BIG PICTURE

Gold monetization / sovereign

bond Incentive: Dr / Cr card
transactions encouraged
Coal cess doubles: Focus on
renewable energy

Other

Wealth Tax abolished

MUDRA banks (SC / ST

priority)

Banking the
Unbanked

Electronic
Receivables
System;

Funding the
Unfunded

Trade
discounting

Self Employment and Talent

Utilization
(SETU)
particularly in Technology
driven areas
Plug & Play Model 5 Mega Power
Plants
Integrated 14 regulatory permissions at
one source
Draft Legislation- Multiple prior
permissions cam be replaced by pre
existing regulatory mechanism

Jan Dhan,
Aadhar and
Mobile
(JAM)

Rationalization of Subsidies
JAM to Jan Suraksha (Insurance / Pension)

GST w.e.f 1st April, 2016

Swacch
Bharat
Programme

Ease of
Doing
Business

Health & Sanitation

improvement

Make
In
India

2/3rd population under 35 years

Job creation important
Encouragement to
entrepreneurship

new

start

ups

&

INTRODUCTION
The Fiscal deficit for the current year has been contained at 4.1 per cent of GDP and 3 per cent target has been shifted to year 201718. This is more so as out of tax receipts 62% has been transferred to states and there is need to increase public investments..
Given this backdrop, the Finance Minister identified following focus areas in Budget 2015-16:
Job creation through revival of growth and investment and promotion of domestic manufacturing Make in India
Improve ease of doing business - Minimum Government and maximum governance
Improve quality of life and public health Swachh Bharat
Benefit to middle class tax-payers
Indirect Transfer
Permanent Establishment
Measures to curb black money
Focus has been given on improving Agricultural productivity, Investment in infrastructure
Plug & Play (PPP)
Clarifying issues faced by Foreign Investors and new investment vehicles (AIF; REITS) and simultaneously supporting social
subsidy programmes.
We are providing herein the snapshot of the major budget 2015 proposals with our comments

The key Investment environment and Tax aspects proposed in Budget 2015 are summarized below.
S.No
.

Proposal

Impact
Individual

3
4

Tax slabs remain same

Limit of deduction of health insurance premium
increased from INR 15000 to INR 25000, for senior
citizens limit increased from INR 20000 to INR
30000
Senior citizens above the age of 80 years, who are
not covered by health insurance, to be allowed
deduction of INR 30000 towards medical
expenditures.
Deduction limit of INR 60000 with respect to
specified decease of serious nature enhanced to
INR 80000 in case of senior citizen

Marginal, likely to offset by increase in service tax.

Additional deduction of INR 50,000 for NPS investment

Tax exemption for transport allowance increased from Rs
800 to Rs 1600 per month
All investments in Sukanya Samridhi Scheme were
already eligible for deduction under Section 80C. Now all
the withdrawals and interest accrued on such Scheme will
also be exempt from tax with retrospective effect from
April 1, 2015.
Corporate

Proposal to reduce corporate tax from 30% to 25% over

the next four years, starting from next financial year (2016
-17).
Rate of Income-tax on royalty and fees for technical
services reduced from 25% to10% to facilitate technology
inflow
Permanent Establishment (PE) norm to be modified to
encourage fund managers to relocate to India subject to
prescribed conditions.

To align with international tax rates over 5 years period.

This will provide tax relief to nonresident technology provider to India.

This will facilitate reverse brain drain of the highly qualified fund managers
who left the country in order to manage offshore funds in a tax efficient manner.
Merely by fund managers being in India, foreign fund would not be
considered PE & would not be held taxable in India.

4
5
6

Dividends paid by foreign companies to their

shareholders to be addressed through a circular
In case of FIIs, the income arising from long term capital
gains shall not be included in computing book profit for
the purpose of MAT.
Comprehensive Bankruptcy Code of global standards to
be brought in fiscal 2015-16
NBFCs registered with RBI and having asset size of INR
500 crore and above may be considered for notifications
as Financial Institution in terms of the SARFAESI Act,
2002
GAAR deferred by 2 years (Effects 1st April, 2017
onwards)

One would have to wait for the CBDT circular clarifying the position.
No MAT on LTCG to FIIs. however This amendment does not address the
flaming controversy regarding applicability of MAT on foreign companies.
This step is expected to bring about legal certainty and speed, and has been
identified as a key priority for improving the ease of doing business.
This will help such NBFCs attach the property of willful or intended defaulters
and avert losses, results in acceleration in recovery process.

Applicable on both Individual / Corporate

Wealth-tax replaced with additional surcharge of 2 per This will reduce the compliance burden on the taxpayers as well as
cent on super rich with a taxable income of over INR 1 administrative burden on tax authorities. This surcharge not applicable to
crore annually
foreign companies. Additional surcharge also applicable on MAT / AMT / DDT
100% deduction for contributions, other than by way of
This will encourage people participation in national efforts to improve
CSR contribution, to Swachh Bharat Kosh and Clean
sanitation facilities and rejuvenation of river ganga.
Ganga Fund
Capital Market

Forward Markets commission to be merged with SEBI

This step will boost commodity derivative market.

Public Debt Management Agency (PDMA) bringing both

external and domestic borrowings under one roof to be
set up this year

This will streamline entire Government debt structure and promote investment
in India.

Section-6 of FEMA to be amended through Finance Bill to

provide control on capital flows as equity will be exercised
by Government in consultation with RBI.
Concessional withholding tax rate of 5% on interest paid

This will help Government to have full control over equity capital flows.

on Government securities and corporate bonds to FPIs /

4

FIIs extended on interest payable up to 30 June 2017.

This will promote investment climate.

MSME / Start-ups
A Trade Receivables discounting System (TReDS) which will be an
electronic platform for facilitating financing of trade receivables of
This will improve liquidity in MSME sector.
MSMEs to be established.
Micro Units Development Refinance Agency (MUDRA) Bank, with a
This will ensure that Unfunded are adequately funded.
corpus of INR 20,000 crores, and credit guarantee corpus of INR
3,000 crores to be created. In lending priority will be given to SC / ST
(SETU) Self-Employment and Talent Utilization) to be established as
Techno-financial, incubation and facilitation programme to support all Will facilitate startup capital and risk capital for startup companies.
aspects of start-up business. INR 1000 crore to be set aside as initial
amount in NITI.

Domestic transfer pricing threshold limit increased from

INR 5 crore to INR 20 crore

Transfer Pricing
This increase would benefit small companies from unnecessary compliance
Hassles.

Foreign Direct Investment (FDI)

This will allow private equity firms to invest via a single platform, eliminating
Foreign investments in Alternate Investment Funds to be
the need for using overseas structure like routing investments through
allowed.
Mauritius and Singapore.
REITs

Rationalization of capital gains regime for the sponsors

exiting at the time of listing of the units of REITs and
InvITs
Rental income of REITs from their own assets to have
pass through facility. No withholding tax on rental income
paid to REITs, However REITs to deduct TDS @ 10% to
resident unit holders & applicable rates in force in case of
Non resident unit holders.

This will provide parity in taxation to sponsor on exchange of shares of SPV for
units of business vis--vis the sale of shares of SPV under an IPO, subject to levy
of STT (LTCG: Exempt ; STCG: @ 15%)

Alternate Investment Fund (AIF)

1

Tax Pass through provided to category I & II AIF.

Business Income if any taxable at fund level & exempt for

unit holders.

Withholding tax @ 10% applicable upon payment by fund

to unit holders.

With more clarity on taxation of AIF; more such structures are expected to be
created.

Losses carried forward at fund level.

DDT not applicable to income paid by fund to unit holders

The government has now proposed to allow foreign

investment in AIFs. While presenting the Budget, the
Finance Minister said that the government would do away
with different categories like Foreign Portfolio Investors
(FPI) and Foreign Direct Investment (FDI) for such
investments with a view to making it easier for overseas
investors to invest in AIFs.
Clarification on Indirect transfers of Assets (Section 9)
Scope of indirect transfer: Shares of a foreign company deemed to drive
substantial value from Indian assets if the value of Indian assets:

Represents atleast 50% of value of all assets owned by the company and

Exceeds INR 100 million

Valuation of Indian Asset: Value of an asset shall mean its fair market value
(without deduction of liabilities) manner of computing fair value to be prescribed

This will bring much needed clarification on the subject of

Taxability on proportionate basis (manner to be prescribed)

indirect transfer, specially on the threshold percentage

Exemption to (Small shareholders (not having management or control and

and the provisions granting exemptions to minority

holding less than 5 % of voting power / share Capital)

shareholders, specified amalgamations, demergers.

Exemption on account of foreign amalgamations:

atleast 25% shareholders of the amalgamating foreign company continue

to remain shareholders of the amalgamated foreign company;

the transfer does not attract capital gain tax in the country in which the
amalgamating foreign company is incorporated

Exemption on account of foreign demergers:

atleast 3/4th of the shareholders in the value of the shares of the

demerged foreign company continue to remain shareholders of the
resulting foreign company;

the transfer does not attract capital gain tax in the country in which the
demerged foreign company is incorporated
Reporting obligations on the Indian concern, failure to do so may attract
penalty in the hands of the Indian concern @ 2%.

Introduction of the concept of Place of Effective Management

In lieu of Control & Management wholly in India; now
A Foreign company can be resident in India, if its Place of Effective Management
Place of Effective Management in substance will be
(POEM), at any time in that year, is in India
relevant as per international standards.
Black Money Provisions

4
5

Acceptance or re-payment of an advance of INR 20,000 or more in cash for

purchase of immovable property to be prohibited.
A new section 37A is proposed to be inserted in FEMA. It provides that if any
person holds any foreign exchange, foreign security or any immovable property
outside India in contravention of section 4 of FEMA, the equivalent value of
property in India can be seized. This power of seizure under FEMA is in addition
to the penal action under Income-tax Act and penal action under FEMA.
For concealment of income and assets and tax evasion in relation to foreign
assets, following measures are proposed:
Prosecution with punishment of rigorous imprisonment up to 10 years;
Offences will be non compoundable;
Offenders will not be allowed to approach the settlement commission;
Penalty at rate of 300% tax
For non filing of return or filing return with inadequate disclosure
Prosecution with punishment of rigorous imprisonment up to 7 years
New Benami Transactions Prohibition Act on the anvil

Discouraging cash transactions will help to bring down

black money.

Focus to curb black money

INDIRECT TAXES

In an attempt to boost the domestic manufacture, to encourage new investment in

various sectors and to address inverted duty structure for specified sectors. Key
changes taken are summarized below:

SERVICE TAX
Service-tax plus education cesses increased from 12.36% to 14% to
facilitate transition to GST (effective from date to be notified). Further,
enabling provisions are introduced to levy Swachh Bharat Cess at 2% on
value of services for financing and promoting Swachh Bharat initiative.
Thus, total rate of service tax may come to 16%.
Further, it is proposed to include reimbursable expenses incurred by service
provider in course of providing a taxable service and charged thereon. The
Government may prescribe circumstances in which such expenses shall
not be included in value of taxable service.
The Centre has taken its first steps towards bringing in clarity on the levy of
service tax on certain formats in the e-commerce space. Amending the
service tax rules in the Budget 2015-16, the finance ministry has clarified
that any service provided under aggregator model, will be taxable.

EXCISE
o

In general 12.36% to 12.50% (effective from 1st March, 2015)

Excise duty on chassis for ambulance reduced from 24% to 12.5%.

Central excise/Service tax assesses to be allowed to use digitally signed

invoices and maintain record electronically.

Excise duty on footwear with leather uppers and having retail price of more
than INR1000 per pair reduced to 6%.

Time limit for taking CENVAT credit on inputs and input services increased
from 6 months to 1 year.

CUSTOMS
o

Increase in basic custom duty:

Metallergical coke from 2.5 % to 5%;

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

Tariff rate on commercial vehicle increased from 10 % to 40%.

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

The 2015 budget had long list of expectations. On one hand; the Government has
addressed major issues surrounding the foreign investors which would certainly boost
capital market inflows and revive the private equity industry (by deferring GAAR by 2 years
and clarifying Permanent Establishment & Indirect Transfer of Assets). On other hand; it
has just rationalized the subsidies. Probably as we see growth coming in and more job
creation; subsidy burden can be better dealt with by the Government. Though there are no
direct benefits for the middle class. However incentives have been introduced to encourage
savings. These savings are expected to fuel the infrastructure and other investment plans
laid out by the Government. Certainly Foreign investors have a reason to cheer for this Pro
Business; Pro Growth Government budget.

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