW each in

the plug and play mode with all clearances and linkages in place before the projects are awarded.

This will unlock investments of Rs 1 lakh crore

This will clearly benefit the industry as UMPPS are an established model. However, implementation

had been hobbled by a host of problems, ranging from fuel supplies and land acquisition to tariff

issues.

The plug and play solution will address these issues and boost private sector investments

The second unit of the Kudankulam nuclear power station (1000 MW capacity) will be

commissioned in the year 2015-16

This is a positive development as more power will be available to industries in states including Tamil

Nadu, Pondicherry and Andhra Pradesh. In addition, this reiterates India’s commitment to developing

nuclear power stations and will send out the right signals to companies like GE, Hitachi, Toshiba, etc. which supply nuclear power stations.

The Government is targeting the electrification of 20,000 villages by 2022

This will provide investment opportunities to the industry in the areas of strengthening the

transmission and distribution system and developing innovative decentralized energy solutions.

New and Renewable Energy

The Ministry has set a target of putting in place 175,000 MW of renewable energy (100,000 MW of

solar, 60,000 MW of wind, 10,000 MW of biomass and 5000 MWs of Small hydropower) by 2022.

The Government is committed to making development processes as green as possible given the

growing environmental concerns

Electrification of the remaining 20,000 villages including off-grid solar power by 2020

This will give a boost to the deployment of offgrid energy solutions including solar/biomass hybrid

models

Proposal to increase the Clean Energy Cess from Rs 100 per tonne to Rs 200 per tonne to promote

development of clean environment initiatives.

This will enable more resources for developing clean energy. However, the increase in cess will lead

to an increase in the price of coal and a rise in generation cost. This may be passed on to the consumers and translated into an increase in the cost of power generation per unit.

C. Manufacturing

Given that reviving manufacturing is one of the biggest challenge before the government, the Budget

proposes the following to provide an impetus to manufacturing:

Measures to address CENVAT credit accumulation

25

This is an excellent move which releases working capital for industry without affecting government

revenue. This will spur investments and help achieve Make in India goals.

Service tax exemption for effluent treatment plants

This is in the direction of zero effect on the environment and will eventually improve the image of the

chemicals industry.

Removal of SAD on actual user condition for electronics industry

The electronics manufacturing industry was expecting a number of measures for making industry

competitive in the zero duty regime. In the budget speech, however, the FM has announced only removal of SAD on actual user condition.

This would help in containing the CENVAT overflow. Exclusion of populated PCB from SAD removal is

a step towards encouraging Make in India. (Note: List of 22 items on which BCD has been lowered is yet to be seen – whether it includes any electronic item)

Banking and Financial Sector

Recognising the need for increased financial inclusion, improved insurance penetration and the need for

expanding the penetration of bond market for providing long term finance and addressing the challenges

in the banking sector, the following enabling provisions have been proposed in the Budget

A. Banking

Creation of a Micro Units Development Refinance Agency (MUDRA) Bank with a corpus of Rs 20,000

crore, and Credit Guarantee Corpus of Rs 3,000 crore.

MUDRA Bank will refinance Micro-Finance Institutions through the Pradhan Mantri Mudra Yojana. Setting up of MUDRA bank to refinance Micro-Finance Institutions (MFIs) through the Pradhan Mantri

Mudra Yojana would provide an impetus to small business units through provision of finance. The

initiative will also encourage entrepreneurship in the country and promote self-employment

significantly.

Setting up an autonomous bank Board Bureau

In order to improve the governance of Public Sector banks, the Government intends to set up an

autonomous bank Board Bureau. The Bureau will search and select heads of Public Sector banks and

help them in developing differentiated strategies and capital raising plans through innovative financial

methods and instruments.

This would be an interim step towards establishing a holding and investment Company for Banks. This

would help lay down a roadmap for bringing necessary reforms in the governance framework of Public Sector Banks. The measure would also help the Public Sector Banks to meet Basel III capital

requirements and enhance their systemic resilience as well as operational efficiencies.

B. NBFCs

Access of SARFAESI Act to NBFCs

To bring parity in regulation of Non-Banking Financial Companies (NBFCs) with other financial

institutions in matters relating to recovery, it is proposed that NBFCs registered with RBI and having

an asset size of Rs 500 crore and above will be considered for notifications as ‘Financial Institution’ in

terms of the SARFAESI Act, 2002.

26

Given the similar nature of services provided by NBFCs and banks, the measure provides the much

needed level playing field to systemically important NBFCs vis-à-vis banks to ensure better recovery

of assets.

C. Financial Inclusion

Jan Dhan, Aadhar and Mobile (JAM) Trinity – to implement direct transfer of benefits.

The Jan Dhan, Aadhar and Mobile (JAM) Trinity will provide an efficient mechanism to implement Government’s programme on direct benefit transfer in a leakage-proof, well-targeted and cashless

manner.

Utilization of the Postal network for expanding financial inclusion

The Government is committed to increasing the access of people to the formal financial system. In

this context, it is proposed to utilize the vast Postal network with nearly 1,54,000 points of presence spread across villages of the country.

With its wide presence across the country, the Postal Department is expected to utilize its proposed

Payments Bank venture for further success of the Pradhan Mantri Jan Dhan Yojana.

D. Insurance

From Jan Dhan to Jan Suraksha- Encouraged by the success of the Pradhan Mantri Jan Dhan Yojana, the

budget has proposed to work towards creating a universal social security system for all Indians, especially the poor and the under-privileged. The schemes announced are

Pradhan Mantri Suraksha Bima Yojna will cover accidental death risk of Rs 2 lakh for a premium of just

Rs 12 per year.

Atal Pension Yojana, which will provide a defined pension, depending on the contribution and its

period. To encourage people to join this scheme, the Government will contribute 50% of the

beneficiaries’ premium limited to Rs 1,000 each year, for five years, in the new accounts opened

before 31st December, 2015.

Pradhan Mantri Jeevan Jyoti Bima Yojana covers both natural and accidental death risk of Rs 2 lakhs.

The premium will be Rs 330 per year, or less than one rupee per day, for the age group 18-50.

With the success of Pradhan Mantri Jan Dhan Yojana, the next steps announced in the Budget are

expected to ensure better and efficient delivery of social welfare schemes (on insurance and pension)

and make the financial inclusion agenda more holistic and sustainable. The government proposes to

utilize Jan Dhan platform, to encompass various social security schemes. This would ensure direct

transfer of benefits to the targeted beneficiaries.

E. Promoting Cashless Transactions

The Budget proposes to introduce several measures that will incentivize credit or debit card

transactions, and disincentivise cash transactions.

The successful implementation of Pradhan Mantri Jan-Dhan Yojana along with the entry of Payment

Banks would provide the necessary platform for reducing India’s overwhelming preference for

physical cash and create a milieu for moving towards a cashless society.

F. Insurance & Pensions

Flexibility on choice of options for social schemes - provident fund and health insurance

With respect to the Employees Provident Fund (EPF), the employee needs to be provided two

options. Firstly, the employee may opt for EPF or the New Pension Scheme (NPS). Secondly, for

employees below a certain threshold of monthly income, contribution to EPF should be optional,

27

without affecting or reducing the employer’s contribution. 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).

The Government intends to bring a legislation in this regard, after stakeholder consultation. This

would provide greater flexibility to individuals in making choice for their contribution in provident

fund and health insurance schemes as per their preference in terms of the corresponding benefit offered by these different schemes.

Increase in limit of tax deduction on health insurance

The limit of deduction in respect of health insurance premium would be increased from Rs 15,000 to

Rs 25,000.For senior citizens the limit will go up to Rs 30,000 from the existing Rs 20,000.For very

senior citizens of the age of 80 years or more, who are not covered by health insurance, the deduction

of Rs 30,000 towards expenditure incurred on their treatment will be allowed.

This would provide the much needed push to the health insurance sector and increase demand from

individuals to meet their healthcare expenditure adequately.

Increase in limit of tax deduction for contribution to pension fund. The Budget proposes to increase

the limit of deduction u/s 80CCC of the Income-tax Act on account of contribution to a pension fund

of LIC or IRDA approved insurer from Rs 1 lakh to Rs 1.5 lakh.

This will provide individuals the benefit to make greater contribution to pension funds and would

increase long term household savings in the economy.

Increase in limit of tax deduction for contribution to National Pension Scheme (NPS)

The Budget proposes to increase the limit of deduction u/s 80CCD of the Income-tax Act on account

of contribution by the employee to National Pension Scheme (NPS) from Rs 1 lakh to Rs 1.50 lakh. It is also proposed to provide a deduction of upto Rs 50,000 over and above the limit of Rs 1.50 lakh in

respect of contributions made to NPS.

The additional tax benefit for making contribution to the New Pension Scheme will substantially

increase the coverage of the scheme and promote old age income security. This is also expected to

increase the long term savings in the economy.

Self-declaration of non-deduction of tax on maturity proceeds of life insurance policy

The Budget proposes to amend the provisions of section 197A of the Income-tax Act so as to provide

the facility of filing self-declaration of non-deduction of tax by the recipients of taxable maturity

proceeds of life insurance policy.

The facility of filing self-declaration for non-deduction of tax by the recipients of taxable maturity

proceeds of life insurance policy will help the policy holders and make the tax compliance process

easier.

G. Financial Markets

Tax Pass Through status to Category I & II Alternative Investment Funds (AIFs). Tax ‘pass through’

is to be allowed to both Category-I and Category-II AIFs, so that tax is levied on the investors in

these Funds and not on the Funds per se.

This may step up the ability of these Funds to mobilise more resources and make higher investments

in small and medium enterprises, infrastructure and social projects as also provide the much required

private equity to new ventures and start-ups. This will further eliminate any uncertainty in tax

consequences and will obviate needless litigation between the funds and the revenue authorities and

28

reduce cost of compliance. It can be looked at as an ‘opportunity loss’ of tax revenue that could flow

from the revival of market for AIFs under a tax pass through regime.

REITs and InvITs: Tax Pass through status to rental income of REITs earned from its own assets.

It is proposed to provide that in the Real Estate Investment Trusts (REITs) and Infrastructure

Investment Trusts (InvITs), the sponsor will be given the same treatment on offloading of units at the

time of listing as would have been available to him if he had offloaded his shareholding of special

purpose vehicle (SPV) at the stage of direct listing.

This will put more money in the hands of the investors and will also avoid double taxation of the

income generated by REITs. This will help to make REITs more financially viable for Indian markets and

further push introduction of real estate investment trusts (REITs) in the Indian market. This would give

much needed relief to the real estate sector, which is facing liquidity crunch and delay in completion

of existing projects.

H. Bonds: To make available the long term funds for infra financing the budget has made following

provisions.

Applicability of reduced rate of tax at 5% in respect of income of foreign investors (FIIs and QFIs)

from corporate bonds and government securities, from 31.5.2015 to 30.06.2017.

The continuation of reduced rate of withholding tax on FIIs and QFIs investment in corporate bonds

and Government securities may enhance the investments by foreign investors and thus allow our

bond markets to develop and deepen.

To permit Tax-Free Infrastructure Bonds for the projects in the rail, roads and irrigation sector

This may benefit companies in these sectors as they will be able to raise money for funding their

projects. This may also provide an impetus to retail investors to invest in such bonds.

The Government intends to establish National Investment and Infrastructure Fund (NIIF), and find

monies to ensure an annual flow of INR20,000 crore to it.

‘NIIF’ may give an extra investment option for investors and allow them to participate in the growth

of the country and also assure them of stable returns. The capital pumped into the IRFC and NHB may allow them to fund their development projects. This may also facilitate reduction in Government’s

Deficit as the money may be market funded.

This will enable the Trust to raise debt, and in turn, invest as equity, in infrastructure finance companies such as the IRFC and NHB. The infrastructure finance companies can then leverage this

extra equity, many folds.

Investment Manager not to be reckoned as ‘Permanent Establishment’. To modify the Permanent

Establishment (PE) norms to the effect that mere presence of a fund manager in India would not

constitute PE of the offshore funds resulting in adverse tax consequences.

Till now, presence of fund managers in India could be crucial for the success of investments made by foreign private equity funds, FIIs and other foreign investors directly into Indian companies or into

domestic fund vehicles. However, there was always an apprehension that presence of fund managers in India could be construed as a Permanent Establishment (“PE”) in India of the foreign investors. This

gave rise to apprehension that the foreign investor could be taxed on the capital gains earned on sale

of the investments in India even where such gain may be exempt under the applicable DTAA on the alleged ground that the investment formed part of the business property (capital asset) of the foreign

investor’s PE in India.

29

This announcement by Finance Minister will put to rest these apprehensions and may lay a strong

foundation for the fund management industry and investment managers to resettle in India.

FMC to merge with SEBI. To merge the Forwards Markets Commission (FMC) with SEBI to

strengthen regulation of commodity forward markets and reduce wild speculation

This may ensure that forward markets in commodities are well regulated and the Indian commodity

futures market is compliant with international regulatory requirements and further boost financial

markets in India. This move may also allow a broking company operating in stock market to apply for

a membership in MCX or NCDEX in the same name, which is not the case currently.

I. Gold

Introduce a Gold Monetisation Scheme, which will replace both the present Gold Deposit and Gold

metal Loan Schemes.

The new scheme will 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.

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.

This may assist in reducing Current Account Deficit. This may divert savings from non-financial assets

to financial assets.

Others

To create a Task Force to establish a sector-neutral Financial Redressal Agency that will address

grievances against all financial service providers.

This may increase the confidence of investors and may motivate them to invest in the markets and

avail financial services without the fear of being cheated. The focus is on trying to make processess

simpler for consumers. Instead of having to knock on the doors of multiple forums, customers,

especially those who are not financial literate, can approach just one agency to resolve disputes.

Keeping in view the need to increase investments from all sources, it is proposed to also allow

foreign investments in Alternate Investment Funds.

This may allow foreign investors to participate and provide long term funds to Indian economy. This

may also provide an additional investor class for such AIFs to raise money.

To further simplify the procedures for Indian Companies to attract foreign investments, it is

proposed to do away with the distinction between different types of foreign investments, especially

between foreign portfolio investments and foreign direct investments, and replace them with

composite caps.

It may allow Indian companies to raise money from any foreign investor class. The banks with about

49 per cent FII shareholding will benefit. They will have more headroom to raise money from FIIs. If

banks are not issuing fresh shares, FIIs could buy from the secondary market. This should attract more portfolio flows in near to medium term in debt as well as equities.

In order to rationalise the MAT provisions for FIIs, profits corresponding to their income from

capital gains on transactions in securities which are liable to tax at a lower rate, shall not be

subject to MAT

This will reduce tax incidence on FIIs and will promote more participation from them.

30

Set up of International Finance Centre

GIFT in Gujarat was envisaged as International Finance Centre that would actually become as good an

International Finance Centre in Singapore or Dubai. The Budget has announced that the first phase of GIFT will soon become a reality. Appropriate regulations will be issued in March.

This may turn India into a global finance destination, with global companies being able to access Indian

markets to raise funds, carry their operations etc.

Tourism

Visa on arrival to be increased to 150 countries in stages.

After the success of Visa on arrival scheme offered to tourists of 43 countries, the budget has further

proposed to provide Visa on arrival to 150 countries in stages. This is indeed a positive move and

would provide a boost to tourism and hospitality sector which significantly contributes in creation of Jobs, foreign exchange earnings and India's GDP. The proposed increase in the number of countries

under the Visa on Arrival scheme, would further increase the inbound foreign visits in the current

calendar year and support foreign exchange earnings. It will give competitive advantage to India against other destinations in South Asia and Middle East.

To provide resources to start work on landscape restoration, signage and interpretation centres, parking, access for the differently abled , visitors’ amenities, including securities and toilets, illumination and plans for benefiting communities around them at various heritage sites

Keeping in view the significance of the world heritage sites in attracting a large number of tourists, the

recent announcement to make World Heritage Sites more tourist friendly by facilitating restoration

activities is a welcome step.

Innovation and Entrepreneurship

Atal Innovation Mission (AIM) to be established in NITI to provide Innovation Promotion Platform

involving academicians, and drawing upon national and international experiences to foster a culture

of innovation , research and development. The platform will also promote a network of world-class

innovation hubs and Grand Challenges for India.

While the move would provide a direct impetus for promotion of innovation and entrepreneurship in

India, the budget allocated for this mission is very minimal as compared to the aspiration of making

India an Innovation driven nation by 2020. This is also the only place where R&D has been mentioned

in the overall budget speech which gives relatively less importance in terms of priority in this budget.

Technology-from grass root to the Space: Launched the Digital India programme to make India a

knowledge & innovation based society with Broadband connectivity being taken to all villages,

Success of Mars Orbiter Mission

The broadband connectivity to rural population is a very positive step forward. With its implementation and optimum utilization, knowledge and knowledge based services will be accessible

to the vast majority of Indian population at a much affordable price.

Proposal to reduce the rate of income tax on royalty and fees for technical services from 25% to 10%

This will boost the creation and scaling up of tech start-ups in the country and promote technology

inflow to small businesses at low costs.

31

Self-Employment and Talent Utilization (SETU) to be established as Techno-financial, incubation and facilitation programme to support all aspects of start-up business. `Rs1000 crore to be set aside as initial amount in NITI. This scheme will support the creation of technology driven start-ups. The challenge will be on how to

utilize the fund of Rs1000 crore effectively to boost these start-ups.

Higher Education

A fully IT-based student financial aid authority will be set up to administer and monitor Scholarship as well Educational Loan Schemes, through the Pradhan Mantri Vidya Lakshmi Karyakram.

The move would enable all poor and middle class students to pursue higher education of their choice

without any constraint of funds. More students will be able to pursue education and more quality manpower for industry

Government Proposes to set up one major Central Institute in each State. Setting up of following

educational institutions have been proposed in the current budget

o All India Institutes of Medical Sciences in J&K, Punjab, Tamil Nadu, Himachal Pradesh and

Assam in FY 2016.

o Set up an IIT in Karnataka, and upgrade Indian School of Mines, Dhanbad into a full-fledged

IIT.

o A Post Graduate Institute of Horticulture Research and Education in Amritsar

o IIMs in J&K and Andhra Pradesh. In Kerala,

o Upgrade the existing National Institute of Speech and Hearing to a University of Disability

Studies and Rehabilitation.

o Three new National Institutes of Pharmaceutical Education and Research: in Maharashtra,

Rajasthan, and Chattisgarh; and

o An Institute of Science and Education Research in Nagaland and Odisha.

o Set up a Centre for Film Production, Animation and Gaming in Arunachal Pradesh, for the

North-Eastern States; and

o Apprenticeship Training Institute for Women in Haryana and Uttrakhand

The Indian higher education system is one of the largest in the world. To make higher education to be

futuristic, there is a need to match the supply with demand and dovetail education policy to

employment opportunities. The proposed universities with high quality of education facilities will

provide a boost the local students and youths in these states. More such center of excellences are

needed to give greater opportunity to the vast population in other parts of the country.

Ease of Doing Business

A comprehensive Bankruptcy Code will be announced in fiscal 2015-16 that will meet global

standards and provide necessary judicial capacity.

Bankruptcy Code will bring about legal certainty and speed and will facilitate easy exit. This has been

identified as a key priority for improving the ease of doing business.

32

Corporatization of Ports

Public sector ports to be encouraged to corporatize and become companies under the Companies Act.

Corporatization of Ports will increase efficiency of costs and operations. This will improve the ease with which business and trade can be conducted from and to the country.

An expert committee to examine the possibility and prepare a draft legislation where the need for

multiple prior permission can be replaced by a pre-existing regulatory mechanism.

Government has shown its commitment towards easing the regulatory environment for doing

business and several steps in this direction. The government has recently launched E-Biz Portal which

14 regulatory permissions at one source. The removal of multiple prior permissions would strengthen

government’s minimum government and maximum governance and would go a long way in easing

setting up of the business in the country.

33

Chapter 4

Fiscal Trends

34

35

Chapter 4

Fiscal Trends

Fiscal Deficit target for 2014-15 to be met despite challenges

The ongoing financial year (2014-15) is expected to register a nominal GDP growth of 11.15 per cent as against the estimate of 13.4 per cent, primarily due to lower than expected inflation. Given that tax revenues are linearly related to economic activity, this has resulted in lower tax buoyancy. The Revenue side was further pressurized from the under-performance on disinvestment front.

Budget at a Glance 2015-16 (Rs Crore)

2013-14 Actuals

2014-15 (BE)

2014-15 (RE)

2015-16 (BE)

1. Revenue Receipts 1,014,724 1,189,763 1,126,294 1,141,575

2. Tax Revenue (net to centre) 815,854 977,258 908,463 919,842

3. Non-Tax Revenue 198,870 212,505 217,831 221,733

4. Capital Receipts (5+6+7) 544,723 605,129 554,864 635,902

5. Recoveries of Loans 12,497 10,527 10,886 10,753

6. Other Receipts 29,368 63,425 31,350 69,500

7. Borrowings & Other Liabilities 502,858 531,177 512,628 555,649

8. Total Receipts (1+4) 1,559,447 1,794,892 1,681,158 1,777,477

9. Non- Plan Expenditure 1,106,120 1,219,892 1,213,224 1,312,200

10. On Revenue Account, of which 1,019,040 1,114,609 1,121,897 1,206,027

11. Interest Payments 374,254 427,011 411,354 456,145

12. On Capital Account 87,080 105,283 91,327 106,173

13. Plan Expenditure 453,327 575,000 467,934 465,277

14. On Revenue Account 352,732 453,503 366,883 330,020

15. On Capital Account 100,595 121,497 101,051 135,257

16. Total Expenditure (9+13) 1,559,447 1,794,892 1,681,158 1,777,477

17. Revenue Expenditure (10+14) 1,371,772 1,568,111 1,488,780 1,536,047

18. Capital Expenditure (12+15) 187,675 226,781 192,378 241,430

19. Revenue Deficit 357,048 378,348 362,486 394,472

As a percentage of GDP 3.1 2.9 2.9 2.8

20. Fiscal Deficit 502,858 531,171 512,628 555,649

As a percentage of GDP 4.4 4.1 4.1 3.9

21. Primary Deficit 128,604 104,166 101,274 99,504

As a percentage of GDP 1.1 0.8 0.8 0.7 Source: Union Budget 2015-16

Despite the challenging revenue numbers, the fiscal deficit target of 4.1 per cent of the GDP for the 2014-15 is expected to be met, primarily with the help of expenditure management. The fall in international crude prices eased pressure on subsidies and provided scope for expenditure management to meet fiscal deficit targets.

36

Source: Union Budget documents & CSO Note: RE- Revised Estimate

Commitment to medium-term Fiscal Consolidation reiterated but timeline delayed by

one year

The Union Budget 2015-16 has delayed the timeline for achieving 3 per cent fiscal deficit target by one year to 2017-18 in order to step up the level of public spending in infrastructure sector and tap the growth potential. Thus, for the next three years, fiscal deficit target is 3.9 per cent for 2015-16, 3.5% for 2016-17, and 3.0% for 2017-18.

Source: Union Budget 2015-16

Medium-term Fiscal Policy Statement- Rolling Targets (as % of GDP)

Revised Estimates Budget Estimates Target for

2014-15 2015-16 2016-17 2017-18

1. Effective Revenue Deficit 1.8 2.0 1.5 0.0

2. Revenue Deficit 2.9 2.8 2.4 2.0

3. Fiscal Deficit 4.1 3.9 3.5 3.0

4. Gross Tax Revenue 9.9 10.3 10.5 10.7

5. Total Outstanding Liabilities at the end of the year

46.8 46.1 44.7 42.8


3.63.0

3.93.5

3.0

2015-16 2016-17 2017-18

Fiscal Deficit Roadmap

Previous Target New Target

37

Greater devolution to states in consonance with government’s drive towards co-

operative federalism

The Budget 2015-16 has been presented as the first year of the Fourteenth Finance Commission (FFC) award period. After conducting extensive consultations with the States and the Centre, FFC has recommended for greater share of devolution to the States, replacing the transfers through Plan schemes. FFC recommendation is based on the fact that States’ have graduated to designing and implementing development programmes based on local conditions. The emerging consensus is that Centre should partner with States under the new paradigm, playing a supportive role as an enabler rather than executing schemes from the front. As a result, it is expected that states’ share of taxes will increase from 32 per cent to 42 per cent of the gross tax revenue. In nominal terms this amounts to increase in states’ share by more than 1.5 lakh crores from 3.8 lakh crore in 2014-15 to about 5.2 lakh crore in 2015-16.

Compositional Shift in Resources Transferred to States (Rs Crore)

Budget 2014-15

Budget 2015-16

Devolution of state share of taxes & duties 382,216 523,958

Non-plan grants and loans to states 69,095 107,566

Central Assistance to states 330,764 196,743

Total 782,075 828,267 Source: Union Budget 2015-16

Tax revenues is expected to rise in 2015-16

Budget 2015-16 projects an ambitious growth of 15.8 per cent in gross tax revenue over RE 2014-15, with tax-GDP ratio at 10.3 per cent as compared to 9.9 per cent in 2014-15. However, with higher devolution to states, tax revenue of the centre shows only marginal improvement over RE 2014- 15, about 1.3 per cent, despite the growth on gross taxes.

Source: Union Budget documents

Revenue receipts of the center expected to remain stagnant

Non-tax revenue has witnessed higher growth in last few years due to higher dividend payment from PSUs and Banks, higher dividend paid by RBI and increase in estimates of Spectrum charges. However, with higher potential under this item already realized, Budget 2015-16 provides for marginal increase of 1.8 per cent over RE 2014-15.

11.9

10.8

9.6

10.29.9

10.2 10.29.9

10.3

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15(RE)

2015-16(BE)

Tax/ GDP ratio

38

Thus, total revenue receipts of the Centre remains stagnant, with marginal increase of 1.4 per cent over RE 2014-15.

Revenue Receipts (Rs Crore) 2013-14

Actuals 2014-15

BE 2014-15

RE 2015-16

BE Growth 2014-15 (RE) over 2013-14

Growth 2015-16 (BE) over 2014-

15 (RE)

1. Tax Revenue

Gross Tax Revenue 1,138,734 1,364,524 1,251,391 1,449,490 9.9 15.8

Corporation Tax 394,678 451,005 426,079 470,628 8.0 10.5

Taxes on Income 242,857 284,266 278,599 327,367 14.7 17.5

Wealth Tax 1,008 950 950 ... -5.8 …

Customs 172,085 201,819 188,713 208,336 9.7 10.4

Union Excise Duties 170,198 207,110 185,480 229,808 9.0 23.9

Service Tax 154,778 215,973 168,132 209,774 8.6 24.8

Taxes on Union Territories 3,130 3,401 3,438 3,577 9.8 4.0

Less - State's share 318,230 382,216 337,808 523,958 6.2 55.1

Centre's Net Tax Revenue 815,854 977,258 908,463 919,842 11.4 1.3

2. Non-Tax Revenue 198,870 212,505 217,831 221,733 9.5 1.8

Total Revenue Receipts 1,014,724 1,189,763 1,126,294 1,141,575 11.0 1.4


Capital receipts to be significantly higher mainly due to disinvestment

To compensate for the squeeze in tax revenue of the center due to greater devolution to states, the non-debt capital receipts have been significantly raised upwards from Rs 42,236 crore to Rs 80,253 crore, primarily due to higher disinvestment receipts (Rs 69,500 crore).

Capital Receipts (Rs Crore)

2013-14 Actuals

2014-15 BE

2014-15 RE

2015-16 BE

Growth 2014-15 (RE) over 2013-14

Growth 2015-16 (BE) over 2014-15 (RE)

Total Capital Receipts 563,894 587,969 570,535 623,861 1.18 9.3

A. Non-debt Receipts 41,865 73,952 42,236 80,253 0.89 90.0

Recoveries of loans & advances 12,497 10,527 10,886 10,753 -12.89 -1.2 Miscellaneous Capital Receipts (Disinvestment)

29,368 63,425 31,350 69,500 6.75 121.7

B. Debt Receipts 522,029 514,017 528,299 543,608 1.20 2.9 Source: Union Budget 2015-16

Budget 2015-16 has estimated disinvestment receipts at Rs 41,000 crore. An additional Rs 28,000 crore have been estimated to flow from the strategic disinvestment. These include sale of government holdings in non-government commercial entities, SUUTI, BALCO, HZL etc.

39

Source: Union Budget documents

Number of initiatives taken for expenditure management

Union Budget 2015-16 has outlined a number of initiatives to increase the allocative efficiencies of the government expenditure and to improve operational efficiency of expenditures through focus on utilization, targets and outcomes. In view of this, Government had constituted Expenditure Management Commission (EMC) which has submitted its interim report. Further, the budget envisages ensuring expenditure management through

Better targeting of subsidies

Expansion of Direct Benefit Transfer

Expansion of e-Payment System

Non-Plan expenditure to be rationalized

Due to resource base of the centre shrinking, following higher sharing of taxes and declining deficit, increase in Non-Plan spending has been rationalized to provide for provides 8.2 per cent increase in 2015-16 over the 2014-15, as compared to 9.7 per cent during 2014-15.

Non- Plan Expenditure (Rs Crore) 2013-14

Actuals 2014-15

BE 2014-15

RE 2015-16

BE Growth 2014-15

(RE) over

2013-14

Growth 2015-16

over 2014-15

(RE)

1. Total Non-plan Expenditure 1,106,120 1,219,892 1,213,224 1,312,200 9.7 8.2

A. Revenue Expenditure 1,019,040 1,114,609 1,121,897 1,206,027 10.1 7.5

B. Capital Expenditure 87,080 105,283 91,327 106,173 4.9 16.3


0 0 0

40

,00

0

40

,00

0

30

,00

0

55

,81

4

63

,42

5

69

,50

0

4,1

81

0

23

,55

3

22

,14

4

13

,89

4

25

,89

0

25

,84

1

31

,35

0

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16(BE)

Disinvestment Targets & Receipts

Disinvestment Target (Rs Crore) Disinvestment Actual (Rs Crore)

40

Non-plan expenditure has been reduced by rationalization of subsidies, primarily the petroleum subsidy.

Subsidies (Rs Crore) 2011-12 2012-13 2013-14 2014-15 (RE) 2015-16 (BE)

Total Subsidies 217,941 257,079 254,632 266,692 243,811

Food subsidy 72,822 85,000 92,000 122,676 124,419

Fertilizer subsidy 70,013 65,613 67,339 70,967 72,969

Petroleum subsidy 68,484 96,880 85,378 60,270 30,000

Other subsidy (incl interest subsidy) 6,622 9,586 9,915 12,779 16,423

Subsidies as % of GDP 2.5 2.6 2.2 2.1 1.7

Subsidies as % of total expenditure 16.7 18.2 16.3 15.9 13.7 Source: Union Budget documents

Total Plan expenditure to decline, mainly due to reduction in Central Assistance to State & UT Plans

With greater devolution to states, it is assumed that center would eventually withdraw from the welfare programmes. However, Budget 2015-16 continues with central allocation as sudden withdrawal might lead to hardships for the beneficiaries.

Plan Expenditure (Rs Crore)

2013-14 Actuals

2014-15 BE

2014-15 RE

2015-16 BE

Growth 2014-15 (RE) over 2013-

14

Growth 2015-16 (BE) over 2014-15 (RE)

Total Plan Expenditure 453,327 575,000 467,934 465,277 3.2 -0.6

A Revenue Expenditure 352,732 453,503 366,884 330,019 4.0 -10.0

Central Plan 252,224 128,867 102,046 139,660 -59.5 36.9

Central Assistance for State & UT Plans

100,508 324,636 264,838 190,359 163.5 -28.1

B. Capital Expenditure 100,595 121,497 101,050 135,258 0.5 33.9

Central Plan 88,254 107,724 87,720 120,833 -0.6 37.7

Central Assistance for State & UT Plans

12,341 13,773 13,330 14,425 8.0 8.2


41

Chapter 5

Direct Taxes

42

43

Chapter 5

Direct Taxes

1. Personal Income Tax

A. No change in Tax Slabs/Rate

• No revision of income tax rates/slabs. However, there is increase in surcharge by 2% for assessee having taxable income in excess of INR 1 crore i.e., the surcharge is now 12% in case

where taxable income is in excess of INR 1 crore;

• For Individuals below 60 years of age

Income Rate

Upto Rs.2,50,000 NIL

Rs. 2,50,001 to Rs. 5,00,000 10%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

• For Senior citizens 60 or more years of age and below 80 years of age

Income Rate


Rs. 3,00,001 to Rs. 5,00,000 10%

Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

• For Senior citizens 80 or more years of age

Income Rate


Rs. 5,00,001 to Rs. 10,00,000 20%

Above Rs. 10,00,000 30%

For assessment year 2016-2017, additional surcharge called the “Education Cess on

income-tax” and “Secondary and Higher Education Cess on income-tax” shall continue to be levied at the rate of two per cent and one per cent respectively, on the amount

of tax computed, inclusive of surcharge, in all cases. No marginal relief shall be

available in respect of such Cess.

44

B. Tax benefits under section 80C for the girl child under the Sukanya Samriddhi Account Scheme

• A new clause (11A) is proposed to be inserted in section 10 of the Act so as to provide that any payment from an account opened in accordance with the Sukanya Samriddhi Account

Rules, 2014 shall not be included in the total income of the assessee. As a result, the interest accruing on deposits in and withdrawals from any account under the scheme would be

exempt.

• With a view to allow the deduction under section 80C to the parent or legal guardian of the

girl child, amendment of section 80C of the Act is proposed to be made so as to provide that

a 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 is the legal guardian,

would be eligible for deduction under section 80C of the Act.

• These amendments will take effect retrospectively with effect from 1st April, 2015.

C. Amendment in section 80D relating to deduction in respect of health insurance premia

• It is proposed to amend section 80D so as to raise the limit of deduction from fifteen

thousand rupees to twenty five thousand rupees. It is further proposed to raise the limit of

deduction for senior citizens from twenty thousand rupees to thirty thousand rupees.

• As a welfare measure towards very senior citizens, it is also proposed to provide that any

payment made on account of medical expenditure in respect of a very senior citizen, if no payment has been made to keep in force an insurance on the health of such person, as does

not exceed thirty thousand rupees shall be allowed as deduction under section80D of the

Act. The aggregate deduction available to any individual in respect of health insurance premia and the medical expenditure incurred would however be limited to thirty thousand

rupees. Similarly aggregate deduction for health insurance premia and medical expenditure

incurred in respect of parents would be limited to thirty thousand rupees.

• It is also proposed to define a ‘very senior citizen’ to mean an individual resident in India who

is of the age of eighty years or more at any time during the relevant previous year.

• These amendments will take effect from the 1st April 2016.

D. Raising the limit of deduction under section 80DDB

• It is proposed to amend section 80DDB so as to provide that the assessee will be required to obtain a prescription from a specialist doctor for the purpose of availing this deduction.

Further, it is also proposed to amend section 80DDB to provide for a higher limit of deduction

of upto eighty thousand rupees, for the expenditure incurred in respect of the medical

treatment of a “very senior citizen”. A “very senior citizen” is proposed to be defined as an

individual resident in India who is of the age of eighty years or more at any time during the

relevant previous year.

• These amendments will take effect from 1st April, 2016.

E. Raising the limit of deduction under section 80DD and 80U for persons with disability and severe disability

• It is proposed to amend section 80DD and section 80U of the Act so as to raise the limit of

deduction in respect of a person with disability from fifty thousand rupees to seventy five thousand rupees.

45

• It is further proposed to amend the section so as to raise the limit of deduction in respect of

a person with severe disability from one lakh rupees to one hundred and twenty five

thousand rupees.


F. Raising the limit of deduction under 80CCC

• It is proposed to amend sub-section (1) of the said section so as to raise the limit of deduction

under section 80CCC from one lakh rupees to one hundred and fifty thousand rupees, within

the overall limit provided in section 80CCE.


G. Additional deduction under 80CCD

• It is proposed to omit sub-section (1A). In addition to the enhancement of the limit under section 80CCD(1), it is further proposed to insert a new sub-section (1B) so as to provide for

an additional deduction in respect of any amount paid, of upto fifty thousand rupees for contributions made by any individual assessees under the NPS. Consequential amendments

are also proposed in sub-section (3) and sub-section (4) of section 80CCD.


H. Enabling of filing of Form 15G/15H for payment made under life insurance policy

• It is proposed to amend the provisions of section 197A for making the recipients of payments

referred to in section 194DA also eligible for filing self-declaration in Form No.15G/15H for

non-deduction of tax at source in accordance with the provisions of section 197A.

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

I. Relaxing the requirement of obtaining TAN for certain deductors

• The obtaining of TAN creates a compliance burden for those individuals or Hindu Undivided

Family (HUF) who are not liable for audit under section 44AB of the Act. The quoting of TAN for reporting of Tax Deducted at Source (TDS) is a procedural matter and the same result can

also be achieved in certain cases by mandating quoting of PAN especially for the transactions

which are likely to be one time transaction such as single transaction of acquisition of

immovable property from non-resident by an individual or HUF on which tax is deductible

under section 195 of the Act. To reduce the compliance burden of these types of deductors,

it is proposed to amend the provisions of section 203A of the Act so as to provide that the

requirement of obtaining and quoting of TAN under section 203A of the Act shall not apply

to the notified deductors or collectors.


J. One hundred per cent deduction for National Fund for Control of Drug Abuse

• The National Fund for Control of Drug Abuse is a fund created by the Government of India in the year 1989, under the Narcotic Drugs and Psychotropic Substances Act, 1985. Since

National Fund for Control of Drug Abuse is also a Fund of national importance, it is proposed

to amend section 80G so as to provide hundred percent deduction in respect of donations

made to the said National Fund for Control of Drug Abuse.


46

2. Corporate Tax

A. Tax Rate

• Phased reduction of corporate income-tax rate from 30% to 25% is proposed over the next 4 years accompanied by phased reduction of exemptions. Reduction in the rate would

commence from the next year. Tax rate for FY 2015-16 to be 30% (exclusive of surcharge and education cess).

• It is further proposed to levy a surcharge @12% on individuals, HUFs, AOPs, BOIs, artificial

juridical persons, firms, cooperative societies and local authorities having income exceeding

Rs 1 crore. Surcharge in the case of domestic companies having income exceeding Rs. 1 crore

and upto Rs 10 crore is proposed to be levied @ 7% and surcharge @ 12% is proposed to be

levied on domestic companies having income exceeding Rs 10 crore.

• It is further proposed that in the case of 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.

• It is also proposed to levy a surcharge @12% as against current rate of 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.

• The education cess on income-tax @ 2% for fulfilment of the commitment of the

Government to provide and finance universalised quality based education and 1% of

additional surcharge called ‘Secondary and Higher Education Cess’ on tax and surcharge is

proposed to be continued for the financial year 2015-16 for all taxpayers.

B. Fund Managers in India not to constitute business connection of offshore funds

• Under present scenario, in case of off-shore funds, under the existing provisions, the

presence of fund manager in India may create sufficient nexus and may constitute a business

connection in India. Similarly, profits made by fund managers located in India undertaking fund management activities located outside India were liable to be taxed in India due to

location of fund managers in India.

• As a result of the above, the fund managers who are of Indian origin and are managing investments of offshore funds in various countries were not locating in India due to above

tax consequence.

• In order to facilitate location of fund managers of off shore funds in India, it is now proposed

in the Act in line with international best practices and subject to fulfillment of certain

conditions by the fund and the fund manager:

Income arising to the fund from investment in India will be neutral to the fact as to

whether the investment is made directly by the fund or through engagement of fund

manager located in India; and

Income from the fund from investments outside India will not be taxable solely on the

basis that the fund manager handling fund management activity is located in India.

• The specific exception from the general rules for determination of business connection and

resident status of off-shore funds is subject to certain conditions.

• The above amendment will take effect from 1st April 2016.

47

C. Incentives for the state of Andhra Pradesh and the state of Telangana

i. Additional Investment Allowance

• It is proposed to insert a new section 32AD in the Act which will provide an additional

investment allowance of an amount equal to 15% of the cost of new asset and acquired and

installed by an assessee if:

he sets up an undertaking for manufacture of article or enterprise for manufacture or

production of article or thing on or after 1st April 2015;

The new assets are acquired and installed during the period from 1st April 2015 to 31st

March 2020.

ii. Additional Depreciation at the rate of 35%

• Presently, additional depreciation of 20% is allowed under the existing provisions of section

32(1)(iia) of the Act in respect of the cost of plant or machinery acquired and installed by

certain assessee.

• In order to incentivize setting up and of manufacturing units in state of Andhra Pradesh or

the state of Telangana, it is now proposed to allow higher additional depreciation at the rate

of 35% in respect of actual cost of plant and machinery acquired and installed during the period 1st April 2015 to 1st April 2020.

• It is also proposed to make consequential amendments in the second proviso to section 32(1)

of the Act for applying the existing restriction of the allowance to the extent of 50% for assets used for the purpose of business for less than 180days in the year of acquisition and

installation.

D. Taxation Regime for Real Estate Investment Trust (REIT) and Infrastructure Investment Trust

• Under the current scheme of the Act, the deferral of capital gains provided to the sponsor of

business trust places such a sponsor at a disadvantageous tax position vis-a vis direct listing

of the shares of the SPV. In case the sponsor holding the shares of the SPV decides to exit

through the Initial Public Offer (IPO) route, then the benefit of concessional tax regime

relating to capital gains arising on transfer of shares subject to levy of STT is available to him.

The tax on short term capital gains (STCG) in such cases is levied @ 15% and the long term capital gain (LTCG) is exempt under section 10(38) of the Act. However, the benefit of

concessional regime is not available to the sponsor at the time it offloads units of business trust acquired in exchange of its shareholding in the SPV through Initial offer at the time of

listing of business trust on stock exchange. In order to provide parity, it is now proposed that:

a. the sponsor would get the same tax treatment on offloading of units under an Initial offer on listing of units as it would have been available had he offloaded the underlying shareholding through an IPO;

b. STT shall be levied on sale of such units of business trust which are acquired in lieu of shares of SPV, under an Initial offer at the time of listing of units of business trust on similar lines as in the case of sale of unlisted equity shares under an IPO;

c. The benefit of concessional tax regime of tax @15 % on STCG and exemption on LTCG under section 10(38) of the Act shall be available to the sponsor on sale of units received in lieu of shares of SPV subject to levy of STT.

48

• Further, in case of a business trust, being REITs, the income is predominantly in the nature

of rental income. This rental income arises from the assets held directly by REIT or held by it

through an SPV. The rental income received at the level of SPV gets passed through by way of interest or dividend to the REIT, the rental income directly received by the REIT is taxable

at REIT level and does not get pass through benefit. In order to provide pass through to the

rental income arising to REIT from real estate property directly held by it, it is proposed to provide that:-

a. any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust shall be exempt;

b. The distributed income or any part thereof, received by a unit holder from the REIT, which is in the nature of income by way of renting or leasing or letting out any real estate asset owned directly by such REIT, shall be deemed to be income of such unit holder and shall be charged to tax;

c. The REIT shall effect TDS on rental income allowed to be passed through. In case of resident unit holder, tax shall be deducted @ 10%, and in case of distribution to non-resident unit holder, the tax shall be deducted at rate in force as applicable for deduction of tax on payment to the non-resident of any sum chargeable to tax;

d. No deduction shall be made under section 194-I of the Act 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 held directly by such REIT.


E. Extension of eligible period of concessional tax rate under section 194LD of the Act

• The existing concessional withholding rate of 5% under section 194LD of the Act provided for interest payable on or after 1st June 2013 but before 1st June 2015 to FII’s and QFIs on investment in government securities and rupee dominated corporate bonds is proposed to

be extended for interest payable upto 30th June 2017.

F. Reduction in rate of tax on Income by way of Royalty and Fee for technical services in case of non-residents

• The existing provisions of section 115A of the Act provides for tax rate of 25% for non-resident taxpayer receiving income in form of Royalty or FTS which is not connected with

permanent establishment. It is now proposed to reduce the tax rate to 10%.


G. Deduction for employment of new workman

• The existing provisions of section 80JJAA of the Act, inter-alia provides for deduction to

Indian company, deriving profits from manufacturing goods in factory. The quantum of deduction is equal to 30% of additional wages paid to new regular worker in excess of

hundred workmen for three AYs including the AY relevant to the PY in which such

employment is provided. It is proposed to extend the benefit to:

a. All assessee having manufacturing rather than restricting it to corporate assessee’s only;

b. Limit of 100 additional workman to be reduced to 50 additional workman.

49

H. Allowance of additional depreciation to power sector under section 32(1)(iia) of the Act

• The existing provisions of section 32(1)(iia) provides for additional depreciation 20% of cost

of new plant and machinery acquired and installed over and above the general depreciation

allowance. However, where the machinery is installed for less than 180 days in the previous year such depreciation is restricted to 50% of the additional depreciation. In order to

motivate investment in the same year, it is proposed to allow the balance 50% of the

additional depreciation in the immediately succeeding year.


I. EASE OF DOING BUSINESS

• The following amendments are proposed in the provisions of section 9 relating to indirect

transfer:-

i. the share or interest of a foreign company or entity shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of Indian assets,-

(a) exceeds the amount of ten crore rupees ; and

(b) represents at least fifty per cent of the value of all the assets owned by the

company or entity.

ii. value of an asset shall mean the fair market value of such asset without reduction of liabilities, if any, in respect of the asset;

iii. 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;

iv. 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 in (iii) above, the date of transfer shall be the specified date of valuation;

v. the manner of determination of fair market value of the Indian assets vis-a vis global assets of the foreign company shall be prescribed in the rules;

vi. the taxation of gains arising on transfer of a share or interest deriving, directly or indirectly, its value substantially from assets located in India will be on proportional basis. The method for determination of proportionality are proposed to be provided in the rules;

vii. the exemption shall be available to the transferor of a share of, or interest in, a foreign entity if he along with its associated enterprises

(a) neither holds the right of control or management,

(b) nor holds voting power or share capital or interest exceeding five per cent of the total voting power or total share capital, in the foreign company or entity directly

holding the Indian assets (direct holding company).

viii. 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 transferor if he along with its associated enterprises,-

(a) neither holds the right of management or control in relation to such company or

the entity,

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(b) 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.

ix. Exemption shall be available in respect of any transfer, subject to certain conditions, in a scheme of amalgamation, of a capital asset, being a share of a foreign company 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.

x. Exemption shall be available in respect of any transfer, subject to certain conditions, in a demerger, of a capital asset, being a share of a foreign company 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.

xi. There shall be a reporting obligation on Indian concern through or in which the Indian assets are held by the foreign company or the entity. The Indian entity shall be obligated to furnish information relating to the off-shore transaction having the effect of directly or indirectly modifying the ownership structure or control of the Indian company or entity. In case of any failure on the part of Indian concern in this regard a penalty shall be leviable. The proposed penalty shall be-

(a) a sum equal to two percent of the value of the transaction in respect of which such failure has taken place in case where such transaction had the effect of directly or indirectly transferring the right of management or control in relation to the Indian concern; and

(b) a sum of five hundred thousand rupees in any other case.

• 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.

J. Raising the threshold for specified domestic transaction

• The existing provisions of section 92BA of the Act provides a threshold of Rs 5 crores for

specified domestic transaction, the same is proposed to be increased to Rs 20 crores.


K. Exemption to income of Core Settlement Guarantee Fund (SGF) of the clearing corporation

• It is proposed to exempt the income of the Core SGF arising from contribution received and

investment made by the fund and from the penalties imposed by the clearing corporation

subject to similar conditions as provided in the case of Investor Protection Fund set up by a recognized stock exchange or a commodity exchange or a depository. However, where any

amount standing credit to the Fund and not charged to income tax, is partly or wholly

distributed with the specified person, such shared amount shall be deemed to be the income of the previous year in which such amount is shared.


L. Tax neutrality on merger of similar scheme of Mutual Funds

• Securities and Exchange Board of India has been encouraging mutual funds to consolidate different schemes having similar features so as to have simple and fewer numbers of

schemes. However, such mergers/consolidations are treated as transfer and capital gains are imposed on unitholders under the Income-tax Act.

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• In order to facilitate consolidation of such schemes of mutual funds in the interest of the

investors, it is proposed to provide tax neutrality to unit holders upon consolidation or

merger of mutual fund schemes provided that the consolidation is of two or more schemes of an equity oriented fund or two or more schemes of a fund other than equity oriented

fund.

• It is further proposed that the cost of acquisition of the units of consolidated scheme shall be the cost of units in the consolidating scheme and period of holding of the units of the

consolidated scheme shall include the period for which the units in consolidating schemes were held by the assessee. It is also proposed to define consolidating scheme as the scheme

of a mutual fund which merges under the process of consolidation of the schemes of mutual

fund in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and consolidated scheme as the scheme with which the consolidating

scheme merges or which is formed as a result of such merger.


M. To provide for Rules for giving foreign tax credit

• The current provisions of the Act do not provide the manner for granting credit of taxes paid

in any country outside India. Accordingly, it is proposed to amend section sub-section (2) of section 295 of the Income-tax Act so as to provide that CBDT may make rules to provide the

procedure for granting relief or deduction, as the case may be, of any income-tax paid in any

country or specified territory outside India, under section 90, or under section 90A, or under

section 91, against the income-tax payable under the Act.

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

N. Clarity regarding source rule in respect of interest received by non-resident in certain cases

• It is proposed to amend the Act 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 in

India of such non-resident to the head office or any permanent establishment 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 permanent establishment

in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and

the provisions of the Act relating to computation of total income, determination of tax and

collection and recovery would apply . 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.

• These amendments shall be effective from 1st April, 2016 and will, accordingly, apply to the

assessment year 2016-17 and subsequent assessment years.

O. Rationalization of the provisions of section 115JB of the Act

• It is proposed to provide that the amount of income, being the share of income of an

assessee on which no income-tax is payable in accordance with the provisions of section 86 (section 86 provides that no income tax is payable on the share of a member of AOP, in the

income of AOP in certain circumstances) , if any such amount is credited to the profit and

loss account, shall be reduced from the book profit for the purposes of calculation of income-

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tax payable under the section. Further, it is also proposed that the book profit shall be

increased by the amount or amounts of expenditure relatable to the above income.

• In the Finance Bill, it is proposed to provide that the amount of income from the transactions in securities, (other than short term capital gains arising on transactions on which securities

transaction tax is not chargeable), accruing or arising to an assessee being a Foreign

Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act,1992,if any such amount is

credited to the profit and loss account, shall be reduced from the book profit for the purposes of calculation of income-tax payable under the section. Further it is also proposed

that the book profit shall be increased by the amount or amounts of expenditure relatable

to the above income.



P. Amendments relating to Global Depositary Receipts (GDRs)

• The current taxation scheme of income arising in respect of depository receipts under 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. Besides, the holder of such DRs was a non-resident only. 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.

• Since the tax benefits under the Act were intended to be provided in respect of sponsored

GDRs and listed companies only, it is proposed to amend the Act in order to continue the tax

benefits only in respect of such GDRs as defined in the earlier depository scheme.


Q. Cost of acquisition of a capital asset in the hands of resulting company to be the cost for which the demerged company acquired the capital asset

• Under clause (vib) of section 47 of the Income-tax Act any capital asset transferred by the demerged company to the resulting company in the scheme of demerger is not regarded as

transfer if the resulting company is an Indian company. In such cases the cost of such asset

in the hands of resulting company should be cost of such asset in the hands of demerged company as increased by the cost of improvement, if any, incurred by the demerged

company. Further, the period of holding of such asset in the hands of resulting company

should include the period for which the asset was held by the demerged company. Under the existing provisions of the Income-tax Act, there is no express provision to this effect.

Accordingly, it has been proposed to amend sub-clause (e) of clause (iii) of sub-section (1) of

section 49 of the Income-tax Act to include transfer under clause (vib) of section 47 and to

provide that the cost of acquisition of an 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.


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R. Amount of tax sought to be evaded for the purposes of penalty for concealment of income under clause (iii) of sub-section (1) of section 271

• The Finance Bill, 2015 has proposed to amend section 271 of the Act so as to provide that the amount of tax sought to be evaded shall be the summation of tax sought to be evaded

under the general provisions and the tax sought to be evaded under the provisions of section 115JB or 115JC. However, if an amount of concealment of income on any issue is considered

both under the general provisions and provisions of section 115JB or 115JC then such

amount shall not be considered in computing tax sought to be evaded under provisions of

section 115JB or 115JC. Further, in a case where the provisions of section 115JB or 115JC are

not applicable, the computation of tax sought to be evaded under the provisions of section

115JB or 115JC shall be ignored.


S. Certain accountants not to give reports/certificates

• Finance Bill 2015 has proposed to amend section 288 of the Act to provide that an auditor who is not eligible to be appointed as auditor of a company as per the provisions of sub-

section (3) of section 141 of the Companies Act, 2013 shall not be eligible for carrying out

any audit or furnishing of any report/certificate under any provisions of the Act in respect of

that company. On similar lines, ineligibility for carrying out any audit or furnishing of any

report/certificate under any provisions of the Act in respect of non-company is also proposed

to be provided. However, it is proposed to provide that the ineligibility for carrying out any audit or furnishing of any report/certificate in respect of an assessee shall not make an

accountant ineligible for attending income-tax proceeding referred to in sub-section (1) of

section 288 of the Act as authorised representative on behalf of that assessee. It is further

proposed to provide that the person convicted by a court of an offence involving fraud shall

not be eligible to act as authorised representative for a period of 10 years from the date of such conviction. (It is also proposed to revise the definition of ‘accountant’ in Explanation

below section 288(2) of the Act on the lines of definition of ‘chartered accountant’ in the

Companies Act, 2013).

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

T. Prescribed conditions relating to maintenance of accounts, audit etc to be fulfilled by the approved in-house R&D facility

• In order to have a better and meaningful monitoring mechanism for weighted deduction

allowed under section 35 (2AB) of the Act, it has been proposed to amend the provisions of

section 35(2AB) of the Act to provide that deduction under the said section 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.

• These amendments will take effect from 1st April 2016.

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U. Amendment to the conditions for determining residency status in respect of Companies

• It is proposed to amend the provisions of section 6 to provide that a person being a company

shall be said to be resident in India in any previous year, if-

(i) It is an Indian company; or

(ii) place of effective management, at any time in that year, is in India.

• Further, it is proposed to define the place of effective management (POEM) to mean a place

where key management and commercial decisions that are necessary for the conduct of the

business of an entity as a whole are, in substance made. Since POEM is an internationally

well accepted concept, there are well recognized guiding principles for determination of POEM although it is a fact dependent exercise. However, it is proposed that in due course, a

set of guiding principles to be followed in determination of POEM would be issued for the

benefit of the taxpayers as well as, tax administration.

• These amendments will take effect from 1st April 2016.

3. Rationalization Measures and Other provisions

A. Measures to Curb Black Money

Amendment on Section 269SS and 269T of the Act

• It is proposed to amend section 269SS of the Act and is provided that no person is shall accept

from any person any loan or deposit or any sum of money, whether as advance or otherwise,

in relation to transfer of immovable property otherwise than by an account payee cheque or

account payee bank draft or electronic clearing system if the amount is twenty thousand or

more.

• Similarly, it is proposed to amend section 269T of the Act and is provided that no person shall

repay any loan or deposit or any specified advance received by it, otherwise than by an

account payee cheque or account payee bank draft or electronic clearing system.

• Accordingly, it is proposed to make consequential amendments in section 271D and section

271E of the Act to provide for penalty for failure to comply with the amended provisions of

section 269SS and 269T if the Act .

• These amendments are applicable form 1st June 2015.

B. Deferment of provisions relating to General Anti Avoidance Rule (“GAAR”)

• As provided in the Act, GAAR provisions were to be applicable from 1st April 2016, i.e (AY

2016-17) and subsequent years. However, GAAR provisions have been reviewed and certain concerns have been expressed regarding certain aspects of GAAR.

• Accordingly, it is proposed that implementation of GAAR be deferred by two years and GAAR provisions be made applicable to the income of the FY 2017-18(i.e AY 2018-19). Further the

provisions will be applicable prospectively.

C. Abolition of levy of wealth tax

• It is proposed to abolish the levy of wealth tax under the wealth tax Act, 1957 with effect

from 1st April 2016. It is also proposed that the objective of taxing high net worth persons

shall be achieved by levying a surcharge on tax payer earning higher income. It is also

proposed that information relating to assets which is currently required to be furnished in the wealth-tax return shall be captured by suitably modifying income-tax return.

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D. Rationalization of definition of charitable purpose in the Income Tax Act

• It is proposed to amend the definition of charitable purpose 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,-

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

(ii) the aggregate receipts from such activity or activities, during the previous year, do not exceed twenty percent of the total receipts, of the trust or institution undertaking such activity or activities, for the previous year.

• 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.

E. Simplification of Tax Deduction at Source (TDS) mechanism for Employees Provident Fund Scheme (EPFS)

• In order to discourage pre-mature withdrawal and to promote long term savings, it has been

provided that withdrawal shall be taxable if the employee makes withdrawal before continuous service of five years (other than the cases of termination due to ill health, closure

of business, etc.) and does not opt for transfer of accumulated balance to new employer.

Rule 9 of the said Schedule further provides computation mechanism for determining tax

liability of the employee in respect of such pre-mature withdrawal. For ensuring collection

of tax in respect of these withdrawals, rule 10 of Schedule IV-A provides that the trustees of the RPF, at the time of payment, shall deduct tax as computed in rule 9 of Schedule IV-A.

• It is proposed to insert a new provision in Act for deduction of tax at the rate of 10% on pre-

mature taxable withdrawal from EPFS. However, to reduce the compliance burden of the

employees having taxable income below the taxable limit, it is also proposed to provide a

threshold of payment of Rs.30,000/- for applicability of this proposed provision. In spite of

providing this threshold for applicability of deduction of tax, there may be cases where the tax payable on the total income of the employees may be nil even after including the amount

of pre-mature withdrawal. For reducing the compliance burden of these employees, it is further proposed that the facility of filing self-declaration for non-deduction of tax under

section 197A of the Act shall be extended to the employees receiving pre-mature withdrawal

i.e. an employee can give a declaration in Form No. 15G to the effect that his total income

including taxable pre-mature withdrawal from EPFS does not exceed the maximum amount

not chargeable to tax and on furnishing of such declaration, no tax will be deducted by the

trustee of EPFS while making the payment to such employee. Similar facility of filing self-

declaration in Form No. 15H for non-deduction of tax under section 197A of the Act shall

also be extended to the senior citizen employees receiving pre-mature withdrawal.

• However, some employees making pre-mature withdrawal may be paying tax at higher slab

rates (20% or 30%). Therefore, the shortfall in the actual tax liability vis-à-vis TDS is required

to be paid by these employees either by requesting their new employer to deduct balance tax or through payment of advance tax / self-assessment tax. For ensuring the payment of

balance tax by these employees, furnishing of valid Permanent Account Number (PAN) by

them to the EPFS is a prerequisite. The existing provisions of section 206AA of the Act provide for deduction of tax @ 20% in case of non-furnishing of PAN where the rate of deduction of

56

tax at source is specified. As mentioned earlier, there may be employees who are liable to

pay tax at the highest slab rate. In order to ensure the collection of balance tax by these

employees, it has also been proposed that non-furnishing of PAN to the EPFS for receiving these payments would attract deduction of tax at the maximum marginal rate.


F. Rationalization of provisions relating to Tax Deduction at Source (TDS) and Tax Collection at Source (TCS)

• The existing provision of section 200A of the Act does not provide for determination of fee

payable under section 234Eof the Act at the time of processing of TDS statements. It has

therefore been proposed to amend the provisions of section 200A of the Act so as to enable

computation of fee payable under section 234E of the Act at the time of processing of TDS statement under section 200A of the Act.

• It has been proposed to amend the provisions of section 206C of the Act so as to allow the collector to furnish TCS correction statement. Further, it has also been proposed to insert a

provision in the Act for processing of TCS statements on the line of existing provisions for

processing of TDS statement contained in section 200A of the Act. The proposed provision shall also incorporate the mechanism for computation of fee payable under section 234E of

the Act.

• It is proposed to provide that intimation generated after processing of TCS statement shall

also be:

(i) Subject to rectification under section 154 of the Act;

(ii) Appealable under section 246A of the Act; and

(iii) Deemed as notice of demand under section 156 of the Act

Further, as the intimation generated after proposed processing of TCS statement shall be deemed as a notice of demand under section 156 of the Act, the failure to pay the tax

specified in the intimation shall attract levy of interest as per the provisions of section 220(2)

of the Act. However, section 206C (7) of the Act also contains provisions for levy of interest

for non-payment of tax specified in the intimation to be issued. To remove the possibility of

charging interest on the same amount for the same period of default both under section 206C (7) and section 220(2) of the Act, it is proposed to provide that where interest is

charged for any period under section 206C (7) of the Act on the tax amount specified in the

intimation issued under proposed provision, then, no interest shall be charged under section

220(2) of the Act on the same amount for the same period.

• It is proposed to amend the provisions of sections 200 and 206C of the Act to provide that

where the tax deducted [including paid under section 192(1A)] / collected has been paid without the production of a challan, the PAO/TO/CDDO or any other person by whatever

name called who is responsible for crediting such sum to the credit of the Central

Government, shall furnish within the prescribed time a prescribed statement for the

prescribed period to the prescribed income-tax authority or the person authorised by such

authority by verifying the same in the prescribed manner and setting forth prescribed particulars. To ensure compliance of this proposed obligation of filing statement, it is

proposed to amend the provisions of section 272A of the Act so as to provide for a penalty

of Rs.100/- for each day of default during which the default continues subject to the limit of

the amount deductible or collectible in respect of which the statement is to be furnished.

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• It is proposed to amend the provisions of section 192 of the Act to provide that the person

responsible for paying, for the purposes of estimating income of the assessee or computing

tax deductible under section 192(1) of the Act, shall obtain from the assessee evidence or proof or particulars of the prescribed claim (including claim for set-off of loss) under the

provisions of the Act in the prescribed form and manner.

• It is proposed to amend the provisions of section 195 of the Act to provide that the person responsible for paying any sum, whether chargeable to tax or not, to a non-resident, not

being a company, or to a foreign company, shall be required to furnish the information of the prescribed sum in such form and manner as may be prescribed. Further, currently there

is no provision for levying of penalty for non-submission/inaccurate submission of the

prescribed information in respect of remittance to non-resident. For ensuring submission of accurate information in respect of remittance to non-resident, it is further proposed to insert

a new provision in the Act to provide that in case of non-furnishing of information or

furnishing of incorrect information under sub-section (6) of section 195(6) of the Act, a penalty of one lakh rupees shall be levied. It is also proposed to amend the provisions of

section 273B of the Act to provide that no penalty shall be imposable under this new provision if it is proved that there was reasonable cause for non-furnishing or incorrect

furnishing of information under sub-section (6) of section 195 of the Act.


G. Raising the income limit of the cases that may be decided by single member bench of ITAT

• It is proposed to amend sub-section (3) of section 255 of the Income-tax Act so as 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 fifteen lakh rupees.


H. Procedure for appeal by revenue when an identical question of law is pending before Supreme Court

• It is proposed to insert a new section 158AA so as to provide that notwithstanding anything

contained in this Act, where any question of law arising in the case of an assessee for any assessment year is identical with a question of law arising in his case for another assessment

year which is pending before the Supreme Court, in an appeal or in a special leave petition under Article 136 of the Constitution filed by the revenue, against the order of the High Court

in favour of the assessee, the Commissioner or Principal Commissioner may, instead of

directing the Assessing Officer to appeal to the Appellate Tribunal under sub-section (2) or sub-section (2A) of section 253, direct the Assessing Officer to make an application to the

Appellate Tribunal in the prescribed form within sixty days from the date of receipt of 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

earlier case.

• It is further proposed to provide that the Commissioner or Principal Commissioner shall

proceed under sub-section (1) only if an acceptance is received from the assessee to the

effect that the question of law in the other case is identical to that arising in the relevant case. However, in case no such acceptance is received the Commissioner or Principal

Commissioner shall proceed in accordance with the provisions contained in section (2) or

section (2A) of section 253 and accordingly may, if he objects to the order passed by the

Commissioner (Appeals), direct the Assessing Officer to appeal to the Appellate Tribunal.

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• It is also proposed to provide that where the order of the Commissioner (Appeals) is not in

conformity with the final decision on the question of law in the other case (if the Supreme

Court decides the earlier case in favour of the Department), the Commissioner or Principal Commissioner may direct the Assessing Officer to appeal to the Appellate Tribunal against

such order within sixty days from the date on which the order of the Supreme Court is

communicated to the Commissioner or Principal Commissioner and save as otherwise provided in the said section 158AA, all other provisions of Part B of Chapter XX shall apply

accordingly.

• This amendment will take effect from the 1st day of June, 2015.

I. Alternate Investment Funds

• Pooled investment vehicles (other than hedge funds) engaged in making passive investments

have been accorded pass through in certain tax jurisdictions. In order to rationalize the taxation of Category-I and Category-II AIFs (hereafter referred to as investment fund) it is

proposed to provide a special tax regime. The taxation of income of such investment funds

and their investors shall be in accordance with the proposed regime which is applicable to such funds irrespective of whether they are set up as a trust, company, or limited liability

firm etc. The salient features of the special regime are:-

(i) income of a person, being a unit holder of an investment fund, out of investments made in the investment fund shall be chargeable to income-tax in the same manner as if it were the income accruing or arising to, or received by, such person had the investments, made by the investment fund, been made directly by him.

(ii) income in the hands of investment fund, other than income from profits and gains of business, shall be exempt from tax. The income in the nature of profits and gains of business or profession shall be taxable in the case of investment fund.

(iii) income in the hands of investor which is of the same nature as income by way of profits and gain of business at investment fund level shall be exempt.

(iv) where any income, other than income which is taxable at investment fund level, is payable to a unit holder by an investment fund, the fund shall deduct income-tax at the rate of ten per cent.

(v) the income paid or credited by the investment fund shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder as if it had been received by, or had accrued or arisen to, the investment fund.

(vi) if in any year there is a loss at the fund level either current loss or the loss which remained to be set off, the loss shall not be allowed to be passed through to the investors but would be carried over at fund level to be set off against income of the next year in accordance with the provisions of Chapter VI of the Income-tax Act.

(vii) the provisions of Chapter XII-D (Dividend Distribution Tax) or Chapter XII-E (Tax on distributed income) shall not apply to the income paid by an investment fund to its unit holders.

(viii) the income received by the investment fund would be exempt from TDS requirement. This would be provided by issue of appropriate notification under section 197A(1F) of the Act subsequently.

(ix) it shall be mandatory for the investment fund to file its return of income. The investment fund shall also provide to the prescribed income-tax authority and the investors, the details of various components of income, etc. for the purposes of the scheme.

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• Further, the existing pass through regime is proposed to be continued to apply to VCF/VCC

which had been registered under SEBI (VCF) Regulations, 1996. Remaining VCFs, being part

of Category-I AIFs, shall be subject to the new pass through regime.

J. Rationalization of provisions of section 11 relating to accumulation of income by charitable trusts and institutions

• It is proposed to amend the Act to provide that the said Form 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.



K. Furnishing of return of income by certain universities and hospitals referred to in section 10(23C) of the Act

• It is proposed to amend the Act in order to provide that entities covered under clauses (iiiab)

and (iiiac) of clause (23C) of section 10 shall be mandatorily required to file their return of

income.

• This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation

to the assessment year 2016-17 and subsequent assessment years.

L. Power of the Central Board of Direct Taxes to prescribe the manner and procedure for computing period of stay in India

• 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 bound ship leaving India, the period or periods

of stay in India shall, in respect of such voyage, be determined in the manner and subject to

such conditions as may be prescribed.

• This amendment will take effect retrospectively from 1st April, 2015 and will, accordingly,

apply in relation to the assessment year 2015-16 and subsequent assessment years.

M. Assessments of income of a person other than the person in whose case search has been initiated

• As per the current provisions of the Act, where the Assessing Officer is satisfied that any

money, bullion, jewellery or other valuable article or thing or books of account or documents

seized or requisitioned belong to any person, other than the person referred to in section 153A, then the books of account or documents or assets seized or requisitioned shall be

handed over to the Assessing Officer having jurisdiction over such other person and that

Assessing Officer shall proceed against each such other person and issue such other person notice and assess or reassess income of such other person in accordance with the provisions

of section 153A.

• Disputes have arisen as to the interpretation of the words “belongs to” in respect of a

document as for instance when a given document seized from a person is a copy of the

original document.

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• Accordingly, it is proposed to amend the aforesaid section and to provide that where the

Assessing Officer is satisfied that any money, bullion, jewellery or other valuable article or

thing belongs to, or any books of account or documents seized or requisitioned pertain to, or any information contained therein, relates to, any person, other than the person referred

to in section 153A, then the books of account or documents or assets seized or requisitioned

shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue such other

person notice and assess or reassess income of such other person in accordance with the provisions of section 153A.

N. Simplification of approval regime for issue of notice for re-assessment

• As per Section 151 of the Act, to issue notice under section 148 of the Act, the Assessing

Officer is required to obtain sanction before issue of notice under section 148. Section 151 specifies different sanctioning authorities based on the time limit and whether scrutiny has

been made or not.

• To bring simplicity, it is proposed to provide that no notice under section 148 shall be issued by an assessing officer upto four years from the end of relevant assessment year without the

approval of Joint Commissioner and beyond four years from the end of relevant assessment year without the approval of the Principal Chief Commissioner or Chief Commissioner or

Principal Commissioner or Commissioner.


O. Interest for defaults in payment of advance tax in case of re-assessment and where additional income is disclosed before the Settlement Commission under section 245C

• It is proposed to amend clause (3) of section 234B of the Income-tax Act to provide that the

period for which the interest is to be computed will begin from the 1st day of April next

following the financial year and end on the date of determination total income under section 147 or section 153A.

• Further, it is proposed to insert a new subsection (2A) so as to provide that where an

application under sub-section (1) of section 245C for any assessment year has been made, the assessee shall be liable to pay simple interest at the rate of one per cent for every month

or part of a month comprised in the period commencing on the 1st day of April of such assessment year and ending on the date of making such application, on the additional

amount of income-tax referred to in that sub-section.

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

P. Revision of order that is erroneous in so far as it is prejudicial to the interests of revenue

• In order to provide clarity on the interpretation of the words “erroneous in so far as it is

prejudicial to the interest of the revenue”, it is proposed to provide that an 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, in the opinion of the Principal Commissioner or Commissioner:

(a) the order is passed without making inquiries or verification which, should have been made;

(b) the order is passed allowing any relief without inquiring 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

61

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


Q. Clarifications regarding deduction of tax from payments made to transporters

• It is proposed to amend the provisions of section 194C of the Act to expressly provide that the relaxation under sub-section (6 ) of section 194C of the Act from non-deduction of tax

shall only be applicable to the payment in the nature of transport charges (whether paid by

a person engaged in the business of transport or otherwise) made to an contractor who is engaged in the business of transport i.e. plying, hiring or leasing goods carriage and who is

eligible to compute income as per the provisions of section 44AE of the Act (i.e. a person

who is not owning more than 10 goods carriage at any time during the previous year) and

who has also furnished a declaration to this effect along with his PAN.


R. Rationalisation of provisions relating to deduction of tax on interest (other than interest on securities)

• It is proposed to amend the provisions of the section 194A of the Act to expressly provide from the prospective date of 1st June, 2015 that the exemption provided from deduction of

tax from payment of interest to members by a co-operative society under section 194A(3)(v)) of the Act shall not apply to the payment of interest on time deposits by the co-operative

banks to its members.

• It is further proposed to amend the provisions of section 194A of the Income-tax Act, 1961 to provide that deduction of tax under section 194A of the Act from interest payment on the

compensation amount awarded by the Motor Accident Claim Tribunal compensation shall

be made only at the time of payment, if the amount of such payment or aggregate amount of such payments during a financial year exceeds Rs.50,000/-.


S. Tax benefits for Swachh Bharat Kosh and Clean Ganga Fund

• “Swachh Bharat Kosh” has been set up by the Central Government to mobilize resources for

improving sanitation facilities in rural and urban areas and school premises through the

Swachh Bharat Abhiyan. Similarly, Clean Ganga Fund has been established by the Central

Government to attract voluntary contributions to rejuvenate river Ganga.

• With a view to encourage and enhance people’s participation in the national effort to

improve sanitation facilities and rejuvenation of river Ganga, it is proposed to amend section 80G of the Act so as to incentivise donations to the two funds. It is proposed to provide 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.

• Further, it is also proposed to amend section 10(23C) of the Act so as to exempt the income

of Swachh Bharat Kosh and Clean Ganga Fund from income-tax.

62

• 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.

T. Settlement Commission

• It is proposed to amend clause (i) of the Explanation to clause (b) of section 245A to provide that where a notice under section 148 is issued for any assessment year, the assessee can

approach 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 furnished under section 139 of

the Act or in response to notice under section 142 of the Act.

• The existing provision contained in clause (iv) of the Explanation provides that a proceeding

for any assessment year, other than the proceedings of assessment or reassessment referred

to in clause (i) or clause (iii) or clause (iiia), shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made.

• It is proposed to amend clause (iv) of the Explanation to provide that a proceeding for any

assessment year, other than the proceedings of assessment or reassessment referred to in clause (i) or clause (iii) or clause (iiia), shall be deemed to have commenced from the date on

which a return of income is furnished under section 139 or in response to notice under section 142 and concluded on the date on which the assessment is made or on the expiry of

two years from the end of relevant assessment year, in a case where no assessment is made.

• It is proposed to amend sub-section (6B) of section 245D of the Act to provide that the

Settlement Commission may, with a view to rectifying any mistake apparent from the record,

amend any order passed by it under sub-section (4),-

(a) at any time within a period of six months from the end of month in which the order

was passed;

(b) on an application made by the Principal Commissioner or Commissioner before the end

of period of six months from the end of month in which the order was passed, at any time within a period of six months from the end of month in which such application

was made.

• It is proposed to amend sub-section (1) of section 245H of the Income-tax Act so as to provide

that the Settlement Commission while granting immunity to any person shall record the

reasons in writing in the order passed by it.

• It is proposed to amend sub-section (1) of section 245HA of the Income-tax Act to provide

that where in respect of any application made under section 245C, an order under sub-

section (4) of section 245D has been passed without providing the terms of settlement the proceedings before the Settlement Commission shall abate on the day on which such order

under sub-section (4) of section 245D was passed.

• It is proposed to amend section 245K of the Act to provide that any person related to the

person who has already approached the Settlement Commission once, also cannot approach

the Settlement Commission subsequently. The related person with respect to a person means,-

(i) where such person is an individual, any company in which such person holds more than fifty percent. 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

63

than fifty percent of the profits at any time, or any Hindu undivided family in which

such person is a karta;

(ii) where such person is a company, any individual who held more than fifty percent. of the shares or voting power in such company at any time before the date of application before the Settlement Commission by such person;

(iii) where such person is a firm or association of persons or body of individuals, any

individual who was entitled to more than fifty percent of the profits in such firm,

association of persons or body of individuals, at any time before the date of application before the Settlement Commission by such person;

(iv) where such person is an Hindu undivided family, the karta of that Hindu undivided family.

• It is proposed to amend section 132B of the Income-tax Act to provide that the asset seized

under section 132 or requisitioned under section 132A may also be adjusted against the

amount of liability arising on an application made before the Settlement Commission under

sub-section (1) of section 245C.


U. Orders passed by the prescribed authority under section sub-clauses (vi) and (via) of clause (23C) of section 10 made appealable before Income-tax Appellate Tribunal

• The decision of the prescribed authority to refuse to grant approval can have significant

implications for the educational or medical institution under the Income-tax Act. Further,

under a comparable provision an order for refusal to register a charitable trust is appealable

before the Appellate Tribunal. Accordingly, it has been proposed to amend the said sub-

section (1) of section 253 so as to provide that an assessee aggrieved by the order passed by the prescribed authority under sub-clause (vi) or (via) of section 10(23C) may appeal to the

Appellate Tribunal.


Note: ‘Act’ refers to The Income Tax Act, 1961

64

65

Chapter 6

Indirect Taxes

Sector & Industry Specific Analysis

66

67

Air-conditioning & Refrigeration

Industry Issues

Window/wall type self contained air-conditioners and household compression type refrigerators are included in the list of India-Thailand Agreement and attract NIL customs duty since 1st September 2006. In 2013-14, 51% of imports of air-conditioners and 61% of house hold refrigerators were from Thailand. However, there is no provisions to import inputs at NIL customs duty.

Parts of air-conditioners falling under tariff heading 8415 90 00 attract customs duty of 10%. This needs to be brought down to 7.5%.

Customs and Excise duties are exempted vide customs notification 12/2012-sl.no. 331 and excise notification 12/2012-sl. no. 364 on goods required for the project for substitution of ozone depleting substances (ODS) or projects for setting up of new capacity with non-ODS technology. This needs to be extended to goods imported for setting up R & D, testing and calibration facilities for development of non-ODS products and components.

What CII Wanted

Reduce customs duty from 10% to 7.5% on parts of air-conditioners.

Extend customs and excise duty exemptions to goods required for setting up R&D, testing and calibration facilities for development of non-ODS products and components.

What the Government Gave

Item Excise Duty (%) Customs Duty (%)

01.01.2015 What CII wanted

Budget 2015 – 16

2014-15 What CII wanted

Budget 2015 - 16

Window / wall type self contained or split air-conditioners (8415 10)

12 12 12.5 10 10 10

Household refrigerators (8418 21 00, 8418 29 00)

12 12 12.5 10 10 10

Inputs

Compressors (8414 30 00, 8414 80 11)

12 12 12.5 7.5 7.5 7.5

Thermostats (9032 10 10) 12 12 12.5 7.5 7.5 7.5

Electronic Controls (8537 10 10) 12 12 12.5 7.5 7.5 7.5

Copper/copper alloys tubes and fittings (7411, 7412)

12 12 12.5 7.5 7.5 7.5

Parts of air-conditioners (8415 90 00) 12 12 12.5 10 7.5 10

Parts of refrigerators (8418 99 00) 12 12 12.5 7.5 7.5 7.5

Impact of Budget 2015-16

Customs duty has been reduced from 7.5% to 5% on C-Block compressor (8414 90 11), crank shaft (8414 90 11) and over load protector (OLP) & positive thermal co-efficient (8536 20 90) for use in manufacture of refrigerator compressors.

Excise duty has been increased from 12% to 12.5% and Education Cess has been exempted

68

Alcoholic Beverages

Industry Issues

The import of distilled spirits is either in the form of bottled in origin (BIO) or in bulk and then bottled in India. Customs duty on both forms of distilled spirits is 150% since long and is equal to the WTO bound rate of duty. Present basic customs duty of 150% is higher than duty rates prevalent in most countries within the Asia – Pacific Region.

Reduction of customs duty on distilled spirits from 150% to 100% needs consideration. There can be a minimum benchmark customs duty payable to ensure some ongoing protection for lower value domestic distilled spirits and wine products.

What CII Wanted

Reduce customs duty from 150% to 100% on distilled spirits (BIO and Bulk) and wine.


Item

Excise Duty (%) Customs Duty (%)


Budget 2015 – 16

2014 – 15 What CII wanted

Budget 2015 - 16

Beer made from malt (2203) NIL CVD NIL CVD NIL CVD 100 100 100

Wine and liquor (2204, 2208) NIL CVD NIL CVD NIL CVD 150 100 150

Inputs

Cane molasses (1703 10 00) Rs. 750 per

MT Rs. 750 per

MT Rs. 750 per

MT 10

10

10

Glass bottles (7010 90 00) 12 12 12.5 10 10 10


Excise duty on glass bottles has been increased from 12% to 12.5% and simultaneously Education Cess has been exempted.

69

Aluminium

Industry Issues

Presently indigenous production of alumina is less than the demand and short fall is being met by imports which were 1.096 million ton in 2013-14 valuing Rs. 23,826 lac. Customs duty on calcined alumina (2818 20 10) is 5% which is at par with customs duty on aluminium. Reduction of customs duty on calcined alumina would help aluminium manufacturers.

Aluminium scrap is recycled in oil/gas fired furnaces for manufacture of aluminium alloy ingots which are mainly used for manufacture of auto components. The imported aluminium scrap attracts 12% CVD and 4% SAD. The manufacturers of aluminium alloy ingots from scrap are unable to utilize the CENVAT credit of CVD and SAD due to low value addition in conversion of scrap into ingots. Exemption of SAD on aluminium scrap will make the manufacturers of aluminium alloy ingots more competitive.

What CII Wanted

Reduce customs duty from 5% to 2.5% on calcined alumina.

Exempt 4% Special Additional Duty on aluminium scrap falling under CTH 7602 00 10.


Item



Budget 2015 – 16


Budget 2015 - 16

Aluminium in various forms (7602 to 7607) 12 12 12.5 5 5 5

Aluminium products (7610 to 7616) 12 12 12.5 10 10 10

Inputs

Aluminium ore (bauxite) (2606) NIL NIL NIL 2.5 2.5 2.5

Calcined petroleum coke (2713 12 00) 14 14 14 2.5 2.5 2.5

Calcined alumina (2818 20 10) 12 12 12.5 5 2.5 5

Caustic soda (2815 11 10, 2815 12 00) 12 12 12.5 7.5 7.5 7.5

Aluminium fluoride (2826 12 00) 12 12 12.5 7.5 7.5 7.5

Coal tar pitch (2708 10 10) 14 14 14 5 5 5


Special Additional Duty (SAD) has been reduced from 4% to 2% on aluminium scrap.

Excise duty has been increased from 12% to 12.5%.

Education Cess has been exempted.

70

Auto Components

Industry Issues

Customs duty on melting scrap of iron or steel and stainless steel was increased from NIL to 2.5% on 8 May 2013. This levy of customs duty is of concern to auto component industry as it is one of the largest user of secondary steel produced from such scrap and is therefore directly impacted due to increase in price of secondary steel. Restoration of NIL customs duty would help the auto component industry.

Washcoat technology is being used for manufacture of catalytic convertors to meet the revised emission standards. Washcoat is being imported at a concessional customs duty of 5% under sl. no. 371 of customs notification 12/2012. The raw materials required for making washcoat attract customs duty of 7.5% - 10% which makes indigenously manufactured washcoat costlier than the imported product. To rectify this situation, customs duty on inputs needs to be reduced to 5%.

What CII Wanted

Reduce customs duty from 2.5% to NIL on melting scrap of iron or steel as well as stainless steel.

Reduce customs duty to 5% on zeolite (3824 90 90), ceria zirconia compounds (2825 60 20), aluminium oxide and compounds (2818 20 90), titanium dioxide (2823 00 10) and cerium compounds (2846 10 90) for manufacture of washcoats.


Item



Budget 2015 – 16


Budget 2015 - 16

Engine for vehicles (8407 31, 8407 32, 8407 33, 8407 34, 8408 20)

12 12 12.5 7.5 7.5 7.5

Gear boxes for vehicles (8708 40 00) 12 12 12.5 10 10 10

Parts suitable for use principally with vehicle engines (8409 91 and 8409 99)

12 12 12.5 7.5 7.5 7.5

Inputs

Melting scrap of iron or steel and stainless steel (7204)

12 12 12.5 2.5 NIL 2.5

Aluminium oxide and compounds (2818 20 90), Ceria Zirconia Compounds (2825 60 20), Cerium Compounds (2846 10 90), Zeolite (3824 90 90) for manufacture of wash coat

12 12 12.5 7.5 5 7.5

Titanium dioxide for manufacture of wash coat (2823 00 10)

12 12 12.5 10 5 10


Customs duty has been reduced from 7.5% to 5% on ceria zirconia compounds, (2825 60 20), cerium compounds (2846 10 90) and zeolite (3824 90 90) for use in manufacture of washcoat.

SAD has been reduced from 4% to 2% on melting scrap of iron or steel and stainless steel.

Excise duty has been increased from 12% to 12.5% and Education Cess has been exempted.

71

Automobiles

Industry Issues

60% to 100% customs duty on CBUs of new cars and 60 – 75% on 2 wheelers has provided protection to indigenous industry and this needs to be retained.

With a view to encourage manufacture of electric and hybrid vehicles, basic customs duty on specified inputs has been reduced to NIL and CVD to 6%. However, this concession is valid upto 31 March 2015, which needs to be extended till 2020 i.e entire of National Electric Mobility Mission Plan.

Factory fitted ambulance falling under tariff headings 8702 or 8703 attract concessional excise duty of 12%. However, chassis of such ambulance falling under 8706 00 39 attract excise duty of 24%. The large difference in excise duty on chassis and ambulance results in accumulation of CENVAT credit at body builders’ end, which needs to be rectified by reducing excise duty on chassis of ambulance to 12%.

1% National Calamity Contingent duty (NCCD) on motor cars, multi-utility vehicles and two-wheelers needs to be withdrawn to reduce the impact of taxation.

What CII Wanted

Retain existing customs duty rates on CBUs of cars/MUVs and two-wheelers.

Extend benefit of NIL customs duty and 6% CVD on specified inputs of electric as well as hybrid vehicles upto 2020.

Reduce excise duty from 24% to 12% on chassis for ambulance.

Withdraw 1% NCCD on motor vehicles.




Budget 2015 – 16


Budget 2015 - 16

Motor cycles (including mopeds) less than 800 cc in assembled condition (8711)

12 12 12.5 60 60 60

Small cars of length not exceeding 4000 mm and engine capacity not exceeding 1200 CC in case of petrol, LPG and CNG/1500 CC in case of diesel (8702, 8703)

12 12 12.5 60 60 60

Motor vehicles for the transport of goods other than petrol driven dumpers (8704)

12 12 12.5 10 10 20

Chassis for ambulance (8706 00 39, 8706 00 21)

24 12 12.5 10 10 10


Customs duty has been increased from 10% to 20% on commercial vehicles (8702, 8704) when imported in any form other than completely knocked down (CKD) kit.

The validity period of NIL customs duty, 6% CVD and 6% excise duty on specified inputs of hybrid and electrically operated vehicles has been extended by one year i.e. upto 31.03.2016.

Excise duty has been reduced from 24% to 12.5% on chassis for ambulance.

72

Capital Goods / Projects Imports

Industry Issues

Presently goods supplied to ultra mega power projects are exempted from excise duty as per sl. no. 337 and 338 of excise notification 12/2012. However, in case of goods supplied to nuclear power projects, excise duty has to be paid and subsequently claimed as refund under deemed export benefits. This results in blockage of funds of the indigenous supplier which adds to the cost whereas CVD is exempted if goods are imported. The excise exemption needs to be extended to nuclear power projects having NIL customs duties as per sl. no. 511 of customs notification 12/2012.

Exemption of 4% SAD includes various types of projects and certain capital goods. This erodes competitiveness of the domestic industry as CST/VAT is applicable on indigenously manufactured goods.

In terms of Notification No. 108/95-C.E excise duty exemption is available to the manufacturer where the goods are supplied to specified International Organisations or the projects financed by these. However, this benefit is available only to the main contractor and not to the sub-contractor.

What CII Wanted

Exempt excise duty on nuclear power projects and also include these in Rule 6(6) of CENVAT Credit Rules 2004.

Impose 4% SAD on all types of projects and others which involve import of capital goods.

Extend the benefit of NIL excise duty under excise notification 108/95 and 12/2012-338 to sub-contractors.


Item Excise Duty (%) Customs Duty +CVD +Spl. CVD (%)


Budget 2015 – 16


Budget 2015 - 16

Nuclear Power specified projects of capacity 440 MW or more (9801)

12 NIL 12.5 NIL+NIL+NIL NIL+NIL+NIL NIL+NIL+NIL

Project Imports (9801) 12 12 12.5 5+12+4 5+12+4 5+12.5+4

General Machinery not covered by any notification (84, 85)

12 12 12.5 7.5+12+4 7.5+12+4 7.5+12.5+4


Condition 41 for sl. no. 336 of excise notification 12/2012 related to goods supplied against International Competitive Bidding has been amended to prescribe that the conditions applicable to import at NIL basic and NIL CVD will also apply mutatis mutandis to such goods when manufactured domestically.

General excise duty rate has been increased from 12% to 12.5% along with exemption of Education Cess.

73

Castings for Wind Operated Electricity Generators

Industry Issues

Wind operated electricity generators are non-conventional energy devices. These attract 5% customs duty and NIL excise duty. Due to excise exemption, CVD is also NIL on imported wind operated electricity generator as well as its components and parts. This puts the indigenous manufacturers of components and parts in a disadvantageous position.

One of the sectors affected is foundries which produce the castings for hub, base frame, bearing housing and main shaft which are supplied in unmachined or machined condition. They pay CVD of 12% on imported inputs. Excise duty of 12% is also payable if the inputs are procured indigenously. They cannot take CENVAT credit due to NIL excise duty on parts of wind operated electricity generators. If they avail credit of CVD and excise duty, they have to pay 6% of the value of goods supplied as per Rule 6 (3) (i) of CENVAT Credit Rules, 2004.

What CII Wanted

Reduce CVD on the main inputs of casting viz pig iron SG grade and ferro-silicon-magnesium from 12% to NIL when imported for manufacture of cast components of wind operated electricity generators.

Include supplies of components and parts of wind operated electricity generators in Rule 6(6) of CENVAT Credit Rules 2004.




Budget 2015 – 16


Budget 2015 - 16

Hub, base frame, bearing housing, main shaft of wind operated electricity generator (8503 00 10, 8503 00 90)

NIL NIL NIL 5 5 5

Inputs

Pig iron SG Grade (7201 10 00) 12 NIL CVD NIL 5 5 5

Ferro–silicon – magnesium (7202 29 00) 12 NIL CVD NIL 5 5 5


Excise duty has been reduced from 12% to NIL on pig iron SG grade (7201 10 00) and ferro-silicon-magnesium (7202 29 00) for manufacture of cast components of wind operated electricity generators subject to certification by Ministry of New Renewable Energy (MNRE).

74

Cement

Industry Issues

In the budget 2012, excise duty rates were revised and since then packaged cement attracts 12% excise duty based on retail sale price with abatement of 30% plus specific excise duty of Rs. 120 per tonne. Excise duty on cement is higher than other inputs used in infrastructure and housing. Therefore, specific duty component on cement needs to be withdrawn.

Due to inadequate supplies of domestic coal, cement manufacturers have to resort to usage of expensive imported coal. The industry is trying alternative fuel sources like tyre chips. These attract customs duty of 10% which needs to be reduced to 5%.

What CII Wanted

Remove specific component of excise duty of Rs 120 per tonne on cement and reduce adalorem rate of excise duty from 12% to 10%.

Reduce customs duty form 10% to 5% on rubber tyre chips.


Item Excise Duty Customs Duty%


Budget 2015 – 16


Budget 2015 - 16

Cement manufactured and cleared in packaged form from other than a mini cement plant (2523 29)

12%+Rs 120 PMT

12% 12.5%+

Rs.125 PMT NIL NIL NIL

Cement cleared in other than packaged form (2523 29)

12% 12% 12.5% NIL NIL NIL

Inputs

Tyre chips (4004 00 00) 12% 12% 12.5% 10 5 5

Steam coal (2701 19 20) 2% CVD 2% CVD 2% CVD 2.5 2.5 2.5

Petroleum Coke (2713 11 00) 14% 14% 14% 2.5 2.5 2.5


Excise duty on cement in packaged form has been increased from 12%+Rs. 120 PMT to 12.5%+Rs. 125 PMT.


Clean Energy Cess on coal, lignite and peat has been increased from Rs. 100 to Rs. 200 per tonne.

75

Chemicals

Industry Issues

The main input for manufacture of antimony trioxide is antimony. China is the main producer of antimony. During 2013-14, India imported antimony worth Rs. 8002 lac and 82% of import was from China as per data available on Ministry of Commerce website. China has imposed additional customs duty of 5% on export of antimony with effect from 1 July 2009 but there is no such duty on export of antimony trioxide. Consequently users prefer to import antimony trioxide from China. During 2013-14 India imported Rs. 7402 lac antimony oxides from China out of total imports of Rs. 8190 lac.

The combined effect of all these makes production of antimony trioxide from antimony unviable in India. This has resulted in under utilization of capacity of indigenous manufactures of antimony trioxide. Presently antimony attracts customs duty of 5% and its reduction to 2.5% can help the indigenous manufacturers of antimony trioxide.

What CII Wanted

Reduce customs duty from 5% to 2.5% on antimony.


Item

Excise Duty % Customs Duty%


Budget 2015 – 16


Budget 2015 - 16

Antimony oxides (2825 28 00) 12 12 12.5 7.5 7.5 7.5

Inputs

Antimony (8110 10 00) 12 12 12.5 5 2.5 2.5


Customs duty has been reduced from 5% to 2.5% on antimony metal and antimony waste and scrap.

Excise duty has been increased from 12% to 12.5% along with exemption of Education Cess.

76

Cigarettes

Industry Issues

The current system of length based specific excise duty for cigarettes introduced in 1987 has avoided valuation disputes and resulted in growth in revenue collection. It needs to be retained for cigarettes.

The new segment of filter cigarettes, length not exceeding 65 mm, with excise duty of Rs. 669 per thousand cigarettes introduced in the budget 2012, had enabled the legitimate cigarette industry to offer cigarettes at Rs. 2 per stick. The steep 72% hike in excise duty on this segment with effect from 11.07.2014 has forced the industry to vacate the crucial Rs. 2 per stick segment and provided further impetus in growth of illegal cigarettes. To counter this phenomenon, it is suggested that excise duty on the 65 mm segments be reduced from Rs. 1150 to earlier level of Rs. 669 per thousand cigarettes.

In addition there is need for a new segment of less than 60 mm length with an excise duty of Rs. 200 per thousand cigarettes to effectively combat the menace of illegal cigarettes.

What CII Wanted

Continue with the specific excise duty structure for cigarettes.

Reduce excise duty from Rs. 1150 to Rs. 669 per 1000 cigarettes of length not exceeding 65 mm.

Introduce new segment of ‘less than 60 mm length’ with excise duty of Rs. 200 per thousand cigarettes.


Item

Excise +NCCD+Health Cess Rs. Per 1000 Cigarettes

Customs Duty (%)


Budget 2015 – 16


Budget 2015 - 16

Cigarettes non-filter (<=65mm) (2402 20 10) 1150 669 1440

30 30 30

Cigarettes non-filter (>65-70mm) (2402 20 20) 2250 2250 2590

Cigarettes filter (<=65mm) (2402 20 30) 1150 669 1440

Cigarettes filter (65-70mm) (2402 20 40) 1650 1650 1900

Cigarettes filter (70-75mm) (2402 20 50) 2250 2250 2590

Cigarettes other (2402 20 90) 3290 3290 3790


Basic excise duty has been increased by 25% for cigarettes of length not exceeding 65mm and by 15% for cigarettes of other lengths.

There is no change in Additional Duty (Health Cess) and NCCD.

77

Copper & Copper Scrap

Industry Issues

Customs duty on copper scrap is 5% whereas scrap of steel and aluminium attracts 2.5% duty.

In India, the secondary producer of copper in the organized sector find itself in a disadvantageous position due to the following:

Customs duty on scrap of copper is 5% which is at par with customs duty on copper.

Unable to utilize the CENVAT credit of 12% CVD and 4% SAD paid on imported scrap due to low value addition in conversion of scrap into metal form.

There is need to encourage recycling of copper by reducing basic customs duty on scrap of copper to 2.5% and exempting 4% SAD.

Imported copper cathodes also attract CVD of 12% and SAD of 4% and the CENVAT credit taken remains unutilized due to low value addition in conversion to copper rods. Exemption of SAD can resolve this problem.

What CII Wanted

Reduce customs duty from 5% to 2.5% on copper scrap.

Exempt 4% Special Addition Duty on copper scrap, copper alloy scrap and copper cathodes.




Budget 2015 – 16


Budget 2015 - 16

Copper rods, copper wire-bars (7403) 12 12 12.5 5 5 5

Copper cathodes (7403 11 00) 12 12 12.5 5 5 5

Inputs

Copper ores and concentrates (2603) NIL NIL NIL 2.5 2.5 2.5

Copper scrap (7404) 12 12 12.5 5 2.5 5


Special Additional Duty (SAD) has been reduced from 4% to 2% on copper as well as brass scrap.

Excise duty has been fully exempted on round copper wire for use in the manufacture of PV ribbon (tinned copper interconnect) for manufacture of solar PV cells and modules.

General rate of excise duty has been increased from 12% to 12.5% and simultaneously Education Cess has been exempted.

78

Drugs & Pharmaceuticals

Industry Issues

Navelbine is a new medicine and is being imported for use in the therapy of treating Non-Small-Cell Lung Cancer (NSCLC). This needs to be included as a life saving drug in list 4 of customs notification 12/2012-sl. no. 148.

Radioisotope TI-201 and Technitium-99M are tracer molecules used in medical imaging appear at sl no. 92 and 111 of customs list 4 and attract NIL customs duty as per sl. no. 148 of customs notification 12/2012. Similar customs duty concession needs to be extended to Radioisotope-FDG 18 mainly used as medical imaging modality Positron Emission Tomography.

In list 3 of customs notification 12/2012, “Interferon alpha-2b/alpha-2a/interferon alpha-2a/Interferon NL (LNS)” appears at sl. no. 37. Likewise, “Interferon beta-1b” is a newly developed life saving drug akin to the medicine at sl. no. 37 and hence should also be allowed for import at concessional customs duty by adding in list 3.

List 3, also includes cancer drugs “Pegulated Liposomal Doxorubicin Hydrochloride injection” and “Doxorubicin” at sl. no. 89 and 128 respectively. Likewise, “Doxorubicin Hydrochloride Liposomal injection” is a medicine meant for treatment of cancer and needs to be included in list 3.

Pharma formulations attract excise duty of 6% whereas inputs active pharmaceutical ingredients (API) have excise duty of 12% which has led to accumulation of CENVAT Credit. This situation needs to be corrected by reducing excise duty on API to 6%.

What CII Wanted

Include Navelbine and Radioisotope-FDG 18 in list 4 of customs notification 12/2012 to bring down customs duty to NIL.

Allow import of Interferon beta-1b and Doxorubicin Hydrochloride Liposomal injection at concessional customs duty of 5% by including these in list 3 of customs notification 12/2012.

Reduce excise duty from 12% to 6% on active pharmaceutical ingredients.




Budget 2015 – 16


Budget 2015 - 16

Drug formulations (3001, 3003, 3004, 3005, 3006)

6 6 6 10 10 10

126 specified life saving drugs / medicines including their salts and esters and diagnostic kits – list 4 of customs (28,29,30,38)

NIL NIL NIL NIL NIL NIL

181 specified drugs, medicines, diagnostic kits or equipment – list 3 of customs (28,29,30)

NIL NIL NIL 5 5 5


Excise duty has been increased from 12% to 12.5% on goods covered by the Medical and Toilet Preparations Act.

.

79

Edible Oils

Industry Issues

Indigenous production of edible oils is not sufficient to meet the requirements and the shortfall is met by imports. Imports are mainly of crude palm oil and refined bleached deodorized (RBD) palmolein. Indonesia is the major supplier of these oils and is encouraging export of refined palm oil by imposing lower export duty on it and higher export duty on crude palm oil. The present duty structure and import data are as under:

Description

Customs Duties Imports thousand Metric

Tonne*

Import Duty in

India

Export Duty in

Indonesia Total 2012 – 13 2013 – 14

Crude Palm Oil (1511 10 00) 2.5% 12% 14.5% 7004 5135

RBD Palmolein (1511 19 20) 10% 5% 15% 1411 2525

The impact of the above duty structure is that practically there is no protection for indigenous edible oil refining industry and this has resulted in reduction in capacity utilization due to considerable increase in imports of refined palm oil. Though the differential of 7.5% in customs duty on refined and crude palm oils exist, it is almost nullified due to 7% differential in export duty levied by Indonesia and the actual protection works out to 0.5% only.

Increase in customs duty difference between crude and refined palm oils to 15% from present level of 7.5% is suggested to safeguard the interest of indigenous edible refining industry.

What CII Wanted

Increase customs duty from 10% to 17.5% on refined palm oils.


Item



Budget 2015 – 16


24.12.2014

Crude Palm oil and crude palmolein for manufacture of refined oil, refined palmolein, vanaspati, bakery shortening or inter-esterified fats (1511)

NIL NIL NIL 2.5 2.5 7.5

Refined Palm Oil (1511 90) NIL NIL NIL 10 17.5 15


On 24.12.2014 customs duty was increased from 2.5% to 7.5% on all crude edible oils and from 10% to 15% on refined edible oils.

There is no further change in customs duty on edible oils in the budget.

80

Electrical Insulators

Industry Issues

Suspended conductors of electric power transmission lines are bare and supported by insulators at poles or towers. Electrical insulators for high voltage transmission are made from glass, porcelain or compositive polymer materials.

Metalic hardware is used in various types of insulators. High voltage transmissions lines usually use modular cap and pin insulators where in the conductors are suspended from a string of identical disc shaped insulators attached to each other with metal clevis pin or ball and socket links. Most of the metal parts for insulators fall under tariff heading 7325 which attracts customs duty of 10% as compared to 7.5% on imported insulators. This results in competitive disadvantageous position for the indigenous manufacturers as compared to import of insulators from the foreign vendors. This is an anomaly in customs duty structure and needs to be rectified.

What CII Wanted

Reduce customs duty from 10% to 7.5% on metal parts of electrical insulators falling under tariff heading 7325.


Item



Budget 2015 – 16


Budget 2015 - 16

Electrical Insulators (8546) 12 12 12.5 7.5 7.5 7.5

Inputs

Metal Parts for insulators (7325) 12 12 12.5 10 7.5 7.5


Anomaly in customs duty structure has been removed by reducing customs duty from 10% to 7.5% on metal parts (7325) for use in the manufacture of electrical insulators.


81

Fly Ash Products

Industry Issues

Coal based power plants generate lot of fly ash and find difficulties in its disposal. One of the usage of fly ash is to convert into fly ash bricks. Fly ash is also used in the manufacture of asbestos cement roofing sheets, flat boards, pipes and accessories falling under tariff heading 6811.

To encourage use of fly ash, government gave full excise exemption in the year 1991 vide excise notification 60/1991 on goods falling under chapter 68 in which not less than 25% by weight of fly-ash has been used. This exemption continued for a long time.

Subsequently the following changes in excise duty were made on goods of chapter 68, in which not less than 25% by weight of fly ash or phosphor-gypsum or both have been used.

Date Excise Duty Remarks

1.3.2006 8% Excise duty of 8% was levied when general rate was 16%

17.2.2008 4% Excise duty was reduced from 8% to 4% in the stimulus package

7.7.2009 8% Excise duty rate increased from 4% to 8%



Usage of fly ash for manufacture of fly ash bricks and asbestos cement products containing not less than 25% fly ash by weight needs to be encouraged by reducing excise duty to half the general rate.

What CII Wanted

Reduce excise duty from 12% to 6% on goods falling under chapter 68 in which not less than 25% by weight of fly ash has been used.




Budget 2015 – 16


Budget 2015 - 16

Fly ash bricks (6815 99 10) 12 6 12.5 10 10 10

Asbestos cement products containing minimum of 25% of fly ash by weight (6811)

12 6 12.5 10 10 10

Input

Fly ash (26 or any other chapter) 6/2* 6/2* 6/2* 5 5 5

*without CENVAT credit



82

Food Processing & Agro-Based Products

Industry Issues

Even though excise duty on number of food products is 6%, option is there to pay 2% excise duty without availment of CENVAT credit. This facility needs to be continued.

In the budget 2014-15, additional duty of excise of 5% over and above 12% excise duty was levied on waters, including aerated waters, containing sugar falling under tariff headings 2202 10 which needs to be withdrawn.

Packaged drinking water attracts excise duty of 12% which needs to be brought down to 6%.

Biscuits sold at a RSP not exceeding Rs. 100 per Kg is exempted from excise duty since 2007. The increase in RSP limit to Rs. 125 per Kg needs consideration due to increase in input costs.

Though most of food products attract 6% excise duty, there are few items mainly those containing cocoa and instant coffee attracting excise duty of 12%. This discrimination needs to be removed.

While most of the ready to serve beverages are subject to excise duty on MRP basis, iced tea falling under tariff tariff heading 2101 20 90 is still assessed to 12% excise duty on transaction value.

What CII Wanted

Continue with the existing exemptions either in the form of NIL excise duty or 2% excise duty without CENVAT credit.

Withdraw 5% additional duty of excise on waters containing sugar falling under tariff heading 2202 10.

Reduce excise duty from 12% to 6% on packaged drinking water and processed food having excise duty of 12%.

Increase RSP limit for biscuits from Rs. 100 to Rs. 125 per Kg for the purpose of excise exemption.

Include iced tea under section 4A of the Central Excise Act for the purpose of valuation with abatement.


Item



Budget 2015 – 16


Budget 2015 - 16

Sugar confectionery containing cocoa (1806 90 20) Chocolates & chocolate products (1806 90 10)

12 6 12.5 30 30 30

Water, including aerated waters,

containing sugar (2202 10) 12+5 12 18 30 30 30


5% additional duty of excise on waters containing sugar (2202 10) has been withdrawn. However, excise duty on these has been increased from 12% to 18%.

Excise duty of 2% without CENVAT credit or 6% with CENVAT credit has been levied on condensed milk put in unit containers and peanut butter. In case of condensed milk abatement of 30% on RSP has been provided.

Goods under 2101 20 including iced tea have been brought under Section 4A of Central Excise Act for the purpose of valuation with abatement of 30%.

All good sunder 2202 except mineral water and aerated water have been brought under Section 4A for the purpose of valuation with abatement of 35%.

83

Foundry

Industry Issues

Foundry industry produces castings of grey iron, spheroidol graphite (SG) iron, malleable iron, steel and aluminium. Metal scrap is important input for foundries. Earlier there was NIL customs duty on metal scrap of iron & steel, stainless steel and aluminium which was increased to 2.5% with effect from 8 May 2013. The increase in customs duty on the key input i.e scrap has resulted in erosion of cost competitiveness of industry specially the MSMEs. Restoration of NIL customs duty on scrap will help the indigenous foundry industry.

4% SAD is applicable on imported scrap. Though the users of imported scrap are allowed to avail CENVAT credit, some of the foundries are not able to utilize the credit due to low value addition which adds to the cost.

What CII Wanted

Reduce customs duty from 2.5% to NIL on scrap of iron & steel and stainless steel.

Exempt 4% additional duty of customs (SAD) on melting scrap of iron and steel, stainless steel and aluminium.


Item



Budget 2015 – 16


Budget 2015 - 16

Castings of iron or steel (7325) 12 12 12.5 10 10 10

Castings of aluminium (76) 12 12 12.5 10 10 10

Inputs

Melting scrap of iron or steel (7204) 12 12 12.5 2.5 NIL 2.5

Scrap of stainless steel for melting (7204 21)

12 12 12.5 2.5 NIL 2.5


Special Additional Duty (SAD) has been reduced from 4% to 2% on melting scrap of iron or steel and stainless steel.

General rate of excise duty has been increased from 12% to 12.5% and Education Cess has been exempted.

84

Hydrocarbons

Industry Issues

Natural gas, crude oil and coal are collectively known as hydrocarbons. Presently India is importing all the three varieties of hydrocarbons. Customs duty on crude oil is NIL where as natural gas attracts customs duty of 5%. However, natural gas attracts NIL customs duty when imported by electricity generating company or for supply to electricity generating company as per sl. no. 139 and 139A of customs notification 12/2012.

Indigenous production of natural gas is not sufficient to meet the requirement of various users and to meet the shortfall, India imported liquefied natural gas (LNG) worth Rs. 41,142 crores during 2012-13 as per the import data available on the Ministry of Commerce website. The imports increased to Rs. 51,699 crores in 2013-14 which means growth of 25.6%.

Keeping in view the limited availability of indigenous natural gas, it is suggested that customs duty on natural gas and LNG is made NIL without mentioning any end use condition so that all users can avail the concessional duty benefit.

National Calamity Contingent Duty (NCCD) of Rs. 50 per tonne on crude oil was imposed vide Section 169 of the Finance Act 2003 for one year i.e upto 29.02.2004. Subsequently in the Finance Act 2005, NCCD was extended without any time limit. NCCD on crude oil needs to be withdrawn.

What CII Wanted

Reduce customs duty from 5% to NIL on LNG and natural gas without any end use condition.

Withdraw NCCD on crude oil.


Item



Budget 2015 – 16


Budget 2015 - 16

Crude Oil (2709 00 00) Cess of

Rs. 4500 per tonne

Cess of Rs. 4500

per tonne

Cess of Rs. 4500

per tonne NIL NIL NIL

Natural Gas (2711 21 00) NIL NIL NIL 5 NIL 5

Liquefied Natural gas (LNG) (2711 11 00) NIL NIL NIL 5 NIL 5

Liquified natural gas (LNG) and natural gas imported by GAIL NTPC JV or Petronet LNG for supply to electricity generating company (2711 11 00, 2711 21 00)



There is no change in customs, excise duty and NCCD rates.

85

Infrastructure Roads

Industry Issues

To encourage construction of roads, Government has provided tax concessions in customs and excise duties. Presently 16 road construction equipment are exempted from customs duties as per sl. no. 230 of customs notification 12/2012. However, condition 9 of this notification stipulates that a contactor or sub-contractor mentioned in the Concession Agreement with the Project Authority can avail this concession. Generally the concessionaire is unable to finalize all the contractors/sub-contractors at the time of agreement and consequently duty concession is not available. This condition needs to be amended.

As per sl. no. 144 of excise notification 12/2012, concrete mix manufactured at the site of construction for use in construction work is exempted from excise duty. In road construction projects, considering the distance of the construction activity, which may run to kilometers, concrete mix prepared in selected places is transported to the actual place of use. Excise officials have taken a view that such concrete mix is dutiable and subjected to 6% excise duty under tariff heading 3824 50 10 as ready mix concrete. This would result in increase in cost of road construction which needs to done away with.

What CII Wanted

Issue necessary amendment to condition 9 of customs notification 12/2012 to extend the customs duty concession to contractors/sub-contractors intimated to the sponsoring authority before importation of equipment.

Clarify that excise exemption is available for such concrete mix irrespective of its movement from one place to another in case of road construction.


Item



Budget 2015 – 16


Budget 2015 – 16

16 specified equipment for construction of roads – list 16 of Customs (84 or any other chapter)

NIL CVD NIL CVD NIL CVD NIL

NIL NIL

Concrete mix prepared at site (38) NIL NIL NIL Not

Applicable Not

Applicable Not

Applicable

Concrete ready to use known as Ready Mix Concrete (3824 50 10)

6/2* 6/2* 6/2* 10 10 10

*without CENVAT Credit


There is no change in customs and excise duty rates.

86

Insulated Cables

Industry Issues

Electrical cables fall under HS Code 8544 and attract customs duty of 7.5%. In these cables the conductors used are produced from copper wire rod and aluminium wire rod which attract customs duty of 5%. The other main input for cables is insulating materials which attract higher rate of customs duty.

In case of rubber insulated cables, Ethylene Propylene Diene Monomer commonly known as EPDM (HS Code 4002 70 00) is widely used which attract customs duty of 10%.

In certain types of cables, water blocking tape (HS Code 3919 90 90) is used in addition to the insulating material to make the cables water penetration resistance. Customs duty on water blocking tape is 10%.

In case of fire resistance cables, the primary insulation is of mica glass fire resistance tape. This is used along with the secondary insulation of cross linked low smoke and fume material. Customs duty on mica glass tape (HS Code 6814 90 90) is 10%.

The higher rate of customs duty of 10% on insulating materials compared to 7.5% on the electrical cables

puts the indigenous manufacturers in a disadvantageous position. Reduction in customs duty on import

of such inputs would help the indigenous manufacturers to compete with the foreign suppliers.

What CII Wanted

Reduce customs duty from 10% to 7.5% on EPDM, water blocking tape and mica glass tape when imported for manufacture of insulated cables.


Item



Budget 2015 – 16


Budget 2015 - 16

Insulated wires and cables (8544) 12 12 12.5 7.5 7.5 7.5

Inputs

Ethylene – propylene – non-conjugated diene rubber (EPDM) (4002 70 00)

12 12 12.5 10 7.5 7.5

Water blocking tape (3919 90 90) 12 12 12.5 10 7.5 7.5

Mica glass tape (6814 90 90) 12 12 12.5 10 7.5 7.5


Anomaly in customs duty has been corrected by reducing customs duty from 7.5% to 5% on EPDM , water blocking tape and micro glass tape for use in the manufacture of insulated wires and cables.


87

Machine Tools

Industry Issues

Computer numerically controlled (CNC) machines now constitute considerable percentage of the machine tools produced in the country. The manufacture of CNC machines require specialized components of high precision, which are listed in the table below. These items are manufactured by a select few companies in the world. The Indian machine tool industry, therefore, relies entirely on imports for these critical components. These components contribute around 30 percent of the input cost to the manufacture of CNC machines.

At present, such component parts bear 7.5% customs duty. The reduction of customs duty on these critical parts for machine tools from the present rate of 7.5% to 2.5% would bring down the input costs and so the selling prices of these machines, thereby, spurring demand from the manufacturing sectors.

What CII Wanted

Reduce customs duty from 7.5% to 2.5% on following component parts not manufactured in India and used for manufacture of CNC machine tools:

- Servo drives/motors; Precision spindles; Ball screws; Linear motion guide ways; Precision bearings; Precision gauging and balancing systems


Item



Budget 2015 – 16


Budget 2015 - 16

Machine Tools (8456 to 8465) 12 12 12.5 7.5 7.5 7.5

Inputs

CNC systems (8537 10 00)) 12 12 12.5 7.5 7.5 7.5/2.5*

Imported Component Parts for CNC Systems

Servo drives/motors (8501) Precision spindles (8466 93) Precision bearings (8482) Precision gauging and balancing systems (9031 80 00)

12 12 12.5 7.5 2.5 7.5

Ball screws (8483 40 00) Linear motion guide ways (8482 80 00)

12 12 12.5 7.5 2.5 2.5*

*only for CNC lathes and machining centers.


Customs duty has been reduced from 7.5% to 2.5% on the following :

- Ball screws and linear motion guides for use in the manufacture of CNC lathes or machining centres

- CNC systems for use in the manufacture of CNC lathes or machining centres.

General rate of excise duty has been increased from 12% to 12.5% along with exemption of Education Cess.

88

Medical Equipments

Industry Issues

Parts and accessories required for manufacture of medical equipment falling under HS Code 9018, 9019 and 9022 are allowed for import at customs duty of 5% as per sl. no. 474 of customs notification 12/2012. However, raw materials required for manufacture of such parts and accessories attract customs duty of 5% to 10% which needs to be reduced to 5%.

Disposable sterilized dialyzer and microbarrier for filtering blood were being imported under HS Code 9018 90 31 on payment of customs duty of 5% basic + NIL CVD + NIL SAD. CBEC in its customs circular 19/2013 of 9 May 2013 has clarified that these are to be classified under HS Code 8421 29 00 which attracts 7.5% basic + 12% CVD + 4% SAD. Reduction in customs duties to earlier level would help the patients suffering from renal failure.

Neonatal Critical Care products including catheters (9018 39) are used for timely monitoring of critical newborns, reduce the risk of potentially life-threatening diseases and enhance neonatal care. Reduction of excise duty to NIL needs consideration to reduce their cost.

Nasal reconstructive surgery use Polydioxanore (PDS) plates attracting customs duty of 10% which needs to be reduced to NIL.

Continuous ambulatory peritoneal dialysis system falling under tariff heading 9018 attract 5% basic customs duty, 6% CVD and NIL SAD. Medical grade PVC sheeting used for manufacture of this equipment attracts customs duty of 10%+12%+4% which needs to be reduced to 2.5%+6%+NIL.

What CII Wanted

Reduce customs duty on raw materials required for manufacture of medical equipment, their parts and accessories to 5%.

Reduce customs duties on disposable sterilized dialyzer and microbarrier for filtering blood from 7.5%+12%+4% to 5%+NIL+NIL.

Reduce excise duty from 6% to NIL on neonatal critical care one time use products.

Reduce customs duty from 10% to NIL on PDS plates used for nasal reconstructive surgery.

Allow import of medical grade PVC sheeting for manufacture of continuous ambulatory peritoneal dialysis system at concessional 2.5% basic customs duty, 6% CVD and NIL SAD.


Item



Budget 2015 – 16


Budget 2015 - 16

Medical Equipment (9018, 9019, 9022) 6 6 6 5 5 5

Inputs

Polydioxanore (PDS) plates (3920 69 99) 12 12 12.5 10 NIL 10

Medical grade PVC sheeting (3921 90 99) 12 6 6 10 2.5 10


Customs duty has been reduced from 5% to 2.5% on 6 specified inputs for manufacture of flexible medical video endoscope.

Basic customs duty and CVD have been fully exempted on artificial heart (left ventricular assist device)

Excise, CVD and SAD has been exempted on 13 specified inputs for manufacture of pacemakers.

89

Microwave Ovens

Industry Issues

Magnetron which generates and transmits non-coherent microwaves is a major input for microwave ovens and it is not made in India. Customs duty on magnetron was reduced from 10% to 5% in the budget 2011 to encourage indigenous manufacture of microwave ovens.

Presently 5% customs duty on magnetron is subject to condition that the manufacturer follows the procedure set in the customs under Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods Rules, 1996 (IGCR). Due to this condition, the manufacturers, who import magnetron and then get microwave ovens made through another equipment manufacture, are not able to avail benefit of duty concession and are liable to pay 10% basic customs duty which make them uncompetitive.

What CII Wanted

The facility of availing 5% customs duty on magnetron needs to be allowed without IGCR condition.


Item



Budget 2015 – 16


Budget 2015 - 16

Microwave oven (8516 50 00) 12 12 12.5 10 10 10

Input

Magnetron of upto 1KW used for the manufacture of domestic microwave (8540 71 00)

12 12 12.5 5 5 without

IGCR NIL


Customs duty has been reduced from 5% to NIL on magnetron of upto 1KW used for manufacture of domestic microwave ovens.


90

Newsprint

Industry Issues

The indigenous newsprint manufacturing industry has 22 lac tonne of installed capacity but the capacity utilization is about 12 lac tonne. Import of news print under tariff heading 4801 00 during 2013-14 was 13.79 lac tonne.

The reduction of customs duty from 5% to 3% on 29 April 2008 and from 3% to NIL on 11 February 2009 on newsprint has adversely affected the industry.

There is NIL CVD on newsprint and 6% CVD on imported wood pulp for newsprint. Newsprint industry cannot avail CENVAT credit for excise duty as well as CVD due to NIL excise duty on newsprint. This is an anomalous situation which makes the indigenous newsprint industry uncompetitive and therefore, it needs to be corrected by exemption of excise duty/CVD on the main input wood pulp.

What CII Wanted

Exempt 6% CVD on wood pulp for newsprint.


Item



Budget 2015 – 16


Budget 2015 - 16

Newsprint in specified form and size (4801)


Inputs

Wood pulp for newsprint (47) 6 NIL 6 NIL NIL NIL



91

Paints

Industry Issues

Manufacture of paint involves mixing of a wide variety of raw materials in various proportions. On an average raw materials account for 56% of the total expenditure in paint companies.

Titanium dioxide is the vital pigment used in paints. In the budget 2012, customs duty on titanium dioxide under CTH 2823 00 10 was reduced from 10% to 7.5% to bring at par with other inputs vide sl. no. 150 of customs notification 12/2012. However, customs duty on this was again increased to 10% with effect from 08.05.2013. The concessional customs duty of 7.5% needs to be restored to create differential in duty between paints and this vital input.

Pigments and preparations containing 80% or more of titanium dioxide (CTH 3206 11) are also used in paints. Therefore customs duty on these also needs to be reduced from 10% to 7.5%.

What CII Wanted

Reduce customs duty from 10% to 7.5% on titanium dioxide as well as pigments and preparations based on titanium dioxide.


Item



Budget 2015 – 16


Budget 2015 - 16

Paints (3208, 3209) 12 12 12.5 10 10 10

Inputs

Titanium dioxide (2823 00 10) 12 12 12.5 10 7.5 10

Pigments and preparations based on titanium dioxide containing 80% or more of titanium dioxide (3206 11)

12 12 12.5 10 7.5 10

Zinc oxide (2817 00 10) 12 12 12.5 7.5 7.5 7.5

Ethylene glycol (2905 31 00) 12 12 12.5 7.5 7.5 7.5

Resins (3906, 3907) 12 12 12.5 7.5 7.5 7.5



92

Polyether Polypols

Industry Issues

Polyether polypol is mainly used for manufacture of polyurethane foams. These foams are of two types viz flexible foams and rigid foams. Flexible polyurethane foams are primarly used in cushioning applications such as furniture, bedding, car seats and in carpet underlay where as rigid foams are used as insulation and for packaging.

Customs duty on polyether polypols is 7.5% but it is being imported at concessional rate of customs duty of NIL/4.8% under Trade Agreements signed by India with different countries. Propylene oxide is the main input for manufacture of polyether polypols and attracts customs duty of 7.5% which is at par with customs duty on polyether polypols.

Due to import of polyether polypol at NIL/concessional customs duty against FTAs and no differential in customs duty between main input and the product, the growth of polyether polypol production is not taking place. To overcome this situation, it is suggested that customs duty on the propylene oxide be reduced from 7.5% to 2.5%. This will be in line with the Government thrust on “Make in India”

What CII Wanted

Reduce customs duty from 7.5% to 2.5% on propylene oxide.


Item



Budget 2015 – 16


Budget 2015 - 16

Polyether polyols (3907 20 90) 12 12 12.5 7.5 7.5 7.5

Inputs

Propylene oxide (2910 20 00) 12 12 12.5 7.5 2.5 7.5

Ethylene oxide (2910 10 00) 12 12 12.5 7.5 7.5 7.5



93

Polymers

Industry Issues

Naptha and liquefied butanes are the main inputs used by most of the petrochemical manufacturers and attract customs duty of 5% which needs to be reduced to 2.5% at par with other feedstocks. Naptha attracts excise duty of 14% which needs to be reduced to 12% to avoid excess CENVAT credit.

Among the various types of polymers, poly vinyl chloride (PVC) is the most widely used in many end use sectors. Currently, PVC demand in India is about 2.5 million metric tonne against domestic production capacity of 1.4 million metric tonne. This is leading to demand supply imbalance resulting in import of 1.27 million metric tonne of PVC resin in 2013-14. PVC attracts customs duty of 7.5% and lesser duty under Trade Agreements. In order to encourage indigenous manufacture, customs duty on PVC falling under HS Code 3904 10, 3904 21 and 3904 22 needs to be increased from 7.5% to 10%.

Ehtylene dichloride (EDC) and vinyl chloride monomer (VCM) are the main inputs fro manufacture of PVC and these two inputs attract customs duty of 2.5%. Indigenous manufacturers of EDC and VCM are using these captively and PVC manufacturers not having their own production facility of EDC and VCM are importing. Reduction in customs duty on these from 2.5% to NIL will be in the interest of PVC manufacturers.

What CII Wanted

Reduce customs duty from 5% to 2.5% on naptha and liquefied butanes.

Reduce excise duty from 14% to 12% on naptha

Increase customs duty from 7.5% to 10% on poly vinyl polymers HS Code 3904 10, 3904 21 and 3904 22.

Reduce customs duty from 2.5% to NIL on ethylene dochloride and vinyl chloride monomer.


Item



Budget 2015 – 16


Budget 2015 - 16

Poly vinyl chloride, not mixed with any other substances (3904 10) Poly vinyl chloride – non plasticized (3904 21) Poly vinyl chloride – plasticized (3904 22)

12 12 12.5 7.5 10 7.5

Naptha (2710) 14 12 14 5 2.5 5

Liquefied Butanes (2711 13 00) 12 12 12.5 5 2.5 2.5

Inputs

Ethylene dichloride (EDC) (2903 15 00) 12 12 12.5 2.5 NIL 2

Vinyl chloride monomer (VCM) (2903 21 00) 12 12 12.5 2.5 NIL 2


Customs duty on liquefied butanes and isoprene reduced from 5% to 2.5%.

Customs duty reduced from 2.5% to 2% on ethylene dichloride, vinyl chloride monomer and styrene.

SAD reduced from 4% to 2% on naptha, ethylene dichloride, vinyl chloride monomer and styrene when used for manufacture of excisable goods.

Excise duty has been increased from 12% to 15% on sacks and bags of polymers of ethylene (3923 21 00) other than for industrial use.

94

Rotor Blades for Wind Electricity Generators

Industry Issues

Rotor blades are crucial and elementary part of a wind turbine and mainly consist of synthetics reinforced with fiberglass. Blades for rotor of wind operated electricity generators, raw materials for manufacture of such blades and parts, sub-parts of such blades falling under chapter 84 or any chapter attract 5% customs duty as per sub sl.no. (3) and (5) of sl.no. 362 of customs notification 12/2012.

Excise duty is exempted on wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller as per sl.no. 13 of list 8 of central excise notification 12/2012-sl.no. 332. Also on 18 specified goods for manufacture of rotor blades and intermediates, parts and sub-parts of rotor blades for wind electricity generator mentioned in list 9 linked to sl.no. 327 of excise notification 12/2012 have been exempted from excise duty subject to production of necessary certificate from the ministry of Non-Conventional Energy Sources.

However indigenous manufacturers supplying certain goods for manufacture of rotor blades are not able to avail the concessions due to the following reasons:

In sub sl.no.5 (b) in the description column of sl.no.362 of customs notification 12/2012, the word “intermediates” has not been included.

Some of the goods mentioned in list 9 of central excise notification 12/2012 are now produced indigenously. These manufacturers should also be allowed to procure their inputs at NIL excise duty instead of 12% to enable them to compete with foreign suppliers.

What CII Wanted

In sl.no. 362 of customs notification 12/2012 include “intermediates” in the description of 5(b).

In sl.no. 327 of central excise notification 12/2012, incorporate the following:

Add sl. no. 19 in list 9 with description “Raw materials falling under chapter 28 and 29 for manufacture of goods at sl. no. 1 to 18”.

Add “chapter 28 and 29” in column 2


Item



Budget 2015 – 16


Budget 2015 - 16

Rotor blades (8503 00 90) NIL NIL NIL 5 5 5

Inputs

Raw materials for manufacture of blades and parts sub-parts of such blades (84 or any other chapter)

As applicable

As applicable

As applicable

5 5 5

18 specified goods for manufacture of rotor blades and intermediates, parts and sub-parts of rotor blades list 9 of excise (32, 38, 39, 44 or 70)

NIL NIL NIL As

applicable As

applicable As

applicable


No change in customs and excise duty rates.

95

Safety & Security Equipment

Industry Issues

Tariff heading 8531 covers burglar alarm, fire alarm and other safety equipments. Customs duty on these as well as their parts is 10% whereas most of the goods under chapter 85 attract customs duty of 7.5%. Customs duty on goods falling under HS Code 8531 10, 8531 80 00 and 8531 90 00 needs to be reduced from 10% to 7.5% to make these more affordable.

As per sl. no. 490 of customs notification 12/2012 read with condition 89, X-Ray baggage inspection systems and parts thereof falling under tariff heading 9022 are allowed for import at NIL customs duty by the specified government agencies for the purposes mentioned there in. This concession needs to be extended to the security equipment which are used for bomb detection, explosive deduction etc.

Some of the major airports are now managed under PPP Model by joint venture companies and they are not able to avail the customs duty concession on X-Ray baggage inspection systems and parts thereof.

What CII Wanted

Reduce customs duty from 10% to 7.5% on security and safety equipment as well as their parts.

The existing entry at sl. no. 490 in customs notification 12/2012 may be amended as “X-Ray Baggage Inspection systems and other airport security systems and parts thereof falling under chapter 84, 90 or any other chapter”.

Condition No. 89 of customs notification 12/2012 may be amended to include imports by airport operators subject to production of certificate from Ministry of Civil Aviation.


Item



Budget 2015 – 16


Budget 2015 - 16

Burglar or fire alarms and similar apparatus (8531 10)

12 12 12.5 10 7.5 10

Other apparatus for security (8531 80 00) 12 12 12.5 10 7.5 10

Inputs

Parts (8531 90 00) 12 12 12.5 10 7.5 10



96

Steel

Industry Issues

Customs duty was increased from NIL to 2.5% on coking coal and metallurgical coke with effect from 11 July 2014. Earlier Customs duty was increased from NIL to 2.5% on melting scrap of iron & steel and stainless steel on 8 May 2013. These changes have increased input cost for steel industry.

Induction furnaces owners using imported melting scrap of steel pay CVD of 12% and SAD of 4%. Their product attract excise duty of 12%. Consequently they are unable to utilize the CENVAT credit of CVD and SAD due to lower value addition in conversion of scrap into steel which adds to the cost.

The process of cutting and slitting of steel coils/sheets may be declared as manufacturing activity to avoid procedural problems.

What CII Wanted

Reduce customs duty from 2.5% to NIL on coking coal, metallurgical coke and melting scrap of iron or steel as well as stainless steel.

Exempt 4% additional duty of customs (SAD) on melting scrap of iron and steel imported by manufactures of steel.

Insert suitable note in chapter 72 of Excise Tariff to provide that cutting and slitting of steel coils/sheets shall amount to manufacture.


Item



Budget 2015 – 16


Budget 2015 - 16

Iron and non-alloy steel Ingots, billets, blooms, slabs, bars, rods, angles, shapes, sections, wires etc. (7206, 72017, 7213 to 7217)

12 12 12.5 5 5 5

Flat rolled products of iron or non-alloy steel (7208 to 7212)

12 12 12.5 7.5 7.5 7.5

Flat rolled products of stainless steel and specified flat rolled products of alloy steel (7219, 7220, 7225 30 90, 7225 40 19, 7225 50, 7225 99 00)

12 12 12.5 7.5 7.5 7.5

Melting scrap of iron or steel (other than stainless steel) (7204)

12 12 12.5 2.5 NIL 2.5

Scrap of stainless steel for melting (7204 21)

12 12 12.5 2.5 NIL 2.5

Coking coal (2701) 2 CVD 2 CVD 2 CVD 2.5 NIL 2.5

Metallurgical coke (metcoke) (2704 00) 2* 2* 2* 2.5 NIL 5

*without CENVAT Credit


Tariff rate of customs duty on iron and steel (chapter 72) and articles of iron or steel (chapter 73) has been increased from 10% to 15% but there is no increase in effective rates.

Customs duty on metallurgical coke has been increased from 2.5% to 5%.

Special Additional Duty (SAD) has been reduced from 4% to 2% on melting scrap of iron or steel and stainless steel.

Clean Energy Cess on coal, lignite and peat has been increased from Rs. 100 to Rs. 200 per tonne.

97

Synthetic Fibres and Yarns

Industry Issues

Synthetic fibres attract excise duty of 12% while there is no excise duty on cotton fibre. The textile industry beyond the fibre stage has the option of not paying any excise duty if no CENVAT credit is availed as per excise notification 30/2004. The differential in excise duty rates on synthetic fibres and cotton fibre needs to be reduced by reducing excise duty from 12% to 8% across the value chain of synthetic fibres to avoid inverted duty structure and CENVAT credit accumulation.

Spin finish oil is a vital input in manufacture of synthetic fibres and filament yarns. Spin finish oil attracts customs duty of 7.5%. With customs duty on synthetic fibres at 5%, customs duty on spin finish oil needs to be reduced to 5% to remove the existing anomaly.

Customs duty on titanium dioxide was increased from 7.5% to 10% w.e.f 08.05.2013. Anatase grade titanium dioxide is used by synthetic fibres and yarn industry as dulling agent and customs duty on it needs to be again reduced from 10% to 7.5%.

What CII Wanted

Reduce excise duty from 12% to 8% on synthetic fibres and their inputs.

Reduce customs duty from 10% to 7.5% on titanium dioxide anatase grade.

Reduce customs duty from 7.5% to 5% on spin finish oil.


Item



Budget 2015 – 16


Budget 2015 - 16

Fibres / Filaments

Polyester staple fibre (PSF) (5503 20 00, 5506 20 00)

12 8 8 5 5 5

Yarns

Polyester filament yarn (PFY) (5402, 5406) Polyester high tenacity yarn (5402 20)

12 or NIL* 8 or NIL* 8 or NIL* 5 5 5

Inputs

Spin finish oil (3403 11 00) 12 12 12.5 7.5 5 7.5

Titanium dioxide anatase grade (2823 00 10)

12 12 12.5 10 7.5 10

*without CENVAT credit


General rate of excise duty has been increased from 12% to 12.5% along with exemption of Education Cess.

98

Tractors

Industry Issues

Import of tractors from Thailand and Japan have increased after implementation of Trade Agreements which is evident from the data given below:

Country

Imports – Rs. lac Customs Duty

Basic + CVD 2010-11 2011-12 2012-13 2013-14 April –

Oct 2014

Thailand NIL 302 272 6492 6985 NIL+NIL

Japan 1415 6098 6940 8314 4168 6.4%+NIL

Apart from concessional rate of basic customs duty under FTAs, both Thailand and Japan are enjoying an unintended benefit of NIL CVD on import of tractors due to NIL excise duty on tractors. Indigenous manufacturers source all their inputs on payment of excise duty of 12% but cannot avail CENVAT credit due to NIL excise duty on tractors. Consequently excise duty paid on inputs is getting absorbed into their cost, which puts them in a disadvantageous position.

In order to address the above mentioned disparity, levy of excise duty of 8% on tractors needs consideration. This would ensure levy of 8% countervailing duty (CVD) on imported tractors also. After levying 8% excise duty, excise exemption given vide sl. no. 340 of excise notification 12/2012 can be replaced by 8% excise duty on tractor parts manufactured in another factory of the same manufacturer.

What CII Wanted

Increase excise duty from NIL to 8% on tractors other than road tractors for semi-trailers of engine capacity more than 1800 cc.


Item



Budget 2015 – 16


Budget 2015 - 16

Tractors (except road tractors for semi-trailers of engine capacity more than 1800 cc) (8701)

NIL 8 NIL 10 10 10

Tractors from Thailand under Indo-ASEAN FTA (8701)

NIL CVD 8 CVD NIL CVD NIL NIL NIL

Tractors from Japan under CEPA (8701) NIL CVD 8 CVD NIL CVD 6.4 6.4 6.4

Parts used within the factory of production or in any other factory of the same manufacturer used in manufacture of tractors (any chapter)

NIL NIL/8 NIL NA NA NA




99

Annexure

100

101

Annexure Key Indicators: Economic Survey 2014-15

Data Categories & Components Unit 2011-12 2012-13 2013-14 2014-15

1. GDP & Related Indicators

1.1 GDP (Constant Market Prices) Rs. Crore 8832012NS 9280803NS 9921106NS 10656925AE

1.2 Growth Rate % - 5.1 6.9 7.4

1.3 GVA at Basic Prices (2011-12 prices) Rs. Crore 8195546NS 8599224NS 9169787NS 9857672AE

1.4 Growth Rate % - 4.9 6.6 7.5

1.5 Savings Rate % of GDP 33.9 31.8 30.6 n.a.

1.6 Capital Formation Rate % of GDP 38.2 36.6 32.3 n.a.

1.7 Per Capita Net National Income (At

Current Market Prices) Rs. 64316NS 71593NS 80388NS 88533AE

2. Production

2.1 Food grains Mn Tonnes 259.3 257.1 265.6 257.1a

2.2 Index of Industrial Production b

(Growth) % 2.9 1.1 -0.1 2.1f

2.3 Electricity Generation (Growth) % 8.2 4.0 6.0 9.9f

3. Prices

3.1 Average Inflation (WPI) % 8.9 7.4 6.0 3.4f

3.2 Average Inflation (CPI) % 8.4 10.4 9.7 6.2f

4. External Sector

4.1 Export Growth (USD terms) % 21.8 -1.8 4.7 4.0f

4.2 Import Growth (USD terms) % 32.3 0.3 -8.3 3.6f

4.3 Current Account Balance % of GDP -4.2 -4.7 -1.7 -1.9 (H1)

4.4 Foreign Exchange Reserves g USD bn 294.4 292.0 304.2 328.7

4.5 Average Exchange Rate c Rs/USD 47.92 54.41 60.50 60.78f

5. Money & Credit

5.1 Broad Money (M3) Supply Growth

(Annual) % 13.5 13.6 13.2 11.5h

5.2 Bank Credit Growth % 17.0 14.1 13.9 10.7h

6. Fiscal Indicators (Centre)

6.1 Gross Fiscal Deficit % of GDP 5.7 4.8 4.5d 4.1e

6.2 Revenue Deficit % of GDP 4.4 3.6 3.2d 2.9e

6.3 Primary Deficit % of GDP 2.7 1.8 1.2d 0.8e

7. Population Million 1210.9i n.a. n.a. n.a.

Source: Economic Survey 2014-15

Note: n.a.: not available. NS: New Series Estimates, AE: Advance Estimate, H1: April-September 2014. a: 2nd advance estimates, b: Base (2004-05=100), c: Indicative rates announced by Foreign Exchange Dealers Association of India (FEDAI) and from May 2012 onwards are RBI’s reference rates, d: Fiscal indicators for 2013-14 are based on the provisional actual, e: Budget Estimates, f: April-December 2014, g: Figures for 2011-12 to 2013-14 relate to end of financial year and the figure for 2014-15 is at end January 2015, h: As on January 9, 2015, i: Census 2011

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to

the development of India, partnering industry, Government, and civil society, through advisory and

consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a

proactive role in India's development process. Founded in 1895, India's premier business association

has over 7400 members, from the private as well as public sectors, including SMEs and MNCs, and

an indirect membership of over 100,000 enterprises from around 250 national and regional sectoral

industry bodies.

CII charts change by working closely with Government on policy issues, interfacing with thought

leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a

range of specialized services and strategic global linkages. It also provides a platform for consensus-

building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate

citizenship programmes. Partnerships with civil society organizations carry forward corporate

initiatives for integrated and inclusive development across diverse domains including affirmative

action, healthcare, education, livelihood, diversity management, skill development, empowerment of

women, and water, to name a few.

The CII theme of ‘Accelerating Growth, Creating Employment’ for 2014-15 aims to strengthen a

growth process that meets the aspirations of today’s India. During the year, CII will specially focus on

economic growth, education, skill development, manufacturing, investments, ease of doing business,

export competitiveness, legal and regulatory architecture, labour law reforms and entrepreneurship

as growth enablers.

With 64 offices, including 9 Centres of Excellence, in India, and 7 overseas offices in Australia, China,

Egypt, France, Singapore, UK, and USA, as well as institutional partnerships with 300 counterpart

organizations in 106 countries, CII serves as a reference point for Indian industry and the international

business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre

23, Institutional Area, Lodi Road, New Delhi – 110 003 (India)

T: 91 11 45771000 / 24629994-7 | F: 91 11 24626149

E: [email protected] | W: www.cii.in

Follow us on:

Reach us via our Membership Helpline: 00-91-11-435 46244 / 00-91-99104 46244 CII Helpline Toll free No: 1800-103-1244

twitter.com/followcii

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