KPMG Budget 2013

COMPANIES BILL GST DIRECT TAX
FISCAL DEFICIT GDP SAVINGS RATIO EXCISE DUTY
CUSTOMS DUTY CAPITAL GAINS TAX SLAB FOREIGN INVESTORS BASEL III ECO
MPLOYMENT DTC FISCAL POLICIE
GST M&A SERVIC
SURCHARGE STABILITY CREDIT TAX PROPOSALS R
EXEMPTION REFORMS INFRASTRUCTURE FINANCING GROWTH RECOVERY RURA
PLANNED DISBURSEMENT TAX SLAB MAT WEALTH T
SPENDING POLICIES FISCAL DEFICIT COMPANIES BILL GST DIVIDEND DISTRIBU
N DIRECT TAX CODE INFLATION HEALTHCARE COSTS TAX INCENTIVES GST GA
BASEL III FISCAL DEFIC
COMPANIES BILL M OOD SECURITY LAW A INDIA DIRECT TAXES BUDGET RE REFORMS 2013 R
TRAVEL ALLOWANCE ECONOMIC DEVELOPMENT CRE
DIRECT BENEFIT TRANSFER FINANCE BILL CAPITAL M
SAVINGS RATIO DIVIDENDS SURCHARGE REVENUE M&A DTC GLOBAL INVEST
A INDIRECT TAXES REFORMS
FDI
VESTORS CREDIT REVENUE DTC
PROPO
FISCAL DEFICIT GDP SAVINGS RATIO EXCISE DUTY
APITAL GAINS TAX SLAB FOREIGN INVESTORS REFORMS FISCAL DEFICIT INFLAT
EXEMPTION DIRECT TAX CODE INFLATION HEALTHCARE COSTS WITHHOLDING TA
CSR FOREIGN EXCH
TAX SLAB TAX PROPOSALS INFRASTRUCTURE FINA
GROWTH RECOVERY APA PROVISIO
CAPITAL MARKET PUBLIC SECTOR UNDERTAKINGS FISCAL RESPONSIBILITY PERSO
GAAR CAPITAL GAINS ADVANCE TAX VOLATILE CA
Foreword
The Honourable Finance Minister presented the Union Budget 2013 under the shadow of major challenges facing the Indian Economy. The slowing growth of the Indian Economy with GDP estimated to grow only around 5 percent of GDP in 2012-13, a far cry from the heady days of around 9 percent growth in the two years 2009-10 and 2010-11. Besides contracting GDP, the slowdown also contributed to supply side shortages, feeding into inflationary pressures. Growing Fiscal Deficit was accentuated by a sharply higher Current Account Deficit, thanks to excessive dependence on energy imports of oil and coal and the Indian psyche of hoarding gold as a safe haven investment in uncertain times Persistently high inflation, especially when measured by the Consumer Price Index, of which rising food inflation is a major component hurt the common man across the board. There was also the threat of Global Credit Rating agencies downgrading India, which could worsen Indias fiscal situation even further as foreign inflows of debt and equity would now factor in additional risks of lower rating, leading to lower inflows at higher costs. Clearly the Finance Minister, being fully aware of the dangers to the economy, had started the work of repair and restoration of the Economy in right earnest, even much before the Budget day as witnessed by the pruning of Expenditure, increasing petroleum and diesel prices and railway fares; even as tepid capital markets prevented the Government from carrying through the disinvestment programme to the full extent budgeted. More importantly, he assured taxpayers stable tax laws in a non-adversarial tax regime and also constituted committees to recommend confidence building measures by reviewing controversial tax policies such as retrospective amendments and promulgation of GAAR. Given this backdrop the Finance Minister had very high expectations riding on him to unveil concrete measures to strongly stimulate growth and foreign investment in India which the Finance Minister himself described as being an imperative and not a matter of choice. The Honourable Finance Minister has expressed strong sentiments on reviving growth leading to inclusive and sustainable development and within constraints imposed by a lack of economic space, he has delivered a budget which seeks to steady public finances by promising to cut fiscal deficit to 4.8 percent of GDP next year after containing it to 5.2 percent in the current year, with equal emphasis to bring down revenue deficit and redeem the promise of bringing down fiscal deficit to 3 percent of GDP by 2016-17 . When the Finance Minister took office in August 2012, he had stated an underlying theme of clarity in tax laws, a stable tax regime, a non-adversarial tax administration, a fair mechanism for dispute resolution and an independent judiciary to provide great assurance to taxpayers and his tax proposals appear to reflect that. In contrast to fears about raising taxes sharply for high income earning taxpayers and rumours about a possible form of inheritance tax being ushered, the Tax Proposals seem benign with a small bitter dose of a surcharge of 10 percent on individual taxpayers whose taxable income exceeds INR 1 Crore and increases in surcharges for both Domestic and Foreign
Companies, whose incomes exceed certain thresholds, having consequential concomitant increases in effective rates of MAT and DDT. There is a token relief provided to individual taxpayers in the first bracket by way of a Tax Credit. GAAR Provisions have been modified from those promulgated in the Finance Act 2012, accepting some of the recommendations of the Shome Committee and these will now come into force from financial yeat begining from 1 April 2015. A cause of concern is a retrospective amendment whereby a TRC in the prescribed format will be a necessary but not a sufficient condition for claiming any Tax Treaty benefits; leading to speculation about whether some GAAR provisions are already enacted as far as Foreign Investors are concerned. It will be of interest to watch how this provision is administered at the field level, in the light of previous Supreme Court judgements and Board Circulars. Shares Buyback has been noted to be a tax avoidance arrangement and the loophole has been plugged by deeming such payments by unlisted companies to its shareholders as attracting a tax on distribution. Strangely however, payment of royalty and fees for technical services has also been sought to be coloured by the same brush, and a higher witholding tax rate of 25 percent on such payments has been enacted. Mercifully the lower witholding rates negotiated in Indias tax treaty will override the high domestic witholding tax rate. As a measure to encourage Capital Formation, an Investment Allowance of 15 percent has been granted if the value of new plant and machinery exceeding INR 1 billion is purchased and installed by a manufacturing company between 1 April 2013 and 31 March 2015. STT has been lowered in some cases; however Commodities derivatives trading will now attract CTT. The Finance Minister will also endeavour to usher in the DTC Bill in the current Budget session by working with the Standing Committee on Finance. On the Indirect taxes front, the overall theme this time appears to be stability and enhanced focus on compliance and enforcement. Especially on the latter aspect, the Government has adopted a carrot and stick approach, with one time amnesty scheme for service tax defaulters, coupled with stringent provisions for recovery of sums due to the Government. To ensure stability in the tax regime, minimal changes have been proposed, including changes in duty rates. However, in this drive, some of the critical expectations of the industry from Union Budget have remained unfulfilled. These include measures aimed at widening the tax base, liberalization of credit regime, rationalization of the negative list based service tax, etc. Also, the industry was left guessing about the roadmap to GST. To sum up, a lot now depends on the work which remains to be done outside the Budget Proposals, such as enacting Legislation ushering reforms in difficult areas such as Land Acquisition and Labour Laws, executing supportive Monetary Policies and in enhancing FDI limits in chosen sectors such as Insurance and Pensions. India does have the advantage of a young demographic dividend and is still on the growth path when compared to most advanced countries; yet has a lot to achieve. We remain hopeful that it will fulfil its potential, hopefully in the not too distant future.
2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Table of contents
Economic indicators
01
Budget highlights
Direct tax Indirect Tax
07
07 08
Budget proposals
Policy proposals Tax rates Direct tax Indirect tax
09
09 10 14 18
Recent policy and legislative developments 21
Glossary 33
01 India Budget 2013 - Economic indicators
Economic indicators
Despite the launch of long-awaited reforms, Indian economy likely to post decades lowest growth
With a GDP growth of 6.2 percent1 in FY12 compared to 9.3 percent1 in FY11, the Indian economy started FY13 on a weak sentiment. On the back of sharp deceleration in economic growth, the RBI had earlier projected a moderate growth of 6.5 percent2 in FY13, compared to Economic Survey 2011-12s forecast of 7 .6 percent3 (+/- 0.25 percent). This was accompanied by some easing of inflation followed by a calibrated expansion of monetary policy. However, the stubbornness of inflation around 7 .5 percent, higher interest rates and tight liquidity on the back of weak consumer, business and investor sentiment, led to further deterioration in GDP growth to 5.5 percent4 in the first quarter of 2012-13(1Q13). This slowdown in growth along with the threat of a credit rating downgrade to junk status compelled the GoI to announce a slew of reform measures towards the end of the second quarter. Though the policy announcements, such as (i) relaxation in FDI caps (for aviation, broadcasting, retail, insurance and pension), (ii) measures to reign in fiscal deficit (hike in price of petrol and diesel and cap on the number of subsidised cylinders) and (iii) the postponement of GAAR implementation, have improved the sentiment of investors and credit rating agencies, these are not sufficient to revive economic growth. Thus, in January 2013, the Central Statistics Office revised its growth outlook downward to 5.0 percent for FY13. Similar projection has been made in the recently released Economic Survey 2012-13. This is because recovery in investment and industrial production is expected to take time, while agricultural production continues to be dependent on the vagaries of monsoon. Further, global economic recovery impacting Indias growth through trade, will also be gradual. This chapter discusses Indias current economic scenario through movements in key indicators that lays the context for Budget 2013-14.
Economic growth across sectors decelerated due to domestic headwinds

The year began with a low growth of 5.5 percent in 1Q13 compared to 8.0 percent in 1Q12. This growth further fell to 5.3 percent in 2Q13 owing to domestic and external factors. From a sectoral perspective, all three sectors agriculture, industry and services have witnessed a decline in their growth owing to high interest cost and commodity prices from the supply-side, and lower domestic and overseas demand on the other hand. While agriculture and industry began FY13 with higher growth rates of 2.9 percent and 3.6 percent in 1Q13 compared to the previous year close of 1.7 percent and 1.9 percent in 4Q12 respectively, services sector growth began FY13 with a lower growth of 6.9 percent compared with 7 .9 percent in 4Q12. However, support to economic growth in FY13 has been led by the services sector that recorded the highest growth among the three sectors (of 6.9 percent and 7 .2 percent in 1Q13 and 2Q13, respectively) and accounts for the highest share in GDP. On the other hand, industrial growth remains a key area of concern, as is visible from the index of industrial production.
Quarterly GDP Growth (Y-o-Y, %)
Quarterly Sectoral Growth (Y-o-Y, %)
Source: Ministry of Statistics and Programme Implementation and KPMG in India analysis
1 2
Press Note on First Revised Estimates of National Income, Consumption Expenditure, Saving and Capital Formation, 2011-12, Ministry of Statistics and Programme Implementation, Government of India, 31 January 2013 First Quarter Review of Monetary Policy 2012-13, Reserve Bank of India, 31 July 2012
3 Economic Survey of India, 2011-12, Government of India 4 Press Note on Quarterly Estimates of Gross Domestic Product for the Second Quarter (July-September) of 2012-13, Ministry of Statistics and Programme Implementation, Government of India, 30 November 2012
Stubborn inflation deterred monetary easing

Decelerating economic growth in FY13 has been partially driven by high inflation of more than 9 percent in FY11 and FY12 that led to a tight monetary policy (interest rates were increased 13 times during March 2010-March 2012) by the RBI. Thus, containing inflation driven by demand-supply mismatches, emerged as one of the key concern areas for the RBI. Though the central bank has been successful in bringing it down to about 7 .3 percent5 (average during April 2012-January 2013), inflation still remains above its comfort zone of 5.0-5.5 percent. Moreover, the inflation in food prices remains sticky with an average rate of 9.9 percent during April 2012-January 2013 compared to 11 percent5 in the corresponding period of FY12. On a positive note, the average inflation rate has recorded a three-year low in FY13 facilitated by moderation in prices of fuel and manufactured products. Going forward, the inflation rate is projected to close FY13 at 6.8 percent6. However, the actual rate will be guided by the future movement of global crude price and the increase in petrol and diesel prices as part of the governments fiscal consolidation plan.
WPI Growth (Y-o-Y, %)
IIP Growth (Y-o-Y, %)
Source: Office of the Economic Adviser
Thus, continued easing of inflation rate is expected to lend comfort to RBI to cut interest rate further, which in turn will facilitate investment and economic growth. Besides other challenges on the domestic policy and economic front, (such as liquidity, business sentiment, bank credit off-take, etc.) global economic conditions will play a crucial role in directing growth. In light of the current economic scenario characterised by high downside risks to growth, several agencies revised their growth projections downward.
Agency CSO PMs Economic Advisory Council RBI -
Real GDP growth (%, earlier projections) 7.5-8.0 6.5
Month
Real GDP growth (%, latest projections) 5.0
Month Jan 2013 Oct 2012 Jan 2013
Direction
Feb 2012 Jul 2012
6.0 5.5
Source: RBI; Advance Estimates of National Income, 2012-13, Central Statistical Office, Government of India, 7 February 2013; PMEAC expects near 6 pc GDP growth in current fiscal, The Hindu, 25 October 2012; Rangarajan projects 7 .5-8 percent growth, The Hindu, 22 February 2012
5 6
WPI, Office of Economic Advisor, Government of India, 20 February 2013 and KPMG in India analysis Third Quarter Review of Monetary Policy 2012-13, Reserve Bank of India, 29 January 2013
High interest cost accompanied by policy paralysis have adversely impacted investment and consumption
This is because higher interest costs and tight liquidity did play some role in deterring borrowers, thereby reducing consumption and investment. A key factor that impeded investment growth has been the lack of facilitative policies that dampened investor sentiment. The investment growth during the first two quarters dipped below 4 percent unlike double digit growth posted in some corresponding quarters of FY11 and FY12. Though all sectors suffered a decline, the capital goods sector was the worst victim, where production contracted by 10.1 percent7 during April-December 2012 compared to a contraction of 2.9 percent7 in the same period last year. Similarly, private consumption, an important demand side driver of growth (which accounts for around three-fifth of the GDP), feeling the heat of inflation and the rate hikes by the RBI, dipped in line with other economic indicators.
Quarterly investment growth (Y-o-Y, %)
Quarterly sectoral growth (Y-o-Y, %)
Source: Ministry of Statistics and Programme Implementation and KPMG in India analysis
Economic slowdown amidst global headwinds adversely impacted foreign institutional investment inflow and domestic currency
Weak global demand due to economic slowdown in European Union and the US led to widening of Indias trade deficit to USD167 .2 billion8 during April 2012-January 2013 from USD154.9 billion8 during the same period last year. The deficit this year (so far) grew by 7 .9 percent8 compared to a growth of 4.2 percent10 in the corresponding period of the previous year. The investment inflow this year was also slow during the first half of 2012-13(1H13), as investors turned towards the US dollar amid global uncertainty. Positively, FII inflow picked up after the announcement of policy measures in September 2012. Further policy announcements such as increased FDI caps, measures to consolidate fiscal deficit helped in improving the overall investment inflow this year (April 2012-January 2013) that stood at USD21.5 billion9, higher than USD18.9 billion9 in FY12, but lower than USD32.2 billion9 in FY11. This indicates that India has the potential to attract much higher inflows provided there is an improvement in the performance of other nations especially of the US and EU. Net FII inflow (USD billion) Exchange rate - USD/INR
Source: SEBI, Oanda and KPMG in India analysis
7 8
Press Release on Quick Estimates of Index of Industrial Production and Use-Based Index for the month of December, 2012, Ministry of Statistics and Programme Implementation, Government of India, 12 February 2013 Indias Foreign Trade: December 2012, Press Information Bureau, Government of India, 11 January 2013
FII, Securities and Exchange Board of India, 20 February 2013 and KPMG in India analysis
Export growth slowed down and trade and current account deficit widened
Continued improvement in FII inflow is essential for rupee appreciation, which has witnessed a fall in value by 13.6 percent from an average value of 47 .9 during April 2011-January 2012 to 54.4 during April 2012-January 2013. The depreciation of the Indian rupee is visible in the widening of trade and CAD. The CAD position had already deteriorated at the beginning of FY13, as the country recorded its eight year high CAD of 4.2 percent10 in FY12. Even this year, CAD is expected to remain about 4.2 percent11 (as per the Prime Ministers Economic Advisory Council) owing to high trade deficit and slow growth in services exports reflecting the weak economic growth in advanced economies. Thus, any improvement in global conditions is expected to play a crucial role in easing CAD and improving the rupee value. Merchandise trade growth (YoY, %) CAD as a % of GDP
Source: SEBI, Oanda and KPMG in India analysis
The GoI compelled to announce some growth stoking policy measures

Prevailing slowdown in the Indian economy accompanied with high fiscal deficit and threat of a credit rating downgrade jerked the GoI, which then announced some policy measures to broadly support economic growth through containment of fiscal deficit and revival of investor sentiment. These measures included:

Hike in price of petrol and diesel Cap on the number of subsidised LPG (cooking gas) cylinders Approval of disinvestment in PSUs Union Cabinet approval for setting-up National Investment Board (to expedite clearance and monitor projects with investment of INR10 billion) Relaxation in maximum investible caps for foreign investors in sectors such as aviation, broadcasting, insurance, pension and retail Amendment in Forward Contracts (Regulation) Bill to permit higher institutional investment Relaxation of norms for foreign NBFCs in specified activities in order to increase funds inflow by enabling diversification of business Passage of Banking Bill and some amendments in The Companies Bill to help attract foreign investment Union Cabinet clearance of Land acquisition Bill.
10 2011-12 current account gap seen at 4% of GDP: Trade Secy, moneycontrol.com, 19 April 2012
11 CAD to be at 4.2 pc level in 2012-13: Rangarajan, The Indian Express, 3 January 2013
Consequently some green shoots are visible that make the outlook for FY14 more positive albeit cautious. However, a lot more needs to be done
The green shoots emanate from monetary policy easing, fiscal consolidation, moderation in inflation and deferment of GAAR to 2016; all of which have led to an upsurge in FII inflow and upward movement of the Sensex (the index moved up by 12.7 percent to 19,642.75 in February 2013 from 17 ,429.96 in April 2012)12. Further, the government cleared 18 FDI proposals worth more than INR20 billion13 in January and February 2013. Of these, four proposals were in single-brand retail, where the government had increased the investment cap to 100 percent from 51 percent in September 2012. With early signs of revival, the outlook for the Indian economy in FY14 seems optimistic. Improved growth forecasts by various research and international agencies reflects this positivity. According to the World Bank, the Indian economy is expected to grow at 6.4 percent in FY1414, which is higher than the projected growth of around 5 percent in FY13 15.
The fiscal deficit is contained near the target

The GoIs finances remained under pressure throughout FY12-13. The government initially had a fiscal deficit target of 5.1 of GDP for FY13 as announced in the Union Budget 2012. However, weak economic growth, low receipts from disinvestment and the 2G auction and a higher subsidy bill, took a toll on governments fiscal health. This situation may deteriorate further following the enactment of the Food Security Bill. Accordingly, international rating agencies such as Standard & Poors and Fitch downgraded Indias outlook from stable to negative during the year. They also warned of further downgrade of Indias investment status to junk if the fiscal mess and growth slowdown continue, external position deteriorates and the government doesnt take enough steps to contain fiscal deficit. The GoI appointed an expert panel under the chairmanship of Mr. Vijay Kelkar to draw a fiscal consolidation roadmap. Based on the panels recommendation, the fiscal deficit target for FY13 was revised upward to 5.3 percent of GDP. The GoI also took steps to contain fiscal deficit at its revised level. These include disinvestment in PSUs, a cap on the number of subsidised LPG cylinders to nine per family, introduction of Aadhar-linked direct cash transfer scheme, hike of diesel and petrol prices. These initiatives need to be supported by broad-basing the divestment process at prices that will encourage participation by retail investors and not just limit to buying stake by public sector companies. As a result of these measures, the fiscal deficit in FY13 has been contained at 5.2 percent of GDP.
12 13
Historical Indices, Bombay Stock Exchange and KPMG in India analysis INR1,311 cr worth FDI proposals cleared, The Hindu, 11 January 2013 and Government oks 4 single-brand FDI proposals worth INR 7 .5 bn, The Economic Times, 14 February 2013
14 Asit Ranjan Mishra, World Bank cuts growth outlook but India may improve, Livemint, 16 January 2013 15 2012-13 GDP Seen Growing Just 5%, Businessworld, 7 February 2013
VOLATILE CURRENT ACCOUNT DEFICIT PLANNED DISBURSMENT
AL DEFICIT INFLATION HEALTHCARE COST
SERVICE TAX FOREIGN EXCHANGE

INFLATION GOVERNMENT SPENDING
NANCING COMPANIES BILL
NOMY DIRECT BENEFIT TRANSFER LEGISLATIVE REFORMS
ARKET ECONOMIC SLOWDOWN
ILL GROWTH RECOVERY
S DIRECT BENEFIT TRANSFER FOREIGN INVESTMENTS
TAX CODE INFLATION HEALTHCARE
T DEFICIT PLANNED DISBURSMENT
SERVICE TAX FISCAL DEFICIT
Governments finances at a glance
To conclude, though FY13 began on a grim note, FY14 is expected to begin on a brighter note facilitated by expansionary monetary policy, fiscal consolidation and announcement of some reforms aimed at boosting growth. Further, several measures are expected to be announced that will boost investment, reduce inflation and the twin deficits (fiscal deficit and CAD). These in turn will help in improving the business, investment and credit rating agencies sentiment, thereby resulting in increased economic activity, higher government revenue and an appreciated Indian rupee.
07 India Budget 2013 - Budget highlights
Budget highlights
Direct tax

No change in personal and corporate tax rates. Tax rebate of up to INR 2,000 per annum introduced for resident individuals, with total income up to INR 0.5 million per annum. Surcharge introduced for individuals (10 percent if taxable income exceeds INR 10 million). Surcharge on domestic companies increased to 10 percent from 5 percent and for foreign companies increased to 5 percent from 2 percent if taxable income exceeds INR 100 million. Surcharge on DDT for domestic company increased to 10 percent from 5 percent. This Addition in / increase in surcharge to be in force only for one year. Sunset date for being eligible to claim tax holiday by power generating, distributing or transmitting companies extended by one more year to 31 March 2014. Investment allowance at 15 percent on investments made by a manufacturing company in new Plant and Machinery acquired and installed between 1 April 2013 and 31 March 2015 if the same exceeds INR 1 billion. VCF / VCC registered with SEBI as Category I Alternative Investment Fund under the Alternative Investment Funds Regulations granted pass through status. STT rates reduced and a new tax called CTT to be levied on commodities derivatives, other than agricultural commodities, traded in recognised associations. Income of Securitisation Trust regulated by SEBI / RBI to be tax-exempt. Income distributed to bear distribution tax at 25 percent (Individual / HUF) and 30 percent (others) and be tax-exempt for investors. Tax to be deducted at 1 percent on sale of Land or building exceeding INR 5 million - Agricultural land excluded. Consideration for transfer of land and building (being stock in trade) to be taken as per stamp duty value as on date of agreement for sale. Transaction of Immovable property by an individual or HUF for inadequate consideration to attract taxation as per stamp duty valuation. Tax return to be regarded as defective, inter-alia, if the tax and applicable interest are not paid by the date of furnishing the tax return (with effect from 1 June 2013). GAAR provisions modified in line with representations and recommendations made to the government. GAAR to be effective from FY 2015-16 Basic tax rate on taxable income by way of royalty and fees for technical services of non-residents enhanced to 25 percent. Gross Foreign Dividends (where shareholding is 26 percent or more) received by the Indian Company taxable at lower rate 15 percent for one more year i.e. FY 2013-14. Cascading effect reduced by excluding them for computing DDT base if such dividends received from foreign subsidiary (more than 50 percent) and used in the same year for declaring further dividends. Unlisted domestic company buying back the shares from shareholders subject to additional income-tax at the rate of 20 percent on distributed income. Income arising to the shareholder as a result of such buy back to be exempt from tax. Retrospective clarification from financial year 2012-13 to state that submission of TRC necessary but not a sufficient condition for a non-resident to claim the tax treaty benefit. The rate of tax on income distributed by all non-equity Funds to an individual or HUF increased to 25 percent from 12.5 percent. Subject to conditions, an additional one time deduction of up to INR 100,000 introduced for individuals in respect for interest payable to a specified financial institution on housing loan sanctioned in FY 2013-14. The deduction available in FY 2013-14 and to the extent un-utilized in FY 2014-15.

08 India Budget 2013 - Budget highlights
Indirect tax

No announcement on likely timeline for implementation of GST Rates for Customs, Excise and Service tax remain unchanged Limited broadening of tax base, such as introduction of Service tax on all air conditioned restaurants, on vehicle parking, etc. Increase in duty/ taxes on luxury products:

Customs duty on high-end motor vehicles, bikes, yachts, etc. Excise duty on SUVs, mobile phones above INR 2,000, marble slabs or tiles etc. Effective Service tax rate on residential units above 2,000 square feet or where amount charged from the buyer for transfer of immovable property is more than INR 1 Crore
Efforts made to strengthen compliance/ enforcement :
One-time amnesty for service providers by way of waiver of interest/ penalty and immunity from prosecution for the period October 2007 to December 2012, under the Service Tax Voluntary Compliance Encouragement Scheme Provision allowing for the imposition of a penalty for directors, managers, or other officers of a company who are knowingly involved in contraventions of the provisions of the service tax laws Automatic vacation of stay granted by Tribunal (on Excise and Customs matters) after 365 days (even if delay is not attributable to the assessee)
Baggage rules rationalized to allow duty free allowance for jewellery up to INR 50,000 and INR 100,000, for men and women, respectively Relief given to branded ready-made garment industry by re-introducing zero Excise duty regime.
INDIRECT TAXES TAX HOLIDAY CENVAT CREDIT
EXCISE DUTY LUXURY PRODUCT
GOODS SERVICE TAX COM

PROPERTY TRANSFER MANUFACTURING CESTAT
EXEMPTION INFLATION HEALTHCA
CUSTOMS TARIFF ADV
TAX SLABS RESTAURANTS G
EXEMPTION INFLATION HEALTHCARE SERVICES COPYRIG
EXEMPTION NEGATIVE LIST INFLATIO
VOCATIONAL TRAINING
INDIRECT TAXES TAX HOLIDAY CENVAT CREDIT CENVAT CRE
FINANCE ACT TRANSPORT GOODS IND
PETROLEUM PRODUCTS COMPA
09 India Budget 2013 - Budget proposals
Budget Proposals
Policy proposals

Modified GAAR provisions are proposed to come into effect from FY 2015-16 instead of FY 2013-14 DTC to be finalised with the Standing Committee and a revised bill is expected before the end of the Budget session CTT to be levied on commodities derivatives (other than agricultural commodities) traded in recognised associations Investment Allowance for new high-value investment in plant and machinery during the period 1 April 2013 to 31 March 2015 Several new measures proposed to incentivise greater savings by the household sector in financial instruments Standing Council of Experts to be constituted to analyse the international competitiveness of the Indian Financial Sector, to periodically examine the transaction cost of doing business in the Indian market and to provide input to the government for necessary actions Compliance of public sector banks with Basel III regulations is to be ensured. Capital infusion of INR 140 billion crores proposed for Public Sector Banks. All branches of Public Sector Banks to have ATMs by 31 March 2014 Proposal to set up Indias first womens bank as a public sector bank and to make provision for an initial capital contribution of INR 100 billion Several reforms in the Insurance sector proposed to increase penetration of both life and general insurance in the country SEBI Act to be amended to strengthen its role as a regulator SEBI to prescribe requirements for Angel Investor pools recognition as Category I Alternative Investment venture capital funds SEBI to simplify the procedures and prescribe uniform registration and other norms for entry for all types of foreign portfolio investor Stock exchanges to be allowed to introduce a dedicated debt segment on the exchange A foreign investor having a stake of 10 percent or less to be treated as an FII/Financial Investor and a stake of more than 10 percent to be treated as FDI Investor. FIIs to be permitted to participate in the exchange-traded currency derivative segment and also permitted to use their investment in corporate bonds and Government securities as collateral to meet their margin requirements SMEs to be permitted to list on the SME exchange without being required to make an IPO New and innovative measures announced to mobilise funds for investment in the infrastructure sector, such as Infrastructure Debt Funds, credit enhancement to infrastructure companies, infrastructure tax-free bonds, etc. The Cabinet Committee on Investment has been set up to monitor investment proposals as well as projects under implementation, including stalled projects, and guide decision-making in order to remove bottlenecks and quicken the pace of implementation Benefits enjoyed by MSMEs to continue for three years after they grow out from the current category National Gas pricing policy to be reviewed to remove uncertainties regarding policy pricing. A policy to encourage the exploration and production of shale gas is to be announced PPP policy framework with Coal India Limited to be devised to increase the production of coal Government to provide low interest bearing funds from the National Clean Energy Fund to the Indian Renewable Energy Development Agency to on-lend to viable renewable energy projects Proposal to expand private FM radio services to 294 more cities with about 839 new FM radio channels to be auctioned in 2013-14. All cities having a population of more than 100,000 will be covered by private FM radio services Allocation of INR 270.49 billion to the Ministry of Agriculture, INR 801.94 billion to Ministry of Rural Development, and an increase in allocation for Defence to INR 2036.72 billion Changes to be made to Foreign Trade Policy to boost the export of goods and services.
Tax rates
These rates are subject to enactment of the Finance Bill 2013. The rates are for the Financial Year 2013-14. 1. Income tax rates 1.1 For Individuals, Hindu Undivided Family, Association of Persons and Body of Individuals Total Income Up to INR 200,000 (a) (b) INR 200,001 to INR 500,000 (c) INR 500,001 to INR 1,000,000 INR 1,000,001 and above (d) Tax Rates NIL 10% 20% 30%
(e)
1.5 For domestic companies Domestic companies are taxable at 30 percent Special method for computation of total income of insurance companies. The rate of tax on profits from life insurance business is 12.5 percent A 5 percent surcharge is applicable if the total income exceeds INR 10,000,000 but does not exceed INR 100,000,000. Marginal relief available A 10 percent surcharge is applicable if the total income exceeds INR 100,000,000. Marginal relief available A 3 percent education cess is applicable on income-tax (inclusive of surcharge, if any) 1.6 For foreign companies Foreign companies are taxable at 40 percent A 2 percent surcharge is applicable if the total income exceeds INR 10,000,000 but does not exceed INR 100,000,000. Marginal relief available A 5 percent surcharge is applicable if the total income exceeds INR 100,000,000. Marginal relief available A 3 percent education cess is applicable percent on income-tax (inclusive of surcharge, if any) 2. Minimum Alternate Tax / Alternate Minimum Tax (a) Companies MAT is levied at 18.5 percent of the adjusted book profit for companies where income-tax payable on the total income (according to the normal provisions of the Act) is less than 18.5 percent of the adjusted book profit A 5 percent surcharge is applicable in case of domestic companies, if the adjusted book profit exceeds INR 10,000,000 but does not exceed INR 100,000,000. Marginal relief available A 10 percent surcharge is applicable in case of domestic companies, if the adjusted book profit exceeds INR 100,000,000. Marginal relief available A 3 percent education cess is applicable on income-tax (inclusive of surcharge, if any) MAT credit is available for ten years. (b) Persons other than a company AMT is applicable to persons other than Company AMT is levied at 18.5 percent of the adjusted total Income in case of persons other than a Company where income-tax payable on the total income (according to the normal provisions of the Act) is less than 18.5 percent of the adjusted total Income AMT will not apply to an Individual, HUF , AOP, BOI or an Artificial Judicial Person if the adjusted total income of such person does not exceed INR 2,000,000 A 10 percent surcharge is applicable if the adjusted total income exceeds INR 10,000,000. Marginal relief available A 3 percent education cess is applicable on income-tax (inclusive of surcharge, in any) AMT credit is available for ten years.
(b) For a resident individual aged eighty or above, the basic exemption limit is INR 500,000 (c) Rebate from tax of upto INR 2,000 available for a resident individual whose total income is below INR 500,000 (d) A 10 percent surcharge is applicable if the total income exceeds INR 10,000,000. Marginal relief available. (e) A 3 percent education cess is applicable on income-tax (inclusive of surcharge, if any) 1.2 For Co-operative societies Total Income Up to INR 10,000 INR 10,001 to INR 20,000 INR 20,001 and above (a) Tax Rates (b) 10% 20% 30%
(a) A 10 percent surcharge is applicable if the total income exceeds INR 10,000,000. Marginal relief available (b) A 3 percent education cess is applicable on income-tax (inclusive of surcharge, if any) 1.3 For local authorities Local Authorities are taxable at 30 percent. A 10 percent surcharge is applicable if the total income exceeds INR 10,000,000. Marginal relief available A 3 percent education cess is applicable on income-tax (inclusive of surcharge, if any) 1.4 For Firms [including LLPs] Firms (including LLPs) are taxable at 30 percent. A 10 percent surcharge is applicable if the total income exceeds INR 10,000,000. Marginal relief available A 3 percent education cess applicable on income-tax (inclusive of surcharge, if any)
(a) For a resident individual aged between sixty and eighty, the basic exemption limit is INR 250,000
3. Securities Transaction Tax STT is levied on the value of taxable securities transactions as follows: Total Income Rates
Until 31 May 2013 From 1 June 2013
7. Dividend Distribution Tax Dividends distributed by a Domestic Company are exempt from income-tax in the hands of all shareholders. The Domestic Company is liable to pay DDT at 16.995 percent (inclusive of surcharge and education cess) on such dividends. For computation of DDT, the amount of dividend declared by the Domestic Company will be reduced by the following amounts of dividend, if any, received by it during the financial year a. Dividend received from domestic company if the dividend is received from its subsidiary (i.e. in which it holds more than 50 percent of equity shares); the subsidiary has paid DDT payable under section 115-O of the Act b. Dividend received from foreign company (effective from 1 June 2013) if Seller Seller Purchaser Seller Seller the dividend is received from its subsidiary (i.e. in which it holds more than 50 percent of equity shares); the tax on such dividend is payable by the domestic holding company under section 115BBD of the Act. c. Dividends paid to any person for and on behalf of a New Pension System Trust. Income received by unit holders from a Mutual Fund is exempt from income tax. The Mutual Fund (other than an equity oriented Mutual Fund) is liable to pay income distribution tax as follows: 28.325 percent (inclusive of applicable surcharge and education cess) on income distributed to any person being an individual or a HUF by a money market Mutual Fund or a liquid fund 33.99 percent (inclusive of applicable surcharge and education cess) on income distributed to any other person by a money market Mutual Fund or a liquid fund 14.163 percent (inclusive of applicable surcharge and education cess) till 31 May 2013 and 28.325 percent (inclusive of applicable surcharge and education cess) from 1 June 2013 on income distributed to any person being an individual or a HUF by a debt fund other than a money market mutual fund or a liquid fund; 33.99 percent (inclusive of applicable surcharge and education cess) on income distributed to any other person by a debt fund other than a money market mutual fund or a liquid fund; and 5.665 percent (inclusive of applicable surcharge and education cess) on income distributed to non-resident or foreign company by Mutual Fund under an Infrastructure Debt scheme.
Payable By
Purchase/Sale of equity shares (delivery based) Purchase of units of equity-oriented mutual fund (delivery based) Sale of units of equity-oriented mutual fund (delivery based) Sale of equity shares, units of equity-oriented mutual fund (nondelivery based) Sale of an option in securities Sale of an option in securities, where option is exercised
0.1% 0.1% 0.1%
0.1%
Purchaser/ Seller Purchaser Seller
Nil
0.001%
0.025% 0.017% 0.125%

0.017% 0.25%
0.025%
0.017% 0.125% 0.01% 0.001%
Sale of a futures in securities Sale of unit of equity oriented fund to the Mutual Fund
4. Commodity Transaction Tax CTT is proposed to be levied (effective from a date to be notified) on the value of taxable commodities transactions as follows: Transaction Sale of commodity derivative (other than agricultural commodities) entered in a recognised association Rates Payable By
0.01%
Seller
5. Wealth tax Wealth tax is imposed at 1 percent on the value of specified assets held by the taxpayer on the valuation date (31 March) in excess of the basic exemption of INR 3,000,000. 6. Dividends earned by an Indian company Dividends earned by an Indian company from a foreign Company in which it holds 26 percent or more equity shares shall be taxable at the rate of 15 percent (plus applicable surcharge and education cess) on gross amount of such dividends.
8. Special rates for Non-residents (1) The following incomes in the case of non-resident are taxed at special rates on a gross basis: Nature of Income Dividend(c) Interest received on loans given in foreign currency to Indian concern or Government of India Interest received on notified Infrastructure debt fund Income received in respect of units purchased in foreign currency of specified Mutual Funds / UTI Royalty Rate (a) (b) 20%
9. Capital gains Short-term capital gains tax rates (a) 15% Long-term capital gains tax rates (a)
Particulars
20%
Sale transactions of equity shares / unit of an equity oriented fund which attract STT Sale transaction other than mentioned above Individuals (resident and non-residents)
Nil
5%
20% For Agreements entered into: On or after 1 April 1961 but before 1 April 1976 - @ 50% On or after 1 April 1976 - @ 25 % Firms including LLP (resident and nonresident) Resident Companies
Progressive slab rates 30% 30% 40% (corporate) 30% (noncorporate) 30% 40% 30% Progressive slab rates 20% / 10% (b) 20% / 10% (b)
Fees for Technical Services
For Agreements entered into: 1. On or after 1 March 1964 but before 1 April 1976 - @ 50% 2. On or after 1 April 1976 - @ 25 %
FIIs Foreign Companies Local authority Co-operative Society
10% 20% / 10% (c)
Interest on FCCB, FCEB /dividends on GDRs(c)
10%
(a) For a foreign company, a 2 percent surcharge shall be applicable, where the total income exceeds INR 10,000,000 but does not exceed INR 100,000,000 and at 5 percent where the total income exceeds 100,000,000. For other persons, a 10 percent surcharge shall be applicable, where the total income exceeds INR 10,000,000. Marginal relief available. (b) A 3 percent education cess is applicable on income tax (inclusive of surcharge, if any). (c) Other than dividends on which DDT has been paid. (d) If the non-resident has a Permanent Establishment in India and the royalties/fees for technical services paid are effectively connected with such PE, this could be taxed at 40 percent (plus surcharge and education cess) on net basis.
(a) These rates will further increase by the applicable surcharge and a 3 percent education cess on income-tax (inclusive of surcharge, if any). (b) 20 percent with indexation and 10 percent without indexation (for units/ zero coupon bonds). (c) Long term capital gains arsing to a non-resident from transfer of unlisted securities subject to 10 percent tax (without benefit of indexation and foreign currency fluctuation).
DIRECT TAXES DIRECT BENEFIT TRANSFER COMPANI
EXEMPTION DIRECT TAX CODE INF
GST GOODS SERVICE TAX CO

DIRECT TAXES DIRECT BENEFIT TRANSFER COMPANIES
EXEMPTION DIRECT TAX CODE INFLA
COMPANIES BILL ADVAN
GST GOODS SERVICE TAX COM

EXEMPTION DIRECT TAX CODE INFLATIO
COMPANIES BILL TRANSFE
Overseas financial organisations specified in section 115AB
10%
10. Presumptive taxation (1) In the case of a non-resident taxpayer Business (i) Shipping (b) (ii) Exploration of mineral oil (b) (c) (iii) Operations of Aircraft
(b)
(2) All resident taxpayers Business (i) Small Business [excluding (ii)] (a)
(b) (c) (d) (e)
Rate at which income is presumed 7.5% of gross receipts 10% of gross receipts 5% of gross receipts 10% of gross receipts
Rate at which income is presumed 8% of gross turnover/receipts INR 5,000 per month/part of month for each heavy goods vehicle. INR 4,500 per month/part of month for each goods vehicle other than heavy goods vehicles
(iv) Turnkey power projects (b) (c)
(ii) Plying, hiring or leasing goods carriages (person should not own over ten goods carriages at any time during the previous year) (b) (c)
(a) The gross receipts of the taxpayer do not exceed INR 10,000,000 (b) All deductions/expenses (including depreciation) shall be deemed to have been allowed (c) The taxpayer can claim lower profits, if he keeps and maintains specified books of account and obtains a tax audit report 11. Personal tax scenarios - Current vs Proposed Individual (Other than covered in other tables) Current Basic Tax Section 87A Rebate Surcharge Education Cess Total Increase / (Decrease) in Tax / (%) 30,000 0 0 900 30,900
(d) Applicable to Individuals, Hindu Undivided Families and Firm excludes LLP , tax payer availing deduction under Section 10AA or Chapter VI-A(C) of the Act (e) Specifically excludes person carrying on specified profession, person earning commission or brokerage income and person carrying on any agency business.
Income Level (INR) 500,000 Proposed 30,000 (2,000) 0 840 28,840 10,000,000* Current 2,830,000 0 0 84,900 2,914,900 0 Income Level (INR) 500,000 Current Proposed 25,000 (2,000) 0 690 23,690 10,000,000* Current 2,825,000 0 0 84,750 2,909,750 0 Income Level (INR) 500,000 Current Proposed 0 0 0 0 0 0 10,000,000* Current 2,800,000 0 0 84,000 2,884,000 0 Proposed 2,800,000 0 0 84,000 2,884,000 11,000,000** Current 3,100,000 0 0 93,000 3,193,000 Proposed 3,100,000 0 310,000 102,300 3,512,300 Proposed 2,825,000 0 0 84,750 2,909,750 11,000,000** Current 3,125,000 0 0 93,750 3,218,750 Proposed 3,125,000 0 312,500 103,290 3,540,625 Proposed 2,830,000 0 0 84,900 2,914,900 11,000,000** Current 3,130,000 0 0 93,900 3,223,900 Proposed 3,130,000 0 313,000 103,290 3,546,290
(2,060) / (6.67%)
322,390 / 10%
Resident senior citizen (aged between 60 and 80 years)
Basic Tax Section 87A Rebate Surcharge Education Cess Total Increase / (Decrease) in Tax / (%)
25,000 0 0 750 25,750
(2,060) / (8%)
321,875 / 10%
Resident very senior citizen (aged 80 years or above)
Basic Tax Section 87A Rebate Surcharge Education Cess Total Increase / (Decrease) in Tax / (%)
0 0 0 0 0
319,300 / 10%
* No change in amount of tax for Income between INR 500,000 and INR 10,000,000 ** No Marginal Relief available for income above INR 10,422,390
Direct tax
1. Corporate tax

No change in corporate tax rate. Surcharge on domestic companies increased to 10 percent from 5 percent and for foreign companies increased to 5 percent from 2 percent if taxable income exceeds INR 100 million. Surcharge on Dividend Distribution tax for domestic company increased to 10 percent from 5 percent. This Addition in / increase in surcharge to be in force only for one year.
2. Tax incentives

A company engaged in the manufacture or production of any article or thing and making investment of more than INR 1 billion in acquisition and installation of new specified plant and machinery during the FY 2013-14 and 2014-15 to be eligible to an investment allowance of 15 percent in these two years once the investments exceeds the said threshold. Eligible plant and machinery excludes ship, aircraft, those used in office premise or residential accommodation (including guest house), office appliances including computer software, vehicles, etc. The plant and machinery before its installation should not have been used either within or outside India by any other person. Further, its whole costs should not have been allowed as deduction in computing business income. The deduction claimed to be taxed as income if the new asset is sold or otherwise transferred (except pursuant to any amalgamation and demerger scheme, within a period of five years from the date of its installation). The amalgamated or resulting company is obliged to comply with the condition of continuity post amalgamation and demerger. Sunset date for being eligible to claim tax holiday by an undertaking engaged in power generating, distributing or transmitting to be extended by one more year to 31 March 2014. Replacing an earlier tax incentive, tax deduction equal to 30 percent of additional wages paid to new regular workmen to be allowed to an Indian Company deriving profits from manufacture of goods in its factory. The deduction would be eligible for three years including the year in which such employment is provided. The deduction would not be available if the factory is hived off or transferred from another existing entity or acquired under amalgamation with another company. Income of National Financial Holdings Company Limited, a company wholly owned by the Central Government and succeeding The Specified Undertaking of Unit Trust of India to be tax exempt from 7 July 2012, its date of incorporation.
3. Non-resident related provisions

The benefit of lower concessional withholding tax rate of 5 percent to non-resident investor on interest income from eligible long term infrastructure bonds issued by Indian Company subscribed in foreign currency from outside India extended to cases of non-resident depositing foreign currency in a designated bank account and such money as converted in INR being utilised for the subscription. This provision to be applicable from 1 June 2013. The basic income-tax rate on any income of non-residents by way of royalty and fees for technical services not effectively connected with the permanent establishment in India to be enhanced to 25 percent on gross basis. The lower rate of taxation of gross dividends received by an Indian Company from specified foreign companies (with shareholding of 26 percent or more) at the rate of 15 percent extended by one year to financial year 2013-14. Further, if such dividend is received by the Indian company from its foreign subsidiary (with equity shareholding of more than 50 percent), then any dividend distribution by such Indian Holding Company to its shareholders in the same financial year to the extent of such foreign dividends will not be not liable to DDT. This amendment to take effect from 1 June 2013. For non-residents, submission of TRC containing prescribed particulars made necessary but not a sufficient condition for claiming benefit of the tax treaty. This amendment to be retrospective from financial year 2012-13. Income distributed to non-residents by a Mutual Fund under Infrastructure Debt Fund scheme to be subject to distribution tax (levied on the Mutual Fund) at the concessional rate of 5 percent on par with the distribution tax levy on Infrastructure Debt Fund set up as a Non Banking Finance Company.
4. General Anti-Avoidance Rule

In the backdrop of the recommendation of the Expert Committee and Industry at large, the provisions of GAAR modified and made operative from financial year 2015-2016 as against financial year 2013-2014. Key highlights of modifications are as under:

An arrangement to be treated as an impermissible avoidance arrangement only if the main purpose is to obtain tax benefit as against the earlier provision where one of the main purpose to obtain tax benefit resulted in such classification. Factors like time period of the arrangement, payment of taxes (directly or indirectly) and exit route to be relevant but not sufficient from commercial substance perspective. An arrangement deemed to lack commercial substance if it has no significant effect on the business risks or net cash flows of any party to the arrangement other than tax benefit attached. The Approving Panel to now comprise of a Chairperson who is current or ex judge of a High Court, one member of Indian Revenue Service not below the rank of Chief Commissioner of Income-tax and another member to be of an academic or scholar having special knowledge of matters, such as direct taxes, business accounts and international trade practices. The directions issued by the Approving Panel to be binding on the assessee as well as the tax authorities without any right to appeal. Appeal against assessment and reassement orders passed on directions of the Approving panel to lie directly before the Tribunal. The two separate definitions of associated person and connected person combined into one inclusive definition.
5. Buy back of shares

Unlisted domestic company liable to additional income-tax at the rate of 20 percent to the extent of distributed income paid to the shareholder in a buy back scheme for purchase of its own shares. Distributed income defined to mean consideration paid by the company on buy back of shares as reduced by the amount which was received by the company for issue of such shares. This additional income-tax payable by the company to be the final tax on similar lines as DDT. Thereby, the income arising to the shareholders in respect of such buy back to be exempt. This amendment to take effect from 1 June 2013.
6. Personal tax

No change in personal tax slabs/rates. Surcharge of 10 percent introduced where total income exceeds INR 10 million, for FY 2013-14 only. Marginal relief available. This increase in surcharge to be inforced only for one year. Tax rebate of up to INR 2,000 per annum introduced for resident individuals, with total income up to INR 0.5 million per annum. Eligible investments in RGESS to include listed units of equity oriented funds in addition to listed equity shares. Benefit of deduction under RGESS available to resident individuals having gross total income up to INR 1.2 million per annum as compared to INR 1 million per annum. Deduction under RGESS can be availed for three consecutive years (previously one year) from the year in which eligible investments were first acquired. Additional deduction of up to INR 100,000 has been introduced for individuals for FY 2013-14, for interest payable to a specified financial institution on housing loan sanctioned in FY 2013-14. For the purpose of additional deduction, sanctioned home loan not to exceed INR 2.5 million. Also, value of house not to exceed INR 4 million and individual not to own any residential house on the date of sanction. Unused additional deduction in FY 2013-14 to be carried forward and is allowed in FY 2014-15. This is in addition to the interest deduction of INR 150,000 per annum towards self-occupied property. Deduction towards premium paid on life insurance policies, for persons with prescribed disability or specified disease, increased to 15 percent of capital sum assured from 10 percent (within the overall limit of INR 100,000 per annum). This deduction applicable for policies issued on or after 1 April 2013. Maturity proceeds of such policies are also exempt. Sum received under a Keyman insurance policy taxable in the hands of the recipient, even where the policy has been assigned as a life insurance policy to the recipient during its term, with or without consideration. Time limit for obtaining approval by private Provident Fund Trusts from Provident Fund authorities to retain recognition under the Act has been extended up to 31 March 2014.
7. Commodities Transaction Tax

CTT has been introduced on the sale of commodity derivatives (other than agricultural commodities), traded in recognised associations. CTT is payable at 0.01 percent by the seller. CTT to be allowed as a deduction if the income from such transaction is taxable as business income.
8. Income of Venture Capital Fund/Venture Capital Company

Existing VCFs/VCCs regulated by the SEBI (Venture Capital Funds) Regulations, 1996 will continue to avail pass-through status so that investors are directly taxable on the income on an accrual basis. VCFs set up as trusts and VCCs set up as company, registered as Category I Alternative Investment Funds and regulated under the SEBI (Alternative Investment Funds) Regulations, 2012 to be also eligible for complete pass-through status subject to the following conditions:

Such Alternative Investment Funds is not listed on a recognised stock exchange; Not less than two-thirds of its investible funds are invested in unlisted equity or equity-linked instruments of a venture capital undertaking; No investment has been made by such Alternative Investment Funds in a VCU which is an associate company.
The amendment to be take effect retrospectively from financial 2012-13.
9. Securities Transaction Tax

The STT payable on taxable transactions in securities by the seller is to be reduced as follows:

STT on Sale of futures in securities reduced from 0.017 percent to 0.01 percent; STT on Sale of a unit of an equity oriented Mutual Fund reduced from 0.25 percent to 0.001 percent; STT on Sale of a unit of an equity-oriented fund on a recognised stock exchange reduced from 0.1 percent to 0.001 percent. STT payable by the purchaser in the case of delivery based purchase of a unit of an equity-oriented fund on a recognised stock exchange to be abolished.
The amendment to take effect from 1 June 2013.
10. Income from securitisation

A special taxation regime proposed from 1 June 2013 for taxation of of securitisation entities set up as a trust from the activity of securitisation as follows: i. The income from the activity of securitisation of such trusts regulated either by SEBI or RBI to be exempt from taxation ii. The securitisation trust to pay an additional income-tax at the rate of 25 percent on the distribution made to investors who are individual and HUF , and at the rate of 30 percent in other cases. No such additional income-tax is payable if the income distributed by the securitisation trust is received by a person who is tax-exempt. iii. Consequent to the levy of distribution tax, all the distributed income received by the investor from the securitisation trust to be exempt from tax.
11. Transfer of immovable property

Every Transferee at the time of making payment or crediting any consideration for transfer of immovable property (other than agricultural land) to a resident Transferor to withhold tax rate at the rate of 1 percent in cases where the total amount of consideration is INR 5 million or more. This provision to be applicable from 1 June 2013. Transfer of land or building or both (other than capital asset) at a value which is less than at stamp duty value to result in computing of taxable value based on the stamp duty value. If any consideration or a part thereof is received by any mode other than cash on or before the date of agreement for transfer, then the stamp duty value to be adopted is that applicable on the date of the agreement. The assessing officer may refer the matter to the Valuation Officer for adoption if the assessee claims that the stamp duty value exceeds the fair market value of the property and the higher valuation by stamp duty authorities has not been disputed before any court or authority. If an individual or HUF receives immoveable property from any person (other than relatives) for a consideration which is less than the stamp duty value and the difference exceeds fifty thousand rupees, then the whole of such difference to be taxable as income from other sources. If any consideration or a part thereof is received by any mode other than cash on or before the date of agreement for transfer, then the stamp duty value to be adopted is that applicable on the date of the agreement.
12. Other tax proposals

In respect of deduction for bad debts written off in case of specified banks and financial institutions, the deduction to be allowed only if the write-off exceeds the credit balance in the provision for bad and doubtful debt account relating to all types of advances i.e. rural as well as urban branches. Advance tax liability to be excluded for recovery purposes from the assets seized or requisitioned. This amendment to be applicable from 1 June 2013. The ambit of a defective return is to be expanded to include a return filed without making payment of self assessment tax (i.e. tax and interest payable as per return post adjustment of prepaid taxes). This amendment to be applicable from 1 June 2013. The Tax Authorities can direct special third party audit in cases relating to the volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions or specialized nature of business activity of the taxpayer. This amendment to be applicable from 1 June 2013. The tax dues that can be recovered from any partner or director of a LLP or Private Company under liquidation to now include penalty, interest or any other sum payable under the Act. This amendment to be applicable from 1 June 2013. Distance and population criteria redefined for determining agricultural land and capital asset for the Act and urban land for wealth tax In computing the taxable income, State Government Undertaking to be ineligible to deduct any royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge levied exclusively by or any amount appropriated directly or indirectly by the State Government. The rate of tax on income distributed by all types of funds (other than equity oriented fund) to an individual or HUF to be enhanced from 12.5 percent to 25 percent. Donations to the National Childrens Fund to be eligible for 100 percent deduction in computing the taxable income. No deduction eligible to an Indian company or specified taxpayers in respect of sums paid in cash to any political party or an electoral trust. The Board to make rules for filing of wealth tax return in electronic form and specified documents to be furnished on demand by the Tax Officer.
Indirect tax
1. Service tax
Rate changes Service tax rate remains at 12 percent

Effective rate of Service tax on construction services, except residential units with a carpet area up to 2,000 square feet, or where the amount charged from the buyer for transfer of immovable property is less than INR 10 million, increased from 3.09 percent to 3.71 percent (effective from 1 March 2013).
Amendments under the Finance Act, 1994 (effective from the date the Finance Bill, 2013) Courses approved by the State Council of Vocational Training to be exempted from Service tax. Exemption from Service tax currently available to courses run by institutes affiliated with the National Skill Development Corporation withdrawn

Process amounting to manufacture or production of goods (exempt under Negative List) to also include processes on which excise duties are leviable under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955 Scope of testing activities under Negative List enhanced from mere seed testing to include all kind of testing in relation to agriculture or agricultural produce Penalty for non-registration under Service tax restricted to a maximum of INR 10,000 Penalty up to INR 0.1 million imposed on a director, manger or other specified official of a company who is knowingly involved in contraventions under Service tax law such as evasion/default in payment of Service tax, issuance of fake invoices, etc. Power granted to Appellate Tribunal to permit delays in filing an appeal or cross objection by the assessee as well. Currently, this provision is applicable to appeals filed by the revenue authorities only Prosecution provisions strengthened in cases of failure to deposit Service tax collected after a period of six months from the due date. Maximum term of imprisonment extended to seven years (as against the three years applicable currently) where the default exceeds INR 5 million. Furthermore, new provision introduced to make this offence cognizable Power given to Commissioner of Central Excise to authorize any officer (not below the rank of a Superintendent of Central Excise) to arrest a person for certain specified offences, including failure to deposit Service tax collected Voluntary Compliance Encouragement Scheme introduced to provide waiver in respect of interest/penalty and immunity from prosecution for tax defaults during October 2007 to December 2012, subject to prescribed conditions.
Amendments in mega exemption notification (effective from 1 April 2013) Exemption expanded to include:
Transportation of certain specified products such as agricultural produce, newspapers or magazines, defense or military equipment, etc. by a goods transport agency Air-conditioned restaurants that do not have a license to serve liquor Auxiliary education services and renting of immovable property by an educational institution Temporary transfer or permitting the use or enjoyment of the copyright of a cinematograph film, other than for exhibition in a cinema hall or cinema theatre Transportation of petroleum/ petroleum products, postal mail/ mail bags and household effects by rail or vessel Services related to parking vehicles for the general public Services provided to Government, a local authority or a governmental authority, by way of repair or maintenance of aircraft.
Exemptions withdrawn:

Other amendments (effective from 1 March 2013) Scope of advance ruling extended to cover resident public limited companies
2. CENVAT Credit (effective from 1 March 2013)

Provision introduced for recovery of CENVAT credit wrongly availed/ not reversed on inputs/ capital goods removed from the factory of the manufacturer/ premises of the output service provider or written off from the books of accounts of such manufacturer/ output service provider
3. Excise
General No change in Excise duty rates Rate changes (effective from 1 March 2013) Complete exemption from Excise duty for specified ships, vessels and dredgers

Concessional duty benefit on specified parts of hybrid and electric vehicles extended up to 31 March 2015 Excise duty on SUVs with length exceeding 4000mm and ground clearance of 170 mm and above, and engine capacity exceeding 1500 CC, increased from 27 percent to 30 percent. SUVs used as taxis will be eligible for a refund of 28 percent of the Excise duty paid Excise duty on the chassis of vehicles used to transport goods (diesel) reduced from 14 percent to 13 percent Excise duty on marble slabs and tiles increased from INR 30 per square meter to INR 60 per square meter Exemption from Excise duty for branded ready-made garments restored. However, no CENVAT credit on inputs is available Excise duty on ready-made branded cotton garments reduced from 12 percent to 6 percent (with credit facility) Excise duty on mobile phones with a value exceeding INR 2000 increased from 1 percent to 6 percent Excise duty on silver produced or manufactured during the process of smelting zinc or lead increased from nil to 4 percent.

Amendments (effective from 1 March 2013) An assessee opting for a provisional assessment and entitled to a refund (consequent to an order of final assessment) shall be entitled to interest in accordance with the provisions prescribed for delayed refunds

Benefit of advance ruling to be extended to resident public limited companies Branded medicaments of Ayurvedic, Unani, Siddha, Homeopathic or Bio-chemic systems subject to MRP based valuation with an abatement of 35 percent.
Amendments (effective from the date of enactment of Finance Bill, 2013) Offences relating to evasion of excise duty or credit exceeding INR 5 million shall be cognizable and non-bailable

In connection with the recovery of any amount due to the Government, authorities empowered to require other Excise or Customs officers to deduct the outstanding amount from any other sum owed to that assessee by such officers Provision for recovery proceedings for sums due to the Government extended to persons holding money on account of an assessee A statement containing details of excise duty not levied or short levied or short paid shall be deemed to constitute a service of notice where grounds relied for the subsequent period are the same as those relied in the earlier notice or notices Excise officer can provisionally attach the property of an assessee to whom the aforementioned statement for a subsequent period is served Advance ruling can be sought on any new production or manufacturing business an existing assessee proposes to undertake Application for obtaining an advance ruling expanded to cover issue of admissibility of credit of Service tax paid on input services Where an appeal before CESTAT is not disposed of within 180 days from the date of the stay order, a stay order of the CESTAT can be extended for another 185 days. If appeal is not disposed of within a period of 365 days, on the expiry of the 365th day the stay order shall stand vacated Pecuniary limit for cases before single member bench of CESTAT increased from INR 1 million to INR 5 million Excise authorities can serve decisions, orders, summons, etc. via speed post or courier, in addition to doing so by registered post.
Other Exemption from excise duty for goods manufactured and captively consumed in the manufacture of final products, cleared from the factory on claim of area based exemption in Uttarakhand and Himachal Pradesh.
4. Customs
General General Customs duty rates remain unchanged

Thus, the general effective Customs duty rate continues to be 25.85 percent (capital goods)/ 28.85 percent (other goods).
Amendments (effective from 1 March 2013) Exemption from BCD for specified parts for the manufacture of hybrid and electric vehicles extended up to 31 March 2015

Exemption from Customs duty now extended to parts and testing equipment for maintenance, repair and overhauling of aircraft parts by a Maintenance Repair Overhaul facility. The above exemption is also available in relation to private aircrafts Time period for using the exempted inputs/ parts/ equipment by an Maintenance Repair Overhaul facility extended from 3 months to 1 year BCD on bituminous coal reduced from 5 percent to 2 percent and CVD from 6 percent to 2 percent BCD on steam coal increased from nil to 2 percent and CVD from 1 percent to 2 percent Concessional rate of 5 percent BCD extended to specified machinery for use in the leather or footwear industry Concessional rate of 5 percent BCD extended to specified textile machinery and parts Export duty of 20 percent imposed on raw, white or refined sugar exported from India. However, the same is currently exempted BCD on set-top boxes increased from 5 percent to 10 percent
BCD on Completely Built Units of large cars/ MUVs/ SUVs (with a CIF value exceeding USD 40,000 and/ or engine capacity exceeding 3000 CC, for petrol, and 2500 CC, for diesel) increased from 75 percent to 100 percent BCD on Completely Built Units of motorcycles with engine capacity of 800 CC or more increased from 60 percent to 75 percent BCD on used cars increased from 100 percent to 125 percent BCD on yachts increased from 10 percent to 25 percent Exemption from education cess and secondary and higher education cess withdrawn for aircraft/ helicopters and parts Duty free allowance for jewellery under Baggage Rules increased from INR 10,000 to INR 50,000 for male passengers and from INR 20,000 to INR 50,000 for female passengers.
Many of the above exemptions/ concessions are subject to prescribed conditions Amendments (effective from the date of enactment of Finance Bill, 2013) Proposal to provisionally attach of property in cases of non-payment of duty or short payment of duty due to collusion, willful mis-statement or suppression of facts

Import and export manifests to be filed electronically Proposal to reduce interest free period for payment of Customs duty after return of Bill of Entry from 5 days to 2 days Provision allowing storing of imported goods which cannot be cleared in reasonable time in a public and private warehouse restricted to a 30 day period Specified offences under Customs Act, 1962, have been made non-bailable Provision for recovery proceedings for sums due to the Government extended to persons holding money on account of an assessee If an appeal before CESTAT is not disposed of within 180 days from the date of the stay order, a CESTAT stay order can be extended for another 185 days. If appeal is not disposed of within the period of 365 days, the stay order shall, on the expiry of that period, stand vacated.
5. Goods and Services Tax

Proposal to allocate INR 90 billion towards balance Central Sales Tax compensation to States Stress on the need to present draft Constitutional Amendment Bill and GST bill in Parliament but no indication of a timeline in this regard Appeal to State Finance Ministers to support the Government in the implementation of GST.
21
India Budget 2013 - Recent policy and legislative developments
31
Recent policy and legislative developments

Foreign Direct Investment Policy and Foreign Exchange Management Act, 1999
1. Foreign Direct Investment Policy Key amendments
FDI for consideration other than cash The Government had earlier allowed issue of equity shares / equity convertible instruments under the FDI policy by Indian companies to foreign investors against import of capital goods, machinery and equipment including second hand machinery. In April 2012, the Government excluded second hand machinery from the purview of these provisions to protect the Indian capital goods sector and also incentivizing import of state of the art machinery which is of international standard in terms of being green, clean and energy efficient. FDI in Single Brand Retail Trading In September 2012, the Government made further changes and liberalization to the FDI policy on Single Brand Retail Trading. The liberalized policy now permits any non-resident entity having a legal tenable agreement with the brand owner to undertake single brand retail trading in India with prior Government approval. However, only one non-resident eligible entity i.e. the brand owner or the eligible franchisor / licensee / sub-licensee would be eligible for investing as FDI under this route. Further, for FDI beyond 51 percent, sourcing of 30 percent of the value of the goods purchased needs to be done from India, preferably from Micro, Small and Medium enterprises, Indian villages, cottage industries, artisans and craftsmen. This procurement requirement first needs to be met as an average of five years total value of the goods purchased beginning 1 April of the year during which the first tranche of FDI is received and thereafter on annual basis. Many other compliance obligations have been imposed including self-certification of procurements, etc. The policy also reaffirmed that retail trading in any form by means of e commerce would not be permissible under this route. FDI in Multi-Brand Retail Trading In September 2012, the much awaited liberalization of the FDI policy enabling FDI in Multi-Brand Retail Trading was notified with the following pre-conditions:

FDI upto 51 percent to be permitted with prior Government approval Agricultural produce, fruits, vegetables, etc can be unbranded Minimum amount of USD 100 million to be brought in as FDI by the foreign investor At least 50 percent of the foreign investment to be invested in back-end infrastructure as stipulated within three years of induction of FDI. Expenditure on land cost and rentals is not counted for this purpose At least 30 percent of the value of procurement of manufactured /processed products purchased will need to be sourced from Indian small industries i.e. which have total investment in plant and machinery not exceeding USD 1 million. This procurement requirement first needs to be met as an average of five years total value of the goods purchased beginning 1 April of the year during which the first tranche of FDI is received and thereafter on annual basis. Many other compliance obligations have been imposed including of self-certification of procurements, etc. Government to have first right to procurement of agricultural products State / Union Territories would be free to take their own decisions for adoption / implementation of the Policy. The relevant press note attaches the list of relevant States / Union Territories who have conveyed agreement to implement the policy Retail trading in any form by means of e-commerce would not be permissible under this route.
FDI in Civil Aviation Sector In September 2012, the Government announced the much awaited liberalization of the FDI policy in the Civil Aviation Sector. The liberalized policy now permits foreign airlines to acquire up to 49 percent under the Government approval route in the capital of Indian Company (except Air India Limited) operating scheduled and non-scheduled air transport services subject to the following key pre-conditions:

The 49 percent limit will subsume FDI and FIIs investment. All foreign nationals associated with the air transport services to be cleared from a security view point before deployment. All imported technical equipments will require clearance from the relevant authority in the Ministry of Civil Aviation.
Note: A Scheduled Operators Permit is granted only to a Company registered and maintaining its principal place of business in India. Further, the Chairman and at least two-thirds of the Directors need to be Indian citizens and the substantial ownership and effective control is required to be vested in Indian nationals.
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FDI in Broadcasting Sector In September 2012, the Government reviewed the policy for FDI in Indian companies engaged in Broadcasting Sector and clarified several security related conditions / terms associated with such FDI. In particular, the Government amended FDI policy for Indian companies engaged in broadcasting carriage services with respect to (i) Teleports (setting up up-linking HUBs); Direct to Home; Cable Network (Multi-System-Operators operating at National or State or District level and undertaking upgradation of networks towards digitalisation and addressability); (ii) Mobile TV. In these three Broadcasting Carriage Services sector, the revised policy permits foreign investment as under:

Upto 49 percent under automatic route; Beyond 49 percent and up to 74 percent under Government approval route
The Foreign Investment in the sector to include FDI, FII, FCCBs, ADR, GDR and convertible preference shares held by foreign entities. FDI in Power Trading Exchanges In September 2012, the Government permitted foreign investment up to 49 percent in Power Trading Exchanges subject to several conditions. This ceiling comprises of FDI sub-limit of 26 percent under the Government approval route and FII limit of 23 percent (only secondary market purchase) under the automatic route. No non-resident investor / entity including persons acting in concert can hold more than 5 percent equity in these companies.
2. Investments by Qualified Foreign Investors in Indian corporate debt securities

In July 2012, Reserve Bank of India (RBI) liberalized the QFIs regulations and permitted QFIs to purchase on repatriation basis, Indian corporate debt securities, subject to the following key conditions:

The investment is through SEBI Registered Qualified Depositary Participants Eligible Indian corporate debt securities would mean listed Non-Convertible Debentures, listed bonds of Indian companies, listed units of Mutual Fund Debt Schemes and to be listed corporate bonds directly from the issuer/through a registered stock broker on a recognised stock exchange in India. QFIs can sell the eligible Indian corporate debt securities by way of sale on any recognized stock exchange through a registered broker or by way of buyback or redemption by the issuer A total overall independent ceiling of USD 1 billion to apply for QFIs investment in eligible corporate debt securities (without any lock-in or residual maturity clause) and Mutual Fund debt schemes.
In August 2012, RBI issued specific guidelines for QFIs to hedge their currency risk on account of their permissible investments (in equity and debt instruments).
3. Liaison offices, Branch offices and Project offices of foreign companies / Entities in India
In September 2012, the RBI mandated additional reporting requirement with the concern State Director General of Police by LO, BO and PO of Foreign Companies / Entities in India. The Report requires submission of various details such as list of personnel employed, persons visiting India office, projects / contracts / collaborations worked upon, list of equipment imported, etc. The Report is required to be filed within five working days of the LO/BO/PO (qua each such office) becoming functional and thereafter on annual basis. The Report is also required to be filed with the Authorized Dealer-Bank.
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4. Overseas direct investments

In March 2012, the foreign exchange regulations with respect to overseas direct investment were liberalized and key items are as under:

Under Approval Route, RBI to permit creation of charge on movable/immovable property and other financial assets of the Indian Company /Entity investing overseas and its Group Companies within overall permitted ceiling of overseas investments. Contribution by way of Compulsorily Convertible Preference Shares to be treated on par with equity shares. Under Approval Route, RBI to permit Indian Company / Entity for undertaking overseas investment without equity contribution. Issue of personal guarantee by promoters of the Indian Investor Company / Entity extended to indirect resident individual promoters.
Further, Bank guarantee issued by Indian Banks on behalf of Overseas Joint Venture / Wholly Owned Subsidiaries of the Indian Company / Entity backed by the latters counter guarantee is now required to be reckoned in the computation of financial commitment of the Indian Company / Entity for the purpose of overseas investments and applicable ceilings.
5. Rationalization and Liberalisation of the External Commercial Borrowings

In April 2012, the RBI liberalized the ECB Guidelines as under:

Power: Indian Companies in Power Sectors permitted to avail fresh ECB under the RBI approval route and utilize 40 percent thereof towards refinancing of Rupee loans (utilized towards capital expenditure of completed infrastructure projects) availed earlier from the domestic banking system as against 25 percent first permitted in September 2011. The balance minimum 60 percent of the fresh ECB should be utilized for fresh capital expenditure for infrastructure projects. Operation and maintenance of Toll systems for Roads and Highways: Indian Companies permitted to avail ECB for capital expenditure under the automatic route for the purpose of maintenance and operations of toll systems provided they form the part of the original project. Aviation Sector: Airline Companies engaged in passenger transport were granted a limited window to avail ECBs for working capital as a permissible end use under the RBI approval route subject to prescribed conditions such as cash flow, foreign exchange capability, minimum average maturity period of three years, etc. This window is available till 23 April 2013 (i.e. one year from the date of the relevant circular), and is subject to an overall ECB ceiling of USD 1 billion for the civil aviation sector and USD 300 million for an individual airline company. Prior to April 2012, ECBs could be refinanced by fresh ECB only if the fresh ECB is raised at a lower all-in-cost. In April 2012, RBI permitted existing ECBs to be refinanced / rescheduled with a fresh ECB under the Approval Route at a higher all-incost subject to the same being within current prescribed all-in-cost ceilings. ECB under Automatic Route to refinance Bridge finance (in nature of buyers / suppliers credit) obtained earlier under approval route for import of capital goods. The refinance needs to be obtained before the maximum permissible period of trade credit and is subject to prescribed conditions. Trade credit up to a maximum period of five years for import of capital goods as classified by DGFT. For the existing trade credit, the abinitio contracted period must not be less than six months and for the future trade credit, the abinitio contracted period must not be less than fifteen months and should not be in the nature of short term roll overs. The AD Banks are not permitted to issue of letter of credit / guarantee / undertaking in favor of overseas supplier, bank and financial institution beyond three years. The all-in-cost ceiling permitted under this arrangement is 6 months LIBOR 350 basis points.
In September 2012, RBI permitted Indian companies engaged in the infrastructure sector to avail:

In November 2012, RBI permitted Indian companies engaged in the telecommunication sector who are successful bidders for the award of 2G spectrum to avail ECB under the automatic route to refinance rupee loans availed from domestic lenders for such spectrum payment / outlay. The ECB needs to be raised within 18 months from the date of sanction of such rupee loan and is allowed to be availed from ultimate parent company without any debt-equity ratio subject only to minimum paid-up equity of 25 percent in the borrower company, either directly or indirectly. The successful bidders can also avail short term foreign currency loan in the nature of bridge finance under the automatic route for the purpose of making upfront payments towards 2G spectrum to be replaced by long term ECB under similar conditions as rupee loan refinancing.
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In December 2012, RBI permitted developers / builders to avail ECB (other than in the form of FCCBs) under approval route for low cost affordable housing projects i.e. project where atleast 60 per cent of the FSI would be for units having maximum carpet area up to 60 square meters or those covered under eligible slum rehabilitation projects. RBI also permitted housing finance companies and National Housing Bank to avail ECB for financing prospective owners of low cost affordable housing units. Several eligibility conditions and track record criteria have been stipulated for developers / builders and also Housing Finance Companies. Further, National Housing Bank is to act as a Nodal agency for deciding projects eligibility for low cost affordable housing and recommending the same to RBI for approval. In June 2012, RBI permitted Indian companies to avail fresh ECBs for repayment of Rupee loan(s) under the Approval Route subject to following conditions: i. Eligible Indian Company: Those engaged in the manufacturing and infrastructure sector; ii. Foreign Exchange Earnings: Such companies need to be consistent foreign exchange earners during the past three financial years; iii. Track Record: Such companies should not be in the default list/caution list of RBI; and iv. End-use: The fresh ECBs to be utilized only for repayment of the Rupee loan(s) availed of for capital expenditure incurred earlier and are still outstanding in the books of the domestic banking system and / or for fresh Rupee capital expenditure. v. ECB conditions: All conditions stipulated under the ECB Guidelines (recognized lender, all-in-costs, average maturity, etc). vi. Overall ceilings: The overall ceiling for all such ECBs approved by RBI would be USD 10 billion. The maximum ECB permissible to an Individual company would be 50 per cent of average annual export earnings realised during the past three financial years, subject also to demonstration of ability to service the ECB.
vii. Drawdown: The companies would need to draw down the ECB within a month of taking the Loan Registration Number from RBI viii. Other conditions: several other procedural and compliance conditions have been stipulated. In September 2012, RBI extended the 50 per cent condition in item (vi) above to 75 percent of the average foreign exchange earnings realized during the immediate past three financial years or 50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher. In case of SPVs, which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of was to be limited to 50 per cent of the annual export earnings realized during the past financial year. Further, the maximum ECB that can be availed by an individual company or group, as a whole, under this scheme was restricted to USD 3 billion. In January 2013, RBI extended the above rupee loan refinance scheme to Indian Companies in the hotel sector (with a total project cost of INR 2.5 billion or more), irrespective of the geographical location.
FINANCIAL SECTOR DIRECT BENEFIT TRANSFER COM
FOREIGN DIRECT INVESTMENT EXE INFLATION COMPANIES BILL GOVE
FOOD SECURITY LAW ECB FO

DIRECT TAXES FOREIGN COMPANIES CORPORATE TAX
ECB GLOBAL INVESTORS COMP
DIRECT TAXES DIRECT BENEFIT TRANSFER FDI IN CIVIL AVIATIO
EXEMPTION SINGLE BRAND RETAIL INFL
DEBT SECURITIES TRANSF
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Direct tax
1. Overall tax administration
Announcement of General Anti-Avoidance Rules With a view to curb tax evasion and tax avoidance schemes, the Finance Act 2012 introduced GAAR to counter specific tax avoidance arrangements. On account of specific concerns raised by taxpayers and various other forums, the Government appointed an Expert Committee under Dr. Parthasarathi Shome to analyse the potential impact of GAAR. Based on the recommendations of the committee, the Central Government has taken the following key decisions:

The provisions of GAAR will come into force with effect from 1 April 2016 as against the current provision of 1 April 2014 A monetary threshold of INR 30 million of tax benefit in the arrangement will be provided in order to attract the provisions of GAAR. An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement, substituting the current provision prescribing that it should be the main purpose or one of the main purposes will be amended accordingly. Investments made before 30 August 2010 (prior to introduction of the DTC Bill, 2010) will be grandfathered. GAAR will not apply to such FIIs that choose not to take any benefit under the tax treaty. Further it will also not apply to non-resident investors in FIIs. Where GAAR and SAAR are both in force, only one of them will apply to a given case, and guidelines will be made regarding the applicability of one or the other.

2. Transfer pricing developments

Introduction of Advance Pricing Agreement in India Keeping in line with major tax jurisdictions, the Finance Act 2012 introduced the concept of APA in India, with effect from 1 July 2012, to provide more stability to the pricing of international transactions. Some of the key aspects notified in the rules are:

Processing of unilateral, bilateral and multilateral APAs. Validity of APA to be based on the validity of the critical assumptions made at the time of application. Option of Pre-filing Consultation, renewal/revision/cancellation of APA made available.
Other method of determination of arms length price Rule 10AB In addition to the existing five methods for determination of the ALP in relation to an international transaction, the CBDT has notified the sixth method known as Other method which shall adopt any other possible methodology of identifying the price for uncontrolled transactions between non-associated enterprises.
3. International taxation
Amendments in tax treaties The Central Government has amended various tax treaties viz Indonesia, Sweden, UK, Spain, Uzbekistan, Nepal, the Netherlands, Norway, Japan, Estonia, Lithuania, Poland, Taiwan and Malaysia. Expert Committees draft report on retrospective amendments relating to indirect transfer The Government had appointed an Expert Committee under Dr. Parthasarathi Shome to analyse retrospective amendments relating to indirect transfer. The Expert committee had issued its draft report on 9 October 2012. The key recommendations made by the committee are as follows:

Amendments relating to taxation of indirect transfer of assets made by the Finance Act, 2012, should be applied prospectively. The word substantially should be defined to mean a threshold of 50 percent of the total value derived from the assets of the company or entity. The phrase directly or indirectly may be clarified as representing a look through approach. This implies that, for determination of value of share of a foreign company, all intermediaries between the foreign company and the assets in India may be ignored. Interest and penalty should not be charged/levied under the provisions of the Act in cases where a tax demand is raised on account of a retrospective amendment relating to indirect transfer of assets.
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Notification of Tax Residency Certificates In order to ensure that the benefit of the tax treaty is claimed only by residents of either contracting states, the Finance Act, 2012 had introduced the concept of TRCs, i.e. in order to be eligible to claim relief under the tax treaty, a taxpayer will have to produce a TRC issued by the Government of the respective country or the specified territory in which such taxpayer is resident, containing certain prescribed particulars. Subsequently, the CBDT prescribed the details to be included in TRC. Central Board of Direct Taxes raises concerns over United Nations Model Convention 2011 In response to the United Nations Model Convention 2011 released on 15 March 2012, the CBDT has raised its concerns that the model has not factored in the considerations of the developing countries. Additionally, the Central Government has also highlighted the fact that adoption of the OECD Guidelines is inappropriate for developing countries. Central Board of Direct Taxes clarifies applicability of retrospective amendments on settled cases Amidst the legal debates on the validity of the retrospective amendments made in the Finance Act, 2012, the CBDT has issued a Circular clarifying that the Income Tax Department shall not reopen assessments on account of retrospective amendments, where assessment proceedings have been completed before 1 April 2012 and no reassessment notice shall be issued prior to such date. Tax Information Exchange Agreements India has notified Tax Information Exchange agreements with Guernsey, Jersey, Macao, Liberia, etc. in accordance with Section 90 of the Act. These agreements are expected to facilitate smooth exchange of information on tax matters.
4. Withholding taxes
Lower tax on interest on overseas borrowings The Finance Act, 2012 introduced Section 194LC in the Act which provides Indian company to deduct tax on interest payable on borrowings made in foreign currency at the rate of 5 percent as against the higher rate of 20 percent. This lower rate of taxation will apply to interest paid to a non-resident by an Indian company for money borrowed in foreign currency from a source outside India either under a loan agreement or by way of long-term infrastructure bonds. This is also subject to the condition that the borrowing is made during the period from 1 July 2012 to 30 June 2015 and such borrowing and the rate of interest are approved by the Central Government. The CBDT has notified that ECB which are compliant with the Indian Foreign Exchange Management Regulations will be deemed as approved by the Central Government for the purpose of Section 194LC of the Act. No requirement for deduction of tax at source on transfer of subsequent software The Central Government has clarified that no deduction of tax is to be made in case a person makes a payment for acquisition of software from another resident, provided such software is acquired in a subsequent transfer and the transferor has transferred such software without any modification provided the first such transfer has been subject to withholding tax. Specified payments to banks does not require deduction of tax at source The Central Government has clarified that certain specified payments to a bank listed in the Second Schedule to the RBI Act, 1934 (excluding foreign banks) should not be liable to deduction of tax at source.
DIRECT TAXES DIRECT BENEFIT TRANSFER COMPANI
EXEMPTION DIRECT TAX CODE INF
GST GOODS SERVICE TAX CO

GST GOODS SERVICE TAX COM

EXEMPTION DIRECT TAX CODE INFLATIO
COMPANIES BILL TRANSFE
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5. Procedural and administrative measures

The CBDT/Government has issued various instructions/circulars/notifications from time to time to speed up administrative processing of taxpayer returns and completion of pending litigation.

Speedier processing of tax credits to clear backlogs of tax returns and issue of clear step by step instructions to tax officers, and CPC for adjustment of refunds Centralised processing of withholding tax returns to improve efficiency and coordination and online generation of withholding tax certificates Relaxation of e-filing requirements for agents of non-residents and private discretionary trusts. Introduction of video conferencing facility for hearing and disposal of appeals before the Income-tax Appellate Tribunal.
6. Clarifications on export of computer software

In an effort to bring clarity and transparency in the taxation of IT/ITES sector, the CBDT has provided the following clarifications in relation to export of computer software:

Availability of tax holiday under Section 10A, 10AA and 10B for on-site development of computer software including receipts from deputation of technical manpower Explanation clarifying the prevalence of Statement of Works over the Master Service Agreements Inclusion of research and development activities under the definition of Computer Software Availability of deduction after slump sale of a unit/undertaking Need for maintenance of separate books of accounts for each unit from a litigation perspective Availability of tax benefits under Section 10AA of the Act after transfer of a SEZ unit from one SEZ to another Availability of tax benefits to new units set up in a location where another unit exists.

TAX INFRASTRUTURE FINANCE APA PROVISION ADVANCE TAX
SECURITISATION TRUSTS CAPITAL GAINS
X WEALTH TAX TAX SLABS GST
SPECIAL PURPOSE VEHICLE
AL ANTI-AVOIDANCE RULES SURCHARGE
OMY SPECIAL PURPOSE VEHICLE SECURITISATION TRUSTS
AX SURCHARGE ADVANCE TAX
S BILL APA PROVISIONS
S DIRECT BENEFIT TRANSFER FOREIGN INVESTMENTS
FLATION SPECIAL PURPOSE VEHICLE
NT ACCOUNT DEFICIT SURCHARGE
ITAL GAINS TAX SLABS GST
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Indirect tax
1. Customs
Enhanced concessions in trade with various countries Preferential rates of customs duty have been prescribed for goods imported under SAFTA by reducing the number of tariff lines in the sensitive list for the Non-Least Developed Countries.

Tariff concessions in respect of goods imported from Singapore have been increased under the Comprehensive Economic Cooperation Agreement. Customs duty exemption has been extended to specified goods imported from Japan.
Revised Guidelines for Authorized Economic Operator Scheme The AEO scheme was notified last year to ensure security in the global supply chain of movement of goods and enhance facilitation of global trade. The AEO scheme intends to provide benefits such as simplified clearance procedures and reduced Customs intervention in relation to clearances of goods. Revised AEO guidelines have been issued by the Customs Department specifying the requirements and outlining the available benefits for various categories of importers/exporters, namely reduced bank guarantees, a reduced percentage of export consignment examination, waiver of bank guarantees in certain cases etc. Benefits provided under the Foreign Trade Policy, 2009-14 The duty credit license under SHIS can now also be utilized for import of components, spares and parts of capital goods subject to specified conditions upto 10 percent of the original duty credit license amount.

Under the EPCG scheme, concession has been provided to the specified green technology products by reducing the export obligation target to 75 percent of the normal export obligation calculated using the specified formula. For units located in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura, such export obligation target has been reduced to 25 percent of the normal export obligation.
2. Excise
Goods cleared at a wholesale price which is below the cost of production cannot be adopted as the value for excise duty In a decision which has far reaching implications on all manufacturers, the Supreme Court in the case of Commissioner of Central Excise vs Fiat India (P) Ltd. & Anr (2012-TIOL -58-SC-CX), has held that in case goods are sold at a price lower than the cost of production for a continuous period, the sale price cannot be construed as the normal price/transaction value for excise valuation purposes even if the sales have been made to unrelated buyers. Accordingly, the Court discarded Fiats sale price and upheld the determination of assessable value by adding the notional profit to the cost of production determined by the cost accountant. Pursuant to this decision, the Excise department has begun calling for costing data to ascertain cost of production. Representations for appropriate amendments to the Valuation Rules have been made by the Trade Associations. Recovery of confirmed demand during pendency of stay applications The CBEC has issued a Circular specifying the circumstances in which recovery proceedings are to be initiated by the revenue officials. The Circular has directed the revenue officials to initiate recovery proceedings within 30 days of filing the appeal and stay application, if no stay is granted. In case no stay application has been filed along with the Appeal, recovery must be initiated after the Appeal is filed without waiting for the statutory period of 60 days (for Commissioner Appeals)/90 days (for CESTAT) to be exhausted. This Circular has been issued without considering the practical difficulties in as much as in most matters, stay applications are not heard by the authorities themselves within a period of 30 days of the filing of the appeal. The Industry has filed writ petitions against the operation of the Circular in order to safeguard themselves from the recovery proceedings initiated by the field formations. The Andhra Pradesh, Bombay and Madras High Courts have granted an interim stay in favour of the assessees, instructing the field formations not to initiate recovery proceedings against the petitioners.
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3. Service tax
Rate of service tax The rate of service tax has increased from 10.30 percent to 12.36 percent with effect from 1 April, 2012. Negative List Based taxation With the introduction of the Negative List Regime, there is a paradigm shift from selective taxation to comprehensive taxation. The term service has been defined under new Section 65B(44) of the Finance Act 1994. Earlier, more than 117 services were taxable whereas under the Negative List regime all services other than those mentioned in the Negative List are taxable, provided they are not specifically exempted by way of a Mega Exemption Notification. In addition, certain services are specifically brought into the service tax net by introduction of a list of declared services. Payment of Service Tax under Reverse Charge basis The Central Government has notified certain taxable services under which the service recipient is liable to pay the entire service tax under reverse charge basis. Another interesting development in this respect has been the introduction of Partial Reverse Charge thereby requiring the service recipient to pay service tax partially. The Central Government has notified certain taxable services for which service tax is required to be paid by the service recipient and service provider partially in a proportion, mentioned in Notification No. 30/2012 dated 20 June 2012. Place of Provision of Service Rules, 2012 The PPS Rules, 2012 introduced with effect from 1 July, 2012 have replaced the two sets of rules for determination of export or import of services. The said two sets of rules under the previous regime, namely the Export of Services Rules 2005 and the Taxation of Services (Provided from Outside India and Received in India) Rules 2006, were superseded under Notification 28/2012-ST. The PPS Rules have been framed to determine the place where a service shall be deemed to be provided so as to ascertain the taxing jurisdiction for a service. If a service does not fall in a taxing jurisdiction, then it shall not be chargeable to service tax. Service Tax (Settlement of Cases) Rules, 2012 and Service Tax (Compounding of Offences) Rules, 2012 notified under Service Tax Law The CBEC has notified the Service Tax (Settlement of Cases) Rules, 2012 and Service Tax (Compounding of Offences) Rules, 2012. These rules provide for specific provisions, procedures and forms for settlement and compounding of offences under Section 89(1) (i.e. prosecution provisions) of service tax law.
INDIRECT TAXES TAX HOLIDAY CENVAT
EXCISE DUTY LUXURY PRO
GOODS SERVICE TAX C
PROPERTY TRANSFER MANUFACTURING CES
EXEMPTION INFLATION HEAL
CUSTOMS TARIFF
TAX SLABS RESTAURANT

EXEMPTION INFLATION HEALTHCARE SERVICES
EXEMPTION NEGATIVE LIST INF
VOCATIONAL TRAININ
FINANCE ACT TRANSPORT GOODS
PETROLEUM PRODUCTS CO
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Companies Act
1. The Companies Bill 2012
Background The Bill was passed by the Lok Sabha on 18 December 2012 bringing to a culmination a journey that began in 2008. This Bill when passed by the Rajya Sabha and notified will replace the existing Companies Act. The Bill is the first among much economic legislation that is going to have far-reaching implications on corporate India. Some of the salient features of the Bill are as follows: I. Incorporation and Incidental matters The maximum number of members in the case of a private company is increased from the existing 50 to 200.

The FY of any company can only end on 31 March and only companies that are a holding/subsidiary of a foreign entity can have a different FY with the approval of a Tribunal. All existing companies need to align their FY within two years from commencement of the Act. The new concepts of a One Person Company, dormant companies and small companies have been introduced in the Bill, with relaxations with regard to compliances. The definition of a subsidiary has been widened to include holding of more than 50 percent of the total share capital (the current provisions were restricted to the holding of equity share capital only).
II. Compromise, Arrangement and Amalgamation Fast track mergers between small companies or between a holding company and its wholly owned subsidiary or prescribed class of companies is possible without obtaining Court approval, subject to the fulfillment of the prescribed conditions.

Mergers of an Indian company with a foreign company (incorporated in a notified jurisdiction) are now permissible subject to prior approval of the RBI and the rules to be prescribed. Prohibition on holding treasury stock: shares issued under a Court approved scheme cannot be held under trust. Objection to a compromise or arrangement shall only be made by persons holding atleast ten percent of the shareholding or having outstanding debt of atleast five percent of the total outstanding debt as per the latest audited financials. The Bill allows a listed company merging with an unlisted company to continue as an unlisted company with the payment of cash to the shareholders of the listed company who decide to opt out of the unlisted company. Buyback under a scheme of arrangement will now be permissible only if it complies with the regulations stipulated under the buyback provisions. Auditors must certify the accounting treatment in the scheme of arrangement in conformity with the Accounting Standards (for listed as well as unlisted companies).
III. Audit and Auditors LLP is allowed to be appointed as an auditor.

Auditors of a company shall hold office for five years. ODUCTS HEALTHCARE In the case of listed companies and certain other classes of companies as may be prescribed, compulsory rotation of
CREDIT
individual auditors every five years and of audit firms every ten years has been provided.

COMPANIES

Companies have to comply with the provision for the rotation of auditors within three years from the commencement of this Act. Certain new disqualifications for auditors have been prescribed including indebtedness to holding/subsidiary companies.
STAT
LTHCARE
ADVANCE PRICING

IV. Accounts of companies Companies having subsidiaries are mandatorily required to prepare consolidated financial statements of the company and all subsidiaries, to be presented at AGM. The salient features of the financial statements of the subsidiary shall also be attached. For the purpose of the above requirements, a subsidiary includes associate companies and joint ventures.
TS G
COPYRIGHT
NG TRANSFER
INDI
FLATION HEALTHCARE
OMPANIES
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V. Corporate Social Responsibility Every company having net worth of INR 5 billion or more or turnover of INR 10 billion or more or a net profit of INR 50 million or more during any financial year shall constitute a CSR Committee of the Board

In every financial year such company shall spend at least two percent of the average net profits of the company made during the three immediately preceding financial years in pursuance of its CSRP.
VI. Appointment and Qualifications of Directors Every company shall have at least one director resident in India for at least 182 days. In the prescribed class or classes of companies, there should be at least one woman director.

The maximum limit of directors in the Company has been increased to 15 from 12, as provided in the Companies Act which can be further increased by passing a special resolution. A person cannot become a director in more than 20 companies and out of this 20, he/she cannot be director of more than ten public companies or their holding/subsidiary companies). In the case of listed companies, at least one-third of the Board should comprise independent directors. Independent director shall be appointed for a maximum of two consecutive tenures of five consecutive years. The reappointment for the second term shall be by means of a special resolution. Unless provided by articles, companies having multiple businesses cannot appoint the same individual as a Chairperson as well as MD/CEO at the same time. However, such restriction does not apply to companies having multiple businesses and appointing one or more CEO for each such business, as may be notified by the Central Government.

VII. Declaration and Payment of dividend The Bill dispenses the requirement to mandatorily transfer a fixed percentage of profits to reserves before declaring a dividend every year and leaves the discretion in the hands of the company declaring the dividend. VIII. Meetings of the Board and its powers Participation of directors at Board Meetings has been permitted through video-conferencing or other electronic means subject to the fulfillment of other requirements.

Besides the Audit Committee, the constitution of Nomination and Remuneration Committee has also been made mandatory in the case of listed companies and such other class or description of companies as may be prescribed. Also where the combined membership of shareholders, debenture holders and other security holders exceeds 1,000 at any time during the financial year, the company will constitute a Stakeholders Relationship Committee. At least seven days notice is required to be given for a Board meeting. A Board Meeting may be called at shorter notice subject to the condition that at least one independent director, if any, shall be present at the meeting. However, in the absence of any independent director from such a meeting, the decisions taken at such meeting shall be final only on ratification thereof by at least one independent director. Directors and the key managerial personnel of a company are prohibited from forward dealings in securities of the company and its holding, subsidiary and associate companies. No person including any director or KMP of a company shall enter into insider trading.
IX. General meeting The first AGM of the Company shall be held within the period of nine months from closure of its first FY instead of 18 months from the date of the incorporation, as provided in the Companies Act, 1956.

The provisions of the postal ballot shall be applicable to all companies whether listed or unlisted, on all such matters which shall be prescribed by the Central Government. To encourage wider participation of shareholders at General Meetings, the members have been permitted to exercise their vote at meetings by electronic means.
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X. Other key provisions A company, unless otherwise prescribed, cannot make investment through more than two layers of investment companies subject to certain exemptions in the case of foreign acquisitions and requirements of a multi-layered structure as per any law.

No bifurcation of objects between main, ancillary and other objects is required. For the first time, provision for entrenchment has been proposed in the Bill. Articles can have entrenchment to the effect that specified provisions in Articles can be altered only if restrictive conditions as specified are met or complied with. A company, which has raised money from the public through a prospectus and still has not yet utilised any amount of the money so raised, shall not change its objects unless the requirements in terms of a special resolution, advertisement and exit opportunity are complied with. The concept of class action suits has been introduced in the Companies Bill to protect the interest of members, depositors and creditors. Companies may now issue a GDR by passing a special resolution and subject to such conditions as may be prescribed. The concept of Secretarial Standards has now been introduced in the Bill requiring every company to observe such Secretarial Standards as may be prescribed. In the case of a listed company, if there is any change in number of shares held by promoters and top ten shareholders, the company is required to file a return within 15 days with the Registrar informing them of such change. Consolidation/division of shares involving changes in the voting percentage requires approval of the Tribunal.
The Bill has been passed by the Lok Sabha and introduced in the Rajya Sabha. However the Rajya Sabha has not yet passed the Bill. Also, after being passed by the Rajya Sabha, assent of the President of India will be necessary before the Bill becomes an Act. Once the Bill becomes an Act, the Central Government will notify a date/s for the coming into force of the Act, and only from such date/dates will the provisions of the Act come into force.
2. Other developments
Prior approval required for registration of Companies or Limited Liability Partnerships The MCA has directed that Companies or LLPs seeking incorporation with the object to carry on the business of banking or insurance business or to practice the profession of Chartered Accountancy, Cost Accountancy, Company Secretaries or Architecture shall have to obtain in principle approval / NOC from the relevant regulator/ professional institute. Investor Education and Protection Fund (Uploading of Information regarding Unpaid and Unclaimed Amounts Lying with Companies) Rules, 2012 (IEPF Rules) The GOI has notified the IEPF Rules with effect from 20 May 2012. Under the said Rules, every company shall identify and upload the prescribed information on the MCA website within a period of 90 days from the date of its AGM. Filing of balance sheet and profit and loss account in XBRL format The MCA has on 6 July 2012 mandated the following class of companies to file their Balance Sheet and Profit and Loss account for the FY commencing from 1 April 2011 in XBRL format:

all companies listed with any stock exchange(s) in India and their Indian subsidiaries; or all companies having paid-up capital of INR 50 million and above; or all companies having turnover of INR 1 billion and above; or
all companies who were required to file their financial statements for FY 2010-11, using XBRL mode.
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India Budget 2013 - Glossary
31
Glossary
AEO: Authorised Economic Operator Scheme ADR: American Depository Receipt AGM: Annual General Meeting AIR: Annual Information Return ALP: Arms Length Price AMT: Alternate Minimum Tax APA: Advance Pricing Agreement
CSRP: Corporate Social Responsibility Policy CTT: Commodities Transaction Tax CVD: Countervailing Duty DDT: Dividend Distribution Tax DGFT: Directorate General of Foreign Trade DTC: Direct Taxes Code ECB: External Commercial Borrowing EPCG: Export Promotion Capital Goods Scheme EU: European Union FCCB: Foreign Currency Convertible Bonds FCEB: Foreign Currency Exchangeable Bonds FDI: Foreign Direct Investment FII: Foreign Institutional Investors FTS: Fess for Technical Services FY: Financial Year GAAR: General Anti-Avoidance Rule GDP: Gross Domestic Product GDR: Global Depository Receipt GoI: Government of India GST: Goods and Service Tax HUF: Hindu Undivided Family
AOP: Association of Persons AY: Assessment Year BCD: Basic Customs Duty BO: Branch Office BOI: Body of Individuals CAD: Current Account Deficit CBDT: Central Board of Direct Taxes CBEC: Central Board of Excise and Customs CCIT: Chief Commissioner of Income-tax CENVAT: Central Value Added Tax CESTAT: Customs, Excise and Service Tax Appellate Tribunal CPC: Centralised Processing Centre CSO: Central Statistics Office CSR: Corporate Social Responsibility
34
India Budget 2013 - Glossary
IPO: Initial Public Offer KMP: Key Managerial Person LLP: Limited Liability Partnerships LO: Liaison Office LPG: Liquefied Petroleum Gas MAT: Minimum Alternate Tax MCA: Ministry of Corporate Affairs MSME: Micro Small and Medium Enterprise MRP: Maximum Retail Price MUV: Multi Utility Vehicle NBFC: Non Banking Financial Company PO: Project Office PPP: Public-Private Partnership PPS Rules 2012: Place of provision of Services Rules, 2012 PSU: Public Sector Undertaking
QFI: Qualified Institutional Investor RBI: Reserve Bank of India RGESS: Rajiv Gandhi Equity Saving Scheme SAAR: Specific Anti Avoidance Rules SAFTA: SAARC Free Trade Agreement SEBI: Securities and Exchange Board of India SEZ: Special Economic Zones SHIS: Status Holder Incentive Scheme SPV: Special Purpose Vehicle STT: Securities Transaction Tax SUV: Sport Utility Vehicle The Act: The Income-tax Act, 1961 TRC: Tax Residency Certificate VCC: Venture Capital Company VCF: Venture Capital Fund
KPMG in India
Ahmedabad Safal Profitaire B4 3rd Floor, Corporate Road, Opp. Auda Garden, Prahlad Nagar Ahmedabad 380 015 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bangalore Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi 4/F , Palal Towers M. G. Road, Ravipuram, Kochi 682 016 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Infinity Benchmark, Plot No. G-1 10th Floor, Block EP & GP , Sector V Salt Lake City, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3058 5764/65 Fax: +91 20 3058 5775
Contact us
Hiten Kotak Co-Head of Tax T: +91 (22) 3090 2702 E: hiten@kpmg.com Punit Shah Co-Head of Tax T: +91 (22) 3090 2681 E: punitshah@kpmg.com Girish Vanvari Co-Head of Tax T: +91 (22) 3090 1910 E: gvanvari@kpmg.com
www.kpmg.com/in
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.

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KPMG Budget 2013

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COMPANIES BILL GST DIRECT TAX

FISCAL DEFICIT GDP SAVINGS RATIO EXCISE DUTY

MPLOYMENT DTC FISCAL POLICIE

GST M&A SERVIC

SURCHARGE STABILITY CREDIT TAX PROPOSALS R

EXEMPTION REFORMS INFRASTRUCTURE FINANCING GROWTH RECOVERY RURA

PLANNED DISBURSEMENT TAX SLAB MAT WEALTH T

SPENDING POLICIES FISCAL DEFICIT COMPANIES BILL GST DIVIDEND DISTRIBU

N DIRECT TAX CODE INFLATION HEALTHCARE COSTS TAX INCENTIVES GST GA

BASEL III FISCAL DEFIC

TRAVEL ALLOWANCE ECONOMIC DEVELOPMENT CRE

DIRECT BENEFIT TRANSFER FINANCE BILL CAPITAL M

SAVINGS RATIO DIVIDENDS SURCHARGE REVENUE M&A DTC GLOBAL INVEST

A INDIRECT TAXES REFORMS

VESTORS CREDIT REVENUE DTC

FISCAL DEFICIT GDP SAVINGS RATIO EXCISE DUTY

EXEMPTION DIRECT TAX CODE INFLATION HEALTHCARE COSTS WITHHOLDING TA

CSR FOREIGN EXCH

TAX SLAB TAX PROPOSALS INFRASTRUCTURE FINA

GROWTH RECOVERY APA PROVISIO

CAPITAL MARKET PUBLIC SECTOR UNDERTAKINGS FISCAL RESPONSIBILITY PERSO

GAAR CAPITAL GAINS ADVANCE TAX VOLATILE CA

Recent policy and legislative developments 21

01 India Budget 2013 - Economic indicators

Economic growth across sectors decelerated due to domestic headwinds

Quarterly GDP Growth (Y-o-Y, %)

Quarterly Sectoral Growth (Y-o-Y, %)

02 India Budget 2013 - Economic indicators

Stubborn inflation deterred monetary easing

WPI Growth (Y-o-Y, %)

IIP Growth (Y-o-Y, %)

Source: Office of the Economic Adviser

Agency CSO PMs Economic Advisory Council RBI -

Real GDP growth (%, earlier projections) 7.5-8.0 6.5

Real GDP growth (%, latest projections) 5.0

Month Jan 2013 Oct 2012 Jan 2013

Feb 2012 Jul 2012

03 India Budget 2013 - Economic indicators

Quarterly investment growth (Y-o-Y, %)

Quarterly sectoral growth (Y-o-Y, %)

Source: SEBI, Oanda and KPMG in India analysis

04 India Budget 2013 - Economic indicators

Source: SEBI, Oanda and KPMG in India analysis

The GoI compelled to announce some growth stoking policy measures

05 India Budget 2013 - Economic indicators

The fiscal deficit is contained near the target

VOLATILE CURRENT ACCOUNT DEFICIT PLANNED DISBURSMENT

AL DEFICIT INFLATION HEALTHCARE COST

SERVICE TAX FOREIGN EXCHANGE

NANCING COMPANIES BILL

NOMY DIRECT BENEFIT TRANSFER LEGISLATIVE REFORMS

ARKET ECONOMIC SLOWDOWN

ILL GROWTH RECOVERY

S DIRECT BENEFIT TRANSFER FOREIGN INVESTMENTS

TAX CODE INFLATION HEALTHCARE

T DEFICIT PLANNED DISBURSMENT

SERVICE TAX FISCAL DEFICIT

06 India Budget 2013 - Economic indicators

Governments finances at a glance

07 India Budget 2013 - Budget highlights

08 India Budget 2013 - Budget highlights

Efforts made to strengthen compliance/ enforcement :

INDIRECT TAXES TAX HOLIDAY CENVAT CREDIT

EXCISE DUTY LUXURY PRODUCT