India Union Budget 2016 - An Overview | A BDO India Publication

Analysis of Union Budget 2016/17
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CONTENTS
1. ECONOMIC INDICATORS..................................................................... 1
DIRECT TAX PROPOSALS
2. INCOME TAX............................................................................ 5
INDIRECT TAX PROPOSALS
3. CUSTOMS..............................................................................39
4. CENTRAL EXCISE.....................................................................54
5. SERVICE TAX .........................................................................65
6. CENVAT CREDIT......................................................................75
7. MISCELLANEOUS CHANGES.........................................................80
8. REGULATORY UPDATES.....................................................................82
9. GLOSSARY OF TERMS.......................................................................88
ABOUT BDO ..........................................................................................90

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FOREWORD
The Finance Bill, 2016 was introduced in the Parliament by the Hon’ble Finance Minister,
Mr. Arun Jaitley (his 3rd Budget after BJP Government assumed power at the Centre in
May 2014) amid subdued hope. While the new normal in the world economy is turbulence
and volatility, India still seems a refuge of stability and outpost of opportunity, despite
daunting structural issues in the economy.
Budgets now rarely announce major change in policy direction; economic policy is
announced through the year and by different institutions such as Central Bank, financial
and industry regulators. To focus on budget as the harbinger of economic trends is to
ignore the shift in India’s policy process. Despite this year-round exercise of policy
making, Budget provides an annual score-card of economic performance and the efficacy
of policy initiatives embarked.
The FM has projected fiscal deficit @ 3.5% of GDP for fiscal year 2016-17 despite
additional burden on account of recommendations of 7th Pay Commission and
implementation of Defense One Rank One Pension (OROP) which casts a long shadow on
prioritization of expenditure. In this background, the FM recounted the achievements;
GDP growth is now @ 7.6% (in the previous government, the growth had decelerated
to 6.3%), CPI inflation has come down to 5.4% from 9.4%, the current account deficit
has declined to USD 14.4 bn from USD 18.4 bn and the exchange reserves are highest
ever @ USD 350 bn. However, admittedly, the correlation between India and the world
has risen and global economic weakness could impact the economic growth engine in
India. Further, lack of private investment still remains the single largest concern. Such
investment eludes the economy defines the ability of a country to grow over the long
run which is critically determined by twin factors; state capacity and entrepreneurial
capacity.
In his Budget speech, the FM embarked on ‘Transform India’ that is built on growth
pillars; Agriculture and Farmer’s welfare, Rural Sector, Social sector including health
care, Education, Skills and Job creation, Infrastructure and Investment, Financial
Sector reforms, Governance and Ease of Doing Business, Fiscal discipline and finally, Tax
reforms. For each of the pillars, the FM laid out well-intentioned budgetary provisions
for furthering economic growth.
Noteworthy amongst the provisions is the push for irrigation coverage which is currently
as low as 46% of cultivable area. Schemes such as ‘Pradhan Mantri Krishi Sinchai Yojana’
and implementation of 89 irrigation projects that would be fast tracked would increase
cultivable land under irrigation. This would go a long-way in augmenting depleting water
tables across the country.
Infrastructure which is the backbone of all economic activity in the country requires
significant attention and to this end, the FM proposed several budgetary allocations.
Notably, 3 new initiatives to reinvigorate this sector i.e. arrangement for resolution of
disputes in infrastructure related contracts, guidelines for renegotiation of public private
partnership (‘PPP’) agreements and a new credit rating system would be set in motion.
The FM has also announced further reforms in FDI policy inter alia 100% FDI in asset
reconstruction companies, 49% in insurance and pension sectors, enhancement in limit
of investment in Indian stock exchanges etc. to name a few.

iv
The big casualty in budgetary allocation is of course the recapitalization of banks where
the allocation in this budget is INR 250 bn, reeling against mounting NPAs in the banking
system whereas the appetite for capitalization is INR 1,800 bn in 4 years. The allocation
fell far short on expectation to revive the ailing banking sector.
Insofar as Tax Reforms are concerned, the FM disappointed many in not dropping the
Corporate tax rate from present to 30% that was to rest at 25% in a 4-year timeframe
beginning this year as promised in last year’s Budget. A 1% rate cut was offered to new
manufacturing companies that are set up after March 1, 2016 and small enterprises with
a turnover less than INR 50 Mn which was clearly not in line with the expectations. On
the other hand, the FM red-flagged exemptions and deductions under the Indian IT Act
with nearly all being terminated on April 1, 2020. Also disappointing is introduction of
10% dividend tax on individuals etc. who earn dividend in excess of INR 1 Mn per annum
whereas the optimist believed that the FM may in fact dislodge the DDT regime which
faces much criticism.
Interestingly, the FM has also taken steps to reduce litigation and to this end, introduced
a new dispute resolution scheme in respect of 1st appeal before Appellate Authorities
in the background that more than 0.3 Mn appeals are pending locking INR 5,500 bn in
such litigation. The offer is to pay tax and interest with a waiver of penalty (in part) for
settlement of dispute. However, this premeditates that all appeals filed by taxpayer (who
actually file the 1st appeal) are either frivolous or suspect. This is far from truth as more
often than not, the Taxpayers are compelled to appeal against high-pitched assessment at
the behest of Tax Authorities and therefore, the proposed dispute resolution mechanism
may not meet with much success.
Last but not the least, the FM accepted the recommendations of the Tax Administration
Reforms Committee that was formed by the last Government and Justice Easwar
Committee only in part, unlike popular belief that most of the recommendations would
be endorsed by the FM in toto.
With this Budget, many questions still remain not fully answered and would remain a
work-in-progress for the next year with the hope that the fear of the unknown i.e. the
global economic environment does not unsettle India’s growth engine in the meantime.
Milind S. Kothari
Managing Partner
BDO India LLP March, 2016

A BDO India Publication
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1. ECONOMIC INDICATORS
The global macroeconomic landscape is currently chartering a rough and uncertain
terrain characterized by weak growth of world output, declining prices of
commodities, turbulent financial markets and volatile exchange rates. Even in
these trying and uncertain circumstances, India’s growth story has largely remained
positive and the economy is expected to be the fastest growing economy in the
world.
The growth rate in GDP at constant market prices is projected to increase to 7.6%
in 2015-16 from 7.2% in 2014-15. However, the growth projected for March 17,
2016 is expected between 7–7.75%. A cautious forecast from where we were last
year, undoubtedly considering the global scenario and certain domestic factors.
One of the reasons for higher expected growth rates is on account of a number of
reforms, each incremental but collectively meaningful, that have been enacted.
This is helped by a reorientation of government spending toward needed public
infrastructure.
Table showing growth in Gross Value Added (GVA) at constant (2011-12) basic
prices (%)
Particulars 2014-15 2015-16
Agriculture, forestry & fishing -0.2 1.1
Industry 5.9 7.3
Services 10.3 9.2
GVA at basic prices 7.1 7.3
GDP (at market prices) 7.2 7.6
Growth in the agriculture sector in 2015-16 has continued to be lower than the
average of last decade, mainly on account of the second successive year of lower-
than-normal monsoon.
The ongoing manufacturing recovery in the current year is aided by robust growth
in petroleum refining, automobiles, wearing apparels, chemicals, electrical
machinery and wood products and furniture. The other three segments of the
industry sector, i.e. electricity, gas, water supply and related utilities, mining and
quarrying and construction activities, are witnessing a deceleration in growth.
Being the main driver of the economy, the service sector contributed about 69%
of the total growth during 2011-12 to 2015-16; in the process expanding its share
in the economy by 4 percentage points from 49% to 53%. Services like trade and
repair services, civil aviation and road freight transport services contributed to
growth. However, sectors like rail transport, public administration, defense and
other services lagged behind. Financing, Insurance, Real Estate and Business
Services together are estimated to achieve double-digit growth this year.
Growth in 2015-16 is primarily driven by domestic demand since exports declined
by 17.6% and imports declined by 15.5% year-on-year basis.

A BDO India Publication2
Inflation remains under control and has declined to 4.9% (CPI), while WPI was (-)
2.8% in 2015-16. The current account deficit has reduced to 1.3% of the GDP and
is likely to be in the low range of 1 – 1.5% of the GDP in the coming year. Lower
crude prices have yielded a windfall to the economy keeping a check on inflation,
fiscal deficit and so on.
Fiscal deficit for 2015-16 is pegged at 3.9% of the GDP, with the targets of
3.5% and 3.0% for 2016-17 and 2017-18 respectively. However, considering the
recommendation of the 7th Pay Commission and outlay due to OROP Scheme,
achieving these targets could be challenging.
Future Outlook
Country’s macro-economy is stable, founded on the government’s commitment to
fiscal consolidation and low inflation. The deceleration in growth has ended and
the economy appears now to be recovering, the external environment is fragile,
and challenges in other major economies have made India the near-cynosure of
eager investors.
The steady acceleration in services and manufacturing growth in the face of
subdued global demand conditions point to the strengthening of domestic demand.
India’s services sector remains the major driver of economic growth.
With enduring efforts, low inflation has taken hold and confidence in price stability
has improved. However, retail inflation still poses a challenge.
To provide legal certainty and confidence to investors, the ordinances on coal,
insurance and land need to be translated into legislation approved by Parliament.
The constitutional amendment bill to GST also needs to be enshrined in legislation.
A single GST rate (across States and Products) set at internationally competitive
levels with limited exemptions would maximize its pro-growth, pro-compliance and
pro-single market creating potential.
Indian Railways could be the next locomotive of growth. Greater public investment
in the railways would boost aggregate growth and the competitiveness of Indian
manufacturing substantially.
Banking is hobbled by policy, which creates double financial repression, and by
structural factors, which impede competition. Banking in India has recently focused
on the problem of stressed and restructured assets, the challenges in acquiring
the resources to meet the looming Basel III requirements on capital adequacy,
including the respective contributions of the government and markets, and the
need for governance reforms.
The Prime Minister has made the revival of Indian manufacturing a top priority,
reflected in his “Make in India” campaign and slogan. The objective is as laudable
as the challenges it faces that are daunting because Indian manufacturing has been
stagnant at low levels, especially when compared with East Asian successes

DIRECT TAX PROPOSALS

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2. INCOME TAX
2.1. CORPORATE TAX
2.1.1. Country-by-Country Reporting
At present India is member of G20 forum which focuses on global
cooperation on international economic and financial issues. Recently,
G20 along with OECD agreed to implement recommendations of the
BEPS project.
With a view to align the existing Indian transfer pricing
documentation compliance with action plan 13 of the OECD BEPS
Project recommendations, the Finance Bill proposes amendment
to section 92D of the IT Act, duly facilitating maintenance of
documentation/information in respect of the group, the taxpayer
belongs to. Further, the Finance Bill proposes to introduce section
286 to the IT Act, requiring the qualifying taxpayer to furnish CbCR
with the Indian tax authorities before the due date of filing tax
return in India. Necessary forms, templates and filing procedure shall
be prescribed by the CBDT.
Qualifying taxpayer includes, Indian taxpayer being part of
International group where consolidated group revenue of preceding
accounting year exceeds the specified threshold, in its capacity as:
n Parent entity of the International group
n Indian entity (‘constituent entity’) of the International group,
where the Parent entity is a tax resident of a country with which
India does not have an agreement for Information Exchange
n Indian entity (‘constituent entity’) of the International group,
where the Parent entity is a tax resident of a country with which
India has an agreement for Information Exchange but fails to
obtain the necessary information due to systemic failure
However, in the above case the Indian constituent entity will not
be required to furnish CbCR, if the same has been furnished by an
alternate reporting entity designated by the International group.
If there are more than one constituent entities in India, CbCR can be
filed by the entity designated by the group for this purpose and the
relevant tax authority has been intimated accordingly.
While the threshold for consolidated group revenue shall be prescribed
at a later date, the FM in his speech indicated that the same shall be
at INR equivalent of EUR 750 million.
Taking a cue from the OECD report on action plan 13 of the BEPS

project, the amendment proposes that the CbCR be furnished in the
prescribed form containing the following information in respect of
entity in each country or territory:
n residential status
n nature and details of main business activity
n revenue
n profit & loss before Income-tax
n amount of Income-tax paid and accrued
n details of capital
n accumulated earnings
n number of employees
n tangible assets other than cash or cash equivalent
n any other information as may be prescribed.
Further to the above, in line with BEPS action plan 13, detailed
rules for maintenance of information in master file are likely to be
notified.
The Finance Bill also proposes stringent penalties for non-compliance.
The above proposed amendments will be effective from fiscal year
2016-17.
2.2. TAXATION OF NON-RESIDENTS
2.2.1. Deferment of PoEM Based Residency Test in Case of Foreign Company
Finance Act 2015 amended the residency test in case of foreign
companies by introducing internationally recognized concept of PoEM.
However, with respect to the implementation of PoEM, certain issues
especially from the perspective of compliances (such as advance tax
payments, set of losses, application of transfer pricing regime, etc.)
have arisen. Further, several representations have been made by the
various stakeholders to defer the implementation of PoEM.
Keeping in mind the above, in order to provide clarity on
implementation of PoEM and to address the concerns raised by
various stakeholders, the Finance Bill proposes to defer applicability
of PoEM by one year i.e. the same will now be applicable from April
1, 2016. Thus, the erstwhile rule of residency (i.e. test of control
and management of affairs is situated wholly in India) in respect of
the foreign company would be applicable for the fiscal year 2015-16.
Further, the Finance Bill proposes to empower the Government to
notify (subsequently) exception, modification and adaptation to the
various provisions relating to compliances in case foreign company is

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said to be resident in India owing to PoEM in India for the first time.
Further, it is proposed to provide a transitional mechanism for the
foreign company which has not been assessed to tax in India.
2.2.2. Exemption from Furnishing PAN
Presently, at the time of making payment (other than interest on
long term bonds) of any sum (which is subject to withholding tax)
to a non-resident taxpayer, a higher withholding tax @ 20% has been
prescribed, in case such non-resident taxpayer fails to furnish PAN.
In order to reduce the compliance burden, the Finance Bill proposes
to exempt non-resident taxpayer from furnishing PAN, subject to
fulfillment of conditions which are yet to be prescribed.
The above proposal is a welcome move and the same aligns with the
recent judicial precedents wherein it has been held that the higher
rate of withholding tax shall not be applicable in view of beneficial
provisions of the applicable DTAA.
This amendment would be effective from June 1, 2016.
2.2.3. Clarification on Applicability of MAT to Foreign Companies
Finance Act 2015 provided, in case of foreign companies, the income
(other than capital gains arising on transaction in securities; or
interest, royalty, or fees for technical services) shall not be included
for computing book profit for MAT purpose.
The above amendment was effective from fiscal 2015-16, therefore
applicability of MAT to earlier years remained unaddressed.
In view of the recommendations of the A P Shah committee (formed
to clarify the applicability of MAT to FIIs / FPIs), press release issued
by the Government on September 1, 2015 and with an intent to
provide tax certainty to foreign companies, the Finance Bill proposes
that MAT shall not be applicable to the following:
n foreign company (being a tax resident of country with which
India has entered into DTAA), if such foreign company does not
have a permanent establishment in India; or
n other foreign companies, provided such companies is not required
to seek registration under any law for time being in force in
relation to companies in India.
The above proposal is an important step to banish the demon of
retrospective amendments to win confidence of foreign investors.
This amendment would be effective retrospectively from fiscal year
2000-01.

2.3. INDIVIDUAL TAXATION
2.3.1. Tax on Dividend Income
As per the existing provisions DDT is payable by the company
declaring dividend and such dividend is exempt from tax in the
hands of the shareholder, irrespective of the taxable income of the
shareholder. This, according to the FM, distorted the fairness and
progressive nature of taxes.
In order to rationalize the tax treatment of dividend income, the
Finance Bill proposes to insert a new section 115BBDA under the IT
Act. According to the amendment, resident individual/HUF/firms with
gross dividend income in excess of INR 1 Mn shall be liable to pay tax
@ 11.54% (Tax rate 10%, surcharge 12%, education cess 3%) on such
dividend in excess of INR 1 Mn. Further, no deduction / allowance
/set off of loss shall be allowed in computing tax on such dividend
income.
The proposed amendment would subject dividend income to a
harsh triple taxation i.e. corporate tax on profits, DDT on dividends
distributed and tax on dividend income in the hands of shareholder.
The above amendment is proposed to be made effective from fiscal
year 2016-17.
2.3.2. Taxation of Gifts
As per section 56(2)(vii) of the IT Act, value of any money, immovable
property or other property received without consideration or for
inadequate consideration in excess of INR 50,000 is treated as
‘Income from other sources’ in the hands of recipient individual
or HUF. Further, section 56 of the IT Act provides for exclusion of
shares received as a consequence of demerger or amalgamation of a
company. However, such benefit is extended only to recipients being
a firm or a company.
With a view to bring uniformity in tax treatment, the Finance Bill
proposes to amend provisions of section 56(2)(vii) of the IT Act to
exclude transactions where shares are received by an individual or
HUF under a scheme of demerger or amalgamation.
year 2016-17.
2.3.3. Taxation of Income from House Property
u Deduction of Interest – Extension of Time Limit
Presently, deduction for interest on housing loan could be
claimed under section 24(b) of the IT Act, only in cases where
the new property is acquired or completed within 3 years from

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the end of the fiscal year in which capital was borrowed. In
view of the fact that housing projects often take longer time for
completion, the Finance Bill proposes to extend the time limit
to 5 years.
The proposal shall take effect from fiscal year 2016-17.
u Unrealized / Arrears of Rent
The Finance Bill proposes to simplify the provisions and bring
uniformity in treatment of unrealized rent and arrears of rent by
merging them under a single new section 25A of IT Act. As per
the proposed amendments, unrealized / arrears of rent would
be taxable in the year in which they are received regardless of
whether the taxpayer was the owner of such property or not.
Further, standard deduction @ 30% under section 24 of the IT Act
would be available for such unrealized / arrears of rent.
The above amendment is proposed to be made effective from
fiscal year 2016-17.
2.3.4. Taxation of Non-compete Fees in case of Profession
Section 28 of the IT Act i.e. the charging section of profits and
gains of business or profession includes a provision, to deal with the
non-compete fees received/receivable in relation to carrying out
any business. However, it did not specify anything particularly for
amounts received as non-compete fees in connection with profession.
Therefore the Finance Bill proposes the following:
n Scope of section 28(va) of the IT Act shall include non-compete
fees (recurring in nature) received/receivable in relation to
carrying out any profession.
n Transfer of right to carrying on any profession, which is
chargeable to tax under the head “Capital gains”, would not be
taxable as profits and gains of business or profession.
n Section 55 of the IT Act shall be amended so as to provide that
the ‘cost of acquisition’ and ‘cost of improvement’ for working
out ‘Capital gains’ on capital receipts arising out of transfer of
right to carrying on any profession shall also be taken as ‘nil’
The proposed amendment is intended to override the principle laid
down by the Delhi Tribunal judgment in the recent decision in case
of Satya Kant Khosla, where it was held that the non-compete fees in
relation to profession does not fall within the ambit of section 28(va)
of the IT Act, and being a capital receipt is not taxable under the IT
Act.
These amendments will take effect from fiscal year 2016-17.

2.3.5. Provident Funds and National Pension Scheme
The Finance Bill proposes to make the following amendments:
Particulars
Recognized
Provident Fund
(RPF)
Superannuation
Fund (SAF)
National Pension
System (NPS)
Contribution No change
Employer
contribution in
excess of INR
0.15 Mn treated
as taxable as
perquisite
No change
Withdrawal
Exemption from tax on 40% of the accumulated balance of
employee contributions made after April 1, 2016. Under NPS,
entire balance received by nominee upon death of taxpayer
shall be fully exempt.
Portability
Exemption from
tax upon one-time
portability to NPS
Exemption from
tax upon transfer
to NPS
No change
The FM has taken positive measures in bringing parity to the pension
/ retirement schemes. However, taxation of the remaining 60%
of accumulated balances would mean moving them to a (Exempt-
Exempt-Tax) EET status from the existing (Exempt-Exempt-Exempt)
EEE status, thereby defeating the whole purpose of the RPF and SAF
schemes.
year 2016-17.
2.3.6. Advance Tax
The Finance Bill, with effect from June 1, 2016, proposes to amend
the number of installments and due dates for payment of advance
tax in the case of individuals, HUFs, firms, etc which has now been
aligned with the due dates applicable to corporates.
Due date of installment Amount payable
On or before June 15 At least 15% of the tax
On or before September 15 At least 45% of the tax
On or before December 15 At least 75% of the tax
On or before March 15 100% of the tax
Consequential changes are proposed to be made in the chargeability
of interest for deferment of advance tax.

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2.4. WITHHOLDING TAX
2.4.1. Rationalization of Withholding Tax Provisions
The Finance Bill proposes to rationalize the rates and base for
withholding tax provisions, the existing threshold limit and the rates
of withholding which is as mentioned in below tables:
Table 1: Increase in Threshold Limit (Amount in INR)
Section Heads
Existing
Threshold
Proposed
Threshold
192A
Payment of accumulated
balance due to an employee
30,000 50,000
194BB Winnings from Horse Race 5,000 10,000
194C Payments to Contractors 75,000* 1,00,000*
194LA
Payment of compensation
on acquisition of certain
Immovable Property
2,00,000 2,50,000
194D Insurance commission 20,000 15,000
194G
Commission on sale of
lottery tickets
1,000 15,000
194H Commission or brokerage 5,000 15,000
*Aggregate annual limit
Table 2: Revision in Withholding Tax Rates
Section Heads Existing Rate Proposed Rate
194DA
Payment in respect of Life
Insurance Policy
2% 1%
194EE
Payments in respect of NSS
Deposits
20% 10%
194D Insurance commission 10% 5%
194G
Commission on sale of
lottery tickets
10% 5%
194H Commission or brokerage 10% 5%
The said amendments will take effect from June 1, 2016.
2.4.2. Tax Collection at Source on Sale of Motor Vehicles, Goods or Services
In order to reduce the quantum of cash transaction in sale of goods
and services, to curb the flow of unaccounted money in trading
system and to bring high value transactions within the tax net, the
Finance Bill proposes to amend provisions related to tax collection at
source.

The Finance Bill proposes to provide that the seller shall collect the
tax @ 1% from the purchaser on
n sale of motor vehicle of the value exceeding INR 1 Mn
n sale in cash of any goods (other than bullion and jewellery)
or receipt in cash for providing of any services (other than
payments on which tax is withheld at source under Chapter
XVII-B) exceeding INR 0.2 Mn.
The Finance Bill proposes exemption from provisions of TCS with
respect to sale of any goods (other than bullion and jewellery) or
services subject to fulfillment of prescribed conditions in specified
cases.
The said provisions are proposed to be effective from June 1, 2016
2.5. TAX INCENTIVES FOR START-UPS
The Department of Industrial Policy and Promotion (DIPP) of the Government
of India introduced ‘Start-up India Action Plan’ in January 2016. The Scheme
prescribed various incentives aimed at giving the necessary fiscal and
regulatory support to start-ups. With a view to enable the implementation
of the recommendations of the DIPP, the Finance Bill has proposed the
following:
u For Start-up Entities
The Finance Bill proposes introduction of a new section i.e. Section
80-IAC in the IT Act which shall deal with the tax incentives for
start-up entities. As per the said section, 100% of the profits and
gains derived by an ‘Eligible Start-up’ can be claimed as a deduction
for tax purposes. Further, such deduction would be available for 3
consecutive fiscal years (at the discretion of the start-up) out of a
period of 5 years, beginning from the year in which the start-up is
incorporated.
For the purpose of this section, an entity shall be considered to be
an ‘Eligible Start-up’ if:
n It is incorporated on or after April 1, 2016, but before April 1,
2019
n Annual turnover of such entity does not exceed INR 250 Mn in
any of the fiscal years, beginning from April 1, 2016 and ending
with March 31, 2021
n Such startup is engaged in working towards innovation,
development, deployment or commercialization of new products,
processes or services driven by technology or intellectual
property
n A certification has been obtained from the Inter-Ministerial
Board, setup by the Government for such purpose by such start-
up

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u For Investors in Start-ups
As per the existing provisions of section 54GB of the IT Act, an exemption
from capital gains is available to individuals and HUFs who have invested
such capital gains in MSMEs and such MSMEs have further used such
investment in acquiring new assets, as specified in that section. The Finance
Bill proposes to extend the exemption benefit under the said section to
taxpayers making investment in shares of start-ups.
Accordingly, individuals and HUFs who have derived capital gains from sale
of a residential property and have utilised such gains for acquiring shares
in an ‘Eligible Start-up’ company shall also be entitled to claim benefit of
exemption from capital gains under Section 54GB of the IT Act, provided
such investment has been deployed by the ‘Eligible Start-up’ company
towards acquiring new assets, as specified therein.
The Finance Bill further proposes to extend the definition of new assets
in the case of ‘Eligible Start-up’ companies which are technology driven
to cover investments in computer and computer software as eligible
investments for the purpose of this section.
u For Investors in Fund of Funds
As part of the proposals outlined in the ‘Start-up India Action Plan’, the
DIPP proposes to setup of a Fund of Funds, which would invest in start-ups.
The Finance Bill proposes to introduce section 54EE in the IT Act, which
shall provide for exemption of upto INR 5 Mn per fiscal year on capital
gains arising on transfer of a long term capital asset, where such gains are
invested in the units of such Fund of Funds.
The Finance Bill also proposes to withdraw the benefit of such exemption if
the taxpayer transfers the units of such Fund of Funds within a period of 3
years from the date of its acquisition and tax the original gains in the year
in which such transfer of units takes place.
While the above proposed amendments are largely in line with the
recommendations of the DIPP, the Finance Bill fails to address the issue of
taxation of excess consideration received on issue of shares over the fair
market value by start-up companies. Presently, only investments by venture
capital funds are exempted from the provisions of section 56(2)(viib) of the
IT Act and it has been proposed in the Start-up Action Plan to extend the
same benefit to such investments made in Start-ups.
Further, it needs to be noted that such start-ups have however not been
exempted from the provisions of MAT.
These amendments would be effective from fiscal year 2016-17.

2.6. PHASING OUT DEDUCTIONS / EXEMPTIONS
The Finance Bill proposed to phase out with following incentives in the
manner as tabulated below:
Table 1: Proposed Phase Out Plan of Incentives (Profit Linked Deductions/
Weighted Deduction)
Sr.
No.
Section Of The IT Act Current Provision Proposed Provision
1
10AA- Special provision in
respect of newly established
units in Special economic
zones (SEZ)
Profit linked
deductions for units
in SEZ
No deduction shall
be available to
units commencing
manufacture or
production of article or
thing or start providing
services on or after
April 1, 2020
2
35AC-Expenditure on eligible
projects or schemes
Deduction for
expenditure
incurred by
payment of any
sum to a public
sector company or
a local authority
or to an approved
association or
institution, etc.
on certain eligible
social development
project or a
scheme
No deduction shall be
available
with effect from April
1, 2017
3
35CCD-Expenditure on skill
development project
Weighted deduction
of 150% on any
expenditure
incurred (not being
expenditure in
the nature of
cost of any land
or building) on
any notified skill
development
project by a
company
Deduction shall be
restricted to
100% from April 1,
2020

15
Sr.
No.
4
80IA, 80IAB, and 80IB -
Deduction in respect of
profits derived from
a) development, operation
and maintenance of an
infrastructure facility (80-IA)
(b) development of special
economic zone (80-IAB)
(c) production of mineral oil
and natural gas [80-IB(9)]
100% profit linked
deductions for
eligible business
carried on
by industrial
undertakings or
enterprises referred
in section 80IA,
80IAB, and 80IB
No deduction shall be
available if the activity
commences on or after
April 1, 2020
Table 2: Proposed Phase Out Plan of Incentives (Accelerated Depreciation/
Weighted Deduction)
Sr.
No.
1
32 read with rule 5 of IT
Rules, 1962- Accelerated
Depreciation
Accelerated
depreciation
under the IT Act
is available up to
100% in respect of
certain block of
assets
To amend the new
Appendix IA read with
rule 5, depreciation
under the IT Act shall
be restricted to
40% w.e.f.
April 1, 2017.
The new rate is
proposed to be made
applicable to all the
assets (whether old
or new) falling in
the relevant block of
assets

Sr.
No.
2
35(1)(ii)- Expenditure
on scientific research
Weighted deduction
to the extent of
175% of any sum
paid to
an approved
scientific research
association
which has
the object of
undertaking
scientific
research. Similar
deduction is
also available
if a sum is paid
to an approved
university, college
or other institution
and if such sum is
used for scientific
research
Weighted deduction
shall be restricted
to 150% from April
1,2017 to March 31,
2020 and deduction
shall be restricted to
100% from April 1,
2020
3
35(1)(iia) -
Expenditure on
scientific research
Weighted deduction
to the extent
of 125% of any
sum paid as
contribution to an
approved scientific
research company
Deduction shall be
restricted to 100%
1, 2017
4
35(1)(iii)- Expenditure
Weighted
deduction to the
extent of 125% of
contribution to an
approved research
association or
university or
college or other
institution to be
used for research
in social science or
statistical research
Deduction shall be
restricted to 100%
1, 2017

17
Sr.
No.
5
35(2AA)- Expenditure
Weighted deduction
to the extent of
200% of any sum
paid to a National
Laboratory or a
university or an
Indian Institute of
Technology or a
specified person
for the purpose of
approved scientific
research
programme
Weighted deduction
shall be restricted
to 150% with effect
from April 1, 2017 to
March 31, 2020.
Deduction shall be
restricted to 100%
from April 1, 2020
6
35(2AB)- Expenditure
Weighted deduction
of 200% of the
expenditure (not
being expenditure
in the nature of
cost of any land or
building) incurred
by a company,
engaged in the
business of bio-
technology or in
the business of
manufacture or
production of any
article or thing
except some items
appearing in the
negative list, on
scientific research
on approved in-
house research and
development
Facility
Weighted deduction
shall be restricted
to 150% from April
1, 2017 to March 31,
2020
Deduction shall be
restricted to 100%
from April 1, 2020

Sr.
No.
7
35AD- Deduction in
respect of specified
business
In case of a cold
chain facility,
warehousing
facility for storage
of agricultural
produce, affordable
housing project,
production of
fertilizer and
hospital, weighted
deduction of 150%
of capital
expenditure (other
than expenditure
on land, goodwill
and financial
assets) is allowed
Deduction shall be
restricted to 100% of
capital expenditure
w.e.f. April 1, 2017
8
35CCC- Expenditure
on notified agricultural
extension project
Weighted
deduction of 150%
of expenditure
incurred on
notified agricultural
extension project
Deduction shall be
restricted to 100%
from April 1, 2017
The clarity on proposed phasing out of deductions and incentives would
force affected entities to revisit their tax strategies. Such phasing out
also clears the way for further reducing the effective rates of taxes as
announced during the previous year’s budget.
2.7. PENAL PROVISIONS
2.7.1. Concealment of Income
Currently, section 271(1)(c) of the IT Act provides for penalty on account of
concealment of particulars of income or furnishing inaccurate particulars of
income. In order to rationalise and bring objectivity, certainty and clarity
in the penalty provisions, the Finance Bill proposes to replace section 271
with the newly inserted Section 270A.
This newly inserted section provides for levy of penalty in cases of under-
reporting and misreporting of income. The said sections duly provide specific
circumstances under which the relevant provisions shall be triggered. The
sections also prescribe mechanism for calculating penalties which range
from 30% to 200% of tax payable thereon.

19
The Finance Bill proposes to amend penal provisions to shield taxpayers
from the imposition of penalty for concealment, provided, adequate
transfer pricing documentation is maintained and all material facts are duly
disclosed.
An attempt has been made to simplify the penal provisions and substantially
reduce the discretionary powers of the tax authorities for levy of penalty.
The amendment is proposed to be effective from June 1, 2016.
2.7.2. Immunity from Penalty and Prosecution in Certain Cases
With changes in penal provisions, the Finance Bill proposes that a taxpayer
may make an application to the tax officer for seeking immunity from
imposition of penalty and initiation of prosecution proceedings.
Prior to making an application, the taxpayer is required to make payment
of tax along with interest within time provided in the notice of demand and
shall not prefer appeal against the assessment order.
The application is to be made within 1 month from the end of the month
in which the impugned order is received.
The tax officer shall pass an order accepting or rejecting such application
within a period of 1 month from the end of the month in which such
application is received.
It is proposed that order of tax officer under the said section shall be final.
It is proposed that no appeal to the Commissioner Appeals or revision by
Commissioner shall be admissible against the said order.
The amendment is proposed to be effective from fiscal year 2016–17.
2.8. INCOME DECLARATION SCHEME
In order to tap undisclosed income/ assets and encourage taxpayers to disclose
the same, the Finance Bill proposes to introduce the Income Declaration Scheme,
2016. The proposal provides a limited period compliance window from June 1,
2016 till a date notified by the Government to declare undisclosed income. The
said disclosure scheme provides a window for all undisclosed income earned and
assets owned upto March 31, 2016. The FM in his budget speech indicated the
window to be available till September 30, 2016.
The salient features of the said scheme are as under:
n Undisclosed income declared under the scheme shall be taxed at an
effective rate of 45%
n The taxpayer making such declaration would be required to pay tax within
the period notified by the Government, failing which such undisclosed
income would be chargeable to tax as per the normal provisions of the IT
Act

n No expenditure/ allowance shall be allowed against such undisclosed income
n In case of undisclosed asset, the fair market value of such undisclosed asset
as on June 1, 2016 shall be deemed to be the undisclosed income
n A taxpayer is entitled to make a single declaration only
Where such declaration has been made, the taxpayer shall not be subject to any
wealth tax in relation to assets disclosed. Further, the taxpayers making such
declaration would be exempt from scrutiny, including reassessments and enquiry
and prosecution from the relevant provisions of the IT Act and the Wealth Tax Act,
1957. Immunity will also be provided from Benami Transactions (Prohibition) Act,
subject to certain conditions.
The Finance Bill further proposes to bar the following taxpayers to make
declaration under this scheme:
n Where assessment, reassessment, search assessment notices have been
issued
n Where search/survey has been conducted and time limit to issue notice for
the same has not expired
n Where information is received under an agreement with foreign countries
regarding such income
n Where the cases are covered under Black Money Act, Special Courts Act,
Chapter IX or Chapter XVII of Indian Penal Code, Narcotic Drugs and
Psychotropic Substances Act, Unlawful Activities (Prevention) Act and
Prevention of Corruption Act
n Where an order of detention has been made under the Conservation
of Foreign Exchange and Prevention of Smuggling Activities Act, 1974,
except where such order has been revoked or set aside by the competent
authorities
The proposed scheme is akin to the voluntary disclosure that was made under
the Black Money law. It appears that the scheme of taxing undisclosed income
and assets i.e. to say the manner in which the quantification of such undisclosed
income is to be done, the manner in which the tax is to be computed etc. is
similar to what was prescribed under the Black Money law. However, it needs to
be reckoned that the said disclosure scheme did not yield the desired results for
the Government. In light thereof, success of the proposed scheme remains to be
seen.

21
2.9. DIRECT TAX DISPUTE RESOLUTION SCHEME
In order to reduce pendency of cases before the First Appellate Authority,
the Finance Bill proposes to introduce the Direct Tax Dispute Resolution
Scheme. The scheme applies to appeals on any matter pending before the
first appellate authority as on February 29, 2016. This scheme also applies
to appeals arising on account of retrospective amendments, pending at
any stage of litigation as on February 29, 2016, subject to withdrawal of
appeals.
The scheme requires the taxpayer to file a declaration before the
Commissioner. Based on such declaration, the Commissioner shall determine
the tax to be paid.
According to the scheme, appeal in respect of disputed income shall be
treated as withdrawn once:
n Taxpayer pays tax and interest up to the date of assessment
n In case the tax liability so determined exceeds INR 1 Mn, the taxpayer
pays 25% of minimum exigible penalty
n In case of pending penalty appeal, the tax payer pays 25% of minimum
penalty payable along with tax and interest
n Furnishes an undertaking waiving the right to pursue any remedy
under any other law or any investment protection agreement entered
into by India.
The Scheme does not apply to cases involving search, survey, undisclosed
foreign income/assets, information received under DTAA, person notified
under Special Courts Act or where prosecution has been initiated before
February 29, 2016.
The declaration to be made under the Scheme and other rules for
implementing provisions of this Scheme shall be issued through a separate
notification.
The proposal will take effect from June 1, 2016 and will apply up to a date
to be notified.
2.10. SECTOR SPECIFIC PROPOSALS
2.10.1.Power Sector
Presently, taxpayers engaged in the business of ‘generation and
distribution’ of power are allowed additional depreciation @ 20% on
cost of new plant of machinery. Such benefit was not available to
power transmission companies, who also have to invest significantly
in transmission infrastructure. The Finance Bill proposes to extend

the benefit of additional depreciation to taxpayers engaged in the
business of ‘transmission of power’.
The proposal will take effect from fiscal year 2016-17.
2.10.2. Real Estate
u Affordable Housing
With a view to promote affordable and low cost housing, the
Finance Bill proposes to grant tax incentives to taxpayers
engaged in developing and building affordable housing projects.
Accordingly, 100% of the profits and gains derived by taxpayers
from the eligible projects shall allowed as a deduction. For the
purpose of such benefit, the housing project:
n Should be approved by the competent authority before
March 31, 2019
n Ought to be completed within a period of 3 years from the
date of first approval
n Where such housing project is within an area of 25 kms
from municipal limits of metro cities, such project should
be on a plot of land of atleast 1000 sq. mtrs. and the size
of residential units should be 30 sq. mtrs. or less
n Where such housing projects are the ones not covered
under the above, the project should be on a plot of land
of alteast 2000 sq. mtrs, and the size of residential units
should be 60 sq. mtrs. or less
n Where a residential unit is allotted to an individual, no
additional units shall be allotted to such individual or
spouse or minor children of such individual
n Must comply with certain other conditions related to
utilization of area
The Finance Bill further provides that where the condition of
completing the project within 3 years of its approval is not met with,
the deduction so claimed earlier shall be taxable in the year in which
such period expires.
The benefit of deduction under this section shall not be available to
any enterprise executing such housing project as a works contract
awarded by any person.
Under the proposed amendments, the conditions to be met by the
developers for availing the benefit appear to be challenging from
a commercial perspective. Though the Finance Bill recognizes the
reality that the period for completing the housing projects may need
more than 3 years, as can be inferred by the amendment proposed

23
under section 24(b) of the IT Act, expecting the developers to
complete the project within 3 years appears incongruent. Further,
having no upper cap on the price at which the units can be sold may
defeat the objective of providing housing for all.
This amendment shall be effective from fiscal year 2016-17.
2.10.3.Financial Services
u Non-Banking Financial Companies
Presently under existing provisions of section 36(1)(viia)(c)
of the IT Act, deduction in respect of provision for doubtful
debts is allowed to public financial institution, state financial
corporations and state industrial investment corporations. The
Finance Bill proposes to amend section 36 (1) (viia) (c) of the
IT Act to provide that any provision for doubtful debts made by
a non-banking financial company shall be allowed deduction of
an amount not exceeding 5% of total income computed before
making any deduction under this clause and chapter VI-A. The
expression “non-banking financial companies” shall have the
meaning assigned to it in clause (f) of section 45-I of the Reserve
Bank of India Act, 1934.
This amendment will take effect from fiscal year 2016-17.
u Business Trust
n Exemption from DDT on Distribution Made by SDC to
Business Trust
Presently under existing provisions, Business Trust may
hold assets generating rental income through SDC. The
income received by SDC and distributed to Business Trust
is subject to DDT.
The Finance Bill proposes to insert sub section (7) to
section 115-O of the IT Act providing exemption from DDT
on distribution made by SDC to Business Trusts out of its
current income on or after the specified date. As per the
proposed amendment, no DDT shall apply to SDC in case
the following conditions are satisfied:
— The exemption from DDT would be only in case
where Business Trust either holds 100% of the
share capital of the SDC or holds all of the share
capital excluding the equity share capital required
to be held mandatorily by any other person in
accordance with any law for the time being in
force or any directions of Government or any
regulatory authority, or equity share capital held
by any Government or Government body;

— The exemption from DDT would only be in respect
of dividends paid of current income after the
specified date when the Business Trust acquires
specified nominal share capital.
n Exemption of Dividend Income in the Hands of Business Trust
The Finance Bill proposes to amend clause (23FC) of section
10 of the IT Act to provide that any income of a Business Trust
by way of interest received or receivable from special purpose
vehicle or the dividend referred to in sub section (7) of section
115-O of the IT Act shall not be taxable in the hands of Business
Trust.
n Exemption of Distributed Income from Business Trust in the
Hands of Unit Holders
The Finance Bill proposes to amend subsection (3) to section
115UA of IT Act relating to tax on income of unit holders and
Business Trust. As per the proposed amendment any distributed
income from Business Trust received by unit holders which is
of the same nature as dividend referred to in subsection (7) of
section 115-O of the IT Act shall not be taxable in the hands of
unit holders.
Further Finance Bill proposes to amend provisions of section
194LBA of the IT Act so that there will be no withholding on
dividend referred to in sub section (7) of section 115-O of the IT
Act.
This is a welcome move and a much awaited impetus to the
Business Trust structure. The proposed amendment accords
complete pass through status to the Business Trust with respect
to income earned and distributed by SDC holding assets.
This amendment will take effect from June 1, 2016.
u Offshore Funds
Section 9A of the IT Act provides tax relief for certain offshore funds
from taxability in India where such funds are managed from India.
The relief is restricted to offshore funds which are resident of a
country or specified territory with which DTAA or TIEA is entered
into. The Finance Bill proposes to extend this benefit to all offshore
funds which are established or incorporated in a country of specified
territory to be notified by the Government for this purpose.
While this shall expand the scope of funds to be covered, the
strenuous conditions of being a broad based funds and other
conditions remain unchanged. This provision remains restrictive as
compared to provisions in other overseas financial hubs. Further,

25
there is no clarification on the tax regime for the funds proposed to
be set in IFSC, the manager of which is also set up within IFSC.
The Finance Bill further proposes to relax provisions with respect
the businesses managed from India as against businesses managed in
India.
The above provisions are applicable from fiscal year 2016-17.
u Alternative Investment Funds
The current provisions provide for withholding of taxes @ 10% on any
payment made by the AIFs to resident and non-resident investors. The
Finance Bill proposes to amend the withholding tax rate on payment made
to non-resident investors, where such investors may now avail beneficial
DTAA rates. Therefore, payments to be made to non-resident investors shall
be subject to withholding tax at the rates in force. Further, it is proposed
that such non-resident investors may apply for a Nil or lower withholding
tax certificate under section 197 of the IT Act.
This is a welcome move to reduce undue administrative hardship to the
non-resident investors. However, such AIFs will have to maintain sufficient
documentations supporting the claim of the investors availing DTAA benefits.
The above amendments are effective June 1, 2016.
u Securitisation Trust
The current regime for securitisation trust applies to special purpose
vehicles as defined under the SEBI (Public Offer and Listing of Securitised
Debt Instruments) Regulations, 2008 or under the guidelines on securitisation
of standard assets issued by RBI. The Finance Bill proposes to amend the
definition of securitisation trust under section 115TC of the IT Act to
include trust set up by securitisation or reconstruction company under The
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI).
The proposed amendment widens the coverage to all securitization trusts
created under various legislations.
Further, the current regime provides for tax on income distributed by the
securitisation trust @ 25% on income distributed to individuals or HUF and
30% on income distributed to any other person. The Finance Bill proposes
to restrict the applicability of these provision for income distributed before
June 1, 2016.
The Finance Bill proposes to insert a new section 115TCA of the Act,
according a pass through status to securitisation trusts as under:
n Income from securitisation trust shall be chargeable to income-tax
in the same manner as if it were the income accruing or arising
to, or received by, the investor had the investments made by the
securitisation trust been directly made by the investors;

n Income accruing or arising to, or received by the securitisation trust
shall deem to accrue or arise in the hands of the investors in that
previous year, whether or not paid by the securitisation trust;
n Income accrued or paid by the securitisation trust shall be furnished
in a statement to be prescribed, on an annual basis.
Further, the Finance Bill proposes to insert new section 194LBC to provide
for withholding of taxes by securitisation trust on any income payable to an
investor as under:
n @ 25% if the payee is an individual or HUF resident in India;
n @ 30% if the payee is any other person resident in India; and
n @ rates in force if the payee is a non-resident
It is also proposed that the investors may apply for a lower or nil
withholding tax certificate under section 197 of the IT Act with respect to
the payment to be received from securitisation trust.
The earlier provisions provided that no income-distribution tax shall
be levied on person whose income is not chargeable to tax. However,
the proposed new regime does not provide for any such exemption on
withholding of taxes. The proposal is a welcome move for banks and other
financial institutions investing in security receipts to meet the priority
sector lending thresholds. However, low or no tax entities, especially
mutual funds will have to resort to section 197 to avoid cash flow issues.
The above provisions shall take effect from June 1, 2016.
u International Financial Services Centre
With respect to a unit in IFSC deriving its income solely from convertible
foreign exchange, the Finance Bill proposes the following:
n Income of unit of an IFSC deriving its income solely in convertible
foreign exchange shall not be subjected to DDT on dividends
declared, distributed or paid, whether interim or otherwise on or
after April 1, 2016;
n MAT under section 115JB of the IT Act shall be levied at a
concessional rate of 9%
The Finance Bill further proposes that no securities transaction tax shall be
levied on transactions in foreign currency in a recognized stock exchange
located in an IFSC. Gains on such transaction with respect to a long term
capital asset is proposed to be exempt from tax under section 10(38) of the
IT Act.

27
The proposals provide for exemption of DDT on dividend distributed by unit
in IFSC, However, there is no clarity on whether this dividend income shall
be taxable in the hands of investors.
The above proposals shall be effective from fiscal year 2016-17.
2.11. OTHER KEY AMENDMENTS
2.11.1. Presumptive Taxation
u Amendments Relating to Business
The Finance Bill proposes to increase the threshold limit under
the presumptive taxation scheme prescribed in section 44AD of
the IT Act to INR 20 Mn.
The Finance Bill further proposes that the eligible taxpayer shall
offer income as per the provisions of section 44AD of the IT Act
for a period of 5 consecutive fiscal years. In absence thereof,
the taxpayer cannot claim benefit under the said scheme for the
subsequent 5 fiscal years.
Additionally, the Finance Bill proposes that taxpayers claiming
benefit under the presumptive taxation scheme would now be
required to deposit advance tax, being 100% of the estimated
tax liability, by March 15th of the fiscal year.
This amendment would be effective from fiscal year 2016-17.
u Amendments relating to Profession
With a view to reduce compliance burden on taxpayers having
income from profession, the Finance Bill proposes to enhance the
threshold limit for compulsory audit of accounts under Section
44AB of the IT Act to INR 5 Mn.
Further, the Finance Bill proposes to extend the benefit of
presumptive taxation scheme to taxpayers having income from
profession. Accordingly, if the gross receipts of the taxpayer
from the specified profession do not exceed INR 5 Mn in a fiscal
year, then 50% of such gross receipts shall be deemed to be the
profits and gains chargeable to tax in the hands of such taxpayer.
Taxpayers availing benefit of this presumptive taxation scheme
would not be required to maintain books of accounts and get
their accounts audited, under the relevant provisions of the IT
Act.
This amendment would be effective from fiscal year 2016-17.
2.11.2.Capital Gains
u Definition of Unlisted Securities
In order to boost foreign investment in India and to bring FIIs
and private equity investor on same footing, the Finance Act

2012, reduced the capital gains tax rate arising from transfer of
unlisted securities from 20% to 10%.
However, in respect of the term ‘securities’, a reference was
made to the Securities Contract Regulations Act, 1956 which
defined the said term as “shares, scrips, stock, … or other
marketable securities of a like nature in or of any incorporated
company or other body corporate…”.
In respect of such reference, a controversy arose whether the
shares of the private companies which cannot be said to be
marketable, therefore fall outside the definition of the term
‘securities’ and accordingly not eligible for the reduced capital
gains tax rate.
With an intent to clarify the taxability, the Finance Bill proposes
that long term capital gains arising from transfer of capital asset
being unlisted securities and shares of a company not being a
company in which the public are substantially interested shall be
taxed at 10% (without giving benefit of indexation and foreign
exchange fluctuation).
Whilst, the above proposal has been effective from fiscal year
2016-17, a view could be adopted that the said proposal being
clarificatory in nature and accordingly the same ought to be
applied from fiscal year 2012-13.
u Deemed Sale Consideration
As per provisions of section 50C of the IT Act stamp duty value
shall be taken as the full value of consideration while computing
capital gains on transfer of land or building. Issues cropped on
the valuation date for determining stamp duty value.
Accepting the recommendation given by the committee headed
by Justice Easwar, the Finance Bill proposes to insert a proviso
to section 50C to provide necessary clarity. According to the
proposed amendment, the stamp duty value on the date of
agreement is to be considered where such date is different from
the date of registration.
The above proposal will take effect from fiscal year 2016-17.
u Conversion of Company to LLP
Presently, the conversion of a company into LLP is tax neutral
subject to fulfillment of conditions laid down in section 47(xiiib)
of the IT Act. The Finance Bill proposes an additional eligibility
condition, requiring the total value of assets in any of the
preceding 3 fiscal years to not exceed INR 50 Mn.
This proposal will take effect from fiscal year 2016-17.

29
2.11.3. Filing of Tax Returns
u Certain Taxpayers Claiming Capital Gain Exemption to File Tax
Return
Where a taxpayer claims exemption for long term capital gains
by virtue of section 10(38) of the IT Act and income of such
taxpayer without giving effect to such exempt gains exceed
the maximum amount which is not chargeable to tax, then the
taxpayer shall be liable to file return of income for the fiscal
year within the due date.
u Belated Tax Returns
Earlier, belated return could be furnished before the expiry of
2 years from the end of the relevant fiscal year or before the
completion of the assessment, whichever is earlier. The Finance
Bill proposes to amend the time limit for filing a belated return.
The taxpayer may furnish the return of income before the end
of 1 year from the relevant fiscal year or before the completion
of the assessment, whichever is earlier.
Earlier a belated return could not be revised. The Finance Bill
proposes to amend section 139(5) of the IT Act to provide for
revision of a belated tax return within 2 years from the end
of the relevant fiscal year or before the completion of the
assessment, whichever is earlier.
u Defective Return
Tax Return would not be treated defective merely because self-
assessment tax and its corresponding interest have not been paid
on or before the date of furnishing of the return.
The above amendments will take effect from fiscal year 2016-17.
2.11.4.Equalisation Levy
In order to tackle some of the direct tax challenges (such as
the difficulties of characterizing the nature of payment and
establishing a nexus or link between a taxable transaction) relating
to e-commerce and in light of the suggestions made by the OECD
in BEPS project under action plan 1, the Finance Bill proposes to
introduce ‘Equalisation Levy’.
The Finance Bill proposes to charge an equalization levy @ 6% on
the amount of consideration for specified services (in the nature of
online advertisement, provision for digital advertising space or any
other facility for the purpose and includes any other notified services)
received or receivable by the non-resident taxpayer, not having PE in
India from:
n Resident payer carrying business or profession; or

n Non-resident payer having PE in India
The Finance Bill also proposes that the above levy shall not be
charged, in the following cases, namely:
n Non-resident taxpayer providing such specified services has PE in
India and such services are effectively connected with such PE.
n Aggregate amount of consideration for specified services received
or receivable in a fiscal year by the non-resident taxpayer from
resident payer (carrying business or profession) or non-resident
payer (having PE in India) does not exceed INR 0.1 Mn.
n Specified services being paid by resident payer or PE of the
non-resident payer for purpose other than carrying business or
profession.
The resident or PE of the non-resident payer is required to deduct the
proposed equalisation levy and deposit the same with the Government
within the prescribed time limit. Further, for a given fiscal year,
the said resident or PE of the non-resident payer is required to
furnish prescribed statement within specified time frame to the tax
authorities.
The resident or PE of the non-resident payer shall be liable to pay
the equalization levy along with interest and penal consequences in
case of:
n Non-deduction or short deduction of equalization levy; or
n Failure to deposit the equalization levy so deducted within the
prescribed time limit.
The Finance Bill also proposes to levy penalty in respect of non-
furnishing of the prescribed statement within specified time frame.
This amendment would be effective from the date of the notification
to be issued by the Government.
Further, the Finance Bill proposes to provide that where the resident
or PE of the non-resident payer fails to
n deduct the equalisation levy on payments made to the non-
resident taxpayer; or
n after deduction fails to pay the same within the due date
for filing the tax return, the same shall not be allowed as a
deduction in computing the income of such payer for the fiscal
year in which the payment was made. The Finance Bill proposes
that the said payment shall be allowed as a deduction to the
payer in the subsequent fiscal year in which such equalisation
levy has been deducted and paid.

31
In case the proposed provisions are enacted in the current form,
the issues which are existing under the present withholding taxes
regime such as disallowance of the entire sum in case of short
deduction, deduction on out of pocket expenses included in the
invoices, etc. would also arise in the proposed equalisation levy.
Further, unlike the existing withholding tax provisions, there are
no provisions in respect of gross up arrangements in the proposed
equalisation levy.
The Finance Bill also proposes that the income arising from
above specified services and chargeable to equalisation levy shall
be exempt from tax in the hands of non-resident taxpayer.
In view of the fact that the above proposed equalisation levy has
been introduced by the Finance Bill 2016, one needs to evaluate
whether the same is akin to Income-tax covered under applicable
DTAAs.
2.11.5. Special Patent Tax Regime
With an aim to promote indigenous R&D and make India a global
R&D hub, the Finance Bill proposes to introduce a concessional
tax regime for Patents developed and registered in India. Under
the proposed scheme, the royalty income generated from a Patent
developed and registered in India shall be taxed at a flat rate of
10% (plus applicable surcharge and cess). No deduction is allowable
for any expenditure or deduction while computing the tax on such
income. The incentive under this scheme is available only to resident
taxpayers in whose name the patent is registered under the Indian
Patents Act, 1970.
It is further proposed that royalty income from eligible patents and
relevant expenditure be excluded while computing MAT liability of
the eligible taxpayer.
Patent Box regimes have been criticized, as harmful tax practice
leading to shifting of tax profits. Action plan 5 of BEPS recommends
limiting benefits under such regimes only to entities carrying out
substantial activity, rather than the legal owner of such Patents.
While the Memorandum explaining the Budget provisions discusses
the anti-abuse measure (nexus approach) discussed under BEPS action
plan 5, no corresponding amendment seems to have been proposed
in this respect.
The above proposal will take effect from fiscal year 2016-17.

2.11.6. Disallowance under section 14A
While no amendment has been proposed to section 14A, the FM in
his budget speech promised to rationalise the formula for computing
disallowance in Rule 8D. The FM indicated that the disallowance will
be limited to 1% of the average monthly value of investments yielding
monthly exempt income, but not exceeding actual expenditure
claimed.
While the objective of the change is aimed at reducing litigation, the
impact of this proposal can be evaluated once the fine print of Rules
is available.
2.11.7. Paperless Assessments
In a recent notification issued by CBDT, service of notice, summons,
requisition, order and other communication may be done by email.
The Finance Bill now proposes to amend section 282A(1) of the IT
Act, so as to provide that notices and documents required to be
issued by tax authorities shall be issued either in paper form or in
electronic form in accordance with procedure to be notified.
It is also proposed that communication of data and documents
through electronic mode be treated as personal ‘hearing’.
With the aforementioned proposal, the Government plans to use
technology with an objective to move towards paperless environment.
The above proposed amendments will take effect from June 1, 2016.
2.11.8. Assessment, Reassessment and Recomputation
The Finance Bill proposes to reduce / set the time limit for
assessment, reassessment and re-computation of total income in the
following cases:
Sr.
No.
Particulars
Existing time
limit
Revised
time limit
1
Completion of assessment under
section 143 and section 144 of the IT
Act (time limit from end of year in
which tax return is filed)
2 years 21 months
2
Completion of reassessment under
section 147 of the IT Act (time limit
from end of year in which notice is
served)
1 year 9 months

33
Sr.
No.
Particulars
Existing time
limit
Revised
time limit
3
Completion of fresh assessment in
pursuance of an order of ITAT or a
revision of order by CIT, setting aside
or cancelling an assessment (time
limit from end of year in which order
is received)
1 year 9 months
4
Giving effect to an order of CIT(A),
ITAT, High Court or Supreme Court or
revision of an order or an order of the
Settlement Commission, in absence of
fresh assessment/ reassessment (time
limit from end of the month in which
order is received/passed)
- 3 months
5
In other cases for giving effect to an
order of CIT(A), ITAT, High Court or
Supreme Court or revision of an order
(time limit from end of the month in
which order is received/passed)
- 12 months
6
Period for assessment made on a
partner of the firm in consequence of
an assessment made on the firm under
section 147 of the IT Act (time limit
from end of the month in which order
of firm is passed)
- 12 months
The period of assessment or reassessment in Sr. No. 1, 2 and 3 above,
to be extended by a period of 12 months in case where a reference
is made to Transfer Pricing Officer.
This amendment will be effective from June 1, 2016.

2.12. RATES OF INCOME-TAX AT A GLANCE
2.12.1. Individual / HUF / Association of Persons / Body of Individuals
The rates of tax will continue to be the same as those specified for
fiscal year 2015-16 which are summarized as under:
Individual
Income Slabs (INR) Age
below 60
yrs
Age 60 and
above but
below 80
yrs
Age 80
yrs and
above
HUF / AOP
/ BOI
Up to 250,000 NIL NIL NIL NIL
250,001 – 300,000 10% NIL NIL 10%
300,001 – 500,000 10% 10% NIL 10%
500,001 – 1,000,000 20% 20% 20% 20%
1,000,001 & above 30% 30% 30% 30%
Finance Bill proposes to increase the maximum amount of rebate
available to resident individuals under section 87A of the IT Act from
existing INR 2,000 to INR 5,000.
Surcharge shall be levied @ 15%, as against the existing rate of 12%
where the taxable income exceeds INR 10 Mn. Further in case of a
resident taxpayer, surcharge continues to be @ 12% where the taxable
income exceeds INR 10 Mn.
The Education cess and Secondary and Higher education cess shall
continue to be levied @ 2% and 1% respectively.
Marginal relief will continue to be allowed in cases where taxable
income is more than INR 10 Mn.
2.12.2. Partnership Firm / Limited Liability Partnerships
The rates of income-tax will continue to be the same as those
specified for fiscal year 2015-16.
Limit Tax Rate (%)
On the whole of the total income 30%
Surcharge shall be levied @ 12% where the taxable income exceeds
INR 10 Mn.
continue to be levied at the rate of 2% and 1% respectively.

35
income is more than INR 10 Mn.
2.12.3. Company
The rates of income-tax for the fiscal year 2016-17 are proposed as
under:
Sr
No
Particulars
Basic Tax Rate Surcharge
(A) (B)
Total
Income <=
INR 10 Mn
Total
Income >
INR 10mn
<= INR
100 Mn
Total
Income >
INR 100
Mn
1.
D o m e s t i c
Company
- Normal Tax
Rate
- Minimum
Alternate Tax
29%
18.5%
30%
18.5%
Nil
Nil
7%
7%
12%
12%
2
F o r e i g n
Company
- Normal Tax
Rate
40% 40% Nil 2% 5%

(A) Total turnover or gross receipts of the company for the fiscal year
2014-15 does not exceed INR 50 Mn
(B) Total turnover or gross receipts of the company for the fiscal year
2014-15 exceeds INR 50 Mn
In order to provide relief to newly setup domestic companies engaged solely
in the business of manufacture or production of article or thing, the Finance
Bill proposes to amend the IT Act by way of insertion of new section 115BA,
to provide that the income-tax payable in respect of the total income of
a domestic company for any fiscal year beginning on or after April 1, 2017
shall be computed @ 25% at the option of the company, if the following
conditions are satisfied-
n the company has been setup and registered on or after March 1, 2016;
n the company is engaged in the business of manufacture or production
of any article or thing and is not engaged in any other business;
n the company while computing its total income has not claimed any
benefit under section 10AA, benefit of accelerated depreciation,
benefit of additional depreciation, investment allowance, expenditure

on scientific research and any deduction in respect of certain income
under Part-C of Chapter-VI-A other than the provisions of section
80JJAA; and
n the option is furnished in the prescribed manner before the due date
of furnishing of income.
continue to be levied at the rate of 2% and 1% respectively on the
amount of tax computed inclusive of surcharge(wherever applicable)
in all cases.
income is more than INR 10 Mn or INR 100 Mn.
Also, surcharge @12% will be levied on Dividend Distribution Tax.
The above amendments shall take effect from fiscal year 2016-17.

INDIRECT TAX PROPOSALS

39
3. CUSTOMS
3.1. LEGISLATIVE CHANGES (to be effective from the date of enactment of Finance Bill,
2016)
3.1.1. New provisions in relation to Special Warehousing and amendments in
warehousing procedures
u Special Warehouse
The definition of Warehouse has been proposed to include Special
Warehouse under Section 58A of Customs Act in respect of specified
goods, which require continued physical control of the Customs
Department. The Principal Commissioner of Customs or Commissioner
of Customs to be given power to issue such licenses.
u Procedures relating to Warehouse
n Procedure for licensing, cancellation and suspension has been
revamped by proposing to substitute new section 57 and 58.
n As per the proposed section 57 and 58, the power to license
public or private warehouse now vests with the Principal
Commissioner of Customs or Commissioner of Customs. As
per existing provisions, such power vests with the Assistant
Commissioner or Deputy Commissioner of Customs.
u Warehousing Bond
n The amount of warehousing bond has been proposed to be
increased from twice to thrice the amount of duty. In addition
to the aforesaid bond, importer shall furnish a security as may
be prescribed.
n Under the existing provisions, importer undertakes to pay duties,
interest, rent and other charges while executing a warehousing
bond. As the requirement of rent and other charges is proposed
to be omitted, the warehousing bond would not cover such rent
and other charges.

u Warehousing Period
Existing section 61 has been proposed to be substituted specifying the
period for which the goods can be warehoused as follows:
Cleared by
Capital Goods
Other than
Capital Goods
Existing Proposed Existing Proposed
100% Export Oriented
Undertaking
5 Years
Till the
clearance
3 Years
Till the
clearance
Electronic Hardware
Technology Park unit
1 Year
Till the
clearance
1 Year
Till the
clearance
Software Technology
Park unit
1 Year
Till the
clearance
1 Year
Till the
clearance
Any warehouse
wherein manufacture
or other operations
have been permitted
under section 65
1 Year
Till the
clearance
1 Year
Till the
clearance
Others 1 Year
1 Year
(extendable
by 1 more
year)
1 Year
1 Year
(extendable
by 1 more
year)
u Control over Warehoused Goods
Section 62 dealing with control over warehoused goods by the
customs officer is proposed to be deleted. The class of imported
goods which requires physical control may be governed by provisions
of Special Warehouse under newly proposed section 58A.
u Determination of rent and other charges
Section 63 deals with determination of rent and warehouse charges
and prescribes procedures for collection thereof. Finance Bill 2016
proposes to omit this section as the rent and warehouse charges are
market driven on account of privatization of services including those
by facilities in the public sector.
u Owner’s Right to deal with warehoused goods
The proposed section 64 restricts owner’s right while dealing with
warehoused goods to extent of inspection, sorting, showing for sale
and any other actions to prevent any damage.

41
u Manufacture and other operation in relation to goods in Warehouse
The power to sanction manufacturing operations in warehouse
is proposed to be shifted from Assistant Commissioner / Deputy
Commissioner to Principal Commissioner / Commissioner of Customs.
The requirement of payment of fees is proposed to be waived.
u Transfer of Warehoused Goods
As per proposed amendment, transferee is mandatorily required to
execute a fresh bond along with a security. In such a case, bond
executed by transferor shall stand cancelled.
u Custody and removal of warehouse goods
Proposed Section 73A identifies the custodian of warehoused goods
and casts responsibility including liability of the warehouse keeper.
u Other Amendments
On many instances under warehousing provisions, the word
‘exportation / re-exportation’ has been proposed to be substituted
by the word ‘export’ in order to align with the definition of exports
as mentioned under section 2(18) of Customs Act.
3.1.2. The concept of Warehousing Station to be omitted
The concept of Warehouse Station has been proposed to be omitted. This
would mean elimination of one step in setting up a warehouse. As per
proposed amendment, a warehouse could be set up without the requirement
of location being declared as warehousing station.
3.1.3. Recovery of Customs Duty (Section 28)
n Recovery proceedings are proposed to be initiated for duties not paid
or short paid in addition to not levied or short levied or erroneously
refunded whether or not arising on account of any collusion, willful
misstatement, fraud etc.
n The period of limitation to issue show cause notice has been proposed
to be increased from one year to two years in cases not involving any
collusion, willful misstatement, fraud etc.
3.1.4. Deferral of payment of Customs duty introduced for the first time
n For the first time, deferral of payment of duty or other charges has
been proposed to be introduced for notified class of importers and
exporters.
n Even in case of deferred payment, interest will be applicable at
specified rates.
— In case of importers, if payment is not made within two days
(excluding holidays) from the due date specified.
— In case of exporters, if payment is not made within the due date
specified.

3.1.5. Transit of goods without payment of duty
Finance Bill seeks to amend section 53 of Customs Act so as to enable
the CBEC to frame regulations for allowing transit of certain goods and
conveyance without payment of duty.
3.1.6. Benefit of advance license under Duty Free Import Authorization (to be
granted retrospectively)
Various customs notifications granting exemptions from customs duty to
advance license holders or duty free import authorization holders refer
to export duty under section 8 of Customs Tariff Act, 1975. Finance Bill,
2016 proposes to retrospectively amend all such notifications to change the
reference from section 8 to section 8B pertaining to safeguard duty. With
this amendment, importers can now use such authorization for import of
goods without payment of safeguard duty.
3.2. AMENDMENTS IN CUSTOMS TARIFF ACT, 1975
3.2.1. Amendment in the First Schedule to the Customs Tariff Act, 1975
A Amendments not affecting rates of duty
1
Editorial changes in the Harmonized System of Nomenclature (HSN) in
certain chapters are being incorporated in the First Schedules, to be
effective from January 01, 2017.
2
To:
a) Amend supplementary notes (e) and (f) Chapter 27 so as to change
the reference:
n from IS:1460:2000 to IS:1460:2005 for high speed diesel (HSD) and
n from IS:1460 to IS: 15770:2008 for light diesel oil (LDO);
b) Substitute Tariff line 5901 39 10 with description “Warp pile fabrics,
uncut” in place of tariff line 5801 37 11 [with description Warp pile
fabrics„ epingle” uncut velvet] and 5801 37 19 [with description Warp
pile fabrics„ epingle” uncut other];
c) Prescribe separate tariff lines for laboratory created or laboratory
grown or manmade or cultured or synthetic diamonds;
d) Delete Tariff line 8525 50 50, relating to Wireless microphone.

43
B Amendments affecting rates of duty
Description of Goods
Existing Tariff
Rate
Revised
Tariff
Rate
Articles of rubber
3
Natural latex rubber made balloons falling
under specified headings
10% 20%
Metals
4 Primary aluminium 5% 7.50%
5 Zinc alloys 5% 7.50%
Jewellery
6 Imitation jewellery 10% 15%
Renewable Energy
7 Industrial solar water heater 7.50% 10%
Capital goods and parts thereof
a) On 96 specified tariff lines, the effective
rate is being increased
7.50% 10%
b) On remaining 115 tariff lines the
effective rate will remain unchanged
7.50% 7.50%
* The amendments involving increase in the duty rates will come into
effect immediately owing to a declaration under the Provisional Collection
of Taxes Act, 1931.
3.2.2. Amendment in effective rate of Customs Duty for Imports subject to
condition as per applicable notification (To be effective from March 1, 2016)
u Aviation Industry
Sr.No. Description of Goods
Existing BCD
Rate
Revised
BCD Rate
1
Other Aircraft; spacecraft (including
satellites) and suborbital and spacecraft
launch vehicles except Spacecraft
(including satellites) and suborbital
and spacecraft launch vehicles
3%-10% Nil

u Chemical and Petrochemicals
Existing BCD
Rate
Revised
BCD Rate
1
The following gods for use in the
manufacture of Brushless Direct Current
(BLDC) motors, namely:
7.50% 2.50%
n Mangnet Resin (Strontium Ferrite
compound/before formed, before
magnetisation);
n Neodymium magnet (before
magnetisation)
2
Medical use fission Molybdenum-99
(Mo-99), if imported by board of
radiation and Isotope Technology (BRIT)
for use in the manufacture of radio
pharmaceuticals.
7.50% Nil
3
All goods - Acyclic Hydrocarbons, cyclic
hydrocarbons except p-Xylene and
Styrene.
5.00% 2.50%
4
Capacitor grades polypropylene granules
or resins for the manufacture of
capacitor grade plastic film
7.50% Nil
5
Electrolysers, membranes and their
parts required by caustic soda /
potash unit based on membrane cell
technology
2.50% Nil
u Electrical Industry
Existing BCD
Rate
Revised
BCD Rate
1
Electric Motors and Generators
(Excluding Generating Sets) except
AC Generators of an output exceeding
1,37,500 kVA but not exceeding
3,12,500 kVA and of an output
exceeding 3,12,500 kVA
- 7.50%

45
Existing BCD
Rate
Revised
BCD Rate
2
Electric Generating sets and Rotary
Converters except generating sets of an
output not exceeding 75kVA, electric
portable generators of an output not
exceeding 3.5kVA and Electric rotary
converters
- 7.50%
3
Foreign Satellite data on storage media
imported by National Remote Sensing
- Nil
4
Parts, testing equipment, tools and
toolkits for maintenance, repair, and
- Nil
u Electronics/ Hardware Industry
Existing BCD
Rate
Revised
BCD Rate
1
(a) Inputs or parts for use in
manufacture of charger or adapter
of mobile handsets including
cellular phones;
(b) Inputs or sub-parts for use in
manufacture of parts mentioned
at (a)above
- Nil
2
manufacture of battery of mobile
handsets including cellular phones;
at (a) above
- Nil
3
manufacture of wired headsets of
mobile handsets including cellular
phones;
- Nil
at (a) above
4
manufacture of speakers of mobile
handsets including cellular phones;
- Nil
at (a) above

Existing BCD
Rate
Revised
BCD Rate
5
(a) Parts, components and accessories
for use in manufacture of
broadband modem falling under
tariff item 8517 62 30;
- Nil
(b) Sub-parts for use in manufacture of
items mentioned at (a) above.
6
for use in manufacture of routers
falling under tariff item 8517 69
30;
- Nil
7
for use in manufacture of set
top boxes for gaining access to
internet falling under tariff item
8517 69 60;
- Nil
8
for manufacture of Digital Video
Recorder (DVR)/ Network Video
Recorder (NVR) falling under tariff
item 8581 90 90;
- Nil
9
for use in manufacture of reception
apparatus for television but not
designed to incorporate a video
display falling under tariff item
8528 71 00;
- Nil
10
for use in manufacture of CCTV
Camera/ IP camera falling under
tariff item 8525 80 20;
- Nil

47
Existing BCD
Rate
Revised
BCD Rate
11
for use in manufacture of lithium-
ion batteries (other than batteries
of mobile handsets including
cellular phones) falling under tariff
item 8507 60 00;
- Nil
12 E-Readers Nil 7.5%
13
Raw materials or parts for use in
manufacture of e-Readers
- 5.00%
14
Preform of Silica for the manufacture
of telecommunication grade optical
fibres or optical fibre cables.
Nil 10%
15
Machinery, electrical equipment,
other instruments and their parts
[except populated Printed Circuit
Boards] for use in fabrication of
semiconductor wafer and Liquid Crystal
Display (LCD) Machinery, electrical
equipment, other instruments and
their parts [except populated Printed
Circuit Boards] for use in assembly,
testing, marking and packaging of
semiconductor chips
7.50% Nil
16
Over Load Protector (OLP) and
positive thermal coefficient for use
in the manufacture of refrigerator
compressor falling under tariff
item 8414 30 00
7.50% 5%
u Food Industry
Existing BCD
Rate
Revised
BCD Rate
1 Cashew nuts in shell Nil 5%
2
Denatured ethyl alcohol (ethanol) for
use in manufacture of excisable goods.
5.00% 2.50%

u Gems and Jewellery Industry
Existing BCD
Rate
Revised
BCD Rate
1
Gold dore bar, having gold content
not exceeding 95%
8% 8.75%
2
Silver dore bar, having silver content
not exceeding 95%
7% 7.75%
u Health Industry
Existing BCD
Rate
Revised
BCD Rate
1
Disposable sterilized dialyzer and
micro barrier of artificial kidney
7.50% Nil
u Ores and Metals
Existing BCD
Rate
Revised
BCD Rate
1
Aluminium tubes and pipes and pipe
fittings
7.50% 10%
2 Brass Scrap 5.00% 2.50%
3 Silica Sands 5.00% 2.50%
4
Coal, whether or not pulverised, but
not agglomerated1 10.00% 2.50%
5
Briquettes, ovoides and similar solid
fuels manufactured from coal, lignite,
peat
10.00% 2.50%
6
Coke and semi coke of coal; coal gas;
gases other than petroleum gases
and other gaseous hydrocarbons; Tar
distilled from coal
10.00% 5.00%
7
Oils and other products of the
distillation of high temperature coal
10.00% 2.50%
8
Pitch and pitch coke obtained from coal
tar or from other mineral tar
10.00% 5.00%
9
Aluminium Oxide for use in the
manufacture of washcoat for catalytic
converters
7.50% 5%
1
Additional Duty of Customs increased to 2% from nil rate

49
u Renewable Energy
Existing BCD
Rate
Revised
BCD Rate
1
Solar tempered glass or solar tempered
(anti-reflective coated) glass for use
in manufacture of solar cells/panels/
modules
10.00% 5%
u Textile Industry
Existing BCD
Rate
Revised
BCD Rate
1
Import of specified fabrics for the
manufacture of textile garments for
export under chapter 50, 52, 54, 55 or
any other chapter
- Nil
2 Specified fibres, filaments/yarns 5.00% 2.50%
u Miscellaneous
Existing BCD
Rate
Revised
BCD Rate
1 Refrigerated containers - 5.00%
2
Wood in chips or particles, imported
for use in manufacture of paper,
paperboard and newsprint
5.00% Nil
3
Pulp of wood for manufacture of goods
falling under 9619.
5.00% 2.50%
4
Sanitary towels (pads) and tampons,
napkins liners for babies and similar
articles, of any material under chapter
heading 9619
10.00% 5%
5 Plans drawings and designs Nil 10%
3.2.3. Amendment in Special Additional Duty
Existing BCD
Rate
Revised
BCD Rate
1
Populated Printed Circuit Boards (PCBs) of
mobile phones and tablet computer
Nil 4%
2
Charger, adapter, battery, wired headsets and
speakers of mobile handsets
Nil 4%

Existing BCD
Rate
Revised
BCD Rate
3
O-xylene for use in manufacture of phthalic
anhydride
4% 2%
4
Machinery, electrical equipment’s, other
instruments and their parts [except populated
Printed Circuit Boards] for use in fabrication
of semiconductor wafer and Liquid Crystal
Display (LCD)
4% Nil
5
Machinery, electrical equipment’s, other
instruments and their parts [except
populated Printed Circuit Boards] for use in
assembly, testing, marking and packaging of
semiconductor chips
4% Nil
6
Populated Printed Circuit Boards (PCBs) for
use in manufacture of tablet computers and
mobile handsets including cellular phones,
Nil 2%
3.2.4. Amendment in effective rate of Customs Duty for Exports (to be effective
from March 1, 2016)
Existing BCD
Rate
Revised
BCD Rate
1
All goods under Chapter Heading 26011121,
26011122, 26011141, 260111 42
10% Nil
2 Bauxite (natural), not calcined 20% 15%
3 Bauxite (natural), calcined 20% 15%
4 Chromium Ores and concentrates, all sorts 30% Nil
3.2.5. Safeguard Duty on imports from China (to be effective from enactment of
Finance Bill, 2016)
Section 8C of Customs Tariff Act, 1975 providing power to Central
Government to impose specific safeguard duty on imports from People’s
Republic of China is proposed to be omitted.

51
3.3. AMENDMENTS BY WAY OF NOTIFICATION
1.3.1. Amendment in Baggage Rules, 1998 (to be effective from April 1, 2016)
n Baggage Rules in relation to used personal effects, travel souvenirs
and all articles except mentioned in Annexure I
(Table 1)
Sr.No. Passenger Details Arriving from Baggage Allowances
1
Indian Resident or
a foreigner residing
in India or tourist of
Indian Origin
Countries other
than Nepal,
Bhutan or
Myanmar
Upto INR 50,000
2
Tourist of Foreign
Origin
Countries other
than Nepal,
Bhutan or
Myanmar
Upto INR 15,000
3
Indian Resident or
a foreigner residing
in India or tourist of
Indian Origin
Nepal, Bhutan or
Myanmar
Upto INR 15,000
(in case passenger
travelling by land,
only used personal
effects shall be
allowed duty free)
n Annexure I
— Fire arms
— Cartridges of fire arms exceeding 50
— Cigarettes exceeding 100 sticks or cigars exceeding 25 or tobacco
exceeding 125 gms
— Alcoholic liquors or wine in excess of two litres
— Gold or silver in any form other than ornaments
— Flat panel (LCD / LED / Plasma) television
n Baggage Rules for Jewellery
Sr.
No.
Passenger Residing Abroad Baggage Allowances
1 Gentleman For more than 1 year
20 grams of weight with a cap
of INR 50,000
2 Lady For more than 1 year
40 grams of weight with a cap
of INR 1,00,000

n Transfer of residence
A person returning to India either on completion of his profession
or transfer of his residence shall be allowed baggage to extent as
mentioned in the appendix to Rule 6 to Baggage Rules, 2016 wherein
the baggage allowance have been increased in comparison to previous
rules. This is in addition to the duty free good allowed as per Table
1 above.
n Currency
The import and export of currency under these rules shall be
governed by Foreign Exchange Management (Export and Import of
Currency) Regulations, 2000 and notifications issued thereunder.
3.3.2. Customs Baggage Declaration Regulations, 2013 (to be effective from April
1, 2016)
n Customs Baggage Declaration Regulations, 2013 is proposed to be
made applicable only to passengers coming to India who have
anything to declare or are carrying dutiable or prohibited goods.
n Changes proposed to be introduced in Baggage Rules, 1998 are
proposed to be incorporated in the Form I for declaration of
accompanied baggage.
3.3.3. Amendment in Section 28AA – Interest on delayed payment of Duty (to be
effective from April 1, 2016)
The Government of India vide notification no 33/2016 has notified rate of
interest as 15% p.a. for delayed payment of duty as against previous rate
of 18% p.a.
3.3.4. Customs (Import of Goods at Concessional Rate of Duty for Manufacture
of Excisable Goods) Rules, 2016 (to be effective from April 1, 2016)
simplified based upon self declarations instead of obtaining permissions from
authorities
n New procedure for import of goods is proposed to be introduced
vide Customs (Import of Goods at Concessional Rate of Duty for
Manufacture of Excisable Goods) Rules, 2016 (IGCR) replacing
erstwhile Customs (Import of Goods at Concessional Rate of Duty for
Manufacture of Excisable Goods) Rules, 1996.

53
n Applicability
— IGCR Rules shall apply to importer manufacturer claiming
exemption granted under section 25 of Customs Act for import
of goods with a condition that the goods will be used for
manufacture of excisable commodity. The relevant exemption
notification specifies the requirement of observance of
these rules. These Rules shall be applicable even if goods
manufactured using the imported goods are not liable to excise
duty or exempt from excise duty.

4. CENTRAL EXCISE
4.1. LEGISLATIVE AMENDMENTS
4.1.1. Amendments to Central Excise Act [to be effective from the date of
enactment]
u Time limit for issuance of show cause notice (Section 11A)
The time limit for issue of show-cause notice in cases not
involving fraud or collusion or willful misstatement or suppression
of facts has been extended from 1 year to 2 years from the
relevant date.
u Extension in instructive powers of CBEC (Section 37B)
The powers of CBEC to issue orders, instructions and directions
to central excise offers have now been extended not only in
case of classification or levy of excisable goods but also for the
implementation of CE Act.
4.2. OTHER AMENDMENTS
4.2.1. Optional centralized registration provided to manufacturer of
Jewellery [to be effective from March 1, 2016]
The said option is subject to condition that the manufacturer
maintains centralized billing or accounting system for goods specified
above and the manufacturer opts to register the factory/office/
premises from wherein the centralized billing or accounting is done
and specified records are maintained. Such manufacturer provides the
details of all premises (other than those of job workers) from where
the specified goods are removed for domestic clearance. Alternatively
the manufacture may also opt for separate registrations of all such
factories/office/premises.
Also condition of physical verification as applicable during central
excise registration process has been done away with in case of such
manufacturers. (Notification no. 08/2016 –CE NT)
The above mentioned manufacturers will have to levy excise duty on
the transaction value instead of tariff value as was applicable earlier.
(Notification no. 07/2016–CE NT)
The purpose of the above amendments is to simplify the cumbersome
registration procedures.
Further, rule 8 has been amended to provide the manufacturers
as specified above to pay excise duty on a quarterly basis if their
turnover does not exceed INR 12 Crores in the preceding financial
year.

India Union Budget 2016 - An Overview | A BDO India Publication

India Union Budget 2016 - An Overview | A BDO India Publication

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