There were enormous expectations from the Finance Minister

There were enormous expectations from the Finance Minister as this is their 3rd budget. Announcements regarding GST were expected, however there was no commitment of a date for GST introduction in the Finance Minister’s speech apart from a mention that focus would be to introduce it at the earliest. Introduction of 12 new benches of the CESTAT should help in reducing the congestion currently existing in the litigation system.

However, levy of new Krishi Kalyan Cess of 0.50% on all services, though creditable, is a setback as it would increase the cost of services. This cess would have an impact on all aspects of the economy, since all taxable services will attract this cess. Further, levying and reporting service tax would be more complex as service tax and Krishi Kalyan cess would be creditable but Swachh Bharat cess would not be. Overall, it’s a budget with some reform but it leaves us with an expectation that more could have been done

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The Budget has taken a step forward in rationalizing the tax regime

The Budget has taken a step forward in rationalizing the tax regime through sunset provisions for certain exemptions and deductions. It will also give a boost to manufacturing and to SMEs through the reduction in tax rates. Startups will be encouraged by the 3-year tax holiday and capital gains exemption for investors. The special patent regime is an innovative idea and will encourage indigenous research and development. The rules for place of effective management have been deferred by one year in response to representations by stakeholders.

This will give time to companies to make adjustments to align with the rules. The proposals such as stay of demand, easing of TDS requirements, the alternative facility for non-residents who do not have PAN, the procedure for e-assessment and time limits for passing effect orders will facilitate a taxpayer-friendly environment and in turn the objective of ease of doing business.

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EPF tax is introduced to encourage employees to go for pension products: Govt.

Facts:

In order to bring parity in tax treatment of different types of pension plans, the Finance Bill, 2016 proposed to amend Section 10 to provide that 40% of total corpus withdrawn at the time of retirement under recognized provident funds and NPS would be exempt. However, there seems to be lack of understanding about such proposed changes. Thus, the Govt. has released following clarifications:

i) The purpose of this reform of making the change in tax regime is to encourage more number of private sector employees to go for pension security after retirement instead of withdrawing the entire money from the Provident Fund Account.

It is welcome that Duty drawback schemes will be widened, to give impetus to sagging exports

#UnionBudget2016

It is welcome that Duty drawback schemes will be widened, to give impetus to sagging exports. But emphasis shall also be on fine tuning the existing schemes and promote transparency. Budget outlay of more than 2 lakh crore in infrastructure sector, would fuel economic activity and kicky start the economy. The budget outlays for infrastructure sector would help the cement and steel industry to improve their performance. Service tax on spectrum fees will increase the cost of providing telecom services, and will hit telecom companies and the quality of service.

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My first cut reaction is that this is a good Budget giving focus on 9 Pillars

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My first cut reaction is that this is a good Budget giving focus on 9 Pillars which include focus on Infra, rural areas, relief to small tax payers, creating ease of doing business, affordable housing and so on and so forth. Fiscal deficit has been proposed to keep at 3.5% which is a big positive without compromising development agenda. On Taxation front, there are simplification and rationalisation measures, introducing presumptive taxation for small and medium tax payers. Keeping in line with objective of unearthing black money, the FM has proposed to introduce Domestic black mint by laying 30% tax, 7.5% surcharge and 7.5% penalty thus totalling 45% to be operational from June 1, 2016 to Sept 30, 2016 in a manner that tax will be paid within 2 months of declaration. Numbers of measures have been introduced for reducing tax litigation.

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The Finance Minister rose to present his third budget by stating that the global economy is weak but India has done well

The Finance Minister rose to present his third budget by stating that the global economy is weak but India has done well. With a fiscal deficit target of not exceeding 3.5% as budgeted, the Finance Minister surely seems to have done his bit to make it happen. The Finance Minister very clearly seems to have focused on empowering the ‘Make In India’ initiative by removing customs and excise duty exemptions on a variety of goods.

The thrust seems to be more on electronics, hardware and the infrastructure industry where duty exemption has been provided to imported parts and components for manufacture of chargers/adapters, speakers (to be used for manufacture of mobile phones), parts &components for use manufacture of routers, broadband modems, set-top boxes, DVRs, CCTV cameras etc.

These exemptions are available only when the companies import such items for their actual use since direct import of these items (without the importer actually using such imported goods) has been made taxable on import. Prolonged litigation seems to have taken a toll on Government’s administration machinery and this seems to be corrected by proposing a one-time Dispute Resolution Scheme allowing the tax payer to settle the tax dispute pending with the first appellate authority. The Budget also seems to encourage ‘export of goods’ by not only announcing a widening of the duty drawback schemesbut also providing a retrospective amendment to allow refund of input service tax credit on services used beyond the factory gate for manufacture of goods subsequently exported out of India.

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In the midst of the global slowdown and turbulence coupled with the beaten-up financial markets

In the midst of the global slowdown and turbulence coupled with the beaten-up financial markets, the Finance Minister has been able to present a pragmatic and well balanced budget rightly focusing on core sectors. Choosing to stick with FRBM target of 3.5% fiscal deficit is laudable. It was comforting to observe no change in two most discussed issues during pre-budget week, tinkering of capital gain tax regime and increase in the service tax rate. Budget has proposed noteworthy steps for reducing tax litigation and promoting affordable housing. This budget is rightly an onset to the long term expedition for a pensioned society and use of technology for interface between tax department and tax payer. 

As expected, the budget provides fillip to the start-ups be introduction of tax holidays. Deferral of POEM by a year a welcome move, but it would have been constructive if the deferral was till April 2017. However, on reduction in the corporate tax rate, much was expected than what is done. No mention on GST roadmap and completely missing the disinvestment targets were big dampener. Bringing dividend to tax in the hands of recipient, though only for super rich, would result in double taxation of the same income. Plethora of cesses would further complicate the intricate tax structure. 

Expectations from Union Budget 2016

The countdown for the Budget 2016 has begun. From average taxpayer to tax experts, all eyes are transfixed on the Union Budget 2016. Every year 'Taxmann' comes out with its expectations from the Union Budget. In our expectations for the Union Budget 2014 and 2015, we predicted as well as suggested certain changes consisting of substantive and procedural changes which were published in [2014] 47 taxmann.com 120 (Article), [2015] 54 taxmann.com 416 (Article) and [2015] 32 CPT 253 (Article). It is to our credit that many of our predictions came true in the Union Budget.

This time also we have recommended substantive/procedural changes and various other matters which CBDT should clarify to end the controversy and to bring about certainty in the Income-tax laws.

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Information Exchange on Tax Matters - Important Development in Indian legislation

As a part of a global drive to exchange information freely between countries, India has signed various agreements with other countries for information exchange. For instance, India has signed "Tax Information Exchange Agreements" with certain countries. Further, India has signed Inter-Governmental Agreement (IGA) and Memorandum of Understanding (MOU) on 9th July 2015 with the United States to improve international tax compliance and to implement FATCA. India has also joined Multilateral Competent Authority Agreement (MCAA) on 3rd June 2015.

The MCAA is a multilateral framework agreement that provides a standardized and efficient mechanism to facilitate the automatic exchange of information. As a step towards the implementation of FATCA provisions and with a view to provide automatic exchange of information to other countries under MCAA, necessary legislative changes have been made in India.¹ 

OECD and G20’s Guide to Low Value-Added Intra-Group Services

The OECD and the G20 provide specific guidance within the Transfer Pricing Guidelines for low value added intra-group services.¹ Section D of Section VII within these Guidelines specifically addresses these low-value added intra-group services. The official text of these provisions refer to "value adding" activities rather than to "value added" activities. The authors of this piece use the more commonplace standard, value added. The OECD and G20, as transnational institutions, divide Section D into four parts:

•		Section D1 contains the OECD and G20 definition of "low value added intra-group services."
•		Section D2 provides for a simplified benefits test. This section sets out a simplified benefits election for the multinational enterprise. The simplified approach determines arm's length charges for low value added intra-group services.
•		Section D3 contains guidance for the OECD and G20's documentation and reporting requirements. The multinational enterprise needs to meet these requirements when electing to apply this simplified transfer pricing approach.
•		Section D4 addresses the levying of withholding taxes and customs issues that apply when the multinational enterprise provides low value added intra-group services.