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Page 1: Union Budget 2014 -  An Overview
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FOREWORDThe much awaited Union Budget 2014 was presented in the Parliament. At the beginning of his speech, the Finance Minister made a few significant observations:

u The Budget is the most comprehensive action plan

u It is only the beginning…

u There is a need to revive growth in Manufacturing and Infrastructure

u Fiscal Prudence is paramount

Hence, the Budget 2014 needs to be examined in the backdrop of these observations:

The specific announcements which could be potential game changers:

u Increase in FDI limit in Defence and Insurance sectors from 26% to 49%

u Reduction of minimum FDI thresholds in Real Estate; Construction based limit reduced from 50,000 sq mtrs to 20,000 sq mtrs and investment limits reduced from USD 10 mn to USD 5 mn

u Allowing banks to raise long term resources for Infrastructure Funding without any pre-emption for CRR/SLR

u Tax pass-thru status to Real Estate Investment Trust as well as new category of entity called Infrastructure Investment Trust

u Increased Plan Capital Expenditure by 26% over last year

Importantly, each one of these steps can kick start investment cycles to heat up the growth engine.

The predictable announcements include:

u Change in personal taxation threshold

u Increase in savings/investment limit under section 80-C of the IT Act.

u Reduction of investment allowance eligibility amount from INR 1 bn to INR 0.25 bn.

The statements of intent that need to be watched very closely:

u The intent to overhaul subsidy regime coupled with a New Urea Policy and the need to correct nutrient balance

u Fiscal deficit target of 3% for fiscal year 2016-17 and aspiration of 4.1% for fiscal year 2014-15

u Focus on industrial corridors and 100 smart cities

u Need to re-focus (read dilute) NREGA schemes

u Viability Gap Funding (VGF) to Urban Projects by Central Government

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u National market for farm products and dilution of state level APMC mechanism

u INR 1 bn funding for project report on river linking project

In course of time, some of the above will help tackle the fiscal targets and inflation.

The Budget has also announced steps to make the Tax Regime predictable and favorable.

There were some disappointments which were contrary to expectations:

u Retrospective amendment to section 9 of the IT Act for indirect transfers (Vodafone case) has not been repealed and recommendations of Dr Shome Committee not dealt with

u Challenges in the GAAR regime and its implementation not addressed

u In spite of making right noises about GST & DTC, the Budget stopped short of defining timelines for implementation

Overall, considering that the FM was constrained to come up with major policy document in 45 days; the budget is a very good directional exercise. A sustained momentum coupled with other policy and administrative steps can create the right framework for a bolder Union Budget, 2015-16 and act as a major catalyst in nudging the economy into a fast orbit!

Milind Kothari Managing Partner

BDO India LLP July, 2014

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CONTENTS

1. BUDGET SNAPSHOT ......................................................................... 1

2. DIRECT TAX PROPOSALS ................................................................... 2

3. INDIRECT TAX PROPOSALS

3.1. GOODS AND SERVICES TAX ........................................................16

3.2. CUSTOMS .............................................................................16

3.3. CENTRAL EXCISE ....................................................................29

3.4. SERVICE TAX AND CENVAT CREDIT ..............................................44

3.5. COMPLIANCE CHART ...............................................................57

4. FDI PROPOSALS ............................................................................59

5. GLOSSARY OF TERMS ......................................................................60

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1. BUDGET SNAPSHOT

Direct Taxu Tax rates remain unchanged

u Tax pass-thru status for REIT and IIT

u Extension of tax holiday for power sector

u ‘Roll back’ Mechanism introduced for APA schemes

u Income of Foreign Portfolio Investor to be characterised as capital gains

Indirect Taxesu Rationalisation of tax provisions to reduce litigations

u Peak rate of Customs Duty, Central Excise Duty and Service Tax remains unchanged to support economic growth

u BCD on multiple products reduced to boost domestic manufacturing and to arrest the issue of inverted duties

u Scope of Advance Rulings and Settlement Commission enhanced

u Service Tax amendments to provide for smooth transition towards GST implementation

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2. DIRECT TAX PROPOSALS

2.1 Corporate Tax u Investment Allowance for Medium Size Manufacturing Companies

TheFinanceBillproposestoextendthebenefitofinvestmentallowanceformanufacturing companies under section 32AC of the IT Act. It is proposed that a deduction of 15% of the cost of new assets acquired and installed after April 1, 2014 but before April 1, 2017 would be available, provided the cost of new assets is INR 250 mn or more during a fiscal year. The said amendment is extension of the investment allowance introduced vide Finance Act, 2013. Accordingly, the following situations could arise:

— Forfiscalyear2014-15:IfcostofnewassetsexceedsINR1bn,reliefcould be claimed under the present law or the proposed amendment, provided that the relief in either case would not exceed 15% of the cost of the new assets. If the cost of the new assets exceed INR 250 mn but does not exceed INR 1 bn, relief could be claimed under the proposed amendment.

— Forfiscalyears2015-16and2016-17:Reliefcouldbeclaimedunderthe proposed amendment, provided the cost of new assets acquired andinstalledduringaparticularfiscalyearexceedsINR250mn.

It needs to be noted here that unlike the present law, the amendment does not provide for aggregation of investments made in the previous years and theinvestmentthresholdistobeconsideredquaaparticularfiscalyear.

The amendment is aimed at encouraging investment in plant and machinery by Medium and Small Medium Enterprises in the manufacturing sector, by providing additional tax reliefs on such investments.

u Disallowance of Corporate Social Responsibility Expenditure

The Finance Bill proposes to add an Explanation to section 37(1) of the IT ActwhereinithasbeenclarifiedthattheexpenditureincurredformeetingCSR obligations under the new Company Law would not be treated as expenditure incurred for the purpose of business.

Theaboveamendmentwilltakeeffectfromfiscalyear2014-15.

The new Company Law mandates specified corporates to spend certain percentageoftheirprofitsonactivitiesrelatingtoCSR.However,asperthe proposed amendment, such expenditure would not qualify as deductible expenditure unless the same is in the nature of specific deductible expenditureprescribedunder section30 to36of the ITAct.Thiswillincrease the cost of undertaking CSR and may dissuade the corporate from fulfillingtheirresponsibility.

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u Loss on Purchase / Sale of Shares by Company Engaged in Trading of Shares

It is proposed to amend the Explanation to section 73 of the IT Act, wherein loss incurred on purchase / sale of shares by a company whose principal business is of trading in shares, shall not be considered as a speculation loss.

Theaboveamendmentwillbeeffectivefromfiscalyear2014-15.

Presently, any company deriving income primarily from business and profession, where part of business involves purchase and sale of shares, such business of purchase/sale of shares is deemed to be speculation business. Therefore such loss from purchase/sale of shares constituted speculation loss, which could not be set off against any other non-speculativeincome.However,asperExplanationtosection73oftheITAct,these provisions are not applicable to a company whose gross total income consists mainly of income which is chargeable under the heads ‘Income from HouseProperty’,‘CapitalGains’and‘IncomefromOtherSources’andtoa company whose principal business is that of banking or granting of loans andadvances.Takingacuefromthisprovision,theTaxOfficerstreatedlossfrom purchase/ sale of shares as speculation loss even in cases where the Assessees were engaged in the business of trading in shares.

The amendment proposes to rationalise the operation of this section by excluding a company whose primary business is purchase / sale of share.

u Concessional Tax Rate for Foreign Sourced Dividend Income

It is proposed to extend the benefit of concesional rates of 15% under section 115 BBD of IT Act to dividends received by Indian companies from foreignsubsidiariesforthefiscalyear2014-15andsubsequentyears.Toindian companies This amendment is aimed at encouraging corporate Assessees to repatriate money earned by subsidiaries outside India.

u Amended Calculation of Dividend and Income Distribution Tax

Section 115-O and section 115R of the IT Act have been proposed to be amended with effect from October 1, 2014 to modify the method of computing tax on distribution of profits / income. For the purpose of computingthedistributiontax,thetaxondistributionofprofits/incomeshall now be grossed-up.

Effectively, the amendment shall entail additional tax burden of approximately 3% on the distributable surplus.

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2.2 Transfer Pricingu Deemed International Transaction

An amendment has been made to the concept of ‘deemed international transaction’ under section 92B of the IT Act. The proposed amendment seeks to clarify that even a transaction entered into by an Assessee with a resident unrelated third party would be deemed to be an International transaction, if the same is pursuant to a prior arrangement between the third party and Associated Enterprise.

Theaboveamendmentwillapplyfortransactionsenteredintoinfiscalyear2014-15 and onwards.

Presently, in cases where the terms of transaction between the Assessee and the third party are determined between the third party and the Associated Enterprise, the transaction is deemed to be an International transaction. The Revenue Authorities have been invoking the deeming provisions in cases where transactions were entered into by Indian Assessees with Indian third parties. This was contested by the Assessees on the ground that transactions between two Indian residents could not be subject to international transfer pricing provisions.

With this amendment, the Assessees can no longer take an argument thattransactionbetweentwodomesticunrelatedparties(underspecifiedconditions) cannot be treated as deemed international transaction. Assessees would need to re-evaluate positions taken on applicability of transfer pricing provisions to their current transaction structures.

u ‘Roll back’ Mechanism for APA

The Finance Bill has proposed to introduce ‘Roll back’ mechanism in the present APA scheme enacted under section 92CC of the IT Act. As per the proposal, methodology agreed for determining ALP of an International transaction under an APA could be made applicable to period of upto four yearspriortothefirstyearcoveredundertheAPA.However,benefitofsuch‘Roll back’ would be available subject to certain conditions/rules which are to be prescribed.

This amendment will take effect from October 1, 2014.

The APA scheme was introduced to reduce potential transfer pricing litigation and provide certainty, but was limited to transactions to be entered in a future date. With this proposed amendment, certainty is sought to be brought to similar transactions that may have been entered in earlier years. While a ‘Roll back’ mechanism is proposed in principle, there is no clarity as regards the treatment of open issues, i.e., matters subject to transfer pricing scrutiny or appeals and its applicability to APAs agreed

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before October 1, 2014. Though a welcome change, the exact impact and benefitwillonlybeknownoncetheRulesarenotified.

u TransferPricingOfficerGivenPowertoLevyPenalty

TheAmendmentproposestonowempowereventheTransferPricingOfficersto levy penalty under section 271G of the IT Act when an Assessee fails to furnish prescribed information / documents.

This amendment will take effect from October 1, 2014.

UntilnowsuchpowerswerevestedonlywiththeAssessingOfficerortheFirstLevelAppellateAuthority.However,withtheproposedamendment,eventheTransferPricingOfficersshallhavepowertolevypenalty.

ThisproposalappearsrationalgiventhattheTransferPricingOfficerwillbein a better position to determine whether initiation of penalty proceedings iswarrantedornot,giventhefactsofaspecificcase.WhilethepowertolevysuchPenalty isgiventotheTransferPricingOfficer,similarpowervestedwiththeAssessingOfficer,continues.

u Concept of Arm’s Length Range

With an objective to align the Indian transfer pricing regulations with global best practices, in his Budget Speech the Finance Minister proposed to amend certain transfer pricing regulations pertaining to determination of ALP.

The Finance Minister proposed to introduce the concept of ‘arm’s length range’fordeterminationofALP.He indicatedthattherelevantdataforthe proposed amendment is under analysis and appropriate rules will be prescribedinduecourse.Hehoweverclarifiedthatthepresentmechanismof using ‘arithmetical mean’ would continue to apply where the number of comparables is ‘inadequate’.

Use of the ‘range concept’ in determination of ALP could provide more flexibility to Assessees for pricing transactions with their Associated Enterprises.However, it remains tobe seenhowandwhen the ‘rangeconcept’ is legislated in the Indian transfer pricing regulations. Guidance would also be expected for determining when would the number of comparablesbeconsideredas‘inadequate’fordenyingthebenefitof‘arm’slength range’ for determining ALP. Also, it remains to be seen how the concept of ‘arithmetic mean’ as it exists within the IT Act be overridden without any amendment to the relevant section.

u Use of Multiple year Data

As opposed to presently prescribed rule of using single year data for computing ALP, it is proposed that use of multiple year data would be permitted for determination of ALP.

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Though, in his budget speech, the Finance Minister mentioned that the regulations would be amended to give effect to the above, no such amendments have currently been proposed in the Finance Bill.

UseofmultipleyeardatacouldprovidesomeflexibilitytoAssesseesforsetting transfer prices in a volatile business environment. Implications can only be understood once the modalities are prescribed.

2.3 Taxation of Non-residentsu Characterisation of Income of FIIs

Thedefinitionoftheterm‘capitalasset’undersection2(14)oftheITActis proposed to be amended to include any securities held by FIIs, whether held has stock-in trade or otherwise. Consequently, with effect from April 1, 2014, any income on transfer of securities by FIIs shall be characterised as capital gains.

In view of CBDT’s circular issued earlier this year, the aforesaid provisions shall apply to the persons investing under the new FPI regime.

This much-awaited amendment shall provide clarity and bring to rest varied interpretations and contradictory rulings on the issue of whether the said income is in the nature of business income or capital gains. This amendment shall also allow Funds and Indian Asset Managers to take benefit of the amendment by SEBI and allow Fund Managers in India to manage foreign funds without adverse tax position that the Manager’s presence may create in India.

u Transfer of Government Security from Non-Resident to Non-Resident

Periodic interest bearing government securities transferred by one non-resident to another non-resident shall not be considered as transfer for the purpose of capital gains with effect from April 1, 2014.

This amendment is proposed to facilitate listing and trading of government securities outside India. This amendment shall encourage broader participation of non-resident in government securities and create a broader market with minimal compliance with respect to computation of tax liability.

u Concessional Withholding Rate on ECBs – Expanded and Extended

Lower withholding rate of 5% on foreign borrowings on issue of long term infrastructure bonds is now proposed to be expanded to include any long term bond with effect from October 1, 2014. Such concessional rate is extended to borrowings made before July 1, 2017 by way of issue of any long term bond, including long term infrastructure bonds.

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Though this amendment allows raising loan or issuance of bonds in foreign currency, similar provision for rupee denominated bonds has not been extended beyond June 1, 2015.

2.4 Individual Taxation u Increase In Limit of Deduction for Interest on Housing Loan

Consideringtheincrease inthecostofhousingandtheincreasedfinancecost, it is proposed to increase the deduction limit for interest cost under section 24(b) of the IT Act from INR 150,000 to INR 200,000. This amendment shall be effective from April 1, 2014.

This is a welcome amendment and will enable smaller Assessees to save taxes on purchasing house property with lower aggregate costs.

u Capital Gain Exemption Restricted to One House.

Currently, the provisions of section 54 of the IT Act provide for an exemption in respect of long term capital gains arising on transfer of a house property if the said gains are used to construct or purchase, a house property, within specified time limits. The language of this section was unclear on whether such exemption could be availed in case an Assessee purchases or constructs more than one property. To address this ambiguity, the amendment has been proposed to restrict the exemption to investment inonlyonehousepropertyfromfiscalyear2014-15.

u Increase in Limit for Investment Linked Deduction

The Finance Bill proposes to increase the deduction limit for investments prescribed under section 80C of the IT Act to INR 150,000. This amendment will be effective from April 1, 2014.

Under the existing provisions, a deduction of upto INR 100,000 is allowable withrespectto investmentsmadeorsumdeposited incertainspecifiedinstruments like Life insurance, Provident Funds, etc. The above limit was earlier prescribed vide Finance Act, 2005 and has now been revised after almost 10 years.

u Withholding Tax on Certain Receipts from Life Insurance Policy

Under the proposed provision of section 194DA of the IT Act, any amount paid by the life insurance provider to an Assessee, excluding any amount exempt under section 10(10D) of the IT Act, shall be subjected to tax withholdingat therateof2%.However, toavoidanyhardship tosmalltax payers, these provisions shall not be applicable if the aggregate sum receivedduringafiscalyearislessthanINR100,000.Thisamendmentwillbe effective from October 1, 2014.

This provision now casts additional compliance obligation on life insurance companies.

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2.5 Other Key Amendmentsu ChangeinDefinitionofShortTermCapitalAsset

Definitionofshorttermcapitalassetundersection2(42A)ofthe ITAct,has been proposed to be amended such that an unlisted security and a unit of a mutual fund (other than an equity oriented mutual fund) shall be a considered to be a short term capital asset, if the same is held for a periodnotmorethan36monthsasagainstearlierperiodof12months.Thisamendmentwillbeeffectivefromfiscalyear2014-15.

This amendment has far reaching implications on the Mutual Fund industry where the indexation benefits on Fixed Maturity Plans, having maturity period of just over 12 months, availed by large investors, will now not be available. This could have substantial tax impact in relation to the existing investments in units of such funds.

Further, shares of an unlisted company will no longer enjoy the shorter holding period for it to qualify as long term capital asset.

u Tax Rate on Long Term Capital Gains

Theoptiontoavailbenefitoftaxonlongtermcapitalgainsattherateof10%, without indexation, under section 112 of the IT Act, is now proposed to be limited only to listed securities (other than units of Mutual Funds). Thisamendmentwilltakeeffectfromfiscalyear2014-15.

This is an additional blow to the investors of debt oriented mutual funds, especially,fixedmaturityplans.

u DeductionforSpecifiedBusinesses

The Finance Bill proposes to include the following businesses to the list of specifiedbusinessesthatwouldbeeligibletoclaimdeductionforcapitalexpenditure under Section 35AD of the IT Act:

— Laying and operating slurry pipelines for transportation of iron ore

— Setting up and operating of semiconductor wafer fabrication manufacturingunit(ifsuchunitisnotifiedbytheCBDT,inaccordancewith the prescribed guidelines)

Further, it is proposed that the capital asset on which such deduction is claimedshouldbeusedonlyforthepurposeofsuchspecifiedbusinessatleastforaperiodof8yearsbeginningfromthefiscalyear inwhichsuchassetisacquiredorconstructed.Incasethesaidconditionisnotsatisfied,an amount representing the difference between deduction claimed and depreciation otherwise allowable under the IT Act would be taxable in hands of the Assessee in the year in which the said condition is breached.

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However, thiscondition would not be applicable to a sick company as definedundertheSickIndustrialCompanies(SpecialProvisions)Act,1985.

It has been further proposed that Assessees claiming deduction under Section 35AD of the IT Act would not be entitled to claim deduction under section 10AA of the IT Act.

The above amendments will take effect from Fiscal Year 2014-15

The proposed amendments have been inserted to reinforce the intent that deduction on capital expenditure should be allowed only if the asset is used onlyforthepurposeofspecifiedbusinessforaminimumperiodof8years.

u Rationalisation of Exemption for Investment in Capital Gain Bonds

An amendment has been proposed to section 54EC of the IT Act, which provides that the exemption pursuant to the investment made by an Assessee, in the year of transfer of the long term asset and in the subsequent year, shall not exceed INR 5 mn. This amendment will be effectivefromfiscalyear2014-15.

Section 54EC of the IT Act provides for an exemption of upto INR 5 mn in respect of capital gains arising from a sale of long term capital assets, incasethegain is invested inspecifiedlongtermbondswithinaperiodof6monthsfromthedateoftransferoforiginalasset.Theprovisionsofthis section were ambiguous, which led to interpretational challenge that theexemptionunderthissectioncouldbeclaimedintwofiscalyears.Toremove this ambiguity and give effect to the intent behind enactment of this exemption, suitable amendment has been proposed.

However,theproposedamendmentdoesnotanswerwhethertheearlierinterpretation was accurate or otherwise.

u Taxability of Advance Money Received for Transfer of a Capital Asset

Amendmentisproposedtosection56(2)oftheITActtotaxforfeitureofmoney received as advance or otherwise in the course of negotiations for transfer of capital asset and such negotiations do not result in transfer of such asset.

Thisamendmentwilltakeeffectfromfiscalyear2014-15.

Due to the proposed amendment, the amount forfeited would be taxed as Income from Other Sources. There will be no impact on the cost of acquisition for the purpose of computing capital gains on actual transfer of asset.

As per the present provisions of section 51 of the IT Act, any advance or other money received and forfeited by the Assessee in respect of

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negotiation of transfer of such asset is reduced from the cost /written down value /fair market value of the asset while computing capital gains. Consequential amendment has also been made to the section 51 of the IT Act in order to avoid any double taxation of the forfeited amount.

u Extension of Sunset Clause for Power Companies

It isproposedtoamendsection80-IAofthe ITActtoextendtheprofit-linked tax holiday for Assessees having undertakings carrying out generation, distributionandtransmissionofpowerfromfiscalyearMarch31,2014tofiscalyearMarch31,2017.

This proposal is a relief to the power companies which will now commence their operations.

u Computation of AMT

The Finance Bill proposes to amend provisions of section 115JC of the IT Act relating to computation of AMT in cases of non-corporate Assessees claiming Investment-linked deductions.

Thisamendmentwilltakeeffectfromfiscalyear2014-15.

As per the existing provisions for computation of AMT under section 115JC of the IT Act, the adjusted total income is to be increased by certain Profit-linkeddeductionsclaimedbyanAssessee.However,noadjustmentwas prescribed for Investment-linked deductions. As per the proposed amendment, in case of eligible business, the adjusted total income for computing AMT is to be increased by the deduction claimed under section 35AD of the IT Act and reduced by the depreciation that may have been available under section 32 of the IT ACT on such capital expenditure.

With this amendment, the AMT computation is proposed to be harmonised in case of non-corporate Assessees claiming Investment-linked deductions.

u Credit of AMT

As per the proposed amendment, AMT credit under section 115JD of the IT Act is now allowed to be set off in subsequent years, even in cases where adjusted total income of eligible Assessees is less than INR 2 mn or in case whereprofit-linkeddeductionsarenotclaimedduringtheyear.

Thisamendmentwilltakeeffectfromfiscalyear2014-15.

Earlier, the provisions of the Chapter XII-BA were applicable only to eligible Assesseesclaimingprofitlinkeddeductionsandhavingadjustedtotalincomein excess of INR 2 mn as prescribed under section 115JEE of the IT Act. Thus, there arose an anomaly that credit for AMT would be available only in the year where the Chapter XII-BA applies. The amendment proposes to do

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away with this anomaly and accordingly, credit for AMT would be available even in the subsequent year even if the provisions of the Chapter XII-BA do not apply.

u Tax Regime for REIT and IIT (Business Trust)

SEBI released consultation paper on draft regulations for business trust in the last quarter of 2013. In anticipation of the relevant regulation being formalised, tax regime under section 115UA of the IT Act for such business trusts is proposed with effect from October 1, 2014.

Key provisions are as under:

— Listed units of the business trust shall be treated at par with listed equity shares. On being traded, transaction of such units shall be subject to STT. Long term capital gains would be exempt from tax and short term capital gains shall be taxable at 15%.

— Business trust shall be treated a pass through entity for taxation of interest income.However, incomefromcapitalgainsondisposalofassets (including shares) shall be chargeable to tax in the hands of business trust at applicable rates. Other income in the hands of the trust shall be taxable at MMR.

— Interest income received by the business trust shall not be subject to withholding and shall not be taxed in its hands. Such interest income, when distributed, shall be subject to tax withholding @ 10% for interest paid to resident investors and 5% for interest paid to non-resident investors.

— Interest paid to non-residents in case of ECB availed by business trust shall be subject to withholding tax at 5%, provided such loan is availed in consonance with conditions laid down in section 194LC of the IT Act.

— Dividend received by the business trust shall be subject to DDT in the hands of Investee Company. Such dividend will be exempt in the hands of business trust as well as the investors.

— The business trust is required to furnish its return of income.

The effectiveness of this structure would principally be relevant for investorswhowould liketotakethebenefitofsteadyreturnsfromthereal estate and the infrastructure sector with the ability to liquidate the investment. Considering the fact that gain on sale of underlying portfolio is taxable in the hands of the business trust, foreign investors having the reach and ability to invest in the companies directly, will evaluate the benefitsofinvestingthroughthispoolingstructure.

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u Mutual Funds, Securitisation Trusts and Venture Capital Companies Or Venture Capital Funds to Furnish Return of Income

Section 139 of the IT Act has been proposed to be amended to extend the compliance requirement of furnishing of return of income for Mutual Funds, Securitisation Trusts and Venture Capital Companies or Venture Capital Funds.

Thisamendmentwilltakeeffectfromfiscalyear2014-15.

Such funds, trusts and companies were earlier not obligated to furnish Return of Income. Instead they were required to furnish a statement giving details of the nature of the income paid or credited during the year and other prescribed details. With the amendment, such funds, trusts and companies shall be required to furnish the return of income in respect of income, without giving effect to the provisions of section 10 of the IT Act, which exceed the maximum amount which is not chargeable to income tax.

u Tax Accounting Standards

The proposed amendment to section 145 of the IT Act seeks to clarify that theaccountingstandards,asmaybenotifiedbytheCentralGovernment,are relevant only for the purpose of computing the taxable income and there is no obligation cast upon the Assessees to maintain books of accountsaspersuchaccountingstandards.However,thetaxauthoritiesare empowered to carry out a best judgement assessment in case it is establishedthattheAssesseehasnot followedsuchnotifiedaccountingstandards while determining the taxable income.

This is a welcome amendment which aims to clarifying the position that the Assessees are not required to maintain a dual set of books of accounts and itissufficientifsuchstandards,asandwhentheyarenotified,arefollowedby the Assessees while computing their taxable income.

u Disallowances on Account of Tax Withholding Defaults

As per the proposed amendment to section 40(a)(ia) of the IT Act, no disallowance of expenditure would be made in cases where withholding tax on payments/ credits made to non-residents are deposited within the due dateoffilingReturnofIncome.

Further, the Finance Bill proposes to restrict the disallowance of expenditure to 30% of expenditure claimed on payments/ credits made to residents, as against the current disallowance of the entire expenditure. It may be noted

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that the said relief would not be allowable in case of payments/ credits made to non-residents and hence the entire amount thereon would continue to be disallowed in case the conditions for deducting and depositing the withholding tax are not complied with.

Further, it is proposed that disallowance under this section would now be applicable for all payments to a resident which is subject to deduction of tax at source under Chapter XVII-B of the IT Act (Deduction at Source).

TheaboveamendmentsareapplicableforthefiscalyearbeginningonApril1, 2014 and subsequent years.

The controversy with respect to applicability of this section on short deduction of taxes remains unaddressed.

u Tax Withholding Compliances And Proceedings

The Finance Bill proposes to insert a proviso to section 200 of the IT Act, whichexpresslyempowersAssesseetofilecorrectionstatements.Underthe present law, there was no provision under the IT Act for enabling an Assessee to file a correction statement against the tax withholding statements filed.However,byvirtueofanotificationandtherelevantutilities available on the website of the tax authorities, the Assessees could filetheircorrectionstatement.

In order to align the time limit for passing such order with that of initiation of reassessment proceedings, it is proposed that the time limit for passing anorderbythetaxauthoritieswouldbe7yearsfromtheendofthefiscalyear of payment/ credit. This would be applicable from October 1, 2014. Thepresentlawprovidesforatimelimitof2years(or6years incaseatax withholding statement has not been furnished) for passing of order by the income tax authorities deeming an Assessee as ‘Assessee in default’ for failure to deduct tax from payments made to a resident.

This amendment is aimed at giving sufficient time to the income tax authorities to determine cases of defaults in tax withholding on payments to residents. It needs to be noted that the present law does not provide for any time limit in case of passing orders for defaults in tax withholding on payments to non-residents.

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2.6 Rates of Income-tax at a glance Individual / Hindu Undivided Family / Association of Persons / Body of

Individuals TheBillhasproposedtochangetheexistingtaxstructureforindividuals,HUFs,

AOPandBOIrevisingthebasicexemptionlimit.Theratesoftaxforfiscalyear2014-15 are proposed as under:

Income Slabs (INR)

Individual HUF / AOP / BOIAge below

60 yrsAge above

60 but below 80

yrs

Age 80 yrs and above

Upto 250,000 NIL NIL NIL NIL

250,001 – 300,000 10% NIL NIL 10%

300,001 – 500,000 10% 10% NIL 10%

500,001 – 1,000,000 20% 20% 20% 20%

1,000,001 & above 30% 30% 30% 30%

Surcharge shall be levied @ 10% where the taxable income exceeds INR 10 mn.

TheEducationcessandSecondaryandHighereducationcessshallcontinuetobelevied at the rate of 2% and 1% respectively.

Marginal relief will continue to be allowed in cases where taxable income is more than INR 10 mn.

Partnership Firm / Limited Liability Partnerships

Theratesof IncometaxwillcontinuetobethesameasthosespecifiedforFY2013-14.

Limit Tax Rate (%)

On the whole of the total income 30%

Surcharge shall be levied @ 10% where the taxable income exceeds INR 10 mn

TheEducationcessandSecondaryandHighereducationcessshallcontinuetobelevied at the rate of 2% and 1% respectively.

Marginal relief will continue to be allowed in cases where taxable income is more than INR 10 mn.

Company

Corporate tax rates remain unchanged for both domestic as well as foreign companies.Theapplicableratesoftaxforfiscalyear2014-15are:

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Sr. no Particulars Basic

Tax Rate

Surcharge

Total Income

upto INR 10 mn

Total Income

above INR 10 mn upto INR 100 mn

Total Income

above INR 100 mn

1. Domestic Company

Normal Tax Rate

Minimum Alternative Tax

30%

18.50%

Nil

Nil

5%

5%

10%

10%

2. Foreign Company

Normal Tax Rate 40% Nil 2% 5%

TheEducationcessandSecondaryandHighereducationcessshallcontinuetobe levied at the rate of 2% and 1% respectively on the amount of tax computed inclusive of surcharge(wherever applicable) in all cases.

Marginal relief will continue to be allowed in cases where taxable income is more than INR 10 mn or INR 100 mn.

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3. INDIRECT TAX PROPOSALS

3.1 GOODS AND SERVICES TAX

The Union Finance Minister in his Budget Speech has categorically stated that time has come for introduction of Goods and Services Tax (GST) and there is no scope foranyfurtherdebateontheefficacyoftransitiontoGST.Emphasizingontheimportance of GST which would bring reforms in tax administration and would be a booster to the economy, the Union Finance Minister said that he is individually and collectively meeting the States to iron out the contentious issues.

The Union Finance Minister has clearly indicated that the necessary legislative changes for introduction of GST would be brought by the end of the year. While delivering the budget speech, he said that the government’s overall objective is to prepare indirect tax regime for a smooth transition to GST and hence the budgetary changes in indirect taxes have been kept at a minimal level.

While the industry was expecting a much stronger intent statement and a clear roadmap to implementation of GST in the Budget Speech, the Union Finance Ministerhascleverly laiddownthe intentwithoutemphasizingonanyclearroadmap, considering our federal structure and the consensus required from the States to usher in this milestone tax reform.

Overall, the Budget Speech lays down a clear and strong intent towards early implementation of GST and the industry expectation of possible implementation ofGSTbyApril01,2016seemstobequiteachievable.

3.2 CUSTOMS

u Baggage Rules [to be effective from July 11, 2014] :

Baggage Rules, 1998 have been amended to allow passengers returning to India to carry duty free articles to the extent –

i) Passengers above 10 years of age:

• After staying abroad for more than three days – Articles upto INR 45,000/- (Previous limit – INR 35,000/-)

• After staying abroad for three days or less – Articles upto INR 17,500/- (Previous limit – INR 15,000/-)

ii) Passengers upto 10 years of age:

• After staying abroad for more than three days – Articles upto INR 17,500/- (Previous limit – INR 15,000/-)

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iii) Passengers who are returning to India shall be allowed to carry duty free:

• Cigarettes upto 100 (Previous limit – 200)

• Cigars upto 25 (Previous limit – 50)

• Tobacco upto 125 gms (Previous limit – 250 gms)

u Advance Rulings [to be effective from July 11, 2014]

Resident Public Limited Company was already included in the class of person eligible for making an application for Advance Ruling. Now “resident private limited company” has also been included in the said class of persons.

u Legislative changes:

Exemption with Retrospective Effect [to be effective from the date to benotifiedafterthefinancebillreceivestheassentofthepresident]:

(a) Mineral oils (including petroleum and natural gas) extracted or producedinthecontinentalshelfofIndiaorexclusiveeconomiczoneofIndiaasreferredtoinsection6andsection7,respectively,oftheTerritorial Waters, Continental Shelf, Exclusive Economic Zone and OtherMaritimeZonesAct,1976,andimportedpriortothe7thdayofFebruary, 2002 have been exempted from the whole of customs duties withretrospectiveeffect.However,norefundofanycustomsduties,if any, already paid in respect of such mineral oils shall be available.

(b) Notification 12/2012 Customs dated 17th March 2012 has been retrospectively amended to exempt LPG imported during February 8, 2013 to July 10, 2014 for supply to non –domestic exempted category customers.

Amendments to Customs Act, 1962 [to be effective from the date to be notifiedafterthefinancebillreceivestheassentofthepresident]:

• Settlement Commission

(a) Customs and Central Excise Settlement Commission’ has been redefined to mean “Customs, Central Excise and Service Tax Settlement Commission”.

(b) Previously the applicant for settlement of cases was not allowed to make application to the Settlement Commission before the expiry of 180days from thedateof seizure.Now the saidrestriction has been deleted.

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(c) The order of the Settlement Commission provides for imposition of penalty on the applicant on the ground of concealment of particulars of duty liability. An explanation has been added to clarify that the said concealmentismadeonlyfromtheofficerofcustoms.

• Litigation

(a) Whenthedemandforduty/penalty/fine isupto INRTwoLakhs,theAppellate Tribunal may in its discretion, refuse to admit an appeal. (Previous limit was INR Fifty Thousand).

(b) The provisions for allowing stay by the Appellate Tribunal have been omitted. A new section 129E has been introduced which stipulates that the Tribunal/ Commissioner (Appeals) shall admit an appeal subject to the conditions that Appellant has deposited the following:

• 7.5%oftheduty/penaltyconfirmedintheOrder-in-Original

• 10% of the duty/penalty confirmed in the order of the Commissioner (Appeal).

However,theamountrequiredtobedepositedunderthissectionshall not exceed INR 10 crores.

The above conditions shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance Act, 2014.

(c) The three months limit for review of the Order-in-Original passed by the Commissioner of Customs by the Committee of Chief Commissioners may be extended by the Board for a period of another thirty days.

(d) Section 131BA is being amended so as to enable the Commissioner (Appeal) to take into consideration the fact that a particular order being cited as a precedent decision on the issue has not been appealed against, the amount involved being lower than the monetary limits laid down by the Board.

• Import of Goods through Land Route

(a) FilingofBillofEntrypriortothefilingofImportManifestforimportby vessel or aircraft was allowed. Now the said facility has been extended to imports through land route.

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Amendments in Customs Tariff Act, 1975

I. Agriculture/Agro Processing/Plantation Sector [to be effective from July 11, 2014]:• Rates - Downward revision of Duty/ Rate: Imports :

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 2302 40 00 Rice bran (upto 31 December 2014)

30% Nil

2. 2304 De-oiled soya extract (upto 31 December 2014)

30% Nil

3. 2305 Groundnut oil cake/oil cake meal (upto 31 December 2014)

30% Nil

4. 230630 Sunfloweroilcake/oilcakemeal (upto 31 December 2014)

30% Nil

5. 23066000 Palm kernel cake (upto 31 December 2014)

30% Nil

6. 230690 Canola oil cake/oil cake meal,

Mustard oil cake/oil cake meal,

Rice bran oil cake (upto 31 December 2014)

30% Nil

II. Chemicals and Petrochemicals

• Rates - Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 2711 12 00 Propane 5% 2.5%

2. 2901 10 00 Other goods 5% 2.5%

3. 2901 21 00 Ethylene 5% 2.5%

4. 2901 22 00 Propylene 5% 2.5%

5. 2901 24 00 Butadiene 5% 2.5%

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Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

6. 2902 41 00 O-Xylene 5% 2.5%

7. 2905 11 00 Methyl alcohol 7.5% 5%

8. 2707 40 00 Naphthelene 10% 5%

9. 3823 11 11

3823 11 12

3823 11 19

3823 11 90

3823 12 00

3823 13 00

3823 19 00

2915 70

All goods for use in the manufacture of soaps and Oleochemicals

7.5% Nil

10. 1520 00 00 Crude glycerin (in general) 12% 7.5%

11. 1520 00 00 Crude glycerin (for manufacture of soap)- subjecttospecifiedconditions

12.5% Nil

12. 2207 20 00 All goods (Denatured Ethyl Alcohol)

7.5% 5%

13. 15 Fatty acids, crude palm stearin, RBD and other palm stearin and

specifiedindustrialgradecrude oils

7.5% Nil

II. Energy Sector

• Rates - Upward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 2701 19 10 Coking coal Nil 2.5%

2. 2701 12 00 Bituminous coal 2% 2.5%

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Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

3. 2701 19 20 Steam coal 2% 2.5%

4. 2704 00 Metallurgical coke Nil 2.5%

• Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 2701 11 00 Anthracite coal 5% 2.5%

2. 2701 19 90 All goods 5% 2.5%

IV. Textiles:

• Rates - Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 2929 10 90 Diphenylmethane 4,4 di-isocyanate (MDI) for manufacture of spandex yarn

5% Nil

2. 3907 20 10 Polytetramethylene ether glycol

5% Nil

• Others

Sr. No.

Description Comments

1. Duty free imports of trimmings and embellishment and other goods used by the readymade garment sector for manufacture of garments for export.

Rate increased from 3% to 5%

V. Metals:

• Rates - Upward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 7219, 7220 Stainlesssteelflatproducts 5% 7.5%

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• Rates- Upward revision of Duty/ Rate: Exports

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

2. 26060010 Bauxite (natural), not calcined

10% 20%

3. 26060020 Bauxite (natural), calcined 10% 20%

• Rates - Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 8908 00 00 Ships imported for breaking up

5% 2.5%

2. 2708 Coal tar pitch 10% 5%

3. 8548 10 10 or

8548 10 20

Battery scrap and battery waste

10% 5%

4. 2518 Dolomite for metallurgical use

conformingtoIS:10346-2004

5% 2.5%

5. 2521 Limestone for metallurgical use

conforming to IS: 10345-2004

5% 2.5%

VI. Precious Metals:

• Rates - Upward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 71 Half-cutorbrokendiamonds Nil 2.5%

2. 71 Lab-grown diamonds and colored gemstones

2% 2.5%

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• Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 7103 Pre-forms of precious and

semi-precious stones

Tariff Rate Nil

• Others

Sr. No.

Description Comments

1. Goods covered under Chapter 71 for re-import of specified diamonds after certification/ grading by agencies specified under FTP.

Diameter for round shape diamond increased to +-0.05mm from +-0.01mm and +-0.07mm in length and breadth for diamonds of other shapes

VII. Electronics/Hardware:

• Rates - Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 8529 LCD and LED TV panels of below 19 inches

10% Nil

2. 8540 11 Colour television picture tubes for

use in the manufacture of cathode

ray televisions

10% Nil

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Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

3. 8529,4016 The following goods for use in the

manufacture of Liquid Crystal

Display (LCD) and Light Emitting

Diode (LED) TV panels of heading

8529, namely:-

(i) Opencell(15.6”andabove);

(ii) Plate diffuser;(iii) Film diffuser;(iv) Reflectorsheet;(v) Film, top;(vi) Film, middle;(vii) Film, bottom;(viii) BAR, LED;(ix) Cushion /Gasket;(x) Bezzal;

(xi) Back cover sheet

Tariff Rate Nil

4. 90 or any chapter

Portable X-ray machine / system

Tariff Rate Nil

5. 8543 E-Readers 7.5% Nil

• Others

Sr. No.

Description Comments

1. Electronic products like line telephone sets, line video phones, telephone answering machines, recorded media for reproducing phenomena other that sound and image, parts of electronic integrated circuits, facsimile machines, units of automatic data processing machines, etc.

Education Cess and Secondary HigherEducationCessleviableon CVD.

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Sr. No.

Description Comments

2. Inputs/components used in the manufacture of Personal Computers (laptops/desktops) and tablet computers.

Exempted from SAD subject to actual user conditions.

3. Import of specific telecommunication products like soft switches, optical transport equipments, MIMO or LTE products.

BCD levied @ 10 percent, Specifiedproductsexemptsubject to certain conditions.

4. PVC sheet and ribbon used in manufacture of smart cards

SAD exempted, subject to specifiedconditions

5. Portable x-ray machine / system stands CVD exemption withdrawn

VIII. RENEWABLE ENERGY:

• Rates - Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 73269099 Forged steel rings for manufacture ofspecial bearings for use in windoperated electricity generators

10% 5%

2. 3208, 3815,

3901, or 3920

The following goods for use in the manufacture of EVA (Ethylene Vinyl Acetate) sheets or backsheet,which are used in the manufacture of solar photovoltaic cells ormodules, namely:-(i) EVA resin;(ii) EVA masterbatch;(iii) Poly ethylene

terephthalate(PET)film;(iv) Polyvinylfluoride(PVF);(v) Poly vinyl di-fluoride

(PVDF);(vi) Adhesive resin; and

(vii) Adhesive hardner

Tariff Rate Nil

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Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

3. 7408 Flat copper wire for use in the

manufacture of photo voltaic ribbon

(tinned copper interconnect) for

manufacture of solar photovoltaic

cells or modules

5% Nil

• Others

Sr. No.

Particulars Comments

1. Machinery, Equipments, etc required for initial setting up of compressed biogas plant.

Concessional duty of 5%

2. Machinery, equipments, etc. required for initial setting up of solar energy production project.

Concessional duty of 5% and CVD and SAD of Nil rate.

3. Parts and raw material required for manufacture of wind-operated electricity generators

FullyexemptfromSAD,subjecttospecifiedconditions

IX. CAPITAL GOODS/INFRASTRUCTURE:

• Others

Sr. No.

Particulars Conditions

1. Mono rail project import scope Scope extended to Metro rail projects

• Plants&Equipmentimportedpriorto2008foruseinprojectsfinancedbytheUN or an international organization can be disposed off in following manner:

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Sr. No.

Particulars Conditions

1. Transfer to a new project 1.Acertificatestatingthatthegoodsareno more required for the old project should be obtained from the concerned officerofCentralorStateGovernmentor Union territory Administration

2. A declaration from UN or specified international organization stating that goods are required in the new project approved by the Government of India.

2. Re-exportation 1.Identificationofgoodsinrequired;

2. Export incentives cannot be claimed.

3. Sale 1. Payment of Customs duty on depreciated value calculated by Straight Line Method, subject to maximum 70%.

X. HEALTH

• Others

Sr. No.

Particulars Conditions

1. Anti Retroviral Drugs (ARV Drugs ), Diagnostic kits and equipments required for National AIDS Control Programmed funded by the globalfundtofightAIDS,TBandMalaria

BCD and CVD exempt upto 31st March 2015

XI. SECURITY AND STRATEGIC PURPOSES

• Rates - Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 39 or any

Chapter

Raw materials for use in manufacture of security fibreandsecuritythreadsfor supply to Security Paper Mill,

Tariff Rate Nil

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Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

HoshangabadandBankNotePaper Mill India

Private Limited, Mysore for use inc manufacture of security paper.

• Others

Sr. No.

Particulars Conditions

1. Goodsfallingunderfirstschedule to the Customs Tariff Act,1975 related to defense and internal security forces when imported by National Technical ResearchOrganization(NTRO)and Indian Offsite Partner (being contractor of NTRO)

BCD and CVD exemption, subject to certain conditions

XII. MISCELLANEOUS:

• Rates - Downward revision of Duty/ Rate: Imports:

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 85 or any other chapter

Electrolysers and their parts/spares

required by caustic soda or caustic potash units and membranes and their parts/spares

required by industrial plants based on membrane cell technology

5% 2.5%

2. 85 or any other chapter

Other Parts (other than Membranes and part thereof)

7.5% 2.5%

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• Rates - Upward revision of Duty/ Rate: Imports

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 3903 19 90 Polystyrene (other than moulding

powder) when imported from Singapore

1.15% 7.5%

• Others

Sr. No.

Particulars Conditions

1. Un-registered public funded and other research institutions importingscientificandtechnical instruments and apparatus.

Customs duty and additional duty payable, However,refundinexcessof5%ofcustomduty and entire additional duty can be claimed after obtaining registration and subject to limitation period not exceeding one year.

Safeguard Duty [to be effective from July 11, 2014] :Safeguard duty exempted on imports by EOU or SEZ have been made subject to an additional condition that the said goods are not cleared into the Domestic Tariff Area or used in the manufacture of any goods which are cleared into the Domestic Tariff Area.

3.3 CENTRAL EXCISE

u LEGISLATIVE AMENDMENTS:

I. Amendments to CE Act [to be effective from the date of enactment oftheBill,unlessotherwisespecified]:

• A new Section 15A is being inserted in the Act empowering the Central Government to prescribe an authority or agency towhomthe informationreturnshallbefiledbythespecifiedpersons such as Income tax authorities, State Electricity Boards, VATorSalesTaxAuthorities,RegistrarofCompanies,RecognizedStock Exchange, Depository, Officer of RBI, amongst others. Another new Section 15B is also being inserted so as to provide for imposition of penalty on the specified person on failure to furnish information return. The purpose of collecting the informationistoidentifytaxevadersorrecoverconfirmeddues.

• A few amendments in the provisions relating to ‘Settlement Commission’ are being carried out as follows:

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(i) Section 31(g) and Section 32(1) are being amended to change the name of the ‘Customs & Central Excise Settlement Commission’ to the ‘Customs, Central Excise & Service Tax Settlement Commission’.

(ii) Section 32E(1) is being amended to replace the reference to Section 11AB with a reference to Section 11AA (relating to interest).

(iii) Section 32E(1) is being amended to allow filing of applications of settlement before the Settlement CommissionincaseswheretheapplicanthasnotfiledtheReturns after recording reasons for the same.

(iv) Sub-section (2) of Section 32E prohibits the filing of application before the expiry 180 days from the date of seizureofanyexcisablegoods,booksofaccountsorotherdocuments under the provisions of the Act or the Rules made thereunder. Section 32E is being amended to omit sub-section (2) since the same is redundant.

(v) Section 32O is titled ‘Bar on subsequent application for settlement in certain cases’. Section 32O(1) is being amended so as to insert an explanation thereunder to read – ‘In this clause, the concealment of particulars of duty liability relates to any such concealment made from the Central Excise Officer’. The amendment had become necessary as there were doubts as to whether ‘concealment’ referred to ‘concealment before the SettlementCommission’or‘CentralExciseOfficer’.

Parallel amendments are also made in the relevant provisions of the Customs Act.

• Second proviso to Section 35B(1) vests discretionary powers in the Tribunal to refuse admission of appeal where the duty involvedortheamountoffineorpenaltydetermineddoesnotexceed INR 50,000/-. Section 35B(1) is being amended so as to increase this monetary limit for the purpose of exercise of discretionary powers of the Tribunal from INR 50,000/- to INR 2,00,000/-.

• Section 35F provides for the filing of stay application before the Commissioner (Appeals) or Appellate Tribunal for the waiver of condition of pre-deposit of duty demanded, interest levied and/orpenaltyimposedincaseofanappealbeingfiledbefore

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the Appellate authority. Section 35F is being substituted with a newSectionsoastoprescribeamandatoryfixedpre-depositof 7.5% of the duty demanded or penalty imposed or both for filingappealwiththeCommissioner(Appeals)ortheTribunalatthefirststageandanadditional10%ofthedutydemandedorpenalty imposedorbothforfilingsecondstageappealbeforetheTribunal.However,theamountofpre-depositpayableshallbe subject to a ceiling of INR 10 crores. Consequently, there wouldnotbeanyrequirementfortheAppellanttofileanystayapplication before the appellate authority once this mandatory condition of pre-deposit is complied with.

• Section 35C(2A), inter alia, requires the Tribunal to dispose of an appeal within a period of 180 days from the date of stay order in case where stay order is made in any proceeding relating to an appealfiledbeforeit. Incaseofnon-disposalofappealwithinthe stipulated period, the stay order stands vacated on expiry ofthesaidperiod.However,theTribunalhasbeenempoweredto extend the validity of stay order upto maximum period of 365daysonanapplicationbeingmadebytheAppellantforthepurpose.

As with the insertion of new Section 35F as aforesaid, the above requirements contained in first, second and third proviso to Section 35C(2A) have become irrelevant and the same are being omitted.

• Section 35E provides for the review powers of Committee of Chief Commissioners of Central Excise or Commissioner of Central Excise in certain circumstances. These powers are required to be exercised within a period of three months from the date of communication of the decision or order of the adjudicating authority that is the subject matter of review by the Committee. A proviso in sub-section (3) is being inserted in Section 35E to vest the Board with the power to condone delay for a period upto 30 days for review by the Committee of Chief Commissioner of the orders-in-original passed by the Commissioner of Central Excise.

• Section 35L provides for the appeal to Supreme Court against the judgmentoftheHighCourtoranOrderpassedbytheAppellateTribunal. Section 35L is being amended so as to clarify that determination of disputes relating to taxability or excisability of goods is covered under the term ‘determination of any question having a relation to rate of duty’ and hence, appeal against

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the Orders of the Tribunal in such matters would also lie to the Supreme Court.

• Section 35R is being amended so as to enable the Commissioner (Appeals) to take into consideration the fact that a particular order being cited as a precedent decision on the issue has not been appealed against, the amount involved being lower than the monetary limits laid down by the Board..

II. AmendmentstoCERules[TobeeffectivefromthedateofNotificationNo. 19/2014-CE(NT) dated July 11, 2014, i.e. July 11, 2014, unless otherwisespecified]:

• Rule 8 provides for the manner of payment of duty by the Assessees. A new sub-rule (1B) is being inserted in Rule 8 w.e.f. October 1, 2014 so as to make E-payment mandatory for all Assessees unless the Assistant/Deputy Commissioner of Central Excise allows, for the reasons to be recorded in writing, an Assessee to pay the duty by any mode other than Internet Banking.

• Sub-rule (3A) of Rule 8 deals with the default of the Assessee in payment of duty beyond 30 days from the due date and the consequences thereof. The sub-rule, as is in force at present, provides that in case of such default, the Assessee shall pay excise duty for each consignment at the time of removal withoututilizing theCenvatCredit till thedateofpaymentof outstanding amount including interest thereon and in the event of any failure, the goods shall be deemed to have been cleared without payment of duty entailing the consequences and penalties as provided in the Rules.

Sub-rule (3A) is being substituted by a new sub-rule (3A) so as to provide that in case of default in payment of duty beyond 30 days from the due date, the Assessee shall be liable to pay the penalty at the rate of one per cent on such amount of the duty not paid, for each month or part thereof calculated from the due date, for the period during which the default continues. The penalty shall be paid by the Assessee on his own.

With this much-awaited amendment, the Assessees would be relieved of the severe consequences i.e. payment of duty in cash on each clearance at the time of removal of goods due to default in payment of duty within the stipulated period as attracted in terms of the current provision.

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III. Amendment to Central Excise Valuation (Determination of Price of ExcisableGoods)Rules,2000[videNotificationNo.20/2014-CE(NT)datedJuly11,2014effectivefromJuly11,2014]:

• Rule6ofValuationRulesprovides for thedeterminationofassessable value in certain circumstances and contains two Explanations.

AprovisobeforeExplanation1 toRule6 isbeing insertedsoas to provide that in cases where excisable goods are sold at a pricebelowthemanufacturingcostandprofitandthere isnoadditionalconsiderationflowingfromthebuyerstotheAssesseedirectly or from a third person on behalf of the buyer, value for the assessment of duty shall be deemed to be the transaction value.

TheaboveinsertionisbeingmadevideNotificationNo.20/2014-CE (NT) dated 11.07.2014 and is effective immediately. So, effectively, even if the Assessee sells the goods at a price less thanthemanufacturingcostandprofit,thevalueofsuchgoodsshall be deemed to be the transaction value for the purpose of payment of excise duty provided there is no additional considerationflowingdirectlyorindirectlyfromthebuyertotheAssessee.

This amendment could not have come a day sooner and puts at rest, the controversy that has arisen throughout the country as aconsequenceofthejudgmentoftheHon’bleSupremeCourtin the case of CCE, Mumbai V/s. Fiat India (P) Ltd. – 2012-TIOL-58-SC-CX.

IV. AuthorityforAdvanceRuling[NotificationNo.18/2014-CE(NT)datedJuly11,2014refers]:

• The Scheme of Advance Ruling is being extended to Resident PrivateLimitedCompaniesvideNotificationNo.18/2014-CE(NT)dated 11.07.2014.

V. Unit Quantity Codes:

• The Schedules to the Customs and Central Excise Tariffs are being amended in respect of selected goods to match the Unit Quantity Codes prescribed therein with the ones that are actually used in trade and commerce. This would facilitate trade and

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improve data quality and compliance.

u RATE OF DUTY

i) An Additional Excise Duty is being levied @ 5% ad- valorem on aerated waters containing added sugar. (w.e.f. July 11, 2014)

ii) The Clean Energy Cess levied on coal, Lignite and peat is being increased from INR 50 per tonne INR100 Per tonne. (w.e.f. July 11, 2014)

III. EXCISE DUTY/ RATE CHANGES (to be Effective From July 11, 2014):

Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

1. 8438 5000, 84386000,8438 9090

Agriculture/ agro processing/ plantation sector:

Machinery for preparation of meet, poultry, fruits, nuts, vegetables and/ on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages and on packing machinery

10 6

2. 74 Metals:

Excise duty on winding wires of copper

10 12

3. 24 Tobacco Products:

Pan Masala

12 16

4. 24 unmanufactured tobacco 50 55

5. 24 jarda scented tobacco, gutkha and chewing tobacco

60 70

6. 85 Electronics/ hardware:

Smart Card

2% (without cenvator6%with Cenvat)

12

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Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

7. Any Chapter Excise duty on RO membrane element used in household

typefiltersisbeingreducedfrom12%/10%to6%.

10%/ 12% 6

8. 85 Electronics/ hardware:

Metal Core PCB and LED driver for use in the manufacture of LED lights andfixturesandLEDlamps

12 6

9. 73 Renewable Energy:

Forged steel rings used in the manufacture of bearings of wind operated electricity generators

12 Nil

10. 70 Full exemption from excise duty is being provided for solar tempered glass used in the manufacture of solar photovoltaic cells/ modules, solar power generating equipment/system,andflatplate solar collectors

New Entry Nil

11. 64 Consumer Goods:

Footwear of retail price exceeding INR500 per pair but not exceeding

INR1,000 per pair.

12 6

12. 27 Energy Sector:

Branded Petrol

INR7.5 per litre

INR2.35 per litre

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Sr. No.

Chapter Heading

Description of goods Existing

Duty/ Rate

Revised Duty/ Rate

13. Any Chapter ELECTRONICS/HARDWARE:

Full exemption from Excise Duty is being provided to reverse osmosis (RO) membrane element used inwaterfiltrationorpurificationequipment(other than household type filter)

New Entry Nil

IV. CONCESSIONAL RATE OF DUTY UNDER NOTIFICATION NO. 1/2011-CE AND 2/2011-CE (to be effective from July 11, 2014):

Sr. No.

Tariff Heading

Product description

Existing Rate New Rate

1. 42 Gloves specially designed for use in sports.

New Entry 2% without CENVAT credit or 6%withCENVATcredit

2. 54 or 55 Textile :

Polyester Staple Fiber and Polyester Filament Yarn manufactured from plastic waste or scrap or plastic waste including waste polyethylene terephthalate (PET) bottles

New Entry 2% without CENVATor6%with CENVAT

3. 84 Consumer Goods:

Sewing machines other than those operated with electric motors, whether in-built or attachable to the body.

Entry Substituted (2% without CENVAT/6%withCENVAT)

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V) DEEMED MANUFACTURE - COVERAGE EXPANDED:

TheThirdScheduletotheCEActisbeingamendedinthemannerspecifiedintheSeventh Schedule of Finance Bill, 2014. The Description of Goods along with their respectiveCentralExciseTariffHeadingsaresummarizedbelow(TobeeffectivefromtheDatetobeNotifiedaftertheFinanceBill receivestheassentof thePresident):

Sr. No.

Sr. No. of Table

Heading, Sub-Heading or Tariff item

Description of goods Nature of amendment

1. 30A 3002 20 or 2002 30 00

Vaccines (other thanthosespecifiedunder the National ImmunizationProgram)

New Entry

2. 36A 3215 90 10 Fountain Pen Ink New Entry

3. 36B 3215 90 20 Ball Pen Ink New Entry

4. 36C 3215 90 40 Drawing Ink New Entry

5. 38A 33061010 Tooth Powder New Entry

6. 53A 39 or 40 Nipples for feeding bottles

New Entry

7. 53B 4015 Surgical rubber gloves or medical examination gloves

New Entry

8. 62A 7310or7326or any other Chapter

Mathematical boxes, geometry boxes and colour boxes,

pencil sharpeners”

New Entry

9. “65A 8215 All goods New Entry

10. 68 8415 All goods except goods specifiedinsub-heading8415 20

Substituted

11. 69 8418 21 00, 8418 29 00, 8418 30 90,84186920

All goods Substituted

12. 70 8421 21 Waterfilter&waterpurifiers,ofakindusedfor domestic purposes.

Substituted

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Sr. No.

Sr. No. of Table

Heading, Sub-Heading or Tariff item

Description of goods Nature of amendment

13. 70A 8421 21 20, 8421 99 00

Waterfiltersfunctioningwithout electricity and

replaceable kits thereof

New Entry

14. 73 8469 Typewriters Substituted

15. 76 8506 All goods other than parts falling under tariff item85069000

Substituted

16. 76A 8508 All goods other than parts falling under tariff item 8508 70 00

Substituted

17. 77 8509 All goods other than parts falling under tariff item 8509 90 00

Substituted

18. 78 8510 All goods other than parts falling under tariff item 8510 90 00

Substituted

19. 79 8513 All goods other than parts falling under tariff item 8513 90 00

Substituted

20. 81 8517 Telephone sets including telephones with cordless handsets and for

cellular networks or for other wireless networks; videophones

Substituted

21. 81C 8517 Wireless data modem cards with PCMCIA or USB or

PCI express ports

New Entry

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Sr. No.

Sr. No. of Table

Heading, Sub-Heading or Tariff item

Description of goods Nature of amendment

22. 84 8523 All goods except goods specifiedintariffitems8523 21 00, 8523

2960to85232990,8523 41 20 to 8523 41 50, 8523 49 30, 8523 49 50 to 8523 49 90, 8523 52 10, 8523 59, 8523 80 20, 8523

8030and85238060

Substituted

23. 84A 8523 80 20 Packaged software or canned software.

Explanation.– For the purposes of this Schedule,

“Packaged software or canned software” means a

software developed to meet the needs of variety of users, and which is intended for sale or capable of being sold off the shelf.”

New Entry

24. 89 8517or852560 Mobile handsets including Cellular Phones and Radio trunking terminals

Substituted

25. 94 8539 All goods except lamps for automobiles

Substituted

26. 94A Chapter 84 or 85 Goods capable of performing two or more functions of items specifiedatS.Nos.67to 94

New Entry

27. 99A 9619 All goods New Entry

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VI. Amendment in Tariff Rate: The First Schedule to the Central Excise Tariff Act, 1985 is being amended in the

mannerspecifiedintheEighthScheduleofFinanceBill,2014.TheCentralExciseTariffHeadingsalongwiththeiramendedTariffratesaresummarizedbelow(TobeeffectivefromthedatetobenotifiedaftertheFinanceBillreceivestheassentof the President):

Sr. No.

Heading, Sub-heading Earlier Rate New Rate

1. 2401 10 10, 2401 10 20, 2401 10 30, 2401 10 40, 2401 10 50,

24011060,24011070,24011080,240110 90, 2401 20 10, 2401 20 20, 2401 20 30, 24012040,24012050,24012060,

2401 20 70, 2401 20 80 and 2401 20 90

50% 55%

2. 2402 10 10 and 2402 10 20 12 % or INR 1781 per thousand, whichever

is higher

12 % or INR 2250 per thousand, whichever

is higher

3. 2402 20 10 INR 509 per thousand

INR 990 per thousand

4. 2402 20 20 INR 1772 per thousand

INR 1995 per thousand

5. 2402 20 30 INR 509 per thousand

INR 990 per thousand

6. 2402 20 40 INR 1249 per thousand

INR 1490 per thousand

7. 2402 20 50 INR 1772 per thousand

INR 1995 per thousand

8. 24022060 INR 2390 per thousand

Omitted

9. 2402 90 10 INR 1511 per thousand

INR 2250 per thousand

10. 2402 90 20 and 2402 90 90 12% or INR 1738 per thousand, whichever is higher

12% or INR 2250 per thousand, whichever is higher

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Sr. No.

Heading, Sub-heading Earlier Rate New Rate

11. 2403 19 2403 19 After 2403 19 10, 2403 19 is to be substituted by 2403 19 21

12. 2403 99 10, 2403 99 30 and 2403 99 90 60% 70%

13. 4015 90 20 U kg

14. 4102 U Kg

15. 4901, 4909 and 4910 Kg U

16. 7308, 7323 and 7324 Kg U

17. 8205 and 8208 U Kg

18. 8301 Kg u

19. 8405and8466 Kg u

20. 84186100,84186910,84186920,84186930,84186940,84186950,84186990,8421 91 00,

8421 99 00, 8432 80 10, 8432 80 20, 8432 80 90, 8432 90 10, 8432 90 90, 8473 30 10, 8473 30 20, 8473 30 30, 8473 30 40,

8473 30 91, 8473 30 92, 8473 30 99, 8473 40 10, 8473 40 90, 8473 50 00 and 8483 90 00

Kg u

21. 8503, 8529, 8532, 8533, 8534, 8535 and 8536

Kg u

22. 8517 70 10, 8518 90 00 and 8538 10 10 Kg u

23. 8544 Kg m

24. 90049090,90058090,90269000,90311000, 9031 20 00, 9031 41 00, 9031 49 00 and

9031 90 00

Kg u

25 9110 12 00, 9110 19 00, 9110 90 00 and 9113 10 00

Kg U

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VII) OTHER CHANGES IN RATES OF DUTY: Automobiles:

• Excise duty is being exempted on parts of tractors removed from one or more factories of a tractor manufacturer to another factory of the same manufacturer for manufacture of tractors.

Precious Metals:• Un-branded articles of precious metals are being exempted from excise duty

fortheperiodMarch,01,2011toMarch16,2012.

Textiles:• Excise duty on Polyester Staple Fiber (PSF) and Polyester Filament Yarn

(PFY) manufactured from plastic waste or scrap or plastic waste including waste polyethylene terephthalate (PET) bottles (which is already exempt w.e.f. May 08, 2012) is being exempted retrospectively w.e.f. June 29, 2010 to May 07, 2012 and intermediate product ‘Tow’ arising during the course of manufacture of such PSF/PFY is being exempted retrospectively w.e.f. June 29, 2010 to July 10, 2014.

Health:• Full exemption from Excise duty is being provided to DDT manufactured

byHindustan InsecticidesLimitedforsupplytotheNationalVectorBorneDiseasesControlProgramme(NVBDCP)oftheMinistryofHealth&FamilyWelfare.

• FullexemptionfromexcisedutyisbeingprovidedforHIV/AIDSdrugsanddiagnostic kits supplied under National AIDS Control Programme (NACP) funded by the Global Fund to Fight AIDS, TB and Malaria (GFATM).

• Excise duty on cigarettes is being increased by 72% for cigarettes of length notexceeding65mmandby11%to21%forcigarettesofother lengths.Similar increases are proposed on cigars, cheroots and cigarillos.

Renewable Energy:• Full exemption from excise duty is being granted in respect of machinery,

equipments, etc. required for setting up of solar energy production projects.

• Full exemption from excise duty is being provided to backsheet and EVA sheetusedinthemanufactureofphotovoltaiccells/modulesandspecifiedraw materials used in their manufacture.

• Full exemption from excise duty is being provided to parts consumed within the factory of production for the manufacture of non-conventional energy devices.

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• Full exemptionfromExciseDutyisbeingprovidedonflatcopperwireusedin the manufacture of PV ribbons (tinned copper interconnect) for use in the manufacture of solar cells/modules.

• Full exemption from excise duty is being provided on machinery, equipments, etc. required for setting up of compressed biogas plant (Bio-CNG).

Consumer Goods:• The scope of the phrase “not mixed with any other ingredient” in the

context of excise duty exemption on “heena powder or paste, not mixed with any other ingredient” is being clarified so as to provide that the exemption is available to heena powder mixed with a liquid, so far that the liquid is a medium to change the form of heena powder into paste but excludes products like heena dye and such other products which are cosmetics and have no ceremonial or traditional value

• Footwear of retail price upto INR500 per pair will continue to remain exempted.

• Semi-mechanizedunitsmanufacturing safetymatches,whichattractconcessionalexcisedutyof6%,arebeingallowedtocarryouttheprocessesof ‘Pasting of labels’ and ‘Packing’ with the aid of power

Energy Sector:• Full exemption from Central Excise duty is being provided to Liquefied

Propane and Butane mixture, Liquefied Propane, Liquefied Butane and Liquefied Petroleum Gases (LPG) for supply to Non-Domestic Exempted Category(NDEC)customersbytheIndianOilCorporationLimited,HindustanPetroleum Corporation Limited or Bharat Petroleum Corporation Limited. (retrospectively from February 08, 2013).

Security and Strategic Purposes:• Full exemption from Excise Duty is being provided to goods supplied to

National Technical Research Organisation (NTRO).

• Full exemption from excise duty is being provided for security threads and securityfibresuppliedtoSecurityPaperMillCorporationof IndiaLimited(SPMCIL) and Bank Note Paper Mill India Private Limited (BNPMIPL).

Miscellaneous:• Optionalexcisedutyof2%(withoutCENVAT)/6%(withCENVAT)onwriting

and printing paper for printing of educational textbooks is being withdrawn andinsteadauniformexcisedutyof6%withCENVATisbeinglevied.

• Intermediate goods manufactured and consumed captively for further manufacture of matches is being fully exempted.

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• The scope of the Excise Duty exemption to “all goods supplied against InternationalCompetitiveBidding”isbeingclarifiedtotheeffectthatthesaid exemption is also available to sub-contractors for manufacture and supply of goods to the main contractor (who has won the bid for the project through ICB) for execution of the said project

• Full exemption from Excise duty is being provided on plastic materials reprocessed out of the scrap or waste and cleared into the DTA by an EOU.

• Education cess and secondary & higher education cess (customs component) is being exempted on goods cleared by an EOU into the DTA.

• AclarificationisbeingissuedthattheexemptionfromEducationcessandsecondary&higherEducationcessundernotificationsNo.28/2010-CEandNo.29/2010-CE, both dated June 22, 2010 is applicable only in respect of the clean energy cess leviable on coal and not in respect of excise duty leviable on coal.

• It isbeingclarified thatall goods fallingunderheadings8601 to8606(except8604)attract6%excisedutywithCENVATbenefit.

• Basic excise duty on cigarettes and other products of tariff heading 2402 is being increased.

• Compounded levy scheme in respect of Chewing tobacco, unmanufactured tobaccoandchewingtobacco(commonlyknownaskhaini)isbeingmodified.

• Plants and equipments supplied prior to 2008 for use in the projects financedbytheUNoran InternationalOrganizationwhichhithertocouldnot be transferred/ sold out of the project site, are now being allowed to be transferred/ sold from the project site subject to the conditions specifiedtherein.

• The Seventh Schedule to the Finance Act, 2001 dealing with National Calamity Contingent Duty is being amended to omit the Tariff item 2402 20 60asaconsequentialchangetoamendment intheFirstScheduletotheCentral Excise Tariff Act, 1985.

3.4 SERVICE TAX AND CENVAT CREDIT

u Widening of the Tax BaseI. NegativeList(Section66D)[tobeeffectivefromthedatetobenotified

after the Finance Bill receives the assent of the President]

• Selling of space or time slots for advertisements through internet (online) and mobile now taxable:

Services in relation to Selling of Space or time for Advertisements in broadcast media namely radio and television is now extended to

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other segments like online and mobile advertisement. Accordingly, advertisements by online and mobile media like internet websites, out ofhomemedia,onfilmscreenintheatres,billboards,conveyances,buildings, cell phones, Automated Teller Machines, tickets, commercial publications, aerial advertising etc. would now attract the levy of servicetax.However,thesaleofspaceforadvertisements inprintmedia shall continue to be in the negative list and hence, excluded from the levy of service tax.

• Services provided by radio taxis or radio cabs now taxable:

Services provided by radio cabs or radio taxis whether or not air conditioned, are now proposed to be brought within the service tax net. This amendment is proposed to bring services by radio taxis at parwiththeservicesofrent-a-caboperators.However,abatementoption presently available to the rent-a-cab service would also be made available to radio taxi services.

II. MegaExemptionNotificationno.25/2012-ST:

a) Exemptions withdrawn [to be effective from July 11, 2014]:

• Exemptions to clinical research on human participants now withdrawn:

Services by way of Technical Testing or analysis of newly developed drugs, including vaccines and herbal remedies, on humanparticipantsbyaclinicalresearchorganizationapprovedto conduct clinical trials by the Drug Controller General of India is now proposed to be taxed.

• Exemption to air-conditioned contract carriages for transportation of passengers now withdrawn:

Earlier Service of passenger transportation by contract carriage other than for the purpose of tourism, conducted tour, charter or hire was exempted from service tax. Now, the scope of tax base is extended by withdrawing the exemption in respect of air conditioned contract carriage. Service tax will be chargeable on an abated value of 40% of the gross amount charged from the service provider. Services by non-air conditioned contract carriages for purposes other than tourism, conducted tour, charter or hire however, continues to be exempted.

• Blanketexemptioninrelationtospecifiedservicesprovidedto Government or Local Authority or Governmental Authority now withdrawn:

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Services in relation to water supply, public health, sanitation conservancy, solid waste management or slum improvement and up-gradation are exempted and will continue to be exempted. However, it isnowproposed to restrict theexemptiononlyinrelationtoservicesdirectlyconnectedwiththesespecifiedservices. Accordingly, services such as consultancy, designing, etc. notdirectlyconnectedwiththespecifiedexemptedservicesarenow taxable.

• Concept of ‘Auxiliary Educational Services’ omitted:

The concept of ‘auxiliary educational services’ is proposed to be omitted and a positive list of services which will be exempt when received by the eligible educational institutions isspecified.Accordingly,onlythefollowingservicesprovidedtoeligible educational institution are exempt from service tax:

i) Transportation of students, faculty and staff of the eligible educational institution;

ii) Catering service including any mid-day meals scheme sponsored by the Government;

iii) Security or cleaning or house- keeping services in such educational institution;

iv) Services relating to admission to such institution or conduct of examination.

Further, exemption to services provided by way of renting of immovable property to educational institution now stands withdrawn.

The term ‘educational institution’ is being defined for the purposes of exemption as ‘institutions providing educational services specified in the negative list’ (Not. No. 25/2012-ST refers)

• Services by a hotel, inn or guest house:

The word ‘commercial’ appearing in the entry 18 of the NotificationNo.25/2012-STisbeingomittedsoastoremoveanyambiguity with regard to the admissibility of exemption, upto the specifiedthresholdlimittodharamshalasorashramsoranysuchentity which offer accommodation.

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b) Additions toMegaexemptionnotificationno.25/2012-ST[tobeeffective from July 11, 2014]:

• Bio-Medical Waste treatment services are now exempt:

Services provided by Common Bio – Medical Waste treatment Facility operators by way of treatment, disposal of bio Medical waste or processes incidental to such treatment or disposal to a clinical establishment are now exempted (a new entry at Sr. no. 2B refers).

• Life Micro Insurance scheme by IRDA are now exempt:

All life micro insurance schemes approved by Insurance Regulatory Development Authority (IRDA) where the sum assured does not exceed Rs. 50,000 are now exempted from service tax (item(c)insertedinentryatSr.no.26Arefers).

• Transportation of organic manure by vessel, rail or road is now exempt:

Services by way of transportation of organic manure by vessel, rail or road (by GTA) is exempted (entries at Sr. nos. 20 and 21 as amended refers).

• Transportation of cotton (ginned or baled) by vessel, rail or road is now exempt:

Services by way of transport by vessel, rail or road (GTA) of cotton, whether ginned or baled, is exempted (entries at Sr. no. 20 and 21 as amended refers).

• Loading, unloading, etc. of rice, cotton, ginned or baled, exempted:

Services by way of loading, unloading, packing, storage or warehousing or rice, cotton, ginned or baled is now exempted.

• Financial services received by RBI from outside India is now exempt:

ExemptionisgrantedtoSpecializedFinancialServicesreceivedby RBI from outside India, in the course of management of Foreign Exchange Reserves (e.g. External asset management, custodial services, securities lending services) [new entry at Sr. no.41refers]

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• Tours conducted outside India by Indian Tour Operators are now exempt:

Exemption is granted to services provided by Indian Tour Operators to Foreign Tourists in relation to tours conducted wholly outside India (new entry at Sr. no. 42 refers)

• ESIC services pre-01.07.2012 are exempted [to be effective from the date to be notified after the Finance Bill receives the assent of the President]:

Services provided by Employees State Insurance Corporation (ESIC) during the period prior to July 1, 2012 is proposed to be exempted from service tax. Such services provided by ESIC to persons governed under the Employees’ Insurance Act, 1948 is already exempt for the period commencing from July 1, 2012.

u Place of Provision of Services Rules, 2012 [to be effective from October 1, 2014]:

• Scope of intermediary services widened

Thedefinitionof‘intermediary’hasbeenamendedtoincludeinitsscope,services provided by the brokers or agents who facilitate supply of goods. Thus, the place of provision of services provided by the brokers or agents, being intermediaries, shall be the location of the broker or agent i.e. intermediaries providing the services. Consequently, w.e.f. October 1, 2014, the intermediary of goods such as commission agents or consignment agents or brokers shall be covered under Rule 9(c) of the Rules.

• Imported goods brought in only for repairs, and not otherwise, shall not be taxable in India:

At present, by virtue of second proviso to Rule 4, the place of provision of services of repairs, re-conditioning or re-engineering of goods temporarily imported in India and subsequently re-exported was not to be determined by Rule 4 i.e. the location of the actual performance of service.

Now, the said proviso is being amended so as to exclude the services of only repairs from applicability of rule 4(a) if the goods imported for repairs are re-exported without being put to any use in the taxable territory other than that required for such repairs.

TheTRUCircularclarifiesthatthisexclusiondoesnotapplytogoodsthatarrive in the taxable territory in the usual course of business and are subjected to repair while such goods remain in the taxable territory. For e.g., any repair provided in the taxable territory to containers arriving in

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India in the course of international trade in goods will be governed by Rule 4.

• Hiring of aircrafts and vessels now taxable at the location of service recipient:

At present, hiring of all means of transport upto a period of one month was taxableatthelocationofserviceprovider.However,now,incaseofhiringof aircrafts and vessels (except yachts), the place of provision of service shall be the location of the service recipient irrespective of the time period ofthehire.However,hiringofyachtswouldcontinuetobecoveredbyrule9(d).

u Point of Taxation Rules, 2011 [to be effective from October 1, 2014]:

• Re-definingthepointoftaxationincaseofpaymentunderRCM:

The present provisions for POT in case of payment under the RCM are as follows:

Scenario Point of Taxation

Paymentmadewithin6monthsfrom the invoice date

Date of payment

Paymentisnotmadewithin6months from the invoice date

Earlier of the following:

— Date of invoice (if invoice issued within 30days) or

— Date of provision of service (if invoice not issued within 30days) or

— Date of payment

The POT in case of payment under RCM is being amended as follows:

Scenario Point of Taxation

Payment made within period of 3 months from the invoice date

Date of payment

Payment is not made within period of 3 months from the invoice date

Date immediately after the end of 3 months from the invoice date

The proposed amendment will apply only to invoices issued after October 1, 2014.

• Transitional provisions in the case of RCM for invoices issued prior to October 1, 2014:

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For the Invoices issued prior to October 1, 2014 whose payment is not made upto October 1, 2014, a new Rule 10 to determine the point of taxation as follows:

Scenario Point of Taxation

Payment made within6monthsfrom the invoice date

Date of payment

Payment is not madewithin6months from the invoice date

Earlier of the below:

— Date of invoice (if invoice issued within 30days) or

— Date of provision of service (if invoice not issued within 30days) or

— Date of payment

u NotificationNo. 26/2012 [to be effective from July 11, 2014]:• ConditionforavailingabatementforGTAserviceclarified: In the condition for availing abatement in case of GTA services; the words

“by the service provider” have been inserted so as to clarify that the condition of non – availment of the CENVAT Credit on input, capital goods andinputservices istobesatisfiedbytheServiceproviders i.e.GTAandnot by the service recipient.

• Abatement made applicable for transport of passenger services by a contract carriage other than motor cab:

The service provider providing services of transport of the passengers by a contract carriage other than a motor cab can now avail abatement of 60percentonthevalueofservices.However,noCENVATcreditshallbeavailed on the inputs, capital goods or input services used for provision of such services. Similarly, the said abatement shall also apply to transport of passengers by a radio taxi from the date it is made taxable by virtue of proposed exclusion from the Negative List.

• Clarification on the condition for availing abatement on services in relation to chit :

Incaseofservicesprovided inrelationtochit, ithasbeenclarifiedthatearlier conditions of non availment of CENVAT credit on inputs, capital goods and input services remains unchanged.

u NotificationNo.26/2012[tobeeffectivefromOctober1,2014]:• Increase in the Abatement on services of transport of goods by vessel: The abatement for services of transport of goods in a vessel has been

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increasedto60percent(earlierabatementwas50percent).However,theconditions for abatement remain unchanged.

• Abatement is now restricted to renting of motor cabs only with eligibility of CENVAT Credit:

Presently, the service of renting of any motor vehicles designed to carry passengers is eligible for abatement subject to non-availment of CENVAT credit on inputs, capital goods and input services.

With effect from October 1, 2014, the abatement has now been restricted to renting of a motor cab only.

CENVAT credit of input services in the nature of renting of motor cab i.e. services received from a subcontractor will be eligible. The whole of the CENVAT credit is allowed for the said input service received if the service providerpaysservicetaxon40%ofthevalueofservices.However,theCENVAT credit eligibility will be restricted to 40% of the credit of the input service if service provider pays service tax on full value of the services i.e. without availing abatement.

• Eligibility of CENVAT Credit for availing abatement on tour operator services:

Incaseofservicesprovidedbythetouroperator,abatementatspecifiedrates was eligible subject to non-availment of CENVAT credit on inputs, capital goods and input services. An amendment has been proposed to allow CENVAT Credit of input services availed from a tour operator for providing the tour operator services.

u Amendments to CENVAT Credit Rules, 2004 [To be effective from July 11, 2014]:

• “Placeofremoval”defined

Rule2(qa)hasbeeninsertedtodefine‘placeofremoval’whichincludesthefollowing from where the goods are removed -

a) a factory or any other place or premises of production or manufacture of the excisable goods;

b) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;

c) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory.

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• New conditions prescribed for availment of CENVAT credit on Input Services covered Reverse Charge Mechanism – amendment to Rule 4(7):

Particulars Conditions to avail credit

Documents required

Full Reverse Charge Payment of Service Tax to the Government

Service Tax challan

Partial Reverse Charge

Payment of service value and Service Tax to the Vendor And Payment of Service Tax to the Government

Vendor payment proof and Service Tax challan

• Re-availment of CENVAT Credit reversed on receipt of export proceeds under Rule 6:

Re-credit of CENVAT reversed on account of non-receipt of export proceeds withinthespecifiedperiodwouldbeallowedsubjecttotheconditionthattheexportproceedsarereceivedwithinoneyearfromthespecifiedperiod.Re-credit shall be done based on documentary evidence of receipt of export proceeds.

• Inter-unit credit transfer for a LTU disallowed:

A unit of the Large Tax Payer was allowed to transfer CENVAT Credit to other units on the basis of an entry of transfer in the records maintained asperRule9.However,thisfacility isbeingdiscontinuedw.e.f.July11,2014 vide the amendment to Rule 12A(4).

u Other Amendments to CENVAT Credit rules, 2004 [to be effective from the specifieddate]:

• Time limit for availment of CENVAT Credit:

Time limit of six months from the date of issue of the invoice, bill or challan, as the case may be, has been prescribed w.e.f September 1, 2014 for availment of CENVAT Credit on inputs and input services.

• ClarificationinthemannerofdistributionofCENVATCreditbyanISD:

Aclarificationhasbeenissuedbywayofanillustrationtoclarifythattheentire turnover of existing units should be considered for the purpose of determination of ratio for distribution of CENVAT credit attributable to common input services.

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u OTHER LEGISLATIVE AMENDMENTS:

Amendments to the Finance Act, 1994:

• Periodoflimitationspecified(Section73):

Time limit has been prescribed for completion of adjudication proceedings and determining the amount of Service tax due from the concerned person. The adjudication should possibly be completed within a period of six months from the date of notice for the cases whose limitation of period has been prescribedtobeeighteenmonthsu/s.73(1).However,incaseswherethetimelimitisextendedtoperiodoffiveyearsundertheprovisotosection73(1) or in cases where amount remains unpaid during the course of any audit, investigation or verification under the proviso to sec 73(4A) the adjudication should possibly be completed within a period of one year.

• Penal provisions made mandatory exemption (Section 80) :

The recourse available to the Assessee for non-levy of penalty of 50% by proving a reasonable cause in cases where service tax has not been paid or short paid, etc. by reasons of fraud, suppression, etc. but details of transactionsbeingavailable inthespecifiedrecords, isnowwithdrawn.Amendment is proposed to exclude the reference of first proviso to section 78 and any Assessee found guilty under section 78 shall be liable to pay applicable penalty and the protection under Section 80 will not be available.

• Power to authorise search proceedings widened (Section 82):

Authorisation for search may now be granted by an Additional Commissioner ofCentralExciseoranyCentralExciseOfficerasmaybenotified.Earliersuch power was restricted to the Joint Commissioner of Central Excise.

• Provisions of CE Act, 1944 applied to Service Tax (Section 83):

Following provisions of Central Excise Act, 1944 have been made applicable to Service Tax so as to bring in parity between both the legislations:

a. Section 5A(2A): Central Government is empowered to insert an explanationinanynotificationororder issuedundersub-section(1)or (2), as the case may be, of Section 5A within one year of the issue ofthenotificationandeverysuchexplanationshallhaveaneffectasifithadalwaysbeenthepartofthenotificationororder.

b. Section 15A: Persons required to maintain periodic records or such other stipulated details, shall furnish information return as may be prescribed.

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c. Section 15B: Penalty of Rs. 100 per day has been prescribed for non-compliance of section 15A.

d. Section35F:Mandatorypre-deposit isprescribedbeforefilingtheappeal.Thepre-depositsrequiredforfilingtheappealisasunder-

Appeal against order passed by

Appeal before Pre-deposit demanded

Officerlowerin rank than a Commissioner

Commissioner (Appeals)

7.5% of the service tax demanded or penalty imposed or both

Commissioner Appellate Tribunal

7.5% of the service tax demanded or penalty imposed or both

Commissioner (Appeals)

Appellate Tribunal

Additional 10% of the service tax demanded or penalty imposed or both

The pre-deposit is however, subject to the ceiling of Rs. 10 Crores.

However,allpending stayapplications/appealswouldbegovernedby thestatutoryprovisionsprevailingatthetimeoffilingofsuchstayapplications/appeals.

• Recovery of dues from the successor(Section 87):

Section 87 is being amended to incorporate power to recover of the dues of the predecessor from the successor to the extent of the assets purchased from the predecessor as it is presently provided in Section 11 of the Central Excise Act, 1944.

• Scope of Section 94 enhanced:

The rule making powers of the Central Government are being enhanced in relation to the following -

a. to impose upon assessees, inter alia, the duty of furnishing information, keeping records and making returns and specify the mannerinwhichtheyshallbeverified;

b. for withdrawal of facilities or imposition of restrictions (including restrictionsonutilizationofCENVATcredit)onserviceproviderorexporter, to check evasion of duty or misuse of CENVAT credit; and

c. to issue instructions in supplemental or incidental matters.

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u Other Amendments:• Scope of RCM extended with immediate effect:

a. Body Corporate to pay tax on service received from a Director. Earlier the scope was restricted to the Director of a Company providing services to the Company.

b. Banks, Financial Institutions and NBFCs to pay tax on services received from Recovery Agents.

[Not. No. 30/2012-ST dated 20th June, 2012 as amended vide Not. No. 10/2014-STdated11thJuly,2014refers]

• Change in proportion for discharge of liability under Partial Reverse Charge in case of rent-a-cab services [to be effective from October 1, 2014]:

Particulars Existing Revised

Liability of Service Provider 60% 50%

Liability of Service Recepient 40% 50%

[Not. No. 30/2012-ST dated 20th June, 2012 as amended vide Not. No. 10/2014-STdated11thJuly,2014refers]

u Amendments to Service Tax (Determination of Value) Rules, 2006 to be effective from October 01, 2014:• Valuation of service portion in works contract in terms of Rule 2A(ii)(B)

and (C):

Category‘B’and‘C’ofRule2A(ii)oftheValuationRules,2006arebeingmerged into a single category with percentage of service portion prescribed at 70%. Consequent upon the amendment, the taxable value shall be determined as under:

Nature of Works contract Value on which ST is payable

Existing Revised

(a) Maintenance or repair or completion and finishing servicessuchasglazingorplasteringorfloorandwalltilingorinstallationofelectricalfittingsofimmovableproperty

60% 70%

u Amendments to Service Tax Rules, 1994 [to be effective from July 11, 2014 unlessotherwisespecified]:• E-payment made compulsory w.e.f October 1, 2014 (Rule 6):

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Assessees discharging service tax exceeding ten lakhs rupees or more in the precedingfinancialyearare,atpresent,requiredtomakepaymentelectronically.Stringent amendment are proposed to make electronic payment compulsory for all the Assessees, unless the payment by any mode other than electronic mode is allowed by the Assistant / Deputy Commissioner of Central Excise for the reasons to be recorded in writing.

u Other Procedural Amendments:• ProceduralsimplificationforSEZ(Not.No.12/2013-STdated1stJuly,

2013 as amended by Not. No. 7/2014-ST dated 11th July, 2014 refers):

CentralExciseOfficerstograntauthorisationinFormA-2within15workingdays of date of submission of Form A-1.

AuthorisationshallbevalidfromthedateofverificationofFormA-1bytheSpecifiedOfficerofSEZ.

ServiceprovidercanavailbenefitofupfrontexemptiononthebasisofFormA-1.However,this issubjecttosubmissionofcopyofauthorisationissuedbytheCentralExciseOfficerwithin3monthsfromthereceiptofspecifiedservices.

• Increase in burden of interest [to be effective from October 1, 2014]:

The rate of interest in case of delayed payment of service tax is being substantially revised upwards as under -

Existing Rate (per annum)

Revised Rate (per annum)

Period of Delay Small Service Providers

Others Small Service Providers

Others

Upto6months 15% 18% 15% 18%

6monthsto1year 15% 18% 21% 24%

Above 1 year 15% 18% 27% 30%

• Advance Ruling:

The resident private limited company is being included as a class of persons eligible to make an application for Advance Ruling in service tax [Not. No. 15/2014-STrefers].Thischangewillcomeintoeffectimmediately.

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3.5 INDIRECT TAX COMPLIANCE CALENDAR FOR THE PERIOD APRIL 2014 TO MARCH 2015

Date of Compliance

Particulars

April-14

10-Apr-14 Filing of excise return for the month of March 2014

25-Apr-14 Filing of Service tax return for the period 1 October 2013 to 31 March 2014

May-14

05-May-14 Payment of excise and service tax liability for the month of April 2014 (other than e-payment)

06-May-14 E-payment of excise and service tax liability for the month of April 2014

10-May-14 Filing of excise return for the month of April 2014

June-14

05-Jun-14 Payment of excise and service tax liability for the month of May 2014 (other than e-payment)

06-Jun-14 E-payment of excise and service tax liability for the month of May 2014

10-Jun-14 Filing of excise return for the month of May 2014

July-14

05-Jul-14 Payment of excise and service tax liability for the month of June 2014 (other than e-payment)

06-Jul-14 E-payment of excise and service tax liability for the month of June 2014

10-Jul-14 Filing of excise return for the month of June 2014

August-14

05-Aug-14 Payment of excise and service tax liability for the month of July 2014 (other than e-payment)

06-Aug-14 E-payment of excise and service tax liability for the month of July 2014

10-Aug-14 Filing of excise return for the month of July 2014

September-14

05-Sep-14 Payment of excise and service tax liability for the month of August 2014 (other than e-payment)

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Date of Compliance

Particulars

06-Sep-14 E-payment of excise and service tax liability for the month of August 2014

10-Sep-14 Filing of excise return for the month of August 2014

October-14

06-Oct-14 E-payment of excise and service tax liability for the month of September 2014

10-Oct-14 Filing of excise return for the month of September 2014

25-Oct-14 Filing of Service tax return for the period 1 April 2014 to 30 September 2014

November-14

06-Nov-14 E-payment of excise and service tax liability for the month of October 2014

10-Nov-14 Filing of excise return for the month of October 2014

December-14

06-Dec-14 E-payment of excise and service tax liability for the month of November 2014

10-Dec-14 Filing of excise return for the month of November 2014

January-15

06-Jan-15 E-payment of excise and service tax liability for the month of December 2014

10-Jan-15 Filing of excise return for the month of December 2014

February-15

06-Feb-15 E-payment of excise and service tax liability for the month of January 2015

10-Feb-15 Filing of excise return for the month of January 2015

March-15

06-Mar-15 E-payment of excise and service tax liability for the month of February 2015

10-Mar-15 Filing of excise return for the month of February 2015

31-Mar-15 E-payment of excise and service tax liability for the month of March 2015

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4. FDI PROPOSAL

In line with the market expectation FM has proposed hikes in foreign investment limitindefenceandinsurancesectorsandliberalizationincertainothersectors.

• FDIindefencemanufacturingisproposedtobeincreasedfromcurrent26per cent to 49 per cent under approval route. This limit is a consolidated cap i.e. FDI, FII & NRI. Further this will be subject to full Indian management and control of the joint ventures.

• CurrentlyFDIupto26percent ispermitted in InsuranceSectorunderautomatic route. It is proposed to increase the composite foreign investment cap (FDI, FII & NRI) in the Insurance sector to 49 per cent, with full Indian management and control, through the approval route.

• Currently 100 per cent FDI is permitted under automatic route in construction development of townships, housing and built up infrastructure, subject to various conditions. Following relaxations are proposed with the intent of encouraging development of Smart Cities:

– built up area requirement reduced from 50,000 square metres to 20,000 square metres ; and

– capital conditions reduced from USD 10 mn to USD 5 mn with a three year post completion lock in.

• In case of projects with commitment of at least 30 per cent of the total project cost for low cost affordable housing, exemption will be granted fromminimumbuiltupareaandcapitalisationrequirements.However,thecondition of three year lock-in would continue.

• While FDI in the manufacturing sector is currently under automatic route, it is now proposed that they can sell their products through retail, including E-commerce platforms without any additional approval.

WillneedtoawaittherolloutofspecificPressNotesnotifyingtheabove.

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Abbreviation MeaningADC Additional Duty of

CustomsAED Additional Excise DutyALP Arms Length Price AMT Alternate Minimum TaxAPA Advance Pricing

AgreementBCD Basic Customs Duty BN BillionCBDT Central Board of Direct

TaxesCBEC Central Board of Excise

and CustomsCE Act Central Excise Act, 1944CE Rules Central Excise Rules,

2002Cenvat Central Value Added TaxCESTAT/ Tribunal Customs, Excise and

Service Tax Appellate Tribunal

CETA Central Excise Tariff Act, 1985

CETH Central Excise Tariff Heading

Credit Rules CENVAT Credit Rules, 2004

CSR Corporate Social Responsibility

CST Central Sales Tax CTA Customs Tariff Act, 1975CTH CustomsTariffHeadingCustoms Act CustomsAct,1962CVD Countervailing dutyDTA Domestic Tariff AreaDTC Direct Taxes Code Bill,

2013ECB External Commercial

BorrowingFDI Foreign Direct

InvestmentFII Foreign Institutional

Investor

5. GLOSSARY

Abbreviation MeaningFM Finance MinisterFPI Foreign Portfolio InvestorGAAR General Anti Avoidance

RulesGST Goods and Services TaxGTA Goods transport agencyHSN HarmonizedSystemof

NomenclatureIIT Infrastructure Investment

TrustINR Indian RupeesIT Act IncomeTaxAct,1961ITAT Income Tax Appellate

Tribunal mn Million MRP Maximum Retail PricePOT Point of taxationPPSR Place of Provision of

Services Rules, 2012RBI Reserve Bank of IndiaRCM Reverse Charge

MechanismREIT Real Estate Investment

TrustSAD Special additional duty

of customsSCN Show Cause NoticeSEBI Securities & Exchange

Board of IndiaSEZ Special Economic ZoneSEZ Act Special Economic Zone

Act, 2005STR Service Tax Rules, 1994STT Securities Transaction TaxTRU Tax Research UnitUSD US DollarValuation Rules Service Tax

(Determination of Value) Rules,2006

VAT Value Added Taxw.e.f. with effect fromw.r.e.f. with retrospective effect

from

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