04/03/2016
UNION BUDGET HIGHLIGHTS 2016
By
Daljit Bhatia & Co.
Chartered Accountants
1. If assesse have income less than Rs 5 lakh then he get deduction of Rs 5,000, up from Rs 2,000 last year. HRA deduction up from Rs. 24,000 to Rs. 60,000 p.a.
2. New manufacturing companies incorporated on or after 01-03-2016 to be given an option to be taxed at 25% + surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
3. Lower the corporate tax rate for the next financial year for relatively small enterprises i.e companies with turnover not exceeding ` 5 crore (in the financial year ending March 2015), to 29% plus surcharge and cess.
4. 100% deduction of profits for 3 out of 5 years for startups setup during April, 2016 to March, 2019. MAT will apply in such cases.
5. 40% of withdrawal at the time of retirement under National Pension Scheme to be tax exempt.
6. Additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh, provided cost of house is not above Rs. 50 lakh.
7. Tax to be Collected at source at the rate of 1 % on purchase of luxury cars exceeding value of Rs. ten lakh and purchase of goods and services in cash exceeding Rs. two lakh.
8. Additional tax at the rate of 10% of gross amount of dividend will be payable by the recipients receiving dividend in excess of Rs. 10 lakh per annum.
9. Surcharge to be raised from 12% to 15% on persons, other than companies, firms and cooperative societies having income above Rs. 1 crore.
10. Domestic taxpayers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Declarants will have immunity from prosecution.
It is proposed that following cases shall not be eligible for the scheme:
* where notices have been issued under section 142(1) or 143(2) or 148 or 153A or 153C, or
* where a search or survey has been conducted and the time for issuance of notice under the relevant provisions of the Act has not expired, or
* where information is received under an agreement with foreign countries regarding such income,
* cases covered under the Black Money Act, 2015, or
* persons notified under Special Court Act, 1992, or
* cases covered under Indian Penal Code, the Narcotic Drugs and Psychotropic Substances Act, 1985, the Unlawful.
11. Activities (Prevention) Act, 1967, the Prevention of Corruption Act, 1988
12. New Dispute Resolution Scheme to be introduced. No penalty in respect of cases with disputed tax up to Rs. 10 lakh. Cases with disputed tax exceeding Rs 10 lakh to be subjected to 25% of the minimum of the imposable penalty. Any pending appeal against a penalty order can also 14 be settled by paying 25% of the minimum of the imposable penalty and tax interest on quantum addition
13. Penalty rates to be 50% of tax in case of underreporting of income and 200% of tax where there is misreporting of facts.
14. Disallowance will be limited to 1% of the average monthly value of investments yielding exempt income, but not exceeding the actual expenditure claimed under rule 8D of Section 14A of Income Tax Act.
15. Mandatory for the assessing officer to grant stay of demand once the assesse pays 15% of the disputed demand, while the appeal is pending before Commissioner of Income-tax (Appeals).
16. Monetary limit for deciding an appeal by a single member Bench of ITAT enhanced from Rs. 15 lakhs to Rs. 50 lakhs.
17. For non-residents providing alternative documents to PAN card, higher TDS not to apply.
18. Securities Transaction tax in case of ‘Options’ is proposed to be increased from .017% to .05%.
19. Increase in threshold limit for presumptive taxation scheme for persons having income from business from Rs. 1 Crore to Rs. 2 Crore.
20. New Section 44ADA - Increase in threshold limit for presumptive taxation scheme for persons having income from profession from Rs. 25 Lacs to Rs. 50 Lacs, with 50% as presumptive rate.
21. Increase in time period for acquisition or construction of self-occupied house property for claiming deduction of interest from 3 years to 5 years
22. Exemption of Central Government subsidy or grant or cash assistance, etc. towards corpus of fund established for specific purposes from the definition of Income.
23. Extension of scope of section 43B to include certain payments made to Railways
24. Section 28- Taxation of Non-compete fees and exclusivity rights in case of Profession
25. Clarification regarding the definition of the term 'unlisted securities' for the purpose of Section 112 (1) (c) - long-term capital gains arising from the transfer of a capital asset being shares of a company not being a company in which the public are substantially interested, shall be chargeable to tax at the rate of 10 per cent.
26. Section 50C - in case sale consideration is fixed under agreement executed prior to the date of registration of immovable property - the stamp duty value on the date of the agreement may be taken for the purposes of computing the full value of consideration.
27. New condition for conversion of a company into Limited Liability Partnership (LLP) – the value of the total assets in the books of accounts of the company in any of the three previous years preceding the previous year in which the conversion takes place, should not exceed five crore rupees
28. Processing under section 143(1) be mandated before assessment under section 143(3)
29. Time limit for assessment, reassessment and recomputation - the period, for completion of assessment under section 143 or section 144 be changed from existing two years to twenty-one months from the end of the assessment year in which the income was first assessable;
the period for completion of assessment under section 147 be changed from existing one year to nine months from the end of the financial year in which the notice under section 148 was served.
30. Advance Tax - eligible assessee in respect of eligible business referred to in section 44AD opting for computation of profits or gains of business on presumptive basis, shall be required to pay advance tax of the whole amount in oneinstalment on or before the 15th March of the financial year.
31. TDS limits increased as below:
192A - Payment of accumulated balance due to an employee from 30,000 to 50,000
194BB - Winnings from Horse Race from Rs. 5,000 to Rs. 10,000
194C - Payments to Contractors – from Aggregate annual limit of 75,000 to Aggregate annual limit of 1,00,000
194LA - Payment of Compensation on acquisition of certain Immovable Property – from 2,00,000 to Rs. 2,50,000
194D - Insurance commission from Rs. 20,000 to 15,000
194G - Commission on sale of lottery tickets from 1,000 to 15,000
194H - Commission or brokerage from Rs. 5,000 to 15,000
32. TDS limits increased as below:
194DA - Payment in respect of Life Insurance Policy – from 2% to 1%
194EE - Payments in respect of NSS Deposits – from
194D Insurance commission – from10% to 5%
194G Commission on sale of lottery tickets – from 10% to 5%
194H Commission or brokerage – form 10% to 5%.
194K Income in respect of Units – to be omitted w.e.f 1 June 2016
194L Payment of Compensation on acquisition of Capital Asset – to be omitted w.e.f 1 June 2016
2. Brief Analysis of Penal Provisions under Service tax laws
1. Recovery of service tax not levied or paid or short-levied or short-paid or erroneously refunded.
Section 73 empower Central Excise Officer ('CEO')to serve recovery noticewithin 18 months from the relevant date to the person in whose case any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, requiring him to show cause why he should not pay the amount specified in the notice.
Whereas in case of fraud; or collusion; or willful misstatement; or suppression of facts by the person, CEO is empower to issue such notice within 5year from the relevant date.
Whereas relevant date means
(a) The date of filing of Service Tax Return if return is being filed
(b) The date on which the service tax is to be paid ifno service tax return is filed
(c) The date of adjustment of the service tax after the final assessment if the service tax is provisionally assessed
(d) The date of refund if any sum, relating to service tax, has erroneously been refunded
Finance Ministry proposed the amendment to Section 73 so as to increase the limitation period from 18 months to 30 months for short levy/non levy/short payment/non-payment/erroneous refund of Service Tax.
2. Section 75 of F.A, 1994: Interest on delayed payment of service tax
Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%, except in case of Service Tax collected but not deposited to the credit of central government, in which case the rate of interest will be 24%from the date on which the Service Tax payment became due. Further in case of assessees, whose value of taxable services in the preceding year/years covered by the notice is less than Rs.60 Lakh, the rate of interest on delayed payment of Service Tax will be 12%.
Scenario Proposed
Will-full default and value of taxable service in preceding year is less than Rs.60 lakh 21%
Will-full default and value of taxable service in preceding year is more than Rs.60 lakh 24%
Other casewhere value of taxable service in preceding year is less than Rs.60 Lakh 12%
Other case where value of taxable service in preceding year is more than Rs.60 Lakh 15%
*Will-full default- Case where Service Tax collected but not deposited to the credit of central government
The above changes will come into effect on the day the Finance Bill receives the assent of the President.
3. Section 89Offences and penalties
The power to arrest in Service Tax is being restricted only to situations where the tax payer has collected the tax but not deposited it to the credit of central government, and that too above a threshold of Rs.2 crore. The monetary limit for launching prosecution is being increased to Rs. 2 crore of Service Tax evasion.
4. Amendment to Section 90: Cognizance of offences
In case of Ajay Kumar Sandhu v. State of Haryana[2015] 62 taxmann.com 281 (Punjab & Haryana), the Hon'ble Punjab & Haryana high court held that Finance Act, 1994, being a special and complete Code, prevails over general provisions of IPC and, accordingly, for alleged non-payment of service tax, department cannot filed FIR under provisions of IPC.
Facts of the Case
(a) Alleging non-payment of service tax of Rs.1,05,705, department filed FIR against assessee under section 406 of Code of Criminal Procedure, 1973.
(b) Assessee sought quashing of FIR on ground that general provisions of IPC cannot be applied for service tax purposes
(c) On appeal the Hon'ble HC held as under
Held
(a) Since, assessee made payment of service tax on demand being put up by service tax authorities.
(b) Finance Act, 1994 is a special and complete Code in itself and, therefore, same would prevail over general provisions of IPC.
(c) When service tax law itself provides for adjudication, interest and penalty for default in payment of service tax, department's action in registering FIR was abuse of process of Court. Therefore, FIR was quashed accordingly
In order to remove the loose fall in the provision of Section 90 as we have seen in above case and to widen the powers of department, Finance Minister proposed to omit sub-section 2 to Section 90. Existing subsection to section 90 provides that an offence even if it is cognizable and bailable as per the provisions of Code of Criminal Procedure, 1973 shall be non-cognizable and bailable if it was not cognizable as per provision of Finance Act, 1994
5. Section 91:Power to arrest
Now only in case where the assessee collecting Service Tax above Rs. 2Cr. and not deposited it to the credit of central government, the Pr. CCE or CCE may authorize the Central Excise Officer not below the rank of Superintendent of Central Excise to arrest such person.
Further the power of releasing an arrest person on bail or otherwise has been withdrawal from Assistant Commissioner, or the Deputy Commissioner.
Source : taxmann.com
3. Budget 2016 - Withdrawal of Few Service-Tax Exemptions
The Hon'ble Finance Minister Arun Jaitely announced a slew of initiatives to include the farmers and those below poverty line. Direct tax proposals not expected to add any revenue and as usual it is service tax which comes to the rescue. The movement towards GST necessarily means bringing in many new tax payers into the mainstream i.e. increasing the tax base. This dual objective while being achieved would also result in generating additional revenues by pruning the service tax exemptions given earlier.
Legal Services provided by Senior Advocates
Advocates were kept out of the service tax jurisdiction, though to some extent their services were being taxed indirectly in certain circumstances through reverse charge. The existing provision exempts the service tax provided by advocates either an individual or firm of advocates to non-business entities as well as business entities whose turnover was less than 10 lakhs. In case of services provided to business entities the service tax is being paid by receiver of services under reverse charge mechanism.
The proposed changes to be effective from 1st April 2016, is applicable to Senior Advocate as per the Advocates Act, 1961. Such senior advocates providing services to a person ordinarily carrying out any activity relating to industry, commerce or any other business of profession are not exempted and would be liable to service tax. Further also this tax has to be paid by the service provider i.e. Senior Advocate and not by the receiver of services.
This change tries to capture the tax at primary level of service provision rather than from their clients.
Services to arbitral tribunal
In cases of arbitration, a person is appointed to arbitral tribunal to act as arbitrator/s to decide the dispute. In such cases the person arbitrator is providing services to arbitral tribunal for which consideration is received by him. This was covered under exemption Sl. No. 6(c) of Notification No. 25/2012-ST dated 20.06.2012.
It is proposed w.e.f. 01.04.2016 that the said exemption would be removed thereby the services of such persons who are appointed as arbitrator in the arbitral tribunal would become taxable and is liable to pay service tax.
Construction relating to monorail or metro rail
Presently vide entry 14 (a) of Notification 25/2015-ST construction, er****on, commissioning or installation of original works pertaining to monorail or metro is exempted.
It is proposed to tax the same w.e.f. 01.03.2016 by restricting the exemption only to contracts entered into before 01.03.2016 on which appropriate stamp duty was paid.
The analysis of this change would indicate that all new contracts entered into after 01.03.2016 for construction, er****on, commissioning or installation of original works pertaining to monorail or metro rail are liable for service tax.
Further to this it also brings within tax net any contracts entered into before 01.03.2016 upon which appropriate stamp duty was not paid. The challenge would be that how this condition be verified and ascertained. This may lead to lot of litigation since there may be dispute as whether there is requirement to pay stamp duty or not if so whether it was paid appropriately or not. What if it is paid now by paying compounding?
Transportation of passengers by ropeway, cable car or aerial tramway
Presently exemption is available on the services of transport of passengers, with or without accompanied belongings by ropeway, cable car or aerial tramway vide Sl. No. 23(c). This is being withdrawn with effect from 1st April, 2016.
The reason for withdrawing this exemption may be that this is not an essential mode of transport of passengers and is essentially used for pleasure in tourist places.
Air-conditioned Stage carriage transportation
Presently the negative list entry at Section 66D (o) Negative list entry covers 'service of transportation of passengers, with or without accompanied belongings, by a stage carriage' It is proposed to omit the same with effect from 1st June, 2016.
The non-air-conditioned stage carriage transportation is exempted w.e.f. 1.3.2016.
In other words transportation of passenger in air conditioned stage carriage has been made taxable w.e.f. 1.6.2016.
It would apply to air-conditioned transportation of passengers whether private or State undertaking.
4. New exemptions introduced under Service Tax- Budget 2016
March 1, 2016
Prior to the Negative list regime, various exemptions from service tax were given under a number of notifications. However in negative list regime all relevant exemptions and new exemptions had been brought under one Notification No. 25/2012-ST dated 20.06.2012, which is commonly known as 'Mega Exemption notification'. In the year 2012, originally there were 39 exemption entries. Now after the amendments in 2016, the number of exemptions has increased to 53 entries.
Though the stated objective of moving towards GST is to avoid exemptions, the need to support development and avoid litigation in schemes in which Government is involved, has forced several exemptions to be added. This article discusses the exemptions brought about by the Finance bill 2016 as under:
1. Services provided by the Indian Institutes of Management (IIM)
Services by way of education as part of curriculum for obtaining a qualification recognized by any law for time being in force was specified in negative list under clause (l)(ii) of Finance Act,1994. Any educational program that gives a qualification and that is recognized by any law for time being in force would be exempted.
Ministry of Human resource development (MHRD) is vested with the power to recognize educational courses [DoPT O.M. dated 08.01.1975], for the purpose of recruitment to posts under Government of India. Indian Institutes of Management (IIM) has been conducting Post Graduate Programs in Management and Fellowship Programs which are equivalent to MBA and PHD degrees respectively (as also clarified by associations like Association of Indian Universities, Inter –University Board of India etc.). In view of the fact that exemption was already available, the notification is merely clarificatory in nature.
Thus Services provided by the Indian Institutes of Management (IIM) of as per the guidelines of Central Government to their students by way of 2 year full time Post Graduate Program in Management(PGPM) (other than executive development program), admissions to which are made through Common Admission Test conducted by IIMs, 5 year Integrated Program in Management and Fellowship Program in Management are being exempted from service tax. This exemption is with effect from 1st March 2016 vide entry at sl.no 9B of Notification no.25/2012-ST dated 20.6.2012
2. Service of the assessing bodies
In spite being India having very large young population only 5% of the Indian labor force in the age group of 20-24 years has obtained vocational skills through formal means. Whereas in various industrialized countries this rate is 60-65% In order to achieve such rate Government of India, Ministry of Labour & Employment launched a Modular Employable Skills (MES) under Skill Development Initiative (SDI) Scheme through Directorate General of Employment & Training in May 2007. The main objective of the scheme of SDI is to provide vocational training to school leavers, existing workers, ITI graduates, etc to improve their employability by optimally utilizing the infrastructure available in Government, private institutions and the Industry. The Skill Development Initiative Scheme is 100 % centrally sponsored scheme
The objective is achieved by way of testing of skills of trainees by independent assessing bodies, including industry organizations such as FICCI, CII, etc. which do not involve in training delivery, to ensure an impartial assessment.
Services by way such empaneled assessing bodies like FICCI, CII are now being exempted in order to accelerate such initiatives implemented by Government.
Exemption is as follows
Services of assessing bodies empanelled centrally by Directorate General of Training, Ministry of Skill Development & Entrepreneurship are being exempted from service tax. This exemption is with effective from 01.04.2016vide entry at sl.no 9C of Notification no.25/2012-ST dated 20.6.2012
3. Services of Vocational Training
Deen Dayal Upadhyay Grameen Kaushalya Yojana (DDU-GKY) is implemented by Prime Minister Narendra Modi to enable poor and marginalized to access the benefits of demand led skill training at no cost to the rural poor. It is under the Ministry of Rural Development. This schemefollows a 3-tier implementation model. The DDU-GKY National Unit functions as the policy-making, technical support and facilitation agency and through State level agencies involves various private/public institutions through project placement model.These private institutions implement various training programs in order to achieve the main objective.
The exemption has been extended for services provided by such training providers (Project implementation agencies). Theseskill/vocational training course are certified by National Council for VocationalTraining. This exemption is with effect from 01.04.2016 vide entry at sl.no 9D of Notification no.25/2012-ST dated 20.6.2012.
4. Construction of low cost houses
Pradhan Mantri Awas Yojana has been launched by the Prime Minister Narendra Modi that envisages the vision of Housing for All by the year 2022. The scheme comes with an aim of constructing more than two crore houses across the length and breadth of the nation. The target beneficiaries of the scheme would be poor's and people living under EWS and LIG categories in urban establishments of the country. In addition to this various state government have objectives to undertake construction of houses and create other infrastructural facilities for the said housing scheme for the benefit of people in general and particularly the Weaker Sections
The exemption has been extended for services provided by way of construction, er****on, commission or installation of original works pertaining to low cost houses up to a carpet area of 60 sq.m per house. The housing project is to be approved by the competent authority under the "Affordable housing in partnership" component for housing for All (urban) Mission/ Pradhan Mantri Awas Yojana and under any housing scheme of a State Government. Both are exempted from service tax. This exemption is with effect from 01.03.2016 vide entry at sl.no 14 (ca) of Notification no.25/2012-ST dated 20.6.2012.
5. Health insurance services provided under Niramaya Health Insurance Scheme
Niramaya Health Insurance Scheme is a Health Insurance Scheme for the welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities. The contribution shall be Rs.250/- if family monthly income is upto Rs.15000/- pm and Rs.500/- if family monthly income is above Rs.15000/-
The exemption has been extended for services of general insurances business provided under the Niramaya Health Insurance Scheme implemented by Trust constituted under the provisions of the National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 This exemption is with effect from 01.04.2016 vide entry at sl.no 26(q) of Notification no.25/2012-ST dated 20.6.2012
6. Services of life insurance business provided by way of annuity
National Pension System is a portable retirement savings account, where the individual contributes to his retirement account. Employer can also co-contribute for the social security/welfare of the individual.
The exemption has been extended for services of life insurance business by way of annuity under the National Pension System regulated by Pension Fund Regulatory and Development Authority of India (PFRDA) under the Pension Fund Regulatory And Development Authority Act, 2013.This exemption is with effect from 01.04.2016 vide entry at sl.no 26(C) of Notification no.25/2012-ST dated 20.6.2012.
7. Service provided by EPFO
Employee's Provident Fund Organisation (EPFO) provides savings and contingent payment mechanism for the employees upon retirement, resignation, death, house construction, higher education, marriage, illness etc.
The exemption has been extended for services provided by Employee's Provident Fund Organisation (EPFO) to persons governed under the Employee's Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952).This exemption is with effect from 01.04.2016 vide entry at sl.no 49 of Notification no.25/2012-ST dated 20.6.2012
8. Service provided by IRDA
Insurance Regulatory and Development Authority of India (IRDA) is regulator for all the insurance service providers.
The exemption has been extended for services provided by Insurance Regulatory and Development Authority of India (IRDA) to insurers under the Insurance Regulatory and Development Authority of India Act, 1999 (41 of 1999)This exemption is with effect from 01.04.2016 vide entry at sl.no 50 of Notification no.25/2012-ST dated 20.6.2012
9. Service provided by SEBI
The exemption has been extended for services provided by Securities and Exchange Board of India (SEBI) set up under the Securities and Exchange Board of India Act, 1992 (15 of 1992) by way of protecting the interests of investors in securities and to promote the development of, and to regulate, the securities market This exemption is with effect from 01.04.2016 vide entry at sl.no 51 of Notification no.25/2012-ST dated 20.6.2012.
10. Service provided by NCCD
The exemption has been extended for services provided by National Centre for Cold Chain Development under Ministry of Agriculture, Cooperation and Farmer's Welfare by way of cold chain knowledge dissemination. This exemption is with effect from 01.04.2016 vide entry at sl.no 52 of Notification no.25/2012-ST dated 20.6.2012.
The above specific exemptions could also indicate that these activities were not exempt earlier and consequently lead to a spate of demands by the revenue for the period 2012 to 01.04.2016. This has happened several times in the past when matters which were doubtful were clarified through a notification prospectively. Hopefully a notification for the exemption being applicable retrospectively under Section 11C of the Central Excise Act (has been made applicable to service tax) could ensure the objective of bringing these exemption is met fully.
bringing these exemption is met fully.
