Publication - RSM India Budget 2016 Key Aspects

THE POWER OF BEING UNDERSTOOD
INDIA BUDGET 2016
- Key Aspects
Let’s understand the India
Budget

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INDIA BUDGET 2016
- Key Aspects

RSM INDIA BUDGET 2016 - Key Aspects
Table of Contents
Executive Summary 1
Chapter 1 : Introduction 8
Chapter 2 : Indian Economy - An Overview 12
Chapter 3 : Tax Rates 15
Chapter 4 : G-20 Countries - Comparative Corporate And Personal Tax Rates 22
Chapter 5 : Tax Incentives For Businesses 23
Chapter 6 : Direct Taxes - Significant Changes 39
6.1 Business Entities
6.2 Personal 46
6.3 Non Residents 49
6.4 Transfer Pricing 51
6.5 General 54
Chapter 7 : Indirect Taxes - Significant Changes 59
7.1 Service Tax 60
7.2 Customs Duty 65
7.3 Central Excise 67
7.4 Central Sales Tax Act 71
Chapter 8 : Other Significant Proposals 72
Chapter 9 : Impact On Select Industries 76
Chapter 10 : DTAA Rates 87
Chapter 11 : TDS Rates 96
Chapter 12 : Direct Tax And Service Tax Compliance Calendar 99
Abbreviations 102
39

RSM 1INDIA BUDGET 2016 - Key Aspects
Executive Summary
1.0 DIRECT TAXES
1.1 Effective Tax Rates
1.1.1 Personal taxation
nThe Bill proposes no change in personal tax
rates and basic exemption limit continues at
Rs.2,50,000. However, there is an increase in
surcharge from 12% to 15% for Individuals /
HUFs having income above Rs. 1,00,00,000.
This will result in maximum marginal rate of
35.535% {(30%+15% surcharge thereon)+3% cess} for FY 2016-17 as
against 34.608% {(30%+12% surcharge thereon)+3% cess} at present.
1.1.2 Corporate taxation
nNew manufacturing domestic companies incorporated on or after 1
March 2016 may opt for corporate tax rate of 25% plus applicable
surcharge and cess provided profit linked incentives / investment linked
deductions / investment allowance / accelerated depreciation are not
claimed.
nCorporate tax rate for relatively smaller domestic companies with
turnover not exceeding Rs. 5,00,00,000 (For FYE 31 March 2015) to be
29% plus applicable surcharge and cess.
nCorporate tax rate for other domestic companies remains unchanged
@30% plus applicable surcharge and cess.
nSurcharge on corporate tax / MAT of domestic company remain
unchanged @7% where income exceeds Rs. 1,00,00,000 not exceeding
Rs. 10,00,00,000 and @12% where income exceeds Rs. 10,00,00,000.
nCorporate tax rate for foreign companies remains unchanged @40% plus
applicable surcharge and cess.
1.1.3 Partnership firms / LLP
nFor total income exceeding Rs. 1,00,00,000, tax is chargeable @34.608%
[(tax rate 30% plus surcharge 12% thereon) plus education cess 3%
thereon]. In other cases, effective tax rate remains unchanged @ 30.90%.
nAMT remains unchanged @21.346% [(tax rate 18.50% plus surcharge 12%
thereon) plus education cess 3% thereon] in case the adjusted total
income exceeds Rs. 1,00,00,000. In other cases, the effective tax rate
remains unchanged @ 19.055%.
nDeduction up to 100% of the profits allowed for 3 out of 5 years for start-
ups setup during April 2016 to March 2019. However, MAT will apply in
such cases.
1.2 Tax Incentives and Proposals for Businesses
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Executive Summary
nDeduction up to 100% of profits allowed to an undertaking in housing
project for flats upto 30 sq. meters in 4 metro cities and 60 sq. meters in
other cities, approved between June 2016 and March 2019 and completed
within 3 years. However, MAT / AMT will apply in such cases.
nIn respect of foreign company engaged in the business of mining of
diamonds, it is proposed that no income shall be taxed from the activities
confined to display of uncut and unassorted diamonds in a Special
Notified Zone.
nThe new tax regime provides pass through treatment of income of the
securitisation trust wherein the income would be directly taxable in the
hands of its investors. The securitisation trust shall be required to deduct
tax at source @25% in case of payment to resident investors which are
individual or HUF and @30% in case of others excluding non-residents. In
case of payments to non-resident investors, TDS shall be at the rates in
force.
nIt is proposed to amend section 10 of the IT Act to provide units located in
an International Financial Services Centre for exemption from tax on
capital gains to the income arising from transaction undertaken in foreign
currency on a recognised stock exchange even when STT is not paid in
respect of such transactions. However, MAT shall be chargeable @9%.
Further, DDT shall not be applicable.
nPresumptive taxation scheme extended to professionals having gross
receipts up to Rs. 50,00 000 with profit deemed to be 50%.
nThe threshold limit of gross receipts for applicability of tax audit in case
of professionals, increased from Rs. 25,00,000 to Rs. 50,00,000.
nDeduction under section 80JJAA of the IT Act for additional wages is now
available to all assessees who are subject to tax audit.
nConcessional tax rate of 10% for Indian residents on royalty income on
gross basis from worldwide exploitation of patents developed and
registered in India.
nDividend distributed by SPVs out of its income to the REITs / InvITs, not to
suffer DDT.
nNon-banking financial companies shall be eligible for deduction to the
extent of 5% of its income in respect of provision for bad and doubtful
debts.
nIn order to provide clarity, it is proposed to insert a new section 35ABA in
the IT Act to provide for tax treatment of spectrum fee. The spectrum
fee will be allowed as a deduction in equal installments over the period for
which the right to use spectrum remains in force.
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Executive Summary
nSection 43B of the IT Act is proposed to be amended to include
payments made to Indian Railways for use of Railway assets within its
ambit.
nOne time window provided for domestic taxpayers to declare
undisclosed income or such income represented in the form of any
asset by paying tax @30%, surcharge @7.5% and penalty @ 7.5%,
aggregating to 45% of the undisclosed income. Declarants will have
immunity from prosecution.
nDirect Tax Dispute Resolution Scheme 2016 proposed to be introduced
for tax arrears and specified tax where the assessee has the option to
settle the case by paying tax, interest and penalty as under:
– Where the appeal is pending before the CIT(Appeals), pay tax
arrears along with interest up to date of assessment and no
penalty where tax arrears are less than Rs. 10,00,000 whilst 25%
penalty where tax arrears exceed Rs. 10,00,000.
– Where appeal is pending before any appellate authorities and tax
was determined pursuant to retrospective amendments, only tax
amount to be paid and immunity from interest, penalty and
prosecution.
nExisting penalty provisions of section 271(1)(c) are rationalized and new
section 270A is introduced where it is proposed to levy a penalty @50%
of taxes payable on the underreporting of income and @200% of taxes
payable on the misreporting of income.
nPetitions of the tax payers seeking waiver of interest and penalty to be
disposed off within a year.
nThe AO to grant stay of demand once assessee pays 15% of the disputed
demand, while the appeal is pending before CIT(Appeals).
nGovernment to pay interest at 9% p.a. for delay in giving effect to
Appellate Order beyond 90 days.
nAs per the Budget speech, section 14A read with rule 8D is proposed to
be amended wherein disallowance would be limited to 1% of the average
monthly value of investments yielding exempt income, but not exceeding
actual expenditure claimed.
nDividend income of more than Rs.10,00,000 p.a. would be liable to tax
@10% of gross amount of dividends in the hands of Individuals / HUFs /
Firms despite the fact that DDT is already paid by companies declaring
such dividends.
nTax to be collected at source @1% on purchase of luxury cars exceeding
value of Rs.10,00,000 and purchase of goods and services in cash
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Executive Summary
exceeding Rs.2,00,000.
nSTT in case of ‘Options’ increased from 0.017% to 0.05%.
nIn addition to existing conditions for availing tax neutral conversion from
Company to LLP, value of total assets as per books in any preceding 3
years not to exceed Rs.5,00,00,000.
nThe time limit for assessment, reassessment, re-computation has been
advanced by 3 months.
nGAAR to be effective from 1 April 2017.
nThe tax rebate under section 87A has been increased from Rs. 2,000 to
Rs. 5,000 for Individuals having income up to Rs. 5,00,000.
nWithdrawal up to 40% of the corpus at the time of closure to be tax
exempt in the case of National Pension Scheme (NPS) and the Annuity
fund which goes to legal heir will also be exempt.
nIn case of superannuation funds and recognized provident funds,
including EPF, the same norm of 40% of corpus to be tax free will apply in
respect of corpus created out of contributions made on or after 1 April
2016.
nHigher rate of TDS for non-provision of PAN in case of non-residents, not
to apply where alternative documents are provided by such non-
residents.
nEqualization levy of 6% proposed on payment (exceeding Rs.1,00,000
p.a.) made to non-residents not having a PE, in respect of online
advertising or space for digital advertising, in case of B2B transactions.
nAny income accruing or arising to a foreign company on account of
storage of crude oil in a facility in India and sale of crude oil therefrom to
any person resident in India shall not be included in the total income.
nApplicability of rules of POEM for determining the status of residency of
a foreign company deferred by 1 year. (Applicable w.e.f. FY 2016-17)
nBased on OECD Action plan 13 of BEPS, it is proposed to provide
specificreporting regime in respect of Country by Country reporting and
also a standardized master file for all group members of Multinational
Enterprises. Penal implications introduced for non-compliance.
nTime limit for assessment, reassessment, re-computation has been
advanced by 3 months
nTo facilitate the “Stand Up India Scheme” at least 2 projects per bank
1.3 Personal Taxation
1.4 Proposals for Non-residents
1.5 Proposal for Transfer Pricing
1.6 Other Proposals
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Executive Summary
branch to be approved. This will benefit at least 2,50,000 entrepreneurs.
nGovernment to contribute 8.33% for all new employees (where basic
salary is less than Rs.15,000 p.m.) enrolling in EPFO for the first 3 years of
their employment. Budget provision of Rs. 1,000 crore for this scheme.
nAmendments in Companies Act to improve enabling environment for
start-ups.
nReforms in FDI policy in the areas of Insurance and Pension, ARC, SEs.
Further, 100% FDI allowed through FIPB route in marketing of food
products produced and manufactured in India.
nTo continue with the ongoing reform programme and ensure passage of
the GST bill and Insolvency and Bankruptcy law.
nNew model Shops and Establishments Bill to be circulated to the state
governments.
nEffective service tax rate to increase from 14.5% to 15% (including
Swachh Bharat Cess) in view of the proposal to levy an additional cess
@ 0.5% as Krishi Kalyan Cess w.e.f. 1 June 2016 on all or any of the taxable
services.
nExemption to construction and maintenance in relation to various
projects, contracts etc., which was removed w.e.f. 1 April 2015 has been
restored and given retrospective exemption.
nRate of interest rationalized @24% in case of amount collected but not
paid and @15% in all other cases, as against the present rate of 18% to
30%, as the case may be.
nLegal services provided by a senior advocate to an advocate or
partnership firm of advocates made liable to service tax.
nRationalization of abatement to construction of complex, building civil
structure or part thereof @70% as against existing rate of 70% and 75%
as the case may be.
nServices provided by mutual fund agent/distributor to mutual
fund/asset management company to be liable as forward charge.
nOne Person Company whose aggregate value of services during
previous financial year is up to Rs. 50,00,000 or HUF shall be required to
pay service tax as per the due date as applicable to individual or
partnership firms.
nThe limitation period for issuance of show cause notice is proposed to be
increased from 18 months to 30 months.
nAmendment in CENVAT Credit Rules, 2004 particularly relating to
2.0 INDIRECT TAXES
2.1 Service Tax
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Executive Summary
apportionment of credit between exempted and non-exempted final
products/services.
nAmendment in provisions relating to Input Service Distributor (ISD)
including extension of this facility to transfer input services credit to
outsourced manufacturers under certain circumstances.
nBanking and other financial institution to have an option of reversing
CENVAT credit in respect of exempted services on actual basis, in
addition to an option of reversal of 50% of CENVAT credit.
nLevy of service tax and excise duty/CVD to be mutually exclusive on
informational technology software.
nIt is clarified that point of taxation in case of new levy on services will be
as per Rule 5 of Point of Taxation Rules, 2011 and that that transactions
other than those falling under two scenarios specified in Rule 5 shall be
liable to new levy.
nThe optional service tax rate in case of single premium annuity policies is
being rationalized @1.4% of the total premium charged, where the
amount allocated for investment is not intimated to policy holder.
nIndirect Tax Dispute Resolution Scheme, 2016 is proposed to be
introduced w.e.f. 1 June 2016 for Service Tax, Excise and Customs
assessee who has filed an appeal before Commissioner (Appeals) and is
pending for adjudication as on 1 March 2016.
nTransportation of goods by a vessel from customs station of clearance in
India to place outside India, not to be treated as exempted services for
the purpose of CENVAT Credit Rules.
nIt is proposed to levy service tax on transportation of goods by a vessel
from outside India up to the customs station in India w.e.f. 1 June 2016.
nNo change in general effective rate of Basic Excise Duty (‘BED’).
nInfrastructure Cess as duty of excise ranging from 1% to 4% is being
imposed on motor vehicles (depending upon type of motor vehicle)
falling under chapter heading 8703.
nExcise duty of 1% without input tax credit or 12.5% with input tax credit
on articles of jewellery (excluding silver jewellery, other than studded
with diamonds and some other precious stones) with a higher exemption
and eligibility limits of Rs. 6 crores and Rs. 12 crores respectively.
nExcise duty on ready-made garments with retail price of Rs. 1,000 or
more, raised to 2% without CENVAT credit or 12.5% with CENVAT credit
nBED on refrigerated containers reduced from 12.5% to 6%.
nOption for revising periodical returns to be provided to central excise
2.2 Excise Duty
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Executive Summary
assesses.
nChanges in excise duty rates on certain inputs in sectors like information
technology hardware, capital goods, defense production, textiles, mineral
fuels & mineral oils, chemicals & petrochemicals, paper, paperboard and
newsprint, maintenance repair and overhauling of aircrafts and ship
repair.
nReduction in number of returns under central excise by an assessee
above a certain threshold from 27 to 13.
nExemption from excise duty on ready mix concrete manufactured at
construction sites.
nRate of duty increased from 9% to 9.5% in case of refined gold bars
manufactured from gold dore bar, silver dore bar, gold ore or concentrate,
silver ore or concentrate, copper ore or concentrate. Excise duty
exemption under the existing area based exemptions on refined gold is
withdrawn.
nFor refined silver manufactured from silver ore or concentrate, silver dore
bar, or gold dore bar, the excise duty exemption under the existing area
based exemptions is being withdrawn – rate of duty to increase from 8%
to 8.5%.
nNo change in peak rate of Basic Custom Duty (BCD).
nBCD on import of imitation jewellery is increased from 10% to 15%.
nInterest rate for delayed payment of customs duty has been reduced
from 18% p.a. to 15% p.a.
nImport of Printed Circuit Boards (PCBs) of mobile phones and tablet
computers subjected to Customs Duty.
nSpecial Additional Duty (SAD) to be levied on import of inputs and raw
materials used in manufacture of personal computers and tablets.
nSelf–declaration sufficient for availing duty exemptions to import goods
at concessional rate to be used in manufacture of excisable goods.
nCustoms baggage declaration to be filed only by passengers carrying
dutiable or prohibited goods.
nCVD increased on gold dore bars from 8% to 8.75%.
nCVD increased on silver dore from 7% to 7.75%.
nGas transported through a common carrier pipeline or transport or
distribution system and which becomes comingled or fungible,
introduced in the system in one state and taken out from the pipeline in
the other state is deemed to be sold in the inter-state trade.
2.3 Customs
2.4 Central Sales Tax
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Chapter 1 Introduction
1.1 Background
In the midst of an uncertain global economic
outlook, India is emerging as the new ‘global
economic hotspot’. The Indian economy is
estimated to grow at 7.6% in FY 2015-16 and is
expected to grow at 7% to 7.75% in FY 2016-17,
making it the fastest growing major economy in
the world. Further, India’s other macroeconomic
parameters like inflation; fiscal deficit and current account balance have
exhibited distinct signs of improvement. The World Economic Forum has said
that India’s growth is ‘extraordinarily high’.
The Union Budget 2015 is primarily driven with the objective of accelerating
investment in infrastructural sector, fiscal consolidation and reducing litigation.
The total investment in infrastructure sector is projected at a whopping Rs.
2,21,000 crores. The fiscal deficit for FY 2015-16 is expected to be at 3.9% of
GDP which is expected to come down to 3.5% for FY 2016-17.
The most striking feature of the Budget is the concerted effort at reducing
litigation and ease of doing business. The Budget contains “The Direct Tax
Dispute Resolution Scheme 2016” which would permit the taxpayers whose
appeals are pending before the first appellate authority to pay the tax and
interest up to the date of assessment where disputed tax is up to Rs. 10 lacs. In
cases where disputed tax exceeds Rs. 10 lacs, 25% of the minimum penalty
leviable shall be payable. There will be no further penalty or prosecution nor
interest for the period after assessment. The total disputed amount in litigation
is estimated at Rs.5.50 lac crores with over 3 lac cases. The Budget also
contains “The Income Declaration Scheme 2016” which will provide a window to
the taxpayers who have not paid full taxes in the past to ensure compliance by
paying 45% of declared income as tax and penalty. This will result in no further
interest or penalty or prosecution. The scheme will be open from June 2016 to
September 2016 and will be subject to specified conditions. In the case of tax
disputes due to retrospective changes of law (such as Vodafone for indirect
transfer of shares), it is proposed to permit the settlement of dispute subject to
the payment of tax which will ensure complete immunity from interest, penalty
and prosecution. This can help restore confidence of international investors.
There is a widespread disappointment on the tax rates. In the last Budget 2015,
a roadmap to lower the corporate tax rates over 4 years from 30% to 25% was
announced with the phasing out of the tax exemptions. However, the corporate
tax rate has been kept unchanged at 30% plus applicable surcharge and cess
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resulting in effective tax rate of 34.608%. The only relief is for specific
manufacturing companies set up after 1 April 2016 where a lower rate (i.e. 25%
plus applicable surcharge and cess) and Specified small companies having
annual turnover of less than Rs. 5 cores (i.e. 29% plus applicable surcharge and
cess) would apply, although MAT shall be applicable to them. In turn, it has
proposed phased elimination of deductions and exemptions including sunset
clause for setting up of SEZ units, infrastructure facilities and developers of
SEZs. The Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT)
rates have remained unchanged at 21.3416% {(18.5%+12% surcharge) x3% cess}
and 20.358% {(15%+12% surcharge) x3% cess with grossing up} respectively.
The personal tax rates have remained unchanged except for high income tax
payers wherein the surcharge on income-tax is proposed to be increased from
12% to 15% in case income exceeds Rs. 1,00,00,000. This will result in maximum
marginal rate of 35.535% {(30%+15% surcharge thereon)+3% cess} for FY
2016-17 as against 34.608% {(30%+12% surcharge thereon)+3% cess} at
present. It is also proposed to tax any income by way of dividend in excess of Rs.
10,00,000 in the case of an individual, HUF or a firm who is resident in India @
10% on gross basis. However, HNIs can heave a sigh of relief that the much
talked about long term capital gains tax exemption period for shares sold on the
stock exchange continues at 1 year and has not been increased to 3 years. The
limit for deduction under Section 80C of Rs. 1,50,000 remains unchanged.
Section 80C provides for tax deduction in respect of investment in eligible
savings such as Provident fund, ELSS, life insurance premium, housing loan
repayment, 5 year bank deposits, NSC, ULIP to promote growth.
Certain Foreign Direct Investment reforms have been announced in areas of
Insurance and Pension, Asset Reconstruction Companies, Stock Exchanges, etc.
100% FDI will be allowed through FIPB route in marketing of food products
produced and manufactured in India. To incentivize Sovereign Gold Bond and
Gold monetization scheme, the capital gains on redemption and interest
thereon is proposed to be exempt under the IT Act.
The determination of tax residency of foreign company on the basis of Place of
Effective Management (POEM) is proposed to be deferred by 1 year. It is hoped
that the Income Computation and Disclosure Standards (ICDS) would also be
deferred as per recommendation of the Easwaran Committee. To meet with the
commitment to BEPS initiative of OECD and G-20, the Finance Bill, 2016 has
included the provision for requirement of country by country reporting for
companies with consolidated revenue of more than Euro 750 million. General
Anti Avoidance Rules (GAAR) would be effective from 1 April 2017 as proposed
earlier. A new provision (section 35ABA) is proposed to be introduced to provide
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clarity for amortization of spectrum fees. For a foreign company engaged in
business of mining of diamonds, it is proposed that, no income shall be taxed
from the activities confined to display of uncut and unassorted diamonds in a
Special Notified Zone.
It is proposed to promote employment generation, incentive available under
Section 80JJAA of the IT Act will be available not only to assessees deriving
income from manufacture of goods in a factory but to all assessees who are
subject to statutory audit under the Act. Thus, a deduction of 30% of the
emoluments paid to such employees can be claimed for 3 years for employees
whose monthly emoluments do not exceed Rs.25,000. Also, no deduction will
be admissible in respect of employees for whom the Government is paying the
entire EPS contribution.
Deduction up to 100% of the profits is proposed to be allowed for 3 out of 5
years for start-ups setup during April 2016 to March 2019. Deduction up to
100% of profits is proposed to be allowed to an undertaking in housing project
for flats upto 30 sq. metres in 4 metro cities and 60 sq. metres in other cities,
approved between June 2016 and March 2019 and completed within 3 years.
However, MAT / AMT will apply in both the cases.
Under the existing provisions of the Income-tax Act, tax treatment for the
National Pension System (NPS) referred to in section 80CCD is Exempt, Exempt
and Tax (EET). It is proposed that withdrawal up to 40% of the corpus at the
time of retirement shall be tax exempt in the case of National Pension Scheme.
In case of superannuation funds and recognized provident funds, including
employees provident Fund, 40% of corpus created out of contributions made on
or from 1.4.2016 shall be tax exempt upon withdrawal. It may be pointed out that
presently withdrawals from recognized Provident Funds are generally exempt
from tax altogether whereas withdrawals from NPS are taxable entirely.
It is proposed to provide for presumptive taxation regime for professionals
having gross receipts upto Rs. 50,00,000 per annum wherein profit of 50% shall
be deemed to be his income.
Effective service tax rate (including Swachh Bharat Cess) and the proposed
additional levy @ 0.5% as Krishi Kalyan Cess effective 1 June 2016 on the taxable
services, would result in effective service tax rate to 15%. This will have far
reaching implications. Excise duty of 1% without input tax credit or 12.5% with
input tax credit is proposed on articles of jewellery (excluding silver jewellery,
other than studded with diamonds and some other precious stones) with a
higher exemption and eligibility limits of Rs. 6 crores and Rs. 12 crores
respectively.
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A Committee shall be formed to review the implementation of the FRBM Act
and give its recommendations on the way forward. As mentioned in the Budget
Speech, the Government shall also endeavour to continue with the ongoing
reform programme and ensure passage of the Constitutional amendments to
enable implementation of the Goods and Service Tax, the passage of Insolvency
and Bankruptcy law and other important reform measures which are pending
before the Parliament. Amendments in Companies Act are proposed to improve
enabling environment for start-ups. Comprehensive central legislation to deal
with illicit deposit taking schemes is proposed to be introduced. A new model
Shops and Establishments Bill is proposed to be circulated to the state
governments and the passenger road transport segment is proposed to be
revamped with reforms.
The Budget is a serious Policy Statement for putting India back on the path of
long term sustained economic growth and stable tax regime.
In this booklet compiled by us, we intend to offer a broad outline of the highlights
of the Union Budget 2016 presented on 29 February 2016. We have discussed
the significant proposals of general interest in respect of direct taxes. In respect
of indirect taxes and other policy initiatives, only the highlights have been
briefly enumerated. Preceding the budget proposals are the macro indicators of
Indian economy which provide a backdrop to the legal and financial proposals.
This booklet is not an offer, invitation or solicitation of any kind and it does not
purport to be comprehensive, or to render legal, economic or financial advice.
This booklet should not be relied upon for taking actions or decisions without
appropriate professional advice as the facts of each case have to be studied and
the legal position analysed properly before taking any action or decision in the
matter. Further, this booklet contains only the proposals and amendments as
given in the Finance Bill, 2016, which may be modified before it receives the
approval and assent of the Parliament and the President. The proposals
regarding direct taxes would become effective from AY 2017-18 (FY 1 April 2016
to 31 March 2017), unless otherwise specified. In this booklet, the terms 'IT Act',
'the Rules' and 'the Bill' are used for the "Income-tax Act, 1961", ''Income-tax
Rules, 1962'' and "Finance Bill, 2016" respectively.
While all reasonable care has been taken in preparation of this booklet, we
accept no responsibility for any errors it may contain or for any omissions or
otherwise or for any loss, howsoever caused or sustained, by the person who
relies on it.
1.2 Scope and Limitations
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Chapter 2 Indian Economy – An Overview
2.1 India At A Glance – The Macro-Economic Perspective
GDP - 2015
lUS$ 8 trillion in terms of Purchasing
Power Parity (PPP) - 3rd largest in the
world
Rapid Advancement
lIndia hailed as a 'bright spot' amidst a
slowingglobaleconomybyIMF
lThe World Economic Forum has said that
India'sgrowthis'extraordinarilyhigh’
GDP Growth Rate
l7.6%forFY2015-16(AdvanceEstimate)
l7%to7.75%forFY2016-17(Projection)
Demography
l1.271 billion (2015) with more than 65%
populationagedunder35years
lWorld’slargestdiasporaof16million
Forex Reserves
lForexReservesofUS$350billion
Exchange Rate
l1 US$ = INR 68.616 (as on 29 February
2016)
Market Capitalization
(as on 29 February 2016)
lUS$1.25trillion
Political System
lFederal Republic with Parliamentary
democracy
lLargestDemocracyintheworld.
2.2 General Review
The global economic outlook is currently very uncertain due to weak growth of
world output, declining prices of a number of commodities, turbulent financial
markets and volatile exchange rates. In spite of such unsupportive
macroeconomic landscape, India has grown at 7.6% in FY 2015-16 and is
expected to grow at 7% to 7.75% in 2016-17, making it the fastest growing major
economy in the world. Further, India’s other macroeconomic parameters like
inflation, fiscal deficit and current account balance have exhibited distinct signs
of improvement. As a result, India is emerging as the new ‘global economic
hotspot’.
GDP Growth
5.1
2014-15 2015-162013-142012-13 2016-17*
* Projection
6.9
7.2
7.6 7.75
9
8
7
6
5
4
3
2
1
0
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The year 2015-16 continues to experience moderation in general price levels in
the country following the global trend of declining commodity and producers
prices. Headline inflation based on the Consumer Price Index, dipped to 4.9%
during 2015-16 (April-January) as against 5.9 % in 2014-15. Similarly, headline
Wholesale Price Index inflation was -2.8% in 2015-16 (April-January) as
compared to 2.0% in 2014-15.
During 2015-16 (April-January), India’s exports declined year-on-year by 17.6 %
to US$ 217 billion owing to sluggish global demand and low global commodity
prices. In keeping with the global trends of slow growth, imports have also
declined by 15.5 % in 2015-16 (April-January) to US $ 324 billion. Lower imports
of petroleum, oil and lubricants were the main reasons for the decline in total
imports this year so far. In spite of the decline in exports during 2015-16, India’s
BoP position remained comfortable.
During 2015-16 (April-January), the average exchange rate of the Rupee
depreciated to INR 65.04/US$ as against INR 60.92/US$ in 2014-15 (April-
January).
While 2014-15 saw the Indian equity markets witnessing a dream run to reach
an all-time high of 29448.95, 2015-16 has seen substantial erosion with the
BSE Sensex reaching a year low of 23,002 as on 29 February 2016.
The new foreign Trade Policy for the period 2015-20, announced on 1 April 2015
focuses on supporting both manufacturing and services exports and improving
ease of doing business. It aims to increase India’s exports to US$ 900 billion by
2019-20 and it also provides the road map by the government to align it with
the ‘Make in India’ and ‘Digital India’ programmes and to ease trade.
The Indian economy has made substantial improvements in its
macroeconomics fundamentals and impressive strides in reducing in key areas,
pursuit of fiscal prudence and consolidation, focus on price stability and the
resultant benign price situation and comfortable level of external current
account.
RSM 13INDIA BUDGET 2016 - Key AspectsBack to Content

Absolute values % change over previous period
Items 2013-14 2014-15 2015-16
2.3 India – Key Economic Indicators
2013-14 2014-15 2015-16
Gross Domestic Product
(Rs. thousand crore)
2R 1R 1AE
-At constant market prices 9,839 10,552 11,35 6.6 7.2 7.6
GVA at basic prices
2R 1R AE
(2011-12 prices) 9,084 9,727 10,438 6.3 7.1 7.3
1
At constant market prices
(US $ billion – Annual
Average exchange rate) 1,626 1,726 1,745 -4.1 6.1 1.1
Food grains production
a
(million tons) 265 252 253 3.1 -4.9 0.5
Index of industrial production
b
(Base: 2004-05 = 100) 172 176 182 -0.1 2.8 3.1
Electricity generation
b
(billion KWH) 1175 1274 1330 6.0 8.4 4.4
Wholesale Price Index
c
(Average) 177 181 176 6.0 2.0 -2.8
Imports
P
(US $ billion) 450 448 379 -8.3 -0.5 -15.5
Exports
P
(US $ billion) 314 310 256 4.7 -1.3 -17.6
Foreign exchange reserves
d
(in US $ billion) 304 341 349 4.2 12.3 2.3
Average exchange rate
e
(Rs/US $) 60.51 61.14 65.03 11.2 1.0 6.4
Gross fiscal deficit
f g
(of GDP) 4.5 4.0 3.9
1
Calculated based on available figures.
2R
Second Revised Estimates
1R
First Revised Estimates
AE
Advance Estimates
a
2nd Advance Estimates
b
April-December 2015-16
c
April-January 2015-16
d
As at end-January 2016l
e
April-January 2015-16
f
Provisional Actuals
g
Budget Estimate
P
Provisional
na
Not available
Back to Content

Chapter 3 TAX RATES
3.1 Individuals, HUFs, AOPs and BOIs
3.1.1 Tax rates
The Bill proposes certain marginal modifications to
the tax structure for individuals, HUFs, AOPs and
BOIs. Consequently, the effective proposed and
present tax rates for the FYs 2016-17 and 2015-16, in
case of individuals, HUFs, AOPs and BOIs are as
follows:
Income Slabs
(Rs.)
Income Slabs
(Rs.)
Proposed
Tax Rates
Tax Rates
FY 2016-17 FY 2015-16
Nil
10.30% [tax rate 10%
plus education cess
3% thereon] of income
exceeding
Rs. 2,50,000
Rs. 25,750 plus
20.60% [tax rate 20%
plus education cess
3% thereon] of
income exceeding Rs.
5,00,000
Rs. 1,28,750 plus
30.90% [tax rate 30%
plus education cess
3% thereon] of
10,00,000
0 - 2,50,000#
2,50,001# - 5,00,000*
5,00,001 - 10,00,000
10,00,001 - 1,00,00,000
Nil
10.30% [tax rate
10% plus education
cess 3% thereon] of
income exceeding
Rs. 2,50,000
Rs. 25,750 plus
20.60% [tax rate
20% plus education
cess 3% thereon] of
income exceeding
Rs. 5,00,000
Rs. 1,28,750 plus
30.90% [tax rate 30%
plus education cess
3% thereon] of
10,00,000
0 - 2,50,000#
2,50,001# - 5,00,000*
5,00,001 - 10,00,000
10,00,001 - 1,00,00,000
Rs. 32,58,920 plus
34.608% [(tax rate
30% plus surcharge
12% thereon) plus
education cess 3%
thereon] of income
exceeding Rs.
1,00,00,000
1,00,00,001^ and aboveRs. 32,58,920 plus
35.535% [(tax rate
30% plus surcharge
15% thereon) plus
education cess 3%
thereon] of income
exceeding Rs.
1,00,00,000
1,00,00,001^ and above
# Basic exemption income slab in case of a resident individual of the age of
60 years or more (senior citizen) & resident individual of the age of 80
years or more (very senior citizens) at any time during the previous year,
continues to remain the same at Rs. 3,00,000, Rs. 5,00,000 respectively.
The tax for other slabs will change accordingly.
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Chapter 3 TAX RATES
* A resident individual having income upto Rs. 5,00,000 is entitled to a
rebate of tax payable [excluding education cess] or Rs. 5,000 (Rs. 2,000
in FY 2015-16) whichever is less.
^ Marginal relief is available to ensure that the additional income tax
payable, including surcharge of 15% on the excess of income over Rs.
1,00,00,000 is limited to the amount by which the income is more than
Rs. 1,00,00,000. However, no marginal relief shall be available in respect
of the education cess.
3.1.2 Proposed tax incidence
The proposed incidence of income-tax for FY 2016-17 on individuals, senior
citizens and very senior citizens, having different income levels can be
exemplified as follows:
* The tax incidence for HUFs, AOPs and BOIs will be same as that of individuals.
3.2.1 Domestic companies
The Bill proposes to reduce the corporate tax rate to 29% [plus applicable
surcharge and education cess thereon], in case of company having total
turnover or gross receipts in FY 2014-15 upto Rs.5,00,00,000.
Further, the Bill proposes the tax rate of 25% in case of newly setup domestic
company registered on or after 1 March, 2016 engaged solely in the business of
manufacture or production of article or thing and not claiming any specified.
benefit/deduction.
3.2 Companies
Annual
Income (Rs.)
Tax Liability (Rs.)
Individuals
(including women)*
Senior
Citizens
Very Senior
Citizens
2,50,000 - - -
3,00,000 - - -
4,00,000 10,300 5,150 -
5,00,000 20,600 15,450 -
8,00,000 87,550 82,400 61,800
10,00,000 1,28,750 1,23,600 1,03,000
25,00,000 5,92,250 5,87,100 5,66,500
50,00,000 13,64,750 13,59,600 13,39,000
1,00,00,000 29,09,750 29,04,600 28,84,000
1,50,00,000 51,22,963 51,17,040 50,93,350
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Chapter 3 TAX RATES
Except for the above, there are no changes proposed in the corporate tax rates
for FY 2016-17. The effective tax rates and MAT rates for other domestic
companies for FYs 2016-17 and 2015-16 are as follows:
Marginal relief is available to ensure that the additional income-tax payable,
including surcharge of 7% on the excess of income over Rs. 1,00,00,000, is
limited to the amount by which the income is more than Rs. 1,00,00,000.
Similarly, marginal relief is available to ensure that the additional income-tax
10,00,00,000, is limited to the amount by which the income is more than Rs.
10,00,00,000. However, no marginal relief shall be available in respect of the
education cess.
3.2.2 Foreign companies
No changes are proposed in the tax rate and surcharge. As such, the effective
tax rates for foreign companies for FYs 2016-17 and 2015-16 are as follows:
Domestic
Company
Effective Tax Rates
FY 2016-17 FY 2015-16 FY 2016-17
Having total income
exceeding Rs.
10,00,00,000
Effective MAT Rates
FY 2015-16
34.608% [(tax
rate 30% plus
surcharge 12%
thereon) plus
education cess
3% thereon]
34.608% [(tax
rate 30% plus
surcharge 12%
thereon) plus
education cess
3% thereon]
21.3416% [(tax
rate 18.5% plus
surcharge 12%
thereon) plus
education cess
3% thereon]
21.3416% [(tax
rate 18.5% plus
surcharge 12%
thereon) plus
education cess
3% thereon]
Having total income
exceeding Rs.
1,00,00,000 but not
exceeding Rs.
10,00,00,000
33.063% [(tax
rate 30% plus
surcharge 7%
thereon) plus
education cess
3% thereon]
33.063% [(tax
rate 30% plus
surcharge 7%
thereon) plus
education cess
3% thereon]
20.38885% [(tax
rate 18.5% plus
surcharge 7%
thereon) plus
education cess
3% thereon]
20.38885% [(tax
rate 18.5% plus
surcharge 7%
thereon) plus
education cess
3% thereon]
Having total income
upto Rs.
1,00,00,000
30.90% (tax rate
30% plus
education cess
3% thereon)
30.90% (tax rate
30% plus
education cess
3% thereon)
19.055% (tax rate
18.5% plus
education cess
3% thereon)
19.055% (tax rate
18.5% plus
education cess
3% thereon)
Foreign Company
Effective Tax Rates
FY 2016-17 FY 2015-16
Having total income exceeding
Rs. 10,00,00,000
43.26% [(tax rate 40% plus surcharge 5% thereon) plus
education cess 3% thereon]
Rs. 1,00,00,000 but not
exceeding Rs. 10,00,00,000
Having total income upto Rs.
1,00,00,000
41.20% (tax rate 40% plus education cess 3% thereon)
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Chapter 3 TAX RATES
Similarly, marginal relief is available to ensure that the additional income-tax
10,00,00,000, is limited to the amount by which the income is more than Rs.
education cess.
3.2.3 Tax on Dividend / Income distributed by domestic companies
No changes are proposed in the DDT rates for FY 2016-17 (the effective DDT
rates for FY 2016-17 and 2015-16 are tabulated below). However, the Bill
proposes to tax dividend at the rate of 10% in the hands of recipient i.e.
individual, HUF or Firm, who is resident in India if dividend received is in excess of
Rs.10,00,000. The rate (plus surcharge and education cess thereon) is on gross
basis on the amount of dividend.
The effective DDT rates for FY 2016-17 and 2015-16 are as follows:
No changes are proposed in the tax rates. The effective tax rates for partnership
firms/LLPs for FYs2016-17 and 2015-16 are as follows:
including surcharge of 12% on the excess of income over Rs.1,00,00,000, is
limited to the amount by which the income is more than Rs.1,00,00,000.
However, no marginal relief shall be available in respect of the education cess.
3.3 Partnership Firms/LLPs
Dividend Distribution
Tax Rate
Effective Tax Rates
FY 2016-17 FY 2015-16
Rate of DDT on the amount of
dividend received by the
shareholders
education cess 3% thereon considering the grossing up
provisions]
Partnership
Firms / LLPs
Effective Tax Rates
FY 2016-17 FY 2015-16
Rs. 1,00,00,000
1,00,00,000
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Chapter 3 TAX RATES
3.4 AMT on Non-corporate Assessees
3.5 Tax on Dividend Distributed by Mutual Funds
AMT continues on non-corporate assessees such as partnership firms, sole
proprietorships, AOPs, HUFs, BOIs, etc. AMT is to be calculated on adjusted total
income (if the adjusted total income of such person exceeds Rs. 20,00,000) if
the regular income tax payable by such person is less than AMT. No change has
been proposed in the AMT rates. However, surcharge rate for assessees other
than firms is proposed to be increased from 12% to 15% in case the total income
exceeds Rs. 1,00,00,000. As such, the effective tax rates for FYs 2016-17 and
2015-16 are as follows:
including surcharge of 12% / 15% (as applicable) on the excess of income over
Rs. 1,00,00,000, is limited to the amount by which the income is more than Rs.
education cess.
No change has been proposed in the income distributed by mutual funds.
However, surcharge rate for Individuals, HUF, AOP, BOI etc. is proposed to be
increased from 12% to 15% in case the total income exceeds Rs. 1,00,00,000. As
such, the effective tax rates for FYs 2016-17 and 2015-16 are as follows:
Non-corporate
assessee
Effective AMT Rates
FY 2016-17 FY 2015-16
Individuals, HUF, AOP, BOI etc.
having total income exceeding
Rs. 1,00,00,000
21.9133 % [(tax rate 18.50% plus
surcharge 15% thereon) plus
21.3416% [(tax rate 18.50% plus
surcharge 12% thereon) plus
Firms / Others - having total
income exceeding
Rs. 1,00,00,000
21.3416% [(tax rate 18.50% plus surcharge 12% thereon) plus
1,00,00,000
19.055% (tax rate 18.50% plus education cess 3% thereon)
42.07%* (considering
the grossing up
provisions)
the grossing up
provisions)
the grossing up
provisions)
the grossing up
provisions)
Income distributed by a money market mutual
fund or a liquid mutual fund to
- an Individual or a HUF
- others
Type of Income
Effective Tax Rate
FY 2016-17 FY 2015-16
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Chapter 3 TAX RATES
* The tax rates are inclusive of surcharge of 15% and education cess of 3%
for Individual and HUF and surcharge of 12% and education cess of 3%
thereon for others i.e. company, Firm, local authorities and co-operative
society.
No change being proposed, the effective tax rate for distributed income of
domestic companies for buy-back of shares for FY 2016-17 and FY 2015-16 are
as follows:
The bill proposes that tax on distributed income by Securitization Trust would
not be applicable from 1 June 2016 and the same would be included as income in
the hands of the investor directly.
3.8.1 Co-operative societies
No change is proposed in the tax rate. As such, the tax rates for co-operative
3.6 Tax on Distributed Income of Domestic Company for Buy-back of Shares:
3.7 Tax on distributed income by Securitization Trust:
3.8 Other Entities
Rate of Tax
Effective Tax Rates
FY 2016-17 FY 2015-16
On the distributed income of
domestic company
23.072%* [(tax rate 20% plus surcharge 12% thereon) plus
Type of Income
Effective Tax Rate
FY 2016-17 FY 2015-16
the grossing up
provisions)
the grossing up
provisions)
the grossing up
provisions)
the grossing up
provisions)
Income distributed by a mutual fund (including
debt fund) other than a money market mutual
fund or a liquid mutual fund to
-an Individual or a HUF
- others
6.12%* (considering the
grossing up provisions)
6.12%* (considering the
grossing up provisions)
Income distributed by a mutual fund to non-
residents (not being company) under
infrastructure debt scheme
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Chapter 3 TAX RATES
societies for FYs 2016-17 and 2015-16 are as follows:
3.8.2 Local authorities
No change is proposed in the tax rate. As such, the tax rates for local authorities
for FYs 2016-17 and 2015-16 are as follows
including surcharge of 12% on the excess of income over Rs. 1,00,00,000 is
It is proposed to insert a new section 115BBF of the IT Act to provide that if the
total income of the eligible assessee includes any income by way of royalty in
respect of a patent developed and registered in India, then such royalty shall be
taxable at the rate of 10% (plus applicable surcharge and cess) on the gross
amount of royalty. No expenditure or allowance in respect of such royalty
income shall be allowed under the IT Act.
An eligible assessee means a person resident in India, who is the true and first
inventor of the invention and whose name is entered on the patent register as
the patentee in accordance with Patents Act, 1970.
3.9 Taxation of Income from Patents
Income slab
(Rs.)
Effective Tax Rates
FY 2016-17 FY 2015-16
0 - 10,000 10.30%
10,001 - 20,000 Rs. 1,030 plus 20.60% of income exceeding Rs. 10,000
20,001 - 1,00,00,000 Rs. 3,090 plus 30.90% of income exceeding Rs.20,000
Above 1,00,00,000 Rs. 34,57,339 plus 34.608% of income exceeding Rs. 1,00,00,000
Local authorities
Effective Tax Rates
FY 2016-17 FY 2015-16
Rs. 1,00,00,000
Having total income up to Rs.
1,00,00,000
Back to Content

Chapter 4 G-20 Countries - Comparative
Corporate And Personal Tax Rates
The G-20 economies comprising of 19 countries and the EU, account
for almost 90% of the global GDP, 80% of world trade (including EU
intra-trade) and two-third of the world population. Considering the
significance of these economies and in order to provide an indicative
overview of the prevailing tax rates in these key economies, a brief
comparative matrix is tabulated below.
Notes:
1. The above rates are MMR and inclusive of provincial or local taxes as may be applicable to domestic
companies/residentindividualsinrespectivecountries.
2. The taxation regime for personal taxes is progressive for all the G-20 economies except Russia and
SaudiArabia.
3. Corporate tax @ 33.06% is indicative effective rate of tax. In addition, size based business tax is also
leviedoncompanies.
4. Corporate Tax @ 20% is payable on the pro-rata income to the extent of non-resident shareholding.
Saudi and the Gulf Cooperation Council (GCC) nationals or companies owned by them have to pay
Zakat(i.e.areligioustax)at2.5%.
5. Corporatetaxcomprisesoffederaltax(35%)aswellasstateandlocalgovernmenttaxeswhichvary
from state to state. Personal tax comprises of federal tax (39.6%) and further each state and local
governmentcanalsolevytaxonincome.
6. The above rates are general rates to provide a comparative matrix. The detailed regulations in the
relevantcountriesneedtobereferredfordeterminingexactrates.
Sr. Country Corporate Tax Rate Personal Tax Rate
[Note 1] [Notes 1 and 2]
2. Australia 30% 49%
3. Brazil 34% 27.50%
4. Canada 31% 50%
5. China 25% 45%
6. France 38.11% 45%
7. Germany 32.98% 47.50%
8. India 34.608% 35.535%
9. Indonesia 25% 30%
10. Italy 31.40% 43%
11. Japan [Note 3] 33.06 % 55%
12. Mexico 30% 35%
13. Russia 20% 13%
14. Saudi Arabia [Note 4] 0% 0%
15. South Africa 28% 40%
16. South Korea 24.20% 41.80%
17. Turkey 20% 35%
18. United Kingdom 20% 45%
19. United States of America
No.
[Note 5] 35% 39.60%
1. Argentina 35% 35%
Back to Content

Chapter 5 Tax Incentives For Businesses
The IT Act provides for far reaching tax holidays and other tax
incentives for businesses. We have briefly enumerated below, the
significant tax holidays and incentives available to businesses along
with the nature of deductions, eligibility criteria, quantum of
deduction and period for which the deductions are available. The tax
holidays and incentives are subject to fulfillment of specified
conditions. The Finance Bill 2016 has set-out a plan to gradually
phase out exemptions, deductions and incentives in order to bring
down the rate of corporate tax to 25% as announced in Budget
Speech 2015. The changes proposed by the Finance Bill, 2016 are
highlighted in BOLD font.
(As updated up to the Finance Bill, 2016)
Section Details of Exemption / Deduction ^ Period Quantum of
Deduction
10AA First 5 years
Next 5 years
Next 5 years+
100%
50%
50%
New eligible unit set up in SEZ on or after 1 April 2005
nExemption is available to the entrepreneur as referred
to in Section (2j) of SEZ Act, 2005 for profits derived
from export of articles or things or services,
manufactured, or produced or provided by an eligible
unit.
nThe profits and gains derived from on-site
development of computer software (including
services for development of software) outside India
shall be deemed to be the profits and gains derived
from the export of computer software outside India.
nThe benefit is also available to units engaged in cutting
and polishing of precious and semi-precious stones.
nThe deduction under this section is to be computed in
the same proportion, which the export turnover of
the eligible unit bears with the total turnover of the
said unit.
nThe eligible units availing these deductions will be
subject to MAT / AMT @ 18.50% (plus applicable
surcharge and education cess)
nMAT / AMT paid shall be allowed to be carried forward
upto 10 years and credit of MAT / AMT paid shall be
available for set-off against the tax as per normal
provisions in subsequent years.
nIn case deduction has been claimed under section
10AA for the specified business mentioned in section
35AD(8)(c), no deduction under section 35AD shall be
available in the same or any other assessment year in
respect of such specified business.
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Section Details of Exemption / Deduction ^ Period Quantum of
Deduction
nIt is proposed that no deduction shall be available to
units commencing manufacture or production of
article or thing / providing services on or after 1 April
2020.
+ The deduction is allowed only on creation of a
specified reserve, which is required to be utilized for
specified purposes.
33AB Available for
every AY
Up to 40% of
profits or
amount
deposited,
whichever is
less
Tea / Coffee / Rubber / development allowance
nDeduction is available to assessee engaged in the
business of growing and manufacturing tea, coffee or
rubber in India.
nFor claiming the deduction, the amount has to be
deposited in a special account with NABARD or any
Deposit Account opened by the assessee and
approved by the Tea Board or Coffee Board or Rubber
Board within 6 months from the end of the financial
year or before the due date of furnishing the return of
income, whichever is earlier.
nThe amount has to be utilized by the assessee for
specified purposes.
33ABA Available for
every AY
Up to 20% of
profits or
amount
deposited,
whichever is
less.
Site Restoration Fund – Petroleum or Natural Gas
nDeduction is available to assessee engaged in the
business of prospecting for, or extraction or
production of petroleum or natural gas or both in India
and in relation to which the Central Government has
entered into an agreement with such assessee.
nFor claiming the deduction, the amount has to be
deposited in a special account with SBI opened by the
assessee and approved by the Ministry of Petroleum
and Natural Gas before the end of the financial year.
nThe amount has to be utilized by the assessee for
specified purposes.
Section
32(1)
(iia)
Additional Depreciation
nGeneral rate of depreciation for plant and machinery is 15% (other than certain specified
types of plant and machinery).
nAn assessee engaged in the business of manufacture or production of any article or
thing or in the business of generation or generation and distribution or transmission of
power can claim the additional depreciation of 20% on the cost of new plant and
machinery (other than ships and aircraft) which are acquired and installed after 31 March
2005.
nFurther, higher additional depreciation @ 35% (instead of above 20%) in respect of the
actual cost of eligible new machinery or plant acquired and installed by a manufacturing
undertaking or enterprise which is set up in the notified backward area of the State of
Eligibility Criteria, Quantum and Period of Deduction ^
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Section
Andhra Pradesh or Telangana or Bihar or West Bengal on or after the 1 April 2015 and
ending before the 1 April 2020. The eligible machinery or plant is mentioned in existing
proviso to section 32(1)(iia) of the IT Act.
nThe above additional depreciation shall be allowed only to the extent of 50% (i.e. 10% or
17.5%) if the machinery is put to use for a period less than 180 days in the year of its
acquisition and installation and the balance 50% shall be allowed in the immediate next year.
Eligibility Criteria, Quantum and Period of Deduction ^
32AC
(1A)
(1B)
(2)
Investment in new plant or machinery
nWhere a company is engaged in the business of manufacture or production of an article
or thing, acquires new assets in any financial year exceeding Rs. 25,00,00,000 and such
assets are installed before 31 March 2017, then there shall be allowed a deduction of 15%
of the actual cost of such new assets over and above the normal depreciation under
section 32 of the IT Act in the year in which such assets are installed.
nThe said deduction is available for investment made in new plant and machinery up to 31
March 2017.
nIn case any new asset is sold or otherwise transferred within a period of 5 years, the
deduction allowed above shall be deemed to be the income chargeable under the head
‘Profits and Gains of business or profession’ of the financial year in which such new asset
is sold or otherwise transferred (In addition to taxability of gains on transfer of such new
asset).
32AD Investment in new plant or machinery in certain states
nAdditional investment allowance of an amount equal to 15% of the cost of new asset
acquired and installed by an assessee, if:
I. It sets up an undertaking or enterprise for manufacture or production of any article
or thing on or after 1 April 2015 in any notified backward areas in the State of Andhra
Pradesh or Telangana or Bihar or West Bengal; and
ii. The new assets are acquired and installed for the purposes of the said undertaking
or enterprise during the period 1 April 2015 to 31 March 2020.
nThe above deduction will be allowed over and above the existing deduction under section
32AC of the IT Act.
nIn case any new asset is sold or otherwise transferred within a period of 5 years, the
deduction allowed above shall be deemed to be the income chargeable under the head
‘Profits and Gains of business or profession’ of the financial year in which such new asset
is sold or otherwise transferred (In addition to taxability of gains on transfer of such new
asset).
35AC Expenditure on eligible projects or scheme
nDeduction is available for expenditure incurred for promoting social and economic
welfare.
nAny assessee can claim deduction as under:
nIt is proposed that no deduction shall be available for expenditure incurred on or after 1
April 2017.
To whom payment should be madeAssessee Direct Expenditure
Company Public sector company, or a local authority
or to an association or institution approved
by the National Committee for carrying out
any eligible project or scheme
A company can also directly incur
expenditure in respect of eligible
project and scheme
Others Same as above Not permitted
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Section Eligibility Criteria, Quantum and Period of Deduction ^
35AD Deduction in respect of expenditure on specified businesses
nAny expenditure of capital nature (other than expenditure incurred on the acquisition of
any land or goodwill or financial instrument) incurred, wholly and exclusively, during the
year for specified business shall be allowed as deduction subject to the specified
provisions.
nSpecified business and the year (in which the operations to be commenced) for availing
deduction under this section are tabulated as under:
Specified BusinessSr.
No
Specified year
of Commencement
1 Settingupandoperatingacoldchainfacility From 1 April 2009 onwards *
2 Setting up and operating a warehousing facility for
storing agricultural produce
From 1 April 2009 onwards *
3 Laying and operating a cross-country natural gas or crude
or petroleum oil pipeline network for distribution, including
storage facilities being an integral part of such network
From 1 April 2007 onwards
4 Building and operating a hotel of 2 star or above category
as classified by the Central Government anywhere in India
From 1 April 2010 onwards **
5 Building and operating a hospital with at least 100 beds
for patients anywhere in India
6 Developing and building a housing project under a scheme
for slum redevelopment or rehabilitation framed by the
Central or State Government, as the case may be, and
which is notified by the Board in this behalf in accordance
with the guidelines as may be prescribed
7 The Business of developing and building a housing project
under a scheme for affordable housing framed by the
Central Government or a State Government, as the case
may be, and notified by the Board in this behalf in
accordance with the guidelines as may be prescribed
8 Production of fertilizers in India through a new plant or a
newly installed capacity in an existing plant
9 Setting up and operating an inland container depot or a
container freight station notified or approved under the
Customs Act, 1962
10 Bee-keeping and production of honey and beeswax From 1 April 2012 onwards
11 setting up and operating a warehousing facility for storage
of sugar
12 Laying and operating a slurry pipeline for transportation of
iron ore
13 Setting up and operating a semiconductor wafer
fabrication manufacturing unit, if such unit is notified by
the Board in accordance with the prescribed guidelines
* Specified business referred at Sr. No. 1, 2, 5, 7 and 8 in the above table commencing
operations on or after 1 April 2012 shall be eligible for deduction of 150% of capital expenditure
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35CCA Deduction for payment towards rural development programmes
n100% Deduction is allowed subject to fulfillment of certain conditions for any sums paid to:
i. An association or institution for carrying out any programme of rural development
ii. An association or institution for training of persons for implementation of rural
development programme
iii. National Fund for Rural Development
iv. National Urban Poverty Eradication Fund
35CCC Weighted deduction of expenditure incurred on agriculture extension project
nThis section provides for weighted deduction of 150% of the expenditure incurred on
agricultural extension project. The conditions for eligibility of agricultural extension
project have been provided under Rule 6AAD and Rule 6AAE of the IT Rules.
nFurther, where a deduction under this section is claimed and allowed for any assessment
year, in respect of any expenditure on agricultural extension project, no deduction shall
be allowed in respect of such expenditure under any other provisions of the IT Act for the
same or any other assessment year.
April 2017.
35CCD Weighted deduction of expenditure incurred on skill development project
nAny expenditure (not being expenditure in the nature of cost of any land or building)
incurred on skill development project shall be eligible for weighted deduction of 150% in
the hands of a company. The conditions of eligibility of skill development project have
been provided under Rule 6AAF to Rule 6AAH of the IT Rules.
incurred. It is proposed that deduction shall be restricted to 100% of capital expenditure
incurred on or after 1 April 2017.
** Where the assessee builds a hotel of 2 star or above category as classified by the Central
Government and subsequently, while continuing to own the hotel, transfers the operation
thereof to another person, the said assessee shall be deemed to be carrying on the ‘specified
business’ of building and operating hotel as referred at Sr. No. 4 in the above table, with
retrospective effect from AY 2011-12.
nAny asset, in respect of which a deduction is claimed and allowed under this section, shall
be used only for the specified business for a period of 8 years beginning with the financial
year in which such asset is acquired or constructed.
nWhere such asset is used for any purpose other than the specified business, then, the
total amount of deduction so claimed and allowed in any financial year in respect of such
asset (after reducing the depreciation allowable under section 32 of the IT Act on
deduction allowed under section 35AD of the IT Act), shall be deemed to be income of the
assessee chargeable under the head ‘Profits and gains of business or profession’.
nWhile computing AMT, adjusted total income shall be increased by the deduction claimed
under section 35AD of the IT Act as reduced by the amount of depreciation allowable
under section 32 of the IT Act.
nIn case deduction has been availed under section 35AD of the IT Act on account of capital
expenditure incurred for the purposes of specified business in any assessment year, no
deduction under section 10AA of the IT Act or under the provisions of Chapter VI-A or
under any other provisions of the IT Act shall be available in the same or any other
assessment year in respect of such specified business.
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nFurther, where a deduction under this section is claimed and allowed for any assessment
year in respect of any expenditure on skill development project, no deduction shall be
allowed in respect of such expenditure under any other provisions of the IT Act for the
same or any other assessment year.
April 2020.
Section Details of Deduction ^
35(1)(i)
35(1)(ii)
35(1)(iia)
35(1)(iii)
35(1)(iv)
35(2AA)
35(2AB)
Proposed
Quantum of
deduction of
sum paid /
expenditure
incurred
Existing
Quantum of
deduction of
sum paid /
expenditure
incurred
Weighted deduction on various expenditure incurred on
scientific research
Any expenditure (not being in nature of capital expenditure) laid
or expended on scientific research related to business carried on
by the assessee.
Any sum paid to an approved research association, (which has
its object of undertaking scientific research) or to a university,
college or other institution to be used for scientific research.
Any sum paid to an approved company to be used by it for
scientific research. Such approved company will not be entitled
to claim weighted deduction under section 35(2AB) of the IT
Act. However, deduction to the extent of 100% of the sum spent
as revenue expenditure on scientific research, which is available
under section 35(1)(I) of the IT Act will continue to be allowed.
Any sum paid to approved research association (which has its
object of undertaking research) or university, college or other
institution to be used for research in social science or statistical
research.
Any capital expenditure (other than expenditure on land and
building) incurred on scientific research related to the business
carried on by the assessee.
Any sum paid to a National Laboratory or a University or an
Indian Institute of Technology or a specified person with a
specific direction that the said sum shall be used for scientific
research undertaken under a programme approved by the
prescribed authority,
Any expenditure incurred up to 31 March 2017 (other than
expenditure on cost of land and building), on in-house research
and development facility, as approved by the prescribed
authority, incurred by the company, engaged in the business of
bio-technology or manufacture or production of article or thing
(except those specified in the Eleventh Schedule).
100%
175%
125%
125%
100%
200%
200%
100%
150%*
100%**
100%***
100%***
100%
150%*
100%**
150%*
100%**
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Section Details of Deduction ^ Proposed
Quantum of
deduction of
sum paid /
expenditure
incurred
Existing
Quantum of
deduction of
sum paid /
expenditure
incurred
Deduction under the said section shall be allowed only if the
company enters into an agreement with the prescribed
authority for co-operation in such research and development
facility and fulfills prescribed conditions with regard to
maintenance and audit of accounts and also furnishes
prescribed reports.
* From FY 2017-18 to FY 2019-20
** From FY 2020-21 onwards
*** From FY 2017-18 onwards
Section Eligibility Criteria, Quantum and Period of Deduction
54G Capital gains arising on transfer of plant, machinery, land, building or any rights in land /
building effected in course of or in consequence of the shifting of an industrial undertaking
situated in an urban area to any area (other than an urban area) shall be eligible for
exemption. This exemption shall be least of the following:
nAmount of capital gains;
nAmount of capital gains utilized within a period of 1 year before or 3 years after the
date of transfer of the above assets, for purchase of new plant and machinery, land
and building and for shifting expenses, subject to specified conditions.
Exemptions from Capital Gains in certain cases ^
54GA Capital gains arising on transfer of plant, machinery, land, building or any rights in land /
building effected in course of or in consequence of the shifting of an industrial undertaking
situated in an urban area to any SEZ shall be eligible for exemption. This exemption shall be
least of the following:
nAmount of capital gains;
nAmount of capital gains utilized within a period of 1 year before or 3 years after the
date of transfer of the above assets, for purchase of new plant and machinery, land
and building and for shifting expenses, subject to specified conditions.
54GB nLong term capital gains shall be exempt in the hands of an individual or an HUF on sale of
a residential property (house or plot of land) on or before 31 March 2017 in case of re-
investment of the net consideration in the equity of a newly start-up SME company in
the manufacturing sector and the SME company utilizes the said funds for purchase of
new plant and machinery, subject to the certain conditions.
nIt is proposed to amend section 54GB so as to provide that long term capital gains
arising on account of transfer of a residential property before 31 March 2019 shall not be
charged to tax if such capital gains are invested in subscription of shares of a company
which qualifies to be an eligible start-up.
nIndividual or HUF should hold more than 50% shares of the company and such company
should utilize the amount invested to purchase new asset (including computers or
computer software for technology driven eligible start-up) before due date of filing of
return by the investor.
nEligible start-up and eligible business shall have the same meanings as assigned in
section 80-IAC(4).
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Section Eligibility Criteria, Quantum and Period of Deduction
Exemptions from Capital Gains in certain cases ^
54EC nCapital gain on transfer of a long term capital asset shall be exempt from tax, if an
assessee invests, within a period of 6 months from the date of transfer of a long-term
capital asset, the capital gains in the specified asset. The specified asset must be held
for a period of 3 years from the date of its acquisition. This exemption shall be least of
the following:
– Investment in specified assets viz. bonds issued by NHAI and the RECL. The
investment is restricted up to Rs. 50,00,000 per assessee per financial year.
– Amount of capital gains.
nFurther, the exemption in respect of capital gains upon aforesaid investments made
during the financial year in which the original asset or assets are transferred and in the
subsequent financial year shall not exceed Rs. 50,00,000.
Section Eligibility Criteria, Quantum and Period of Deduction / Exemption ^
10(34)/
10(35)
Dividend referred to in section 115-O and income received in respect of units of mutual fund
or shares shall not be included in the total income of assessee (other than individual, HUF
and firm earning dividend income from shares exceeding Rs. 10,00,000 in a financial year).
10
(34A)
Any income arising to an assessee, being a shareholder on account of buy back of shares as
referred in section 115QA (not being listed on a recognized stock exchange) by the company
shall not be included in the total income of assessee.
10(38) Capital gain arising from transfer of long term capital asset being an equity share in a
company or a unit of an equity oriented fund or unit of a business trust, on which securities
transaction tax is charged, is exempt from tax. However, this exemption is not available for
computation of MAT.
54EE nCapital gain on transfer of a long term capital asset shall be exempt from tax, if an
assessee invests the capital gains in the specified assets within a period of 6 months
from the date of transfer of a long-term capital asset.
nThis exemption shall be least of the following:
- Investment in specified assets viz. a unit or units, issued before the 1 April, 2019 of
fund notified by the Central Government.
- Rs. 50,00,000 per assessee per financial year
- Amount of capital gains.
nFurther, the exemption in respect of capital gains upon aforesaid investments made
during the financial year in which the original asset or assets are transferred and in the
subsequent financial year shall not exceed Rs. 50,00,000.
nThe specified asset must be held for a period of 3 years from the date of its acquisition.
Further, in a case an assessee takes any loan or advance on the security of such
specified asset, he shall be deemed to have transferred such specified asset on the date
on which such loan or advance is taken.
9(1)(i) -
Explan-
ation
(1)(e)
It is proposed to provide that in the case of a foreign company engaged in the business of
mining of diamonds, no income shall be taxed from the activities which are confined to the
display of uncut and unassorted diamond in any special notified zone by the Central
Government.
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Section Eligibility Criteria, Quantum and Period of Deduction / Exemption ^
It is further proposed that any long term capital gains arising out of transaction undertaken
on a recognised stock exchange located in any International Financial Services Centre and
where the consideration for such transaction is paid or payable in foreign currency shall also
be exempt under the said section. Further, MAT under section 115JB shall be applicable at
the concessional rate of 9% plus applicable surcharge and cess.
10
(48A)
It is proposed to provide that any income accruing or arising to a foreign company on
account of storage of crude oil in a facility in India and sale of crude oil therefrom to any
person resident in India shall not be included in the total income subject to approval of
Central Government.
115
BBD
Any dividend declared, distributed or paid by the specified foreign company to Indian
company shall be taxable at a concessional tax rate of 15%.
115BBF It is proposed to provide that any royalty income earned by resident patentee in India in
respect of a patent developed and registered in India shall be taxable at the concessional
rate of 10% (plus applicable surcharge and cess) on the gross amount of royalty.
115-O In computing DDT liability, dividend declared by the domestic holding company to its
shareholders shall be reduced to the extent of:
i. Dividend received from the domestic subsidiary company during the year on which
DDT has already been paid by subsidiary under this section.
ii. Dividend received from the specified foreign subsidiary during the year on which tax
is payable by the holding company under section 115BBD of the IT Act.
It is proposed that no tax on distributed profits shall be chargeable in respect of the total
income of a company, being a unit of an International Financial Services Centre, deriving
income solely in convertible foreign exchange.
Sr.
No.
Nature of Activity and Location Number of
Years
Deductions of Profits derived by Newly Established Industrial Undertakings / Infrastructure
Projects / Facilities / Developers of SEZs / Banking units, etc.( Sections - 80-IA / 80- IAB / 80-
IAC/ 80- IB / 80-IBA/ 80- IC / 80- ID / 80- IE / 80JJA /80LA) ^
Type of
Organization
Quantum
of Deduction
1. Specified Infrastructure Projects
[Section 80-IA(4)(i)
Enterprise being company or consortium of
companies registered in India or any authority
or board or a corporation or any other body
established or constituted under any Central
or State Act, for carrying on business of (i)
developing or (ii) operating and maintaining or
(iii) developing, operating and maintaining of
any infrastructure facility (such as road
including toll road, bridge, rail system, highway
project, water supply project, water treatment
system, irrigation project, sanitation and
sewage system or solid waste management
system, airport, port, inland waterways and
inland ports or navigational channel in the
Company /
Any other
body
established or
constituted
under any
Central or
State Act
100% For any 10
consecutive
years out of first
15 years
(20 years for road,
bridge, rail
system, highway
project, water
supply project,
water treatment
system, irrigation
project, sanitation
and sewerage
system or solid
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Sr.
No.
Years
Type of
Organization
Quantum
of Deduction
sea) commencing its operations on or after 1
April 1995. Widening of an existing road by
constructing additional lanes as a part of
highway project is also regarded as a new
infrastructure facility eligible for deduction as
per Circular No. 4/2010 dated 18 May 2010.
Deduction shall not be available to a person
executing above referred activities as a works
contract.
It is proposed that no deduction shall be
available if the specified activity commences
on or after 1 April 2017.
waste
management
system).
2. Telecommunication Service Providers
[Section 80-IA(4)(ii)]
Any undertaking which starts providing
telecommunication services, whether basic
or cellular, including radio paging, domestic
satellite service or network of trunking,
broadband network and internet services on
or after 1 April 1995 but before 31 March 2005.
Deduction shall not be available to a person
executing the above referred services as a
works contract.
All 100%
30%
First 5 years
Next 5 years
Any 10
consecutive
years out of first
15 years
3. Development of Industrial Park
[Section 80-IA(4)(iii)]
Any undertaking which begins to develop or
develops and operates or maintains and
operates an industrial park which has
commenced operations during 1 April 1997 to
31 March 2011.
Deduction shall not be available to person
executing the above referred services as a
works contract.
All 100% Any 10
consecutive
years out of first
15 years
4.(a) Power Undertakings
[Section 80-IA(4)(iv)]
nUndertaking set up in any part of India for
the generation or generation and
distribution, of power, which has
commenced operations during 1 April
1993 to 31 March 2017.
nUndertaking which starts transmission or
distribution by laying a network of new
transmission or distribution lines between
1 April 1999 and 31 March 2017.
All 100% Any 10
consecutive
years out of first
15 years
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Sr.
No.
Years
Type of
Organization
Quantum
of Deduction
4.(b) Undertakings for revival of Power Generating
Units
[Section 80-IA(4)(v)]
Undertaking owned by Indian Company
(formed before 30 November 2005 and
notified before 31 December 2005) set up for
reconstruction or revival of a power
generating unit, which has commenced
operations in power before 31 March 2011.
Deduction shall not be available to person
executing the above referred activities as a
works contract.
Indian
Company
100% Any 10
consecutive
years out of first
15 years
5. Developer of SEZ
[Section 80-IAB]
Any assessee being developer of a SEZ
notified by the Central Government after 1
April 2005 can claim deduction under section
80-IAB.
All 100% Any 10
consecutive
years out of first
15 years
nUndertaking which undertakes
substantial renovation and modernization
of the existing network of transmission
or distribution lines between 1 April 2004
and 31 March 2017.
nDeduction shall not be available to a
person executing the above referred
activities as a works contract.
6. Start-up Undertaking
[Section 80-IAC]
nUndertaking being an eligible start-up in
business which involves innovation,
development, deployment or
commercialisation of new products,
processes or services driven by
technology or intellectual property.
nThe total turnover of the company should
not exceed Rs. 25,00,00,000 in any of
the previous years beginning on or after 1
April 2016 and ending on 31 March 2021.
nIt holds a certificate of eligible business
from the Inter-Ministerial Board of
Company
incorporated
between 1
April 2016 to 1
April 2019
100% Any 3
consecutive
years out of first
5 years
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Sr.
No.
Years
Type of
Organization
Quantum
of Deduction
Certification as notified in the Official
Gazette by the Central Government.
nIt is not formed by the transfer to a new
business of machinery or plant
previously used for any purpose (except
if such transfer value does not exceed
20% of the total value of plant and
machinery).
nIt is not formed by splitting up, or the
reconstruction, of a business already in
existence.
7. Scientific and Industrial Research Company
[Section 80-IB(8A)]
Any company registered in India with its main
object being scientific and industrial research
and development which is for the time being
approved by the DSIR at any time after 31
March 2000 but before 1 April 2007.
Company 100% First 10 years
8. Production of mineral oil and natural gas
[Section 80-IB(9)]
nAny undertaking which is engaged in
refining of mineral oil and begins such
refining on or after 1 October 1998 but not
later than 31 March 2012 subject to
specified conditions.
nThe tax holiday is also available in respect
of profits arising from commercial
production of natural gas from blocks
which are licensed under the VIII Round of
bidding for award of exploration contracts
under the New Exploration Licensing
Policy announced by the Government of
India and IV Round for Coal Bed Methane
and begins commercial production of
natural gas on or after 1 April 2009.
All 100% First 7 years
9. Undertaking engaged in processing
/preservation / transportation of specified
food items
[Section 80-IB(11A)]
nAn undertaking deriving profit from the
integrated business of handling, storage
Company
Others
100%
30%
100%
25%
First 5 years
Next 5 years
First 5 years
Next 5 years
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Sr.
No.
Years
Type of
Organization
Quantum
of Deduction
and transportation of food grains subject
to such business beginning its operations
nThe benefit is extended to undertakings
engaged in the business of processing,
preservation and packaging of fruits and
vegetables.
nFurther, the benefit is extended to the
undertakings engaged in the business of
meat and meat products or poultry or
marine or dairy products which begin to
operate such business on or after 1 April
2009.
10. Operating and Maintaining Hospital
[Section 80-IB(11C)]
nAny undertaking engaged in the business
of operating and maintaining a hospital in
India other than specified excluded areas.
nThe undertaking shall be eligible for the
deduction if such hospital is constructed
in accordance with the local regulations in
force; and has at least 100 beds for
patients.
nThe said tax benefit is available to a
hospital which is constructed and has
started or starts functioning at any time
during the period beginning 1 April 2008
and ending on 31 March 2013.
11. Affordable Housing Project
[Section 80-IBA]
nAny undertaking engaged in the business
of developing and building housing
projects approved by the competent
authority between 1 June 2016 and 31
March 2019.
nThe project should be completed within a
period of 3 years from the date of
approval.
nIn case of multiple approvals, the date of
first approval shall be considered for the
calculation of the time limit of completion
of project.
All 100% Not Applicable
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Sr.
No.
Years
Type of
Organization
Quantum
of Deduction
nThe deduction is allowed subject to
fulfillment of various conditions like
minimum area of land, minimum floor
area ratio of land, maximum built-up area
of residential and commercial unit etc.
nSeparate books of account in respect of
the housing project
nNot more than 1 residential unit is allotted
to any individual or the spouse or the
minor children of such individual.
nDeduction shall not be available to a
person executing the housing project as
works contract.
12. Undertakings in special category states
[Section 80-IC]
nUndertakings and enterprises, which
begins to manufacture or produce any
article or thing which is not specified in
Thirteenth Schedule or undertakings and
enterprises, which manufactures or
produces any article or thing which is not
specified in Thirteenth Schedule and
undertake substantial expansion of
existing undertakings.
Undertakings and enterprises, which
begin to manufacture or produce any
article or thing which is specified in
Fourteenth Schedule or commences any
operation specified in that Schedule or
undertakings and enterprises, which
manufactures or produces any article or
thing which is specified in Fourteenth
Schedule or commence any operation
specified in that Schedule and undertake
substantial expansion.
i. If located in Sikkim, from 23
December 2002 to 31 March 2007.
ii. If located in North Eastern States*,
from 24 December 1997 to 31 March
2007.
iii. If located in Himachal Pradesh and
Uttaranchal, from 7 January 2003 to
31 March 2012.
* States of Assam, Tripura,
Meghalaya, Mizoram, Nagaland,
Manipur and Arunachal Pradesh.
}
Company First 5 years
Next 5 years
100%
30%
Others First 5 years
Next 5 years
100%
25%
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Sr.
No.
Years
Type of
Organization
Quantum
of Deduction
13. Convention Centre and Hotels in notified
areas
[Section 80-ID]
nAny undertaking engaged in business of
hotels in specified area of the National
Capital Territory subject to fulfillment of
certain conditions:
a. Engaged in the business of hotel
located in specified area; or
b. Engaged in the business of building,
owning and operating a convention
centre located in specified area,
which has started its operations
from 1 April 2007 to 31 July 2010.
nThe aforesaid deduction has been
extended to any undertaking engaged in
the business of hotel located in specified
districts having 'World Heritage Sites' if
such hotel is constructed and has started
functioning during the period beginning 1
April 2008 and ending on 31 March 2013.
nThe benefit is available to 2 star, 3 star or
4 star hotels.
14. Undertakings in North Eastern States
[Section 80-IE]
nNew undertakings and enterprises, which
begin to manufacture or produce any
eligible article or thing or provide any
services or undertake substantial
expansion or carry on any eligible
business in any of the North Eastern
states beginning from 1 April 2007 to 31
March 2017.
nThe eligible businesses for this purpose
are hotel (not below 2 star category),
adventure and leisure sports including
ropeways, providing medical and health
services in the nature of nursing home
with a minimum capacity of 25 beds;
running an old-age home; operating
vocational training institute for hotel
management, catering and food craft,
entrepreneurship development, nursing
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Sr.
No.
Years
Type of
Organization
Quantum
of Deduction
and para-medical, civil aviation related
training, fashion designing and industrial
training; running information technology
related training centre; manufacturing of
information technology hardware and
bio-technology.
15. Deduction of Additional Wages
[Section 80JJAA]
nDeduction of an amount equal to 30% of
additional employee cost of any new
employee (whose total emolument is less
than or equal to Rs. 25,000 per month).
nHowever, no deduction shall be allowed in
respect of employees for whom the
entire contribution under notified
Employees' Pension Scheme is paid by
the Government.
nThe minimum number of days of
employment in a financial year is reduced
from 300 days to 240 days. Further, the
condition of 10% increase in number of
employees each year is proposed to be
deleted.
nIn the case of an existing business,
emoluments are to be paid by an account
payee cheque or account payee bank
draft or by use of electronic clearing
system through a bank account.
* 30% of employees’ cost in case of first
year of business
All assessee
covered under
tax audit
provisions
30% of
additional
employee
cost of new
employee *
3 AYs including
the AY relevant to
the FY in which
such employment
is provided
16. Offshore banking unit in SEZ and International
Financial Services Centre
[Section 80LA]
Income from:
nOffshore banking unit in SEZ or
nThe business referred to in section 6(1) of
the Banking Regulation Act, 1949 or
nAny unit of the International Financial
Services Center from its approved
business.
Scheduled
Bank or any
bank
incorporated
by or under
the law of a
country
outside India
or a unit of an
International
Financial
Services
Center.
100% First 5 years
(beginning with
the year in which
prescribed
permissions are
obtained)
Next 5 years50%
*The above deduction, exemption, incentive and allowance are subject to fulfillment of specified
conditions mentioned in the IT Act.
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Chapter 6 Direct Taxes – Significant Changes
6.1 Business Entities
6.1.1 100% deduction of the profit and gains derived from
eligible start-up business
It is proposed to insert new section 80IAC in the IT Act to
provide deduction of 100% of the profits and gains
derived by an eligible start-up from eligible business for
any 3 consecutive assessment years out of 5 years
beginning from the year in which the eligible start-up
business is incorporated.
Eligible start-up means a company engaged in eligible
business which fulfills the following conditions,
nIt is incorporated on or after 1 April 2016 but before 1 April 2019
nThe total turnover of the company should not exceed Rs. 25,00,00,000 in
any of the previous years beginning on or after 1 April 2016 and ending on
31 March 2021
nIt holds a certificate of eligible business from the Inter-Ministerial Board
of Certification as notified in the Official Gazette by Central Government.
6.1.2 Incentivise builders undertaking affordable housing projects
It is proposed to insert section 80-IBA in the IT Act so as to provide for 100%
deduction of the profits of an assessee developing and building affordable
housing projects if the housing project is approved by the competent authority
after 1 June 2016 but on or before 31 March 2019 subject to certain specified
conditions.
6.1.3 Tax on income from Patents
It is proposed to insert a new section 115BBF in the IT Act so as to provide that,
where the total income of the eligible assessee being resident in India and who
is the true and first inventor of the invention includes any income by way of
royalty in respect of a patent developed and registered in India, then such royalty
shall be taxable @10% (plus applicable surcharge and cess) on the gross basis.
No expenditure or allowance in respect of such royalty income shall be allowed
under the IT Act.
6.1.4 Tax incentive for employment generation
As per the existing provisions of Section 80JJAA of the IT Act, deduction is
allowed @ 30% of additional wages paid to new regular workmen in a factory for
3 years where the assessee is engaged in the business of manufacture of goods
in a factory and 'workmen' are employed for not less than 300 days in a previous
year. Further, benefits are allowed only if there is an increase of at least 10% in
total number of workmen employed on the last day of the preceding year.
It is proposed to substitute this section and provide that the deduction under
the said provisions to the extent of 30% of additional employee cost incurred in
the course of such business in the previous year, for 3 assessment years shall
be available to those assessee to whom section 44AB (tax audit) applies.
6.1.5 Tax incentives to units in International Financial Services Centre
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It is proposed to amend section 10 of the IT Act to provide for exemption from
tax on capital gains to the income arising from transaction undertaken in foreign
currency on a recognised stock exchange located in an IFSC even when STT is
not paid in respect of such transactions.
It is further proposed that in case ofunits located in IFSC and deriving its income
solely in convertible foreign exchange would be exempt, though MAT shall be
chargeable @ 9% and DDT shall not be applicable in respect of such entities
Further, it is proposed to exempt from levy of STT and CTT in respect of taxable
transactions entered into by any person on a recognized association located in
unit of IFSC where the consideration for such transaction is paid or payable in
foreign currency.
The above amendments related to exemption from STT and CTT will be
effective from 1 June 2016.
6.1.6 Exemption from DDT on distribution made by an SPV to Business Trust (REITs
and InvITs)
In order to rationalize the taxation regime for business trusts (REITs and InvITs)
and their investors, it is proposed to provide a special dispensation and
exemption from levy of DDT subject to specified conditions.
The amendment will be effective from 1 June 2016.
6.1.7 Tax treatment of spectrum fee for purchase of spectrum
In order to provide clarity on whether spectrum fee paid for purchase of
spectrum is eligible for depreciation under section 32 of the IT Act or whether it
is in the nature of a 'license to operate telecommunication business' and eligible
for deduction under section 35ABB of the IT Act, it is proposed to insert a new
section 35ABA in the IT Act to provide for tax treatment of spectrum fee. The
section seeks to provide:
nany capital expenditure incurred and actually paid by an assessee on
acquisition of any right to use spectrum for telecommunication services
by paying spectrum fee, will be allowed as a deduction in equal
instalments over the period for which the right to use spectrum remains
in force.
nwhere the spectrum is transferred and proceeds of the transfer are less
than the expenditure remaining unallowed, a deduction equal to the
expenditure remaining unallowed as reduced by the proceeds of transfer,
shall be allowed in the previous year in which the spectrum has been
transferred.
nif the spectrum is transferred and proceeds of the transfer exceed the
amount of expenditure remaining unallowed, the excess amount shall be
chargeable to tax as profits and gains of business in the previous year in
which the spectrum has been transferred.
nunallowed expenses in a case where a part of the spectrum is transferred
would be amortised.
nunder the scheme of amalgamation, if the amalgamating company sells
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or transfer the spectrum to an amalgamated company, being an Indian
company, then the provisions of this section will apply to amalgamated
company as they would have applied to amalgamating company if later
has not transferred the spectrum.
6.1.8 The Direct Tax Dispute Resolution Scheme, 2016
In order to reduce the huge backlog of cases and to enable the Government to
realize its dues expeditiously, it is proposed to bring the Direct Tax Dispute
Resolution Scheme, 2016 in relation to tax arrears and specified tax.
The salient features of the proposed scheme are as under
nThe scheme be applicable to "tax arrears" which is defined as the
amount of tax, interest or penalty determined under the IT Act or the WT
Act in respect of which appeal is pending before the Commissioner of
Income tax (Appeals) or the Commissioner of Wealth tax (Appeals) as on
29 February 2016.
nThe pending appeal could be against an assessment order or a penalty
order.
nThe declarant under the scheme be required to pay tax at the applicable
rate plus interest up to the date of assessment.
nHowever, in case of disputed tax exceeding Rs.10,00,000, 25% of the
minimum penalty leviable shall also be required to be paid.
nIn case of pending appeal against a penalty order, 25% of minimum
penalty leviable shall be payable along with the tax and interest payable
on account of assessment or reassessment.
nConsequent to such declaration, appeal in respect of the disputed income
and disputed wealth pending before the Commissioner (Appeals) shall be
deemed to be withdrawn.
In addition to the above, the scheme proposes that person may also make a
declaration in respect of any tax determined in consequence of or is validated by
an amendment made with retrospective effect in the IT Act or WT Act, as the
case may be, for a period prior to the date of enactment of such amendment
and a dispute in respect of which is pending as on 29 February 2016 (referred to
as specified tax). For availing the benefit of the Scheme, such declarant shall be
required to withdraw any writ petition or any appeal filed against such specified
tax before the Commissioner (Appeals) or the Tribunal or High Court or
Supreme Court, before making the declaration and shall also be required to
furnish a proof of such withdrawal. Further, if any proceeding for arbitration
conciliation or mediation has been initiated by the declarant or he has given any
notice under any law or agreement entered into by India, whether for protection
of investment or otherwise, he shall be required to withdraw such notice or
claim for availing benefit under this Scheme.
It is proposed that person making declaration in respect of specified tax shall be
required to furnish an undertaking in the prescribed form and verified in the
prescribed manner, waiving the right, whether direct or indirect, to seek or
pursue any remedy or claim in relation to the specified tax which otherwise be
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Publication - RSM India Budget 2016 Key Aspects

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