Growth of economy accelerated to 7.6% in 2015-16. India's foreign exchange reserves touched highest ever level of about $350 billion. Robust growth achieved despite unfavourable conditions and two consecutive years shortfall in monsoon by 13%. Here are some of the sector based key highlights for your kind consideration:
Tax rate on newly setup domestic companies engaged solely in manufacture or production of any article or thing to be reduced to 25%, at the option of the company, subject to not claiming certain specified deductions/claims.
Tax rate to be reduced to 29% for domestic companies whose total turnover or gross receipts in the previous year 2014-15 does not exceed Rs.5 crores.
No change in income slabs or tax/corporate tax rates.
Increase the turnover limit under Presumptive taxation scheme under the Income Tax Act to Rs.2 crores to bring big relief to a large number of assesses in the Ministry of Micro, Small and Medium Enterprises category.
Accelerated depreciation to be limited to maximum 40% from 01 April 2017.
Benefits of deductions for Research to be limited to 150% from 01 April 2017 and 100% from 01 April 2017.
Benefits to new SEZ units will be available to those units which commence activity before 31 March 2020.
New Manufacturing companies incorporated on or after 01 March 2016 to have an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avails of investment allowance and accelerated depreciation.
Lower corporate tax rate for the next financial year for relatively small enterprises i.e. companies with turnover not exceeding Rs.5 crore (in the financial year ending March, 2015), to 29% plus surcharge and cess.
10% tax on income from worldwide exploitation of patents developed and registered in India by a resident.
Period for getting benefit of long-term capital gain regime in case of unlisted companies is to be reduced from three to two years.
Non-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.
For Non-residents providing alternative documents to PAN card, higher TDS not to apply.
Additional options to banking companies and financial institutions, including NBFCs, for reversal of input tax credits with respect to non-taxable services.
Benefit of quarterly payment of service tax has been extended to 'One Person Company' and Hindu Undivided Families.
Interest rates for delayed payment of customs duty are being rationalized at 15%.
Long term capital gains arising on sale of unlisted securities, and shares of a company in which public are not substantially interested are to be taxed at 10%.
Benefit of Investment in new plant or machinery in the Income Tax Act to be enlarged to situations when installation of plant and machinery (exceeding Rs.25 crores) could not be completed within the same financial year when the machinery was acquired. In such cases, the benefit to be deferred to the year in which such machinery has been installed. This amendment will take effect retrospectively from 01 April 2016.
Benefit of deduction in respect of provision for bad and doubtful debts extended to NBFCs.
Tax Exemptions and Withdrawals
Minimum Alternate Tax not applicable to foreign companies with effect from 01 April 2001, in cases where:
Foreign company is a resident of a county with which India has entered into a Double Taxation Avoidance Agreements (DTAA).
Foreign company is resident of a country with which India has not entered into a DTAA and the company is not required to seek registration under any law for the time being in force relating to foreign companies.
Withdrawal of Service tax exemption towards construction, erection, commissioning or installation of original works pertaining to monorail or metro, in respect of contracts entered into on or after 01 March 2016.
Service tax on the services of Information Technology software on media bearing Retail Sale Price (RSP) is being exempted provided Central Excise Duty/Additional Customs Duty is paid on the same – Effective from 01 March 2016.
Life insurance business provided by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority (PFRDA).
General insurance business provided under ‘Niramaya’ Health Insurance scheme launched by National Trust for the Welfare of Persons for specific disabilities in collaboration with private/public insurance companies.
Services provided by:
Employees’ Provident Fund Organisation (EPFO) to employees ;
Insurance Regulatory and Development Authority (IRDA) of India;
Regulatory services provided by Securities and Exchange Board of India (SEBI);
Biotechnology incubators approved by Biotechnology Industry Research Assistance Council (BIRAC), to incubatees;
Training partners under Deen Dayal Upadhyay Grameen Kaushalya Yojana by way of skill/vocational training;
Assessing bodies empaneled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship; and
National Center for Cold Chain Development by way of knowledge dissemination.
Customs & Excise
Import duty reduced for cold chain storage, mineral oils & fuels, chemicals & petrochemicals wood chips or particles for manufacture of paper, fibre, yarn and fabrics, some electronics & hardware, disposable sterilized dialyzer, micro barrier of artificial kidney and engine for hybrid vehicles.
Import duty increased for plans, drawings and designs, e-readers and parts of e-readers, mobile charger/adapter, battery and wired headsets/speakers for manufacture of mobile phone, specified telecommunication equipment, populated PCBs for manufacture of personal computers, PCBs for manufacture of mobile phone/ tablet computer, aluminum products, specified machinery required for construction of roads.
Export duty reduced on Ores and Concentrates.
New Baggage Rules to simply and rationalize multiple slabs of duty free allowance for different categories of passengers to be effective from 01 April 2016.
Filing of Customs declaration required only for those passengers who carry dutiable or prohibited goods.
The Rules governing import of goods at concessional rate of duty for manufacture of excisable goods simplified. Permission is replaced with self-declaration by the importer with effect from 01 April 2016.
Increased from 9% to 9.5% on refined gold bards manufactured from gold dore bar, gold ore or concentrate. Also, excise duty exemption under existing area based exemption on refined gold withdrawn in respect of new units or substantial expansion of existing units.
Similar changes carried out in respect of refined silver where rate increased from 8% to 8.5%.
In case of customised information technology software recorded on media that is not required to bear Retail Sale Price (RSP) under the Legal Metrology Act, 2009, Central Excise Duty or Additional Custom Duty will be required to be paid only on the value of the said media, along with freight and insurance, subject to fulfilment of specified conditions. Therefore, service tax will not be required to be paid on such value.
Proposed E-filing of annual returns.
Withdrawal of legal proceedings in cases involving duty of less than Rs.5 lakhs.
Rates of service tax and Swachh Bharat Cess are maintained at 14% and 0.5% respectively.
Krishi Kalyan Cess (KKC) at 0.5% of value of all taxable services to be levied from 01 June 2016.
The rate of service tax on single premium annuity (insurance) policies is being reduced from 3.5% to 1.4% of the premium subject to certain conditions.
Withdrawn on – Services of senior advocates to an advocate or partnership firm of advocates providing legal service and by a person represented on an arbitral tribunal to an arbitral tribunal; Service provided by government or local authority to business entities, reverse charge basis.
Transportation of passengers by ropeway, cable car or aerial tramway.
Effective 01 July 2012, refund of Service tax allowed on services used beyond the factory or any other place or premises of production or manufacture of the said goods for the export of the said goods.
24% service tax collected but not deposited to the Exchequer.
The services provided during 01 April 2015 to 29 February 2016 are also proposed to be exempted.
Country-by-Country Report (CbC report)
The Finance Bill 2016 proposes to introduce the Country by Country (CbC) reporting requirement and the concept of master file in the Indian Income Tax Act, 1961:
The provisions to be effective from 01 April 2017.
Provisions to apply to an international group having consolidated revenue exceeding the prescribed threshold (current: €750 million).
An organization in India belonging to an international group having an overseas resident parent shall be required to furnish the CbC report to the prescribed authority if the parent entity of the group is resident:
In a country with which India does not have an arrangement for exchange of the CbC report; or
There is a systematic failure of the country in exchanging the said information with India even though there is an agreement; and
This fact has been intimated to the entity by the prescribed authority.
In cases where more than one entity of an overseas parent group are present in India, the group can nominate (in writing to the prescribed authority) the entity that shall furnish the report on behalf of all the Indian entities.
The prescribed authority may call for necessary documents and information from the entity furnishing the report for the purpose of verifying the accuracy of the same.
For non-furnishing of the CbC report by an entity which is obligated to do so, a graded penalty structure applies that ranges from Rs.5,000 to Rs.50,000/day.
For non-furnishing of prescribed information and documents on the prescribed due date penalty of Rs.5,00,000/- is prescribed.
Infrastructure and Investment
Total outlay for infrastructure - Rs.2,21,246/- crore.
Provide calibrated marketing freedom in order to incentivise gas production from deep-water, ultra deep-water and high pressure-high temperature areas.
100% FDI to be allowed through Foreign Investment Promotion Board route in marketing of food products produced and manufactured in India.
Mergers & Acquisitions
The 20% tax levied on a company making distribution to its shareholders pursuant to buyback undertaken as per the Companies Act, 1956 to be extended to buyback being undertaken by a company in any manner.
100% tax holiday for 3 consecutive years for business set-up on or after 01 April, 2016 and before 01 April, 2019. Central Government to promote start-up ecosystem. Any person can claim an exemption of long term capital gains tax provided the proceeds (not exceeding Rs.50 lakhs) are invested in the units of the Fund for a minimum of 3 years.
Conversion of Company into LLP
For claiming tax neutrality the value of the assets in the books of accounts of a company in 3 preceding years should not exceed Rs.500 lakhs.
Financial Sector Reforms
Code on resolution of Financial Firms to be introduced.
RBI to facilitate retail participation in Government Securities.
Amendments in the SARFAESI Act 2002 to enable the sponsor of Asset Reconstruction Companies (ARC) to hold up to 100% stake in the ARC and permit Non-Institutional Investors to invest in Securitization Receipts.
Allocation of Rs.25,000 crore towards recapitalisation of Public Sector Banks.
Central Legislation to deal with the menace of illicit deposit taking schemes.
General Insurance Companies owned by the Government to be listed in the stock exchanges.
Central Legislation to deal with menace of illicit deposit taking schemes.
Providing statutory sanctity to Monetary Policy Framework and Committee through Finance Bill 2016.
Financial Data Management Centre to be set up.
SEBI to develop new derivative products in the Commodity Derivatives market.
Income of a foreign company engaged in the business of mining of diamonds shall not have a business connection in India merely by reasons of its activities which are confined to displaying uncut or unassorted diamonds in the special zones notified by the Central Government.
Any income, accruing or arising to a foreign company on account of storage of crude oil in a facility in India, or on account of its sale therefrom to any person resident in India, shall be exempt from taxation if such storage or sale is in pursuance of an agreement or arrangement with Central Government that is notified. The amendment will take effect from assessment year 2016-17.
Enactment of a comprehensive law deal with resolution of financial firms.
Provide legal framework for dispute resolution and re-negotiations in Public-private Partnership projects and public utility contracts.
Undertake important banking sector reforms and public listing of general insurance companies undertake significant changes in FDI policy.
"Stand Up India Scheme" to facilitate at least two projects per bank branch. This will benefit at least 2.5 lakh entrepreneurs.
Plan to augment investment in nuclear power generation extending to next 15 to 20 years to be drawn up.
New policy for management of government investments in Public Sector Enterprises, including disinvestment and strategic sale, approved.
Amendments in the Companies Act to improved enabling environment for start-ups.
Determination of residency of foreign company on the basis of Place of Effective Management (POEM) is proposed to be deferred by 1 year.
One advance tax payment schedule for all assesses other than eligible assesses in respect of eligible business, who shall be required to pay entire advance tax in one instalment on or before the 15th March of the Financial year. Amendment effective from 01 June, 2016.
It is proposed to introduce patent box regime in India to provide tax @ 10% on gross income arising from royalty in respect of a patent developed and registered in India by a person resident in India.
Disclaimer: The highlights published above are few of the many proclamations made in the Budget 2016-17, which based on our understanding shall be relevant to Foreign Companies and future investors. In no way does the law firm claim ownership of the ideas and concepts presented in this paper, which accrue stricly to the owners of copyright in the same. Information so provided is to be strictly considered for general reference. Specialist advice should be sought about any specific circumstances directly from the law firm.