CA SANJAY DEWAN: 2017

Wednesday, 8 February 2017

Indirect Tax Changes In Budget 2017-18

Indirect Tax Major Proposals in Budget 2017-18

SERVICE TAX

Amendments effective from 02.02.2017

Amendment in Mega Exemption Notification No. 25/2012 ST dated

20.06.2012

• Under the Regional Connectivity Scheme (RCS), exemption from service tax is provided in respect of the amount of viability gap funding (VGF) payable to the selected airline operator for the services of transport of passengers, with or without accompanied belongings, by air, embarking from or terminating in a Regional Connectivity Scheme (RCS) airport, for a period of 1 year from the date of commencement of operations of the Regional Connectivity Scheme (RCS) as notified by Ministry of Civil Aviation vide new entry S. No. 23A inserted in Mega Exemption notification.

• The entry 9B exempts services provided by Indian Institutes of Management (IIMs) by way of two year full time residential Post Graduate Programmes (PGP) in Management for the Post Graduate Diploma in Management (PGDM), to which admissions are made on the basis of the Common Admission Test (CAT), conducted by IIM. The said entry is amended so as to omit the word "residential" appearing in the notification. The exemption remains the same in all other respects.

Amendments to be effective from the date of enactment of the Finance Bill, 2017 (/news/thefinancebill201715903.asp)

• The Negative List entry under section 66D(f) of the Finance Act, 1994 (/experts/section66aofthefinanceact1994483550.asp) covering "services by way of carrying out any process amounting to manufacture or production of goods excluding alcoholic liquor for human consumption" is proposed to be omitted. The said benefit would continue by way of exemption under Mega Exemption Notification. Consequently, the definition of 'process amounting to manufacture' [Section 65B(40)] is also proposed to be omitted from the Finance Act, 1994 and to be incorporated in the Mega Exemption Notification.

• Research and Development (R & D) Cess Act, 1986 to be repealed. Consequently, exemption from service tax equivalent to the amount of R & D cess payable on the import of technology under the said Act under Notification No. 14/2012 ST dated 17.03.2012 would not be available with respect to a taxable service involving import of technology.

• Rule 2A of the Service Tax (Determination of Value) Rules, 2006 to be amended so as to clarify that value of service portion in execution of works contract involving transfer of goods and land or undivided share of land, as the case may be, shall not include value of property in such land or undivided share of land. In view of the said amendment, the recent Delhi High Court judgment in case of Suresh Kumar Bansal v. UOI 2016 (43) ST5R 3 (Del.) no longer holds good. In this the High Court held

that service tax cannot be charged in respect of composite contracts for purchase of units in a complex, entered into by the buyers with the builder, in view of the absence of the specific machinery provisions for the valuation of the same.

Amendments in Provisions of Advance Ruling

• Section 96A(d) relating to Advance Rulings proposed to be amended so as to substitute the definition of "Authority" to mean the Authority for Advance Ruling as constituted under section 28E of the Customs Act, 1962. Section 28 (E) of the Customs Act, 1962 (/share_files/sectionwisesummaryoncustomact1962 70375.asp), is also to be amended so as to substitute the definition of "Authority" to mean the Authority for Advance Ruling as constituted under section 245O of the Incometax Act, 1961.

• Section 96B relating to vacancies not to invalidate proceedings also proposed to be omitted.

• Section 96C(3) to be amended so as to increase the application fee for seeking advance ruling from Rs. 2,500 to Rs. 10,000.

• Section 96D(6) to be amended so as to extend the existing time limit of pronouncement of advance ruling by the authority from 90 days to 6 months.

• A new section 96HA proposed to be inserted so as to provide for transferring the pending applications before the Authority for Advance Rulings (Central Excise, Customs and Service Tax) to the Authority constituted under section 245O of the Incometax Act from the stage at which such proceedings stood as on the date on which the Finance Bill, 2017 receives the assent of the President.

Retrospective Exemptions

• With effect from 22.09.2016, Notification No. 41/2016 ST dated 22.09.2016 exempted one time upfront amount (called as premium, salami, cost, price, development charges or by any other name) payable for grant of longterm lease of

industrial plots (30 years or more) by State Government industrial development corporations/ undertakings to industrial units. It is proposed that service tax would also not be leviable on such amounts during the period between 01.06.2007 [date on which service tax was levied on renting of immovable property service] and 21.09.2016 (both days inclusive).

• Services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government are proposed to be exempted from service tax retrospectively during the period commencing from the 10.09.2004 [date on which life insurance service became leviable to service tax] and ending with the 01.02.2016 (both days inclusive).

EXCISE

Amendments to be effective from the date on which Finance Bill, 2017 receives the assent of the President

• Changes in the provision of Authority for Advance Ruling

i. Clause (e) of section 23A is being amended so as to substitute the definition of "Authority" to mean the Authority for Advance Ruling as constituted under section 245O of the Incometax Act, 1961 (/forum/bareactsincometaxact1961 100525.asp).

ii. Section 23B relating to vacancies (in the Authority for advance ruling) not to invalidate proceedings is being omitted.

iii. The application fee for seeking advance ruling has been increased from Rs. 2,500/ (Rupees two thousand five hundred) to Rs. 10,000/ (Rupees ten thousand) Section 23C (3).

iv. The time limit for pronouncing judgement by Authority for Advance Ruling has been extended from ninety days to six month Section 23D (6).

v. The pending applications before the Authority for Advance Rulings (Central Excise, Customs and Service Tax) would stand transferred to the Authority constituted under section 245O of the Incometax Act from the stage at which such proceedings stood as on the date on which the Finance Bill, 2017 receives the assent of the President new Section 23I

• Changes in the provisions of Settlement Commission:

i. A new subsection (5) has been inserted in Section 32E so as to enable any person, other than assessee, referred to in subsection (1) to make an application to the Settlement Commission.

ii. A new subsection (5A) has been inserted in Section 32F to enable the Settlement Commission to rectify the error in the order passed by it under sub section (5), which are apparent on the face of record.

Amendment effective from 02.02.2017

• Amendment in Central Excise Rules, 2002

Rule 21 provides for the remission of duty in case the goods have been lost or destroyed etc. A new subrule (2) has been inserted providing a time limit of three months [further extendable by 6 months] for granting such remission of duty from the receipt of application under this rule read with section 5 of the Central Excise Act, 1944 (/articles/section4and4aofcentralexciseact194412116.asp).

• Amendments in CENVAT Credit Rules, 2004

i. Rule 10 of the CENVAT Credit Rules, 2004 provides for transfer of CENVAT credit in different cases. In this regard, a new subrule (4) has been inserted so as to provide for a time limit of three months [further extendable by 6 months] for approval of requests regarding transfer of CENVAT credit on shifting, sale, merger, etc. of the factory.

ii. ExplanationI(e) to rule 6 of the CENVAT Credit Rules, 2004 amended so as to exclude banks and financial institutions including nonbanking financial companies engaged in providing services by way of extending deposits, loans or advances from its ambit.

CUSTOMS

Amendments to be effective from the date on which Finance Bill, 2017 receives the assent of the President

• Definition of following terms is proposed to be incorporated in section 2 of the Customs Act, 1962:

Beneficial owner

Passenger Name Record Information

Foreign Post Office and

International Courier Terminal

• Section 2 of the Customs Act, 1962 is further proposed to be amended to include:

Foreign Post Office and International Courier Terminal in the definition of a customs station.

Beneficial owner in the existing definitions of exporter as well as importer.

• Section 7 of the Customs Act, 1962 to be amended to empower the Board to notify Foreign Post Offices and International Courier Terminals.

• Section 17 of the Customs Act, 1962 is proposed to be amended to rationalise the requirement of documents for verification of selfassessment.

• Section 27(2) of the Customs Act, 1962 to be amended so as to keep outside the ambit of unjust enrichment, the refund of duty paid in excess by the importer before an order permitting clearance of goods for home consumption is made, where

such excess payment is evident from the bill of entry in the case of selfassessed bill of entry or

the duty actually payable is reflected in the reassessed bill of entry in the case of reassessment.

• Section 28E(e) of the Customs Act, 1962 is proposed to be amended so as to substitute the definition of 'Authority for Advance Ruling' to mean the Authority for Advance Ruling as constituted under section 245O of the Incometax Act, 1961.

• Section 28F of the Customs Act, 1962 to be amended so as to provide that the Authority for Advance Rulings constituted under section 245O of the Incometax Act, 1961 shall be the Authority for giving advance rulings for the purposes of the Customs Act, 1962.

It is further sought to provide that the Member of the Indian Revenue Service (Customs and Central Excise), who is qualified to be a Member of the Board, shall be the revenue Member of the Authority for the purposes of Customs Act. The pending applications are proposed to be transferred to the Authority constituted

under section 245O of the Incometax Act from the stage at which such proceedings stood as on the date on which the Finance Bill, 2017 receives the assent of the President.

• Section 28H(3) of the Customs Act, 1962 is proposed to be amended so as to increase the application fee for seeking advance ruling from Rs. 2,500 to Rs.10,000 on the lines of the Incometax Act.

• Section 28I(6) of the Customs Act, 1962 to be amended so as to provide time of limit of 6 months by which Authority shall pronounce its ruling on the lines of the Incometax Act.

• A new section 30A to be introduced in the Customs Act, 1962 so as to make it obligatory on the personincharge of a conveyance that enters India from any place outside India or any other person as may be specified by the Central Government by notification in the Official Gazette, to deliver to the proper officer the passenger and crew arrival manifest before arrival in the case of an aircraft or a vessel and upon arrival in the case of a vehicle; and passenger name record information of arriving passengers in such form, containing such particulars, in such manner and within such time as may be prescribed. The section also intends to provide for imposition of a penalty not exceeding R50,000, as may be prescribed, in the case of delay in delivering the information.

• A new section 41A to be introduced in the Customs Act, 1962 so as to make it obligatory on the personincharge of a conveyance that departs from India to a place outside India or any other person as may be specified by the Central Government by notification in the Official Gazette, to deliver to the proper officer the passenger and crew departure manifest and passenger name record information of departing passengers before the departure of the conveyance in such form, containing such particulars, in such manner and within such time as may be prescribed. The section also intends to provide for a penalty not exceeding R50,000, as may be prescribed in the case of delay in delivering the information.

• Section 46(3) of the Customs Act, 1962 is to be substituted so as to make it mandatory to file the bill of entry before the end of the next day following the day (excluding holidays) on which the vessel or aircraft or vehicle carrying the goods arrives at a customs station at which such goods are to be cleared for home consumption or warehousing and to provide for imposition of such charges for late presentation of the bill of entry, as may be prescribed.

• Section 47(2) of the Customs Act, 1962 is to be amended so as to provide the manner of payment of duty and interest thereon in the case of selfassessed bills of entry or, as the case may be, assessed, reassessed or provisionally assessed bills of entry.

• Section 49 of the Customs Act, 1962 provides the facility of storage of imported goods entered for home consumption in a warehouse pending their clearance. The said section is proposed to be amended to extend the said facility to imported goods entered for warehousing before their removal.

• Section 82 relating to label or declaration accompanying goods to be treated as entry for import or export is proposed to be omitted. Consequently, section 69 of the Customs Act, 1962 relating to clearance of warehoused goods for exportation is proposed to be accordingly amended to align it with the proposed omission of section 82.

Further, Board is proposed to be empowered to make regulations to provide for the form and manner in which an entry may be made in respect of goods imported or to be exported by post by amending section 84 of the Customs Act, 1962.

• A new subsection (5) to be inserted to section 127B of the Customs Act, 1962 to enable any person, other than applicant, referred to in subsection (1) to make an application to the Settlement Commission.

• Section 127C(3) of the Customs Act, 1962 is to be amended so as to substitute certain words therein. It further seeks to insert a new subsection (5A) therein to enable the Settlement Commission to amend the order passed by it under subsection (5), to rectify any error apparent on the face of record.

• Section 157 of the Customs Act, 1962 is to be amended so as to empower Board to make regulations for specifying the form, particulars, manner and time of providing the passenger and crew manifest for arrival and departure and passenger name record information and penalty in the case of delay in delivering the information.

Section 9(3)(c) of the Customs Tariff Act, 1975 is to be substituted so as to withdraw the exemption to three categories of nonactionable subsidies specified therein from the scope of antisubsidy investigations

CA SANJAY DEWAN

B.COM (H),FCA

FCMA,CS,MIMA,F.I.V

Member-Institute of Internal Auditor-Florida(USA)

Approved Valuer-Shares, Stocks, Business valuation

Peer Reviewer-ICAI

Insolvency Professional

#9810186606

DIrect Tax Changes in Budget 2017-18

Direct Tax Major Proposals in Budget 2017-18

BUSINESS TAXATION

• The threshold limit for audit of business entities who opt for presumptive income scheme proposed to be increased from Rs. 1 crore to Rs. 2 crore. This is a clarificatory amendment.

• The threshold limit for maintenance of books for individuals and HUF proposed to be increased from Rs 10 lakhs to Rs. 25 lakhs or income from Rs.1.2 lakhs to Rs. 2.5 lakhs.

• The scope of domestic transfer pricing to be restricted to cases where atleast one of the entities involved in related party transaction enjoys specified profitlinked deduction..

• In order to promote the development of affordable housing sector, Section 80IBA proposed to be amended to restrict carpet area to 30 and 60 sq.mtr. in the place of restriction of built up area to 30 and 60 sq.mtr. Also the 30 sq.mtr. limit will apply only in case of municipal limits of 4 metropolitan cities while for the rest of the country including in the peripheral areas of metros, limit of 60 sq.mtr. will apply. In order to be eligible, the project can now be completed in 5 years after commencement (in the place of 3 years).

• Considering the business exigencies in case of real estate developers, Section 23 is proposed to be amended to provide that where the house property consisting of any building and land appurtenant thereto is held as stockintrade and the property or any part

of such property or part of the property, for the period upto one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.

• The time period for revising a tax return is being reduced to 12 months from completion of financial year, at par with the time period for filing of return. The time for completion of scrutiny assessments is also proposed to be compressed further from 21 months to 18 months for Assessment Year 201819 and further to 12 months for Assessment Year 201920 and thereafter.

CORPORATE TAXATION

• To give effect to the announcement made by the Finance Minister, in Union Budget 2015 16 (/budget15/) that the corporate income tax rate would be reduced to 25% gradually and in order to make Medium and Small Enterprises more viable and to encourage firms to migrate to company format, the corporate tax rate is proposed to reduce to 25% from A.Y. 201819 for Medium and Small Enterprises companies with annual turnover upto Rs. 50 crore.

• The period for carry forward of MAT credit proposed to be increased from 10 years to 15 years. Similar amendment is proposed in section 115JD to allow carry forward of Alternate Minimum Tax (AMT) to 15 years.

• Provisions relating to computation of book profit for the purpose of levy of minimum alternate tax (MAT) for IndAS compliant companies introduced.

CAPITAL GAIN TAXATION

• With a view to promote the realestate sector and to make it more attractive for investment, the period of holding for considering gain from immovable property, being land or building or both to be long term is proposed to be reduced from 3 years to 2 years.

• The base year for indexation proposed to be shifted from 1.4.1981 to 1.4.2001 for all classes of assets including immovable property. The change in base year will significantly lessen the capital gain tax liability while encouraging the mobility of assets.

• Presently, investment in bond issued by the National Highways Authority of India or by the Rural Electrification Corporation Limited is eligible for exemption under section 54EC. In order to widen the scope of the section for sectors which may raise fund by issue of bonds eligible for exemption, the said section proposed to be amended so as to provide that investment in any bond redeemable after three years which has been notified by the Central Government in this behalf shall also be eligible for exemption.

TAX PROPOSALS TO REDUCE CASH TRANSACTIONS AND PROMOTE DIGITAL ECONOMY

• No deduction to be allowed under Section 80G (/articles/section80gofincometaxact 196120309.asp) in respect of donation by any mode other than cash, if such amount of donation exceeds Rs. 2,000. The present limit is Rs. 10,000.

• The threshold limit under Section 40A(3) for allowability of revenue expenditure incurred in cash is proposed to be reduced from Rs. 20,000 to Rs. 10,000.

• Currently, there is no provision to disallow the capital expenditure incurred in cash. In order to discourage cash transactions even for capital expenditure, limit of Rs.10,000 is proposed. Accordingly, capital expenditure incurred in cash shall be ignored for the purposes of determination of actual cost under section 43, if such amount of expenditure exceeds Rs. 10,000. Further, no deduction would be allowable under Section 35AD (/experts/newsection35ad220903.asp), in respect of such capital expenditure incurred in cash for an amount exceeding Rs. 10,000.

• To promote digital transactions and to encourage small unorganised business to accept digital payments, section 44AD proposed to be amended to reduce the existing presumptive taxation rate of 8% to 6%, in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account during the previous year or before the due date specified in subsection of section 139 in respect of that previous year. However, the existing rate of deemed profit of 8% referred to in Section 44AD (/articles/section44 adofincometaxact17916.asp) of the Act, shall continue to apply in respect of total turnover or gross receipts received in any other mode. This amendment is proposed to be effective from A.Y. 201718.

• Section 269ST to be inserted, to provide that no person shall receive an amount of Rs. 3 lakh or more, in aggregate from a person in a day; in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. Simultaneously, new section 271DA has also proposed to levy penalty of sum equal to the amount of such receipt on a person who receives such sum in contravention of the provisions of the proposed section 269ST.

PERSONAL TAXATION

• The existing rate of income tax applicable on income between Rs. 2.5 lacs to Rs. 5 lacs is proposed to be reduced from 10% to 5% in case of individuals/HUFs or AOPs or BOIs.

• The rebate of Rs. 5,000 currently available under Section 87A (/articles/sec87aasmall rebatetoresidentindividuals20545.asp) in case of an individual resident in India whose total income does not exceed Rs. 5,00,000, is proposed to be reduced to Rs. 2,500, where the total income does not exceed Rs. 3,50,000 from A.Y. 201819.

• Surcharge @10% of tax payable is proposed to be levied on individuals/HUFs or AOPs or BOIs whose total income exceeds Rs. 50 lakhs but does not exceeds Rs. 1 crore. Thereafter, surcharge @15% would continue to be applicable on total income exceeding Rs.1 crore.

TAX DEDUCTION AT SOURCE

• n order to widen the scope of tax deduction at source, new section 194IB, proposed to be inserted to provide for tax deduction at source @5% by an Individuals or a HUF (other than those covered under 44AB), while making payment of rent to a resident of an amount exceeding R50,000 per month or part of month. To reduce compliance burden, the deductor shall not be required to obtain TAN or file any separate TDS return for this purpose

• In order to promote ease of doing business, section 194J proposed to be amended to provide for lower the rate of deduction of tax from 10 % to 2% in case of payments made or credited to a person engaged only in the business of operation of call centre.

• A concessional withholding rate of 5% is being charged on interest earned by foreign entities in external commercial borrowings or in bonds and Government securities. This concession is available on borrowings made, under a loan agreement at any time on or after 1st July, 2012, but before 1st July, 2017; or by way of any longterm bond including longterm infrastructure bond on or after 1st October, 2014 but before 1st July, 2017, respectively. The Concessional rate of 5% proposed to be extended in respect of borrowings made before 1st July, 2020. This benefit is also proposed to be extended to Rupee Denominated (Masala) Bonds.

PENAL PROVISIONS

• For improving tax compliance, new section 234F is proposed to be inserted to provide for levy of fees for late filing of return after the due date. Rs. 5,000 would be levied for return filed after the due date but on or before the 31st day of December of the assessment year and Rs. 10,000, in any other case. However, where the total income does not exceed Rs. 5 lakh, the fee amount shall not exceed Rs. 1,000.

• New section 271J proposed to be inserted to provide that penalty of Rs. 10,000 would be levied, if an accountant or a merchant banker or a registered valuer furnishes incorrect information in a report or certificate under any provisions of the Act or the rules made thereunder.